<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) September 15, 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
In connection with the consummation of certain acquisitions of individually
insignificant businesses which, in the aggregate, are significant and in
accordance with Rule 3-05 of Regulation S-X, the Registrant is filing herewith
certain historical and pro forma financial information related to such
consummated acquisitions. In addition, the Registrant is filing herewith audited
supplemental consolidated financial statements which give retroactive effect to
the acquisitions of Silver State Disposal Service, Inc. and De La Cruz Auto
Group both of which 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 333-29217; on Form S-4, file number
333-17915; and on Form S-8, file numbers 33-93742, 333-07623, 333-19453,
333-20669 and 333-29265. The Company's audited consolidated financial
statements which have been restated for business combinations accounted for
under the pooling of interests method of accounting consummated through June
30, 1997 are included in the Company's Current Report on Form 8-K dated August
19, 1997 and incorporated herein by reference.
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: September 15, 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
23.2 Consent of Piercy, Bowler, Taylor and Kern
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Bowden & Wood
24. None
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 reports included or incorporated by reference 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, 333-20669 and 333-29265).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 15, 1997.
<PAGE> 1
EXHIBIT 23.2
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, 333-20669 and 333-29265).
PIERCY, BOWLER, TAYLOR & KERN
Las Vegas, Nevada,
September 15, 1997.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement 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,
333-20669 and 333-29265) of Republic Industries, Inc., of our report dated
January 24, 1997 relating to the combined financial statements of De La Cruz
Auto Group, which appears in the current report on Form 8-K of Republic
Industries, Inc. dated September 15, 1997. We also consent to the reference to
us under the heading "Experts" in such prospectus.
PRICE WATERHOUSE LLP
Miami, Florida,
September 15, 1997.
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the previously filed
Registration Statements of Republic Industries, Inc. on Form S-3 (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 (No. 333-17915), and Forms S-8
(Nos. 33-93742, 333-07623, 333-19453, 333-20669 and 333-29265), of our report
dated March 14, 1997, with respect to the financial statements of Value
Rent-A-Car, Inc. as of and for the year ended December 31, 1996 included in this
Current Report on Form 8-K.
ERNST & YOUNG LLP
West Palm Beach, Florida,
September 11, 1997.
<PAGE> 1
EXHIBIT 23.5
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, 333-20669 and 333-29265).
BOWDEN & WOOD
Louisville, Kentucky,
September 15, 1997.
<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
Supplemental Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996 and 1995..................................... F-3
Supplemental Consolidated Statements of Operations for the
Six Months Ended June 30, 1997 and 1996 (Unaudited) and for
the Years Ended December 31, 1996, 1995 and 1994............................... F-4
Supplemental Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994............................... F-5
Supplemental Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 (Unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994......................................... F-6
Notes to Supplemental Consolidated Financial Statements.......................... F-7
VALUE RENT-A-CAR, INC.
Report of Independent Certified Public Accountants............................... F-29
Balance Sheets as of December 31, 1996 and June 30, 1997 (Unaudited)............. F-30
Statements of Operations for the Year Ended December 31, 1996 and for
the Six Months Ended June 30, 1997 and 1996 (Unaudited).......................... F-32
Statements of Capital Deficiency for the Year Ended December 31,
1996 and for the Six Months Ended June 30, 1997 (Unaudited).................... F-33
Statements of Cash Flows for the Year Ended December 31, 1996 and
for the Six Months Ended June 30, 1997 and 1996 (Unaudited).................... F-34
Notes to Financial Statements.................................................... F-35
SNAPPY CAR RENTAL, INC.
Report of Independent Public Accountants......................................... F-48
Consolidated Balance Sheets as of July 5, 1997 (Unaudited),
December 28, 1996 and December 31, 1995........................................ F-49
Consolidated Statements of Operations for the Six Months Ended
July 5, 1997 and June 30, 1996 (Unaudited) and for the Years Ended
December 28, 1996 and December 31, 1995........................................ F-50
Consolidated Statements of Shareholders' Equity for the Years
Ended December 28, 1996 and December 31, 1995.................................. F-51
Consolidated Statements of Cash Flows for the Six Months Ended
July 5, 1997 and June 30, 1996 (Unaudited) and for the Years Ended
December 28, 1996 and December 31, 1995........................................ F-52
Notes to Consolidated Financial Statements....................................... F-53
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
Independent Auditors' Report..................................................... F-63
Combined Balance Sheets as of June 30, 1997 (Unaudited) and
September 30, 1996............................................................. F-64
Combined Statements of Income for the Nine Months Ended
June 30, 1997 and 1996 (Unaudited) and for the Year Ended
September 30, 1996............................................................. F-66
Combined Statements of Stockholders' Equity for the Year Ended
September 30, 1996 and the Nine Months Ended June 30, 1997 (Unaudited)......... F-67
Combined Statements of Cash Flows for the Nine Months Ended
June 30, 1997 and 1996 (Unaudited) and the Year Ended
September 30, 1996............................................................. F-68
Notes to Combined Financial Statements........................................... F-70
DE LA CRUZ AUTO GROUP
Report of Independent Certified Public Accountants............................... F-80
Combined Balance Sheets as of June 30, 1997 (Unaudited) and December 31, 1996.... F-81
Combined Statement of Operations for the Six Months Ended June 30, 1997 and
1996 (Unaudited) and the Year Ended December 31, 1996 ......................... F-82
Combined Statements of Changes in Partners' Capital and Stockholders' Equity
for the Six Months Ended June 30, 1997 (Unaudited) and the Year Ended
December 31, 1996.............................................................. F-83
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996 (Unaudited) and the Year Ended December 31, 1996.......................... F-84
Notes to Combined Financial Statements for the Six Months Ended June 30, 1997
and 1996 (Unaudited) and for the Year Ended December 31, 1996.................. F-85
PIERCE AUTOMOTIVE GROUP
Report of Independent Public Accountants......................................... F-94
Combined Balance Sheets as of December 31, 1996
and March 31, 1997 (Unaudited)................................................. F-95
Combined Statements of Operations and Changes in Owners' Equity for
the Year Ended December 31, 1996 and for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)............................................ F-96
Combined Statements of Cash Flows for the Year Ended December 31, 1996
and for the Three Months Ended March 31, 1997 and 1996 (Unaudited)............. F-97
Notes to Combined Financial Statements........................................... F-98
COURTESY AUTO GROUP, INC.
Independent Auditors' Report..................................................... F-109
Balance Sheet as of June 30, 1997 (Unaudited) and December 31, 1996 and 1995..... F-110
Statement of Income for the Six Months Ended June 30, 1997 and 1996
(Unaudited) and for the Years Ended December 31, 1996 and 1995................. F-112
Statement of Changes in Shareholders' Equity for the Years Ended
December 31, 1996 and 1995..................................................... F-113
Statement of Cash Flows for the Six Months Ended June 30, 1997 and 1996
(Unaudited) and for the Years Ended December 31, 1996 and 1995................. F-114
Notes to Financial Statements.................................................... F-116
(b) PROFORMA FINANCIAL INFORMATION
Unaudited Condensed Consolidated Pro Forma Financial Statements................ F-125
Unaudited Condensed Consolidated Pro Forma Balance Sheet as of
June 30, 1997................................................................ F-126
Unaudited Condensed Consolidated Pro Forma Statement
of Operations for the Six Months Ended June 30, 1997......................... F-127
Unaudited Condensed Consolidated Pro Forma Statement of Operations
for the Year Ended December 31, 1996......................................... F-128
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements....... F-129
</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 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 included on pages F-2 through F-28 of
the Company's Form 8-K dated August 19, 1997. 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.
We have also made similar audits of the accompanying supplemental
consolidated balance sheets of Republic Industries, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related supplemental consolidated statements
of operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. The supplemental consolidated
statements give retroactive effect to the mergers with De La Cruz Auto Group on
July 11, 1997 and Silver State Disposal Service, Inc. and Affiliates on August
27, 1997, which have been accounted for as poolings of interests as described in
Note 1. These supplemental financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
supplemental 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 supplemental 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, after giving retroactive effect
to the mergers with De La Cruz Auto Group and Silver State Disposal Service,
Inc. and Affiliates as described in Note 1, all in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 15, 1997.
F-2
<PAGE> 3
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
-------- -----------------------
1997 1996 1995
-------- ---------- ---------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 155.7 $ 341.1 $ 377.9
Receivables, net.......................................... 631.3 579.2 468.0
Revenue earning vehicles, net............................. 4,524.9 3,583.0 2,977.7
Advances to affiliate..................................... -- 247.5 --
Inventory................................................. 783.9 340.4 310.2
Other current assets...................................... 129.2 153.9 148.9
-------- -------- --------
Total Current Assets.............................. 6,225.0 5,245.1 4,282.7
PROPERTY AND EQUIPMENT, NET................................. 1,805.7 1,162.6 862.8
INTANGIBLE ASSETS, NET...................................... 871.7 263.7 161.1
INVESTMENT IN SUBSCRIBER ACCOUNTS, NET...................... 120.3 92.4 42.2
OTHER ASSETS................................................ 23.3 43.1 33.9
-------- -------- --------
$9,046.0 $6,806.9 $5,382.7
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 249.8 $ 292.8 $ 234.5
Accrued liabilities....................................... 419.6 236.8 178.7
Estimated liability insurance claims...................... 209.0 208.1 119.3
Revenue earning vehicle debt.............................. 3,212.6 2,535.6 2,934.6
Notes payable and current maturities of long-term debt.... 368.5 334.0 321.7
Other current liabilities................................. 370.7 295.5 222.3
-------- -------- --------
Total Current Liabilities......................... 4,830.2 3,902.8 4,011.1
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 260.7 393.6 329.8
LONG-TERM REVENUE EARNING VEHICLE DEBT...................... 799.6 844.8 26.6
OTHER LIABILITIES........................................... 448.7 252.7 242.4
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 5,000,000
shares authorized; none issued......................... -- -- --
Common stock, par value $.01 per share;
1,500,000,000; 500,000,000 and 350,000,000 shares
authorized, respectively; 392,037,699; 327,042,548
and 278,226,500 shares issued and outstanding,
respectively........................................... 3.9 3.3 2.8
Additional paid-in capital................................ 2,591.5 1,377.4 655.0
Retained earnings......................................... 111.4 32.3 115.0
-------- -------- --------
Total Shareholders' Equity........................ 2,706.8 1,413.0 772.8
-------- -------- --------
$9,046.0 $6,806.9 $5,382.7
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 4
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Automotive rentals....................................... $1,380.8 $1,255.1 $2,699.4 $1,992.8 $1,290.6
Automotive sales......................................... 2,338.7 1,267.0 2,569.7 1,962.4 1,668.3
Solid waste services..................................... 534.3 367.7 825.5 571.7 417.9
Electronic security services............................. 54.6 37.6 85.3 49.8 41.9
-------- -------- -------- -------- --------
4,308.4 2,927.4 6,179.9 4,576.7 3,418.7
EXPENSES:
Automotive rental operating expenses..................... 1,075.2 977.1 2,167.2 1,613.9 971.6
Cost of automotive sales................................. 2,079.9 1,122.3 2,290.2 1,718.4 1,455.0
Cost of solid waste services............................. 392.2 265.2 608.6 401.4 289.1
Cost of electronic security services..................... 24.4 17.2 37.3 20.6 20.7
Selling, general and administrative...................... 575.7 449.3 950.5 719.5 566.4
Restructuring and merger expenses........................ 94.1 -- 38.3 3.3 --
-------- -------- -------- -------- --------
OPERATING INCOME .......................................... 66.9 96.3 87.8 99.6 115.9
INTEREST INCOME............................................ 12.0 12.5 31.8 22.2 6.7
INTEREST EXPENSE........................................... (10.2) (21.0) (45.9) (35.8) (22.4)
OTHER INCOME (EXPENSE), NET................................ 105.5 6.1 5.2 8.4 (2.1)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EXTRAORDINARY CHARGE........................... 174.2 93.9 78.9 94.4 98.1
PROVISION FOR INCOME TAXES................................. 63.3 43.2 63.1 51.2 48.2
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY CHARGE..................................... 110.9 50.7 15.8 43.2 49.9
EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF
DEBT, NET OF BENEFIT FOR INCOME TAXES OF $15.0........... -- -- (31.6) -- --
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS................... 110.9 50.7 (15.8) 43.2 49.9
-------- -------- -------- -------- --------
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).......................................... $ 110.9 $ 50.7 $ (15.8) $ 18.1 $ 47.1
======== ======== ======== ======== ========
FULLY DILUTED INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Income from continuing operations before
extraordinary charge.................................. $ .27 $ .15 $ .05 $ .17 $ .27
Extraordinary charge..................................... -- -- (.10) -- --
Discontinued operations.................................. -- -- -- (.10) (.02)
-------- -------- -------- -------- --------
Net income (loss)........................................ $ .27 $ .15 $ (.05) $ .07 $ .25
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 5
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
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................................ $1.8 $ 239.1 $127.2
Sales of common stock..................................... .1 16.5 --
Distributions to former owners of pooled companies........ -- -- (34.3)
Other..................................................... -- 27.5 .8
Net income................................................ -- -- 47.1
---- -------- ------
BALANCE AT DECEMBER 31, 1994................................ 1.9 283.1 140.8
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........ -- -- (56.3)
Other..................................................... .3 14.1 (.3)
Net income................................................ -- -- 18.1
---- -------- ------
BALANCE AT DECEMBER 31, 1995................................ 2.8 655.0 115.0
Sales of common stock..................................... .2 550.7 --
Stock issued in acquisitions.............................. .2 101.2 --
Exercise of stock options and warrants.................... -- 43.7 --
Contributions to capital from former owners of pooled
companies.............................................. -- 22.4 --
Distributions to former owners of pooled companies........ -- -- (68.1)
Other..................................................... .1 4.4 1.2
Net loss.................................................. -- -- (15.8)
---- -------- ------
BALANCE AT DECEMBER 31, 1996................................ $3.3 $1,377.4 $ 32.3
==== ======== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 6
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- -------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING
OPERATIONS:
Income (loss) from continuing operations.............. $ 110.9 $ 50.7 $ (15.8) $ 43.2 $ 49.9
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing
operations:
Restructuring, merger and other non-recurring
expenses......................................... 94.1 -- 95.5 3.3 --
Loss on extinguishment of debt, net of income
taxes............................................ -- -- 31.6 -- --
Depreciation and amortization...................... 460.0 387.5 876.1 652.8 433.5
Gain on sale of marketable securities.............. (102.3) -- -- -- --
Changes in assets and liabilities, net of effects
from business acquisitions:
Receivables...................................... 55.9 23.9 (108.3) (39.4) (44.9)
Inventory........................................ (62.2) 9.6 (16.9) (42.5) (29.4)
Other assets..................................... 83.8 8.9 (50.5) .6 8.1
Accounts payable and accrued liabilities......... (114.3) 49.1 80.1 91.4 9.5
Other liabilities................................ 67.7 67.4 146.6 36.6 24.4
--------- --------- --------- --------- ---------
593.6 597.1 1,038.4 746.0 451.1
--------- --------- --------- --------- ---------
CASH PROVIDED BY DISCONTINUED OPERATIONS................ -- -- -- 6.1 12.2
--------- --------- --------- --------- ---------
CASH USED IN INVESTING ACTIVITIES:
Purchases of revenue earning vehicles from third party
suppliers.......................................... (3,220.6) (2,488.1) (4,064.0) (2,843.7) (2,790.8)
Purchases of revenue earning vehicles from related
party suppliers.................................... -- (391.4) (631.3) (351.8) (551.2)
Sales of revenue earning vehicles..................... 1,882.1 1,477.5 3,356.4 2,841.6 2,673.7
Purchases of property and equipment................... (259.7) (115.7) (252.2) (230.6) (156.9)
Purchase of marketable securities..................... (300.0) -- -- -- --
Sale of marketable securities......................... 402.3 -- -- -- --
Advances to affiliate................................. (50.0) (40.6) (243.4) -- --
Investment in subscriber accounts..................... (28.2) (16.0) (41.4) (16.0) (17.5)
Cash used in business acquisitions.................... (29.3) (16.9) (47.0) (1,333.7) (11.8)
Other................................................. (.1) (25.5) 35.3 80.9 143.9
--------- --------- --------- --------- ---------
(1,603.5) (1,616.7) (1,887.6) (1,853.3) (710.6)
--------- --------- --------- --------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES:
Payments of revenue earning vehicle financing......... (7,488.6) (9,845.7) (17,452.0) (9,990.9) (3,087.1)
Proceeds from revenue earning vehicle financing....... 8,325.6 10,789.7 17,802.7 11,134.4 3,379.4
Payments of long-term debt and notes payable.......... (2,875.8) (81.3) (571.1) (228.7) (209.5)
Proceeds from long-term debt and notes payable........ 2,323.7 150.7 542.4 207.1 157.6
Sales of common stock................................. 552.7 197.6 550.9 262.4 16.6
Other................................................. (13.1) (25.5) (60.5) 25.0 3.4
--------- --------- --------- --------- ---------
824.5 1,185.5 812.4 1,409.3 260.4
--------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (185.4) 165.9 (36.8) 308.1 13.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 341.1 377.9 377.9 69.8 56.7
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 155.7 $ 543.8 $ 341.1 $ 377.9 $ 69.8
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 7
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Supplemental 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 Supplemental 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.
In the opinion of management, the unaudited Supplemental Consolidated
Financial Statements contain all material adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the supplemental consolidated
financial position of the Company at June 30, 1997, and the supplemental
consolidated results of its operations and cash flows for the six months ended
June 30, 1997 and 1996. Operating results for these interim periods are not
necessarily indicative of the results that can be expected for a full year.
The accompanying Supplemental 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 Supplemental Consolidated Financial Statements have previously
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.
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Supplemental Consolidated Financial Statements give
retroactive effect to the acquisitions of De La Cruz Auto Group ("De La Cruz")
which the Company acquired in July 1997 and Silver State Disposal Service, Inc.
and Affiliates ("Silver State") which the Company acquired in August 1997. The
acquisitions of De La Cruz and Silver State have been accounted for under the
pooling of interests method of accounting. See Note 2, Business Combinations,
for further discussion of these transactions.
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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of receivables, net of allowance for doubtful accounts are
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
-------- -----------------------
1997 1996 1995
-------- ------- ---------
(Unaudited)
<S> <C> <C> <C>
Trade............................................. $352.1 $305.3 $237.1
Vehicle........................................... 153.0 228.1 187.1
Contracts in transit.............................. 74.4 35.3 28.9
Other............................................. 80.1 28.9 26.7
------ ------ ------
659.6 597.6 479.8
Less: allowance for doubtful accounts............. (28.3) (18.4) (11.8)
------ ------ ------
$631.3 $579.2 $468.0
====== ====== ======
</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
Supplemental 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, $555.1 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
Supplemental Consolidated Statements of Operations.
A summary of revenue earning vehicles is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
--------- -----------------------
1997 1996 1995
--------- --------- --------
(Unaudited)
<S> <C> <C> <C>
Revenue earning vehicles.......................... $ 4,958.3 $ 4,011.2 $ 3,311.2
Less: accumulated depreciation.................... (433.4) (428.2) (333.5)
--------- --------- ---------
$ 4,524.9 $ 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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
Supplemental 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 and retail 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 $106.0 million, $84.8 million and $66.2 million in 1996, 1995 and
1994, respectively.
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
----------- --------------------------
1997 1996 1995
----------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Land, landfills and improvements............................ $ 835.1 $ 527.7 $ 401.9
Furniture, fixtures, trucks and equipment................... 895.9 675.1 490.2
Buildings and improvements.................................. 650.5 444.5 328.6
-------- --------- ---------
$2,381.5 1,647.3 1,220.7
Less: accumulated depreciation, amortization and (575.8) (484.7) (357.9)
depletion................................................. -------- --------- ---------
$1,805.7 $ 1,162.6 $ 862.8
======== ========= =========
</TABLE>
F-9
<PAGE> 10
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 $13.0 million, $8.5 million and $5.3 million, in 1996,
1995 and 1994, respectively. Accumulated amortization of intangible assets was
$52.5 million and $34.7 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 $63.8 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 supplemental 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 retail
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 Supplemental 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 $153.6 million, $121.5
million and $89.2 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
Supplemental 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 supplemental 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 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.
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 $148.4 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 $14.4 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 and accounted for under the pooling of
interests method of accounting have been included retroactively in the
Supplemental Consolidated Financial Statements as if the companies had operated
as one entity since inception. Businesses acquired through June 30, 1997 and
accounted for under the purchase method of accounting are included in the
Supplemental Consolidated Financial Statements from the date of acquisition.
In August 1997, the Company acquired Gulf Management, Inc. ("Gulf"), which
owns and operates two franchised automotive dealerships. The Company issued 1.8
million shares of Common Stock in this transaction, which has been accounted for
under the purchase method of accounting.
In August 1997, the Company acquired the net assets of Silver State, which
provides waste collection services. The Company issued 16.7 million shares of
Common Stock in this transaction, which has been accounted for under the pooling
of interests method of accounting.
F-12
<PAGE> 13
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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, 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
six 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 6.4 million shares of Common
Stock and paid approximately $93.8 million of cash in such transactions which
have been accounted for under the purchase method of accounting, and issued an
aggregate of approximately 16.8 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 De La Cruz, Silver
State, 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>
Six Months Ended
June 30, Years Ended December 31,
--------------------- ------------------------------------
1997 1996 1996 1995 1994
------- ------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
The Company.................................. $3,021.5 $1,031.5 $2,365.5 $1,791.4 $1,595.9
Pooled Entities.............................. 1,286.9 1,895.9 3,814.4 2,785.3 1,822.8
-------- -------- -------- -------- --------
$4,308.4 $2,927.4 $6,179.9 $4,576.7 $3,418.7
======== ======== ======== ======== ========
Net income (loss):
The Company.................................. $ 71.0 $ 17.3 $ (59.5) $ (26.6) $ 27.2
Pooled Entities.............................. 39.9 33.4 43.7 44.7 19.9
-------- -------- -------- -------- --------
$ 110.9 $ 50.7 $ (15.8) $ 18.1 $ 47.1
======== ======== ======== ======== ========
</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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 supplemental 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 supplemental
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........................................ $4,922.2 $4,166.0
======== ========
Income from continuing operations.............. $ 42.5 $ 66.1
======== ========
Fully diluted income from continuing
operations per common and common equivalent
share........................................ $ .16 $ .32
======== ========
</TABLE>
The unaudited pro forma supplemental 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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>
Six Months Ended
June 30, Years Ended December 31,
--------------------- ------------------------------------
1997 1996 1996 1995 1994
------- ------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue earning vehicles.............................. $ -- $ -- $ 79.4 $1,455.2 $ --
Property and equipment................................ 452.0 117.5 114.2 99.3 45.3
Investment in subscriber accounts..................... 6.9 16.3 18.0 -- --
Intangible assets..................................... 606.2 79.1 105.0 101.3 18.8
Working capital deficiency, net of cash acquired...... 75.6 (7.7) (19.1) 16.8 (10.5)
Long-term debt assumed................................ (454.7) (94.8) (127.5) (123.5) (15.5)
Other liabilities, net................................ (46.0) (12.5) (21.6) (131.3) (17.9)
Common stock issued................................... (610.7) (81.0) (101.4) (84.1) (8.4)
------- ------ ------- -------- ------
Cash used in acquisitions............................. $ 29.3 $ 16.9 $ 47.0 $1,333.7 $ 11.8
======= ====== ======= ======== ======
</TABLE>
The Company's unaudited pro forma supplemental consolidated results of
operations assuming the acquisitions of Bankston, Kendall, AutoNation, Grubb and
Mullinax, all of which have been accounted for under the purchase method of
accounting, had occurred on January 1, 1996 are as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
--------------------- ------------
1997 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Revenue............................................... $4,521.2 $3,811.4 $8,001.9
Net income............................................ $ 105.1 $ 54.4 $ (8.9)
Fully diluted net income per common and common
equivalent share.................................... $ .25 $ .15 $ (.03)
</TABLE>
The unaudited pro forma supplemental 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 the results of operations
would have been had the Company owned and operated these businesses as of
January 1, 1996.
3. REVENUE EARNING VEHICLE DEBT
Revenue earning vehicle debt consists of the following:
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------
1997 1996 1995
----------- --------- ----------
(Unaudited)
<S> <C> <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................. $1,394.5 $ 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............ 1,071.6 856.3 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................................................. 799.6 799.6 --
Amounts under $700.0 million credit agreement terminating
October 1997; secured by eligible vehicle collateral;
interest based on LIBOR................................... 500.0 -- --
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....................... 200.6 143.5 157.1
Other, including amounts to be financed after period end,
under various revolving credit agreements and lease
facilities................................................ 45.9 184.2 114.0
--------- --------- --------
4,012.2 3,380.4 2,961.2
Less: long-term portion..................................... (799.6) (844.8) (26.6)
--------- --------- --------
$ 3,212.6 $ 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 Supplemental Consolidated Statements of
Operations.
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>
June 30, December 31,
-------------- -------------------
1997 1996 1995
-------------- ------ ------
(Unaudited)
<S> <C> <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........................ $ 100.0 $ 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............................. 8.6 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)............................................................... 43.8 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....................................................... - 51.6 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........................................................ 1.2 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........................................................ 1.2 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........................... 94.3 129.6 121.6
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.................................. 328.1 225.7 246.4
Note payable to bank with interest based on LIBOR or prime
paid quarterly; secured by a building; repaid in 1996............... 52.0 -- 8.7
Other notes, secured by equipment and other assets, interest
ranging from 0% to 21%, maturing through 2010....................... 57.9 64.5
-------- ------- ------
629.2 727.6 651.5
Less: current portion................................................. (368.5) (334.0) (321.7)
-------- ------- ------
$ 260.7 $ 393.6 $329.8
======== ======= ======
</TABLE>
F-17
<PAGE> 18
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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........................................................ $ 334.0
1998........................................................ 186.5
1999........................................................ 26.8
2000........................................................ 39.4
2001........................................................ 18.6
Thereafter.................................................. 122.3
-------
$ 727.6
=======
</TABLE>
The Company made interest payments on revenue earning vehicle financing and
notes payable and long-term debt of approximately $293.0 million, $217.0
million, and $138.3 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 Supplemental 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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................................................... $53.2 $23.2 $21.8
State..................................................... 5.3 4.4 4.6
Federal and state deferred.................................. (7.1) 21.6 22.4
Foreign deferred............................................ (8.8) (1.4) (2.6)
Change in valuation allowance............................... 20.5 3.4 2.0
----- ----- -----
Provision for income taxes.................................. $63.1 $51.2 $48.2
===== ===== =====
</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........................... 1.6 .8 .3
Non-deductible expenses..................................... 7.9 1.2 1.0
State income taxes, net of federal benefit.................. 6.3 4.8 5.1
Change in valuation allowance............................... 25.8 3.6 2.1
Foreign income tax benefit at other than U.S. rates......... (1.6) (.1) --
Other, net.................................................. 5.0 8.9 5.6
---- ---- ----
Effective tax rate........................................ 80.0% 54.2% 49.1%
==== ==== ====
</TABLE>
Components of the net deferred income tax liability included in other
liabilities in the accompanying Supplemental 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..................... $ 288.4 $233.3
Deferred costs............................................ 17.7 19.0
Deferred income tax assets:
Net operating losses...................................... (103.3) (43.9)
Deferred revenue.......................................... (14.5) (15.1)
Accruals not currently deductible......................... (97.5) (93.1)
Valuation allowance......................................... 67.0 44.2
------- ------
Net deferred income tax liability........................... $ 157.8 $144.4
======= ======
</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 SUPPLEMENTAL FINANCIAL STATEMENTS -- (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 $19.7 million, $17.9
million and $6.2 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option and warrant transactions is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ---------------------------------------------------------------------------
JUNE 30, 1997 1996 1995 1994
---------------------- ----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ -------------- ------ --------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options and warrants
outstanding at beginning
of period................ 52.5 $ 7.63 49.6 $ 4.87 8.1 $4.54 7.2 $ 4.45
Granted.................... 12.8 28.64 8.7 21.86 45.1 4.92 1.3 4.96
Exercised.................. (4.9) 3.98 (5.6) 4.03 (2.9) 4.14 -- --
Canceled................... (.5) 21.37 (.2) 9.44 (.7) 7.49 (.4) 4.07
---- ---- ---- ---
Options and warrants
outstanding at end of
period................... 59.9 12.29 52.5 7.63 49.6 4.87 8.1 4.54
==== ==== ==== ===
Options and warrants
exercisable at
period-end............... 37.2 5.67 38.5 4.12 39.9 3.50 4.3 4.33
Options available for
future grants............ 16.1 -- 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 supplemental pro forma
net loss and supplemental 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 supplemental pro forma net loss,
supplemental pro forma net loss per share and supplemental 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>
Supplemental pro forma net income (loss)............. $(33.6) $10.2
Supplemental pro forma net income (loss) per share .. (.11) .04
Supplemental 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The
Auto Superstore, ("CarMax") accused AutoNation USA of infringing CarMax's
trademark rights by using the marks AutoNation USA and "The Better Way to Buy a
Car." AutoNation USA 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 USA'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 USA seeking unspecified damages and an
order enjoining AutoNation USA from using certain marks, including the marks
AutoNation USA and "The Better Way to Buy a Car." A trial has been set for June
1998. Although it is impossible to predict the outcome of this litigation, the
Company believes that CarMax's claims are without merit and AutoNation USA
believes it will prevail on its declaratory action to protect its marks.
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.
While the results of the matters 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
supplemental consolidated results of operations, cash flows or financial
position. However, unfavorable resolution of each matter individually or in the
aggregate could affect the supplemental 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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.......................................... $ 53.4 $ 44.4 $ 31.6
Equipment and software................................. 23.8 25.0 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........................................ $261.3 $197.5 $118.4
====== ====== ======
</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................................................... 83.3
1999................................................... 55.5
2000................................................... 34.9
2001................................................... 21.8
Thereafter............................................. 125.4
------
$423.6
======
</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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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>
Six Months Ended June 30, Years Ended December 31,
-------------------------- -------------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Common shares outstanding................................. 392.0 305.0 327.0 278.2 188.0
Common equivalent shares.................................. 62.2 52.8 58.1 53.8 1.2
Weighted average treasury shares purchased................ (23.5) (12.0) (15.2) (7.6) .3
Effect of using weighted average common and common
equivalent shares outstanding........................... (17.3) (14.8) (25.8) (74.1) (3.2)
----- ----- ----- ----- -----
413.4 331.0 344.1 250.3 186.3
===== ===== ===== ===== =====
</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 supplemental pro forma basic and diluted EPS computed under SFAS No.
128 are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- --------------------------
1997 1996 1996 1995 1994
------ ------ ------ ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Basic:
Income (loss) from continuing operations................ $ .29 $ .17 $ (.05) $ .18 $ .27
Net income (loss)....................................... .29 .17 (.05) .08 .26
Diluted:
Income (loss) from continuing operations................ $ .27 $ .15 $ (.05) $ .18 $ .27
Net income (loss)....................................... .27 .15 (.05) .07 .25
</TABLE>
10. RESTRUCTURING, MERGER AND OTHER NON-RECURRING EXPENSES
During the three months ended June 30, 1997, the Company recorded a pre-tax
$94.1 million provision for restructuring and non-recurring expenses related to
the integration of the Company's automotive rental operations. The provision
includes costs related to fleet consolidation, closure or sale of duplicate
facilities, elimination of redundant information systems and certain other
non-recurring expenses. The Company expects that the integration activities
associated with this provision will be substantially completed within one year.
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 Supplemental 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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordingly, the operating results of these segments have been classified as
discontinued operations for all periods presented in the accompanying
Supplemental 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 SUPPLEMENTAL FINANCIAL STATEMENTS -- (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 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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................................ 2,569.7 1,962.4 1,668.3
Solid waste services............................. 825.5 571.7 417.9
Electronic security services..................... 85.3 49.8 41.9
---------- ---------- ----------
$ 6,179.9 $ 4,576.7 $ 3,418.7
========== ========== ==========
Operating income (loss):
Automotive rental................................ $ (27.2) $ (14.6) $ 34.0
Automotive retail................................ 24.6 32.7 28.9
Solid waste services............................. 107.7 77.2 53.6
Electronic security services..................... 14.5 8.6 2.3
Corporate........................................ (31.8) (4.3) (2.9)
---------- ---------- ----------
$ 87.8 $ 99.6 $ 115.9
========== ========== ==========
Depreciation and amortization:
Automotive rental................................ $ 789.3 $ 586.0 $ 379.1
Automotive retail................................ 8.2 7.5 6.7
Solid waste services............................. 67.8 54.4 43.6
Electronic security services..................... 10.8 4.9 4.1
---------- ---------- ----------
$ 876.1 $ 652.8 $ 433.5
========== ========== ==========
Capital expenditures, purchases of revenue earning
vehicles and investment in subscriber accounts:
Automotive rental................................ $ 4,740.4 $ 3,217.8 $ 3,363.5
Automotive retail................................ 57.2 50.7 9.2
Solid waste services............................. 138.3 156.1 125.4
Electronic security services..................... 53.0 17.5 18.3
---------- ---------- ----------
$ 4,988.9 $ 3,442.1 $ 3,516.4
========== ========== ==========
Assets:
Automotive rental................................ $ 4,735.9 $ 3,906.5 $ 2,352.5
Automotive retail................................ 661.7 539.6 418.5
Solid waste services............................. 1,365.7 892.8 513.9
Electronic security services..................... 43.6 43.8 34.4
Net assets of discontinued operations............ -- -- 86.2
---------- ---------- ----------
$ 6,806.9 $ 5,382.7 $ 3,405.5
========== ========== ==========
</TABLE>
F-27
<PAGE> 28
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 Supplemental
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 $ 1,346.5 $ 1,580.9 $ 1,623.5 $ 1,629.0
1995 885.7 1,045.1 1,327.1 1,318.8
Operating income (loss)................. 1996 $ 36.5 $ 59.8 $ 82.9 $ (91.4)
1995 .6 21.7 83.3 (6.0)
Income (loss) from continuing operations
before extraordinary charge........... 1996 $ 18.8 $ 31.9 $ 44.8 $ (79.7)
1995 (5.6) 7.2 43.8 (2.2)
Income (loss) per share from
continuing operations before
extraordinary charge.................. 1996 $ .06 $ .09 $ .13 $ (.25)
1995 (.03) .03 .16 (.01)
Net income (loss)....................... 1996 $ 18.8 $ 31.9 $ 44.8 $ (111.3)
1995 (4.0) 9.5 16.0 (3.4)
</TABLE>
F-28
<PAGE> 29
Report of Independent Certified Public Accountants
Board of Directors
Value Rent-A-Car, Inc.
We have audited the accompanying balance sheet of Value Rent-A-Car, Inc. [a
wholly-owned subsidiary of Mitsubishi Motor Sales of America, Inc. (MMSA)] as
of December 31, 1996, and the related statements of operations, capital
deficiency and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Value Rent-A-Car, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 14, 1997
West Palm Beach, Florida
F-29
<PAGE> 30
Value Rent-A-Car, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1996 1997
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 420,235 $ 264,607
Accounts receivable, net of allowance for doubtful
accounts of $3,811,898 in 1996 and $4,242,615 in 1997 10,238,259 7,604,836
Claims receivable, net of allowance for doubtful accounts
of $3,138,800 in 1996 and $3,574,447 in 1997 1,825,243 1,289,339
Prepaid tags and licenses 2,233,493 1,444,748
Trademark, net of accumulated amortization of $524,560 in 1996 1,247,279 1,202,734
Other assets 4,228,866 3,792,158
-------------------------------
20,193,375 15,598,422
Property and equipment:
Revenue earning equipment 90,186,949 69,533,461
Other property and equipment 63,932,608 64,405,782
Computer equipment and software under capital leases 7,412,535 7,836,163
-------------------------------
161,532,092 141,775,406
Less accumulated depreciation and amortization (20,936,229) (23,107,850)
-------------------------------
140,595,863 118,667,556
-------------------------------
Total assets $ 160,789,238 $ 134,265,978
===============================
</TABLE>
(continued on the following page)
F-30
<PAGE> 31
Value Rent-A-Car, Inc.
Balance Sheets (Continued)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1996 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL DEFICIENCY
Liabilities:
Notes payable--affiliates $ 189,194,628 $ 181,579,607
Trade accounts payable--nonaffiliates 9,479,810 8,828,850
Trade accounts payable--affiliates 13,264,110 1,489,915
Accrued expenses--nonaffiliates 5,823,654 8,376,752
Accrued expenses--affiliates 759,809 1,374,932
Estimated liability for self-insurance claims 17,600,000 19,903,032
Obligations under capital leases 3,025,922 2,686,803
Deferred credits 225,522 852,000
------------------------------
Total liabilities 239,373,455 225,091,891
Commitments and contingencies
Capital deficiency:
Common stock--$10 par value, 200 shares authorized,
issued and outstanding 2,000 2,000
Additional paid-in capital 26,819,101 26,819,101
Accumulated deficit (105,405,318) (117,647,014)
------------------------------
Net capital deficiency (78,584,217) (90,825,913)
------------------------------
Total liabilities and capital deficiency $ 160,789,238 $ 134,265,978
==============================
</TABLE>
See accompanying notes.
F-31
<PAGE> 32
Value Rent-A-Car, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 SIX MONTHS ENDED JUNE 30
1996 1996 1997
----------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Rental fleet income $ 173,776,299 $ 93,506,626 $ 96,981,175
Other revenues 399,345 18,068 --
----------------------------------------------
174,175,644 93,524,694 96,981,175
Costs and expenses:
Rental fleet expense-non affiliates 92,706,685 44,878,795 48,990,843
Rental fleet expense-affiliates, including
vehicle interest of $6,739,630 in 1996 and
$2,852,592 and $2,845,773 for the six months
ended June 30, 1996 and 1997, respectively 46,525,672 24,772,914 30,465,168
Selling expense 20,514,769 11,051,854 11,763,789
General and administrative expense 23,693,066 11,095,469 13,005,368
Provision for bad debts 3,215,274 1,084,791 1,361,117
Loss on condemned property 2,210,844 -- --
----------------------------------------------
188,866,310 92,883,823 105,586,285
----------------------------------------------
Operating loss (14,690,666) 640,871 (8,605,110)
Interest income 81,956 47,590 72,000
Interest expense - affiliates (6,575,510) (3,110,178) (3,708,586)
----------------------------------------------
Net loss $ (21,184,220) $ (2,421,717) $ (12,241,696)
==============================================
</TABLE>
See accompanying notes.
F-32
<PAGE> 33
Value Rent-A-Car, Inc.
Statements of Capital Deficiency
<TABLE>
<CAPTION>
COMMON STOCK
-------------- ADDITIONAL TOTAL
PAR PAID-IN ACCUMULATED CAPITAL
SHARES VALUE CAPITAL DEFICIT DEFICIENCY
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 200 $2,000 $26,819,101 $ (84,221,098) $(57,399,997)
Net loss - - - (21,184,220) (21,184,220)
-------------------------------------------------------------------------
Balance at December 31, 1996 200 2,000 26,819,101 (105,405,318) (78,584,217)
Net loss (Unaudited) - - - (12,241,696) (12,241,696)
-------------------------------------------------------------------------
Balance at June 30, 1997
(Unaudited) 200 $2,000 $26,819,101 $(117,647,014) $(90,825,913)
=========================================================================
</TABLE>
See accompanying notes.
F-33
<PAGE> 34
Value Rent-A-Car, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 SIX MONTHS ENDED JUNE 30
1996 1996 1997
-----------------------------------------------
(Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (21,184,220) $ (2,421,717) $ (12,241,696)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for bad debts 3,215,274 1,084,791 1,361,117
Loss from disposal of rental vehicles 2,169,809 584,347 2,044,834
Loss on condemned property 2,210,844 -- --
Depreciation and amortization 18,763,381 7,952,657 9,845,386
Changes in operating assets and liabilities:
Accounts receivable 3,276,153 6,409,178 3,645,953
Claims receivable (2,679,420) 353,091 535,904
Prepaid tags and licenses and other assets (336,082) 174,210 142,214
Trade accounts payable and bank overdraft 4,795,077 (6,551,433) (11,948,154)
Accrued expenses 2,028,006 (187,698) 3,670,219
Estimated liability for self-insurance claims 5,376,043 779,692 2,303,032
Deferred credits (457,897) (249,733) 626,478
----------------------------------------------
Net cash provided by (used in) operating activities 17,176,968 7,927,385 (14,713)
INVESTING ACTIVITIES
Purchase of rental vehicles (106,085,702) (61,467,428) (36,085,320)
Proceeds from disposal of vehicles 47,136,193 2,668,651 45,004,227
Proceeds received for Fort Lauderdale eminent
domain proceedings -- -- 2,627,000
Purchase of other property and equipment (9,755,656) (2,706,066) (3,312,202)
----------------------------------------------
Net cash (used in) provided by investing activities (68,705,165) (61,504,843) 8,233,705
FINANCING ACTIVITIES
Proceeds from borrowings from affiliates 10,400,000 1,900,000 12,000,000
Proceeds from vehicle borrowings 104,112,527 59,956,794 35,419,006
Repayments of vehicle borrowings (61,545,378) (7,944,641) (55,034,027)
Principal payments on capital leases (1,316,421) (632,399) (759,599)
-----------------------------------------------
Net cash provided by (used in) financing activities 51,650,728 53,279,754 (8,374,620)
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents 122,531 (297,704) (155,628)
Cash and cash equivalents at beginning of period 297,704 297,704 420,235
-----------------------------------------------
Cash and cash equivalents at end of period $ 420,235 $ -- $ 264,607
===============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 12,395,347 $ 5,812,770 $ 6,354,359
===============================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Capital leases entered into for leases of
computer equipment and related software and
other operating equipment $ 318,100 $ 69,100 $ 423,828
===============================================
</TABLE>
See accompanying notes.
F-34
<PAGE> 35
Value Rent-A-Car, Inc.
Notes to Financial Statements
December 31, 1996
(Information pertaining to the six months ended
June 30, 1996 and 1997 is unaudited)
1. ORGANIZATION AND OPERATIONS
Value Rent-A-Car, Inc. (VRAC or the Company) is a wholly-owned subsidiary of
Mitsubishi Motor Sales of America, Inc. (MMSA). VRAC is engaged in the rental
of automobiles, primarily catering to the leisure travel segment of the market.
The Company has operations in six states (Florida, Georgia, Louisiana, Arizona,
Nevada and Colorado). The Company's Florida locations generated approximately
70% of the Company's rental fleet income for the year ended December 31, 1996.
In the opinion of management, the unaudited financial statements contain all
material adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the financial position of the Company at June 30, 1997, and
the results of its operations and cash flows for the six months ended June 30,
1997 and 1996. Operating results for these interim periods are not necessarily
indicative of the results that can be expected for a full year.
Due to the incurrence of recurring operating losses and the existence of a net
capital deficiency, the Company has relied upon MMSA for continuing support in
meeting its ongoing operating cash requirements. MMSA has committed to continue
to provide such support, as necessary, through January 1, 1998.
On February 14, 1997, MMSA entered into a letter of intent to sell the Company
to HFS Incorporated (HFS) for $175 million in cash. The transaction is
contingent upon the negotiation and execution of a definitive agreement and
certain other conditions and is scheduled to be closed in the second quarter of
1997 (see Note 18).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying balance sheet is presented in a format which does not
segregate current assets and current liabilities. As a result of the constantly
changing mix of revenue earning equipment, it is not possible to accurately
determine the amount of revenue earning equipment that will be realized
currently. The Company believes presenting the nonclassified earning format
will avoid misunderstandings as to the relationships of current and noncurrent
assets and liabilities and is consistent with industry practice.
F-35
<PAGE> 36
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from the rental of vehicles is recognized when earned. Revenue is
recognized on open contracts in proportion to the number of days the vehicle
was on rent under the contract prior to year end.
The Company records amounts billed to customers or other responsible parties
for damages incurred on rental vehicles as a component of rental fleet income.
Accident billings included in rental fleet revenues in the accompanying
statement of operations were $6,125,319.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The carrying amount of
cash and cash equivalents approximates fair value.
TRADEMARK
The Company paid $1,750,000 for the exclusive right to the trademark "Value
Rent-A-Car". The asset is being amortized on a straight line basis over 20
years.
PROPERTY AND EQUIPMENT
Revenue earning equipment consists of automobiles that were acquired under
programs that allow the Company to require the manufacturer to repurchase the
vehicles. Revenue earning equipment is depreciated at rates specified by the
manufacturer, which correspond to the manufacturer's estimated residual value.
Gains and losses on sales of revenue earning equipment are recorded as an
adjustment to rental fleet expense.
F-36
<PAGE> 37
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and equipment is stated at cost. Depreciation is computed on the
straight-line method for financial reporting purposes as follows:
<TABLE>
<S> <C>
Buildings 30 years
Furniture and equipment 4-10 years
Computer equipment and software 3-5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining
anticipated lease term or the estimated useful life of the improvements.
SELF-INSURANCE
The Company is primarily self-insured for all liability losses relating to
rental vehicles. The estimated liability for self-insurance is
actuarially-determined based on historical claims experience, adjusted for
current trends and changes in claims handling procedures, and is discounted to
the net present value. The estimated liability also includes an estimate
related to incurred but not reported losses.
MANUFACTURER INCENTIVES
Manufacturer-related incentives are recognized over the Company's estimated
holding period of the related vehicle. Deferred manufacturer incentives of
$225,522 are included as deferred credits in the accompanying balance sheet.
ADVERTISING COSTS
Advertising costs, included in selling expense, are expensed as incurred and
totaled approximately $6,100,000 for 1996.
F-37
<PAGE> 38
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
INCOME TAXES
The Company is included in the consolidated federal and certain combined or
consolidated state income tax returns of MMSA. However, the Company computes a
tax provision for financial reporting purposes as if it were filing a separate
return.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Revenue earning equipment $ 90,186,949
Land 16,656,229
Buildings 18,021,740
Leasehold improvements 17,124,089
Furniture and equipment 11,849,328
Computer equipment and software under capital lease 7,412,535
Construction in progress 281,222
------------
161,532,092
Less accumulated amortization and depreciation, including
$3,899,622 for capital leases (20,936,229)
------------
$140,595,863
============
</TABLE>
The Company purchased approximately $104,000,000 in revenue equipment during
1996. The Company sold revenue equipment with a net book value of approximately
$49,300,000 in 1996, resulting in losses of approximately $2,170,000.
F-38
<PAGE> 39
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
4. ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following at December 31, 1996:
<TABLE>
<S> <C>
Trade receivables $ 8,383,209
Amounts owed at year end under open rental agreements 3,781,682
Other 1,885,266
------------
14,050,157
Less allowance for doubtful accounts (3,811,898)
------------
$ 10,238,259
============
</TABLE>
5. CLAIMS RECEIVABLE
At December 31, 1996, the Company has recorded receivables from renters of
$4,964,043 for accident claims and a related allowance for doubtful accounts of
$3,138,800. The allowance has been established to provide for the Company's
inability to collect from the renter because the renter cannot be located or
lacks adequate insurance or other resources to pay the claims.
6. OTHER ASSETS
Other assets are comprised of the following at December 31, 1996:
<TABLE>
<S> <C>
Receivable from Broward County (see Note 11) $ 2,627,000
Other 1,601,866
-----------
$ 4,228,866
===========
</TABLE>
F-39
<PAGE> 40
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
7. NOTES PAYABLE--AFFILIATES
Notes payable--affiliates is comprised of the following at December 31, 1996:
<TABLE>
<S> <C>
Mitsubishi Motor Credit of America, Inc. (MMCA) (an
affiliate of MMSA):
Lease plan financing and security agreement, payable
monthly based on the depreciation of the related vehicles with a
maturity not exceeding 12 months, adjusted for additions or
disposals, with a balloon payment of all unpaid principal and
interest at maturity, with interest at 0.25% over Prime (8.25%
at December 31, 1996; effective weighted average interest rate
of 8.8% for 1996). $ 84,194,628
Unsecured credit line, due in full March 31, 1997, with interest
at Libor plus 1.00% (6.56% at December 31, 1996; effective
weighted average interest rate of 6.6% for 1996). 105,000,000
-------------
$ 189,194,628
=============
</TABLE>
On January 16, 1997, the unsecured credit line with MMCA was amended,
increasing the facility to $113 million (see Note 18).
Interest expense incurred on notes payable--affiliates for 1996 was
$13,037,041.
The Company's borrowings under the lease plan financing and security agreement
are secured by specific revenue earning equipment and substantially all of the
Company's other assets.
8. ESTIMATED LIABILITY FOR SELF-INSURANCE CLAIMS
The Company assumes responsibility for up to $1 million per claim under its
automobile liability insurance program. Costs in excess of $1 million per claim
are insured up to $6 million under an agreement with an insurance carrier. In
certain states in which the Company operates, collateral is required to be
posted for self-insurance. This is satisfied through the purchase of
certificates of deposit and letters of credit (see Note 13).
F-40
<PAGE> 41
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
8. ESTIMATED LIABILITY FOR SELF-INSURANCE CLAIMS (CONTINUED)
The Company's rental contract places the initial burden of coverage and defense
costs on the renter. If attempts to recover the loss from the renter fail or if
the renter does not have insurance coverage or if an award or settlement
exceeds the renter's primary insurance coverage, the Company incurs the costs.
The Company records the self-insurance liability at present value using a 7%
discount rate. At December 31, 1996, the valuation allowance to present value
the self-insurance liability was approximately $2,400,000 and the undiscounted
liability was approximately $20,000,000.
An analysis of the changes in the estimated liability for self-insurance claims
for the year ended December 31, 1996 is as follows:
<TABLE>
<S> <C>
Balance at beginning of year $12,223,957
Net provisions charged to operations 13,619,853
Claims paid (7,214,810)
Increase in valuation allowance (1,029,000)
-----------
Balance at end of year $17,600,000
===========
</TABLE>
9. LEASES
The Company leases office space from nonaffiliated parties along with certain
equipment under operating leases expiring at various dates through 2012. Most
of the leases contain renewal options. Rent expense for operating leases
related to leased facilities was $3,278,000 for 1996.
The Company leases certain of its rental vehicle fleet from MMSA as well as
nonaffiliated parties under short-term leasing arrangements. Rent expense
related to fleet vehicles leases with MMSA totaled $32,480,870 for 1996. Amounts
due to MMSA related to this arrangement and other incidental transactions
totaled $13,264,111 at December 31, 1996 and is included in trade accounts
payable on the accompanying balance sheet. Rent expense related to fleet leases
with nonaffiliated parties totaled $2,421,700 for 1996.
F-41
<PAGE> 42
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
9. LEASES (CONTINUED)
At December 31, 1996, minimum future rental payments on noncancelable operating
leases with remaining lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997 $ 2,815,293
1998 3,199,198
1999 2,659,374
2000 2,514,545
2001 2,253,735
Thereafter 21,677,947
------------
Total minimum future rental payments $ 35,120,092
============
</TABLE>
The Company has entered into various noncancelable leases which have been
accounted for as capital leases. The lease agreements require that the Company
pay taxes, insurance and maintenance expenses, and also contain purchase
options at the end of the lease term. At December 31, 1996, future minimum
lease payments under the capitalized lease obligations, including the amount
representing interest, are as follows:
<TABLE>
<S> <C>
1997 $1,652,715
1998 1,080,406
1999 477,992
2000 85,063
2001 62,579
----------
3,358,755
Less amount representing interest at 7.75% per annum (332,833)
----------
Present value of future minimum lease payments $3,025,922
==========
</TABLE>
10. RETIREMENT AND SAVINGS PROGRAM
The Company has a defined benefit retirement plan covering substantially all of
its employees who meet certain age and service requirements. The plan's
benefits are based on years of service and the employees' compensation during
the last three years immediately preceding retirement. On an annual basis, the
Company intends to contribute an amount that is sufficient to fund
actuarially-determined future service benefits as a level percentage of
compensation and past service benefits over a 30-year period, subject to the
percentage of compensation and past service
F-42
<PAGE> 43
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
10. RETIREMENT AND SAVINGS PROGRAM (CONTINUED)
benefits over a 30-year period, subject to the Employee Retirement Income
Security Act of 1974 minimum funding requirements and the deductibility of
contributions for federal income tax purposes. The plan's assets are invested
in money market funds.
The actuarially-computed net periodic pension cost for the year ended December
31, 1996 includes the following components:
<TABLE>
<S> <C>
Service cost-benefit carried during the period $384,004
Interest cost on projected benefit obligation 28,331
Actual return on plan assets (18,931)
Net amortization and deferral 14,211
--------
$407,615
========
</TABLE>
Assumptions used in the accounting for the net periodic pension cost for the
year ended December 31, 1996 were as follows:
<TABLE>
<S> <C>
Discount rate 7.25%
Average compensation increase 4.00
Expected long-term rate of return on assets 8.25
</TABLE>
The funded status of the Company's retirement plan at December 31, 1996 is as
follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $305,615
Nonvested benefit obligation 133,177
--------
Accumulated benefit obligation 438,792
Effect of projected future compensation levels 317,834
--------
Projected benefit obligation 756,626
Plan assets at fair value 319,040
--------
Unfunded projected benefit obligation 437,586
Unrecognized net loss 19,818
--------
Accrued pension cost $417,768
========
</TABLE>
F-43
<PAGE> 44
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
10. RETIREMENT AND SAVINGS PROGRAM (CONTINUED)
As of December 31, 1996, the actuarial assumptions used in the accounting for
the accrued pension cost were as follows:
<TABLE>
<S> <C>
Discount rate on liabilities 7.50%
Average compensation increase 4.00
Expected long-term rate of return on assets 8.25
</TABLE>
In addition to the retirement plan, the Company established two Voluntary
Savings Plans under Section 401(k) of the Internal Revenue Code. The two plans
were established for salaried employees and hourly employees. All employees are
eligible under one of the two plans. An employee may elect to contribute up to
6% of his or her compensation to a trust established under each plan.
Contributions to these plans are not taxable to the participants until such
amounts are withdrawn from the plan. The plan's assets are invested primarily in
mutual funds. At the end of each plan year, the Company may make discretionary
matching contributions based upon the Company's performance. The Company did not
make any matching contributions in 1996.
11. CONDEMNATION PROCEEDINGS
The Company is a defendant in a lawsuit in which Broward County, Florida (the
County), through eminent domain proceedings, took possession of the Company's
property and facilities near the Fort Lauderdale Airport. The County initially
advanced the Company approximately $7,800,000 for the property, which had a net
book value of approximately $12,600,000 at the time title was transferred. The
only issue to be decided in the lawsuit was the fair market value of the
subject property and facilities. In 1995, the Company recorded a deferred asset
of approximately $4,800,000 representing the difference between the net book
value of the property and the total of the County's advance.
On March 14, 1997, the Company and the County, through mediation proceedings,
agreed on a settlement of $10,400,000 for the total fair market value of the
property. As a result of this settlement, the Company reduced the carrying value
of the deferred asset discussed above by $2,210,844 and recorded this amount in
the 1996 statement of operations as a loss on condemned property. The remaining
balance of $2,627,000, which is included in other assets in the accompanying
balance sheet as of December 31, 1996, represents the remaining amount due to
the Company as a result of the settlement agreement. The final settlement is
subject to approval by the Broward County Commission (see Note 18).
F-44
<PAGE> 45
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
12. RELATED PARTY TRANSACTIONS
In addition to providing lines of credit and notes payable, MMSA provides
payment guarantees and establishes letters of credit on behalf of the Company,
primarily for self-insurance obligations and working capital requirements.
The Company's computer system, which is being leased by MMSA from a third-party
lessor, is being sub-leased to the Company by MMSA under the same terms as
those between MMSA and the third-party lessor.
13. COMMITMENTS AND CONTINGENCIES
In accordance with regulations required by certain states and airport
authorities where the Company operates, the Company has obtained letters of
credit totaling $6.5 million which are outstanding as of December 31, 1996. The
letters of credit are due to expire at various times during 1997. These letters
of credit have been obtained in order to comply with self-insurance regulations
in certain states, provide security for future fees to be paid to certain
airport authorities or as security for property leases. As of December 31,
1996, none of the letters of credit have been drawn down. Additionally, the
Company has purchased certain certificates of deposit related to self-insurance
in Florida, which amount to approximately $120,000 at December 31, 1996.
The Company has commitments under certain concession agreements with various
domestic airports for the payment of a percentage of related gross revenues
generated at the airport or minimum guaranteed annual fees, as defined in the
agreements. During 1996, the Company incurred fees of $9,088,258 under these
concession agreements. At December 31, 1996, minimum guaranteed annual fees
under noncancelable concession agreements with remaining terms in excess of one
year are as follows:
<TABLE>
<S> <C>
1997 $2,366,366
1998 2,020,006
1999 955,821
2000 810,128
2001 42,000
----------
Total minimum future rental payments $6,194,321
==========
</TABLE>
F-45
<PAGE> 46
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
14. INCOME TAXES
As of December 31, 1996, the Company identified a gross deferred tax asset of
approximately $35,588,000 consisting of net operating loss (NOL) carryforwards
of approximately $25,104,000, investment tax credit (ITC) carryforwards of
approximately $2,225,000 and future deductible differences on the
separate-company basis of approximately $8,259,000. Because of the uncertainty
surrounding realizability of future benefits arising from cumulative losses, a
valuation allowance in the full amount of $35,588,000 has been recorded at
December 31, 1996. The net change in the valuation allowance for the year ended
December 31, 1996 was an increase of approximately $3,588,000.
At December 31, 1996, unused NOL carryforwards of approximately $71,727,000 are
available. The carryforwards expire at various dates, ranging from 2000 through
2011. Due to the acquisition by MMSA of 80% ownership of the Company on May 25,
1990, the amount of future taxable income that can be offset by the Company's
net operating losses incurred prior to May 25, 1990, as well as the amount of
tax liability that can be offset by investment credit carryovers, may be
limited.
At December 31, 1996, unused ITC carryforwards of approximately $2,225,000 are
also available. The credit carryovers expire at various dates, ranging from
1998 through 2001.
Upon consummation of the sale by MMSA of the Company to HFS, the utilization of
the net operating losses subsequent to the ownership change may be limited (see
Note 18).
15. CONCENTRATIONS OF CREDIT RISK
Trade receivables include $3,767,828 from travel agents and tour operators at
December 31, 1996. Claims receivables include amounts due from renters for
damages incurred on revenue earning equipment. The Company generally does not
hold collateral from these vendors and renters.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of notes payable--affiliates is estimated based upon quoted
market rates as well as borrowing rates currently available to the Company for
loans with similar terms and average maturities. The carrying amount of notes
payable--affiliates approximates fair value because the interest rates are
variable, and accordingly, approximate current market rates.
F-46
<PAGE> 47
Value Rent-A-Car, Inc.
Notes to Financial Statements (continued)
17. LITIGATION
During the normal course of business, the Company is involved in various
matters of litigation arising principally from accidents involving vehicles
rented to customers for which the Company is self-insured. Management has
reviewed all claims and lawsuits and, upon the advice of counsel, has made
provisions for estimatable losses and expenses related to such claims and
matters of litigation. However, the Company is unable to predict the ultimate
outcome of the outstanding claims and lawsuits.
18. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS' REPORT
On April 4, 1997, the unsecured credit line with MMCA was amended, increasing
the facility to $133 million.
On April 25, 1997, HFS terminated its agreement in principle with MMSA to
acquire the Company.
On May 15, 1997, the Broward County Commission approved the final settlement
between the Company and the County related to the Company's condemned Fort
Lauderdale Airport property.
On July 8, 1997, the Company was sold by MMSA to Republic Industries, Inc. for
$77.5 million in cash and common stock. Prior to the closing of the sale, the
Company conveyed title to its owned property to MMSA for $42.9 million. The
property had a net book value of $35.6 million, resulting in a gain of $7.3
million. Also prior to the closing, the Company repaid the then outstanding
balance on its unsecured credit line with MMCA of $117 million with the $42.9
million purchase price paid for the property and a $74.1 million capital
contribution from MMSA.
F-47
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Snappy Car Rental, Inc.:
We have audited the accompanying consolidated balance sheets of Snappy Car
Rental, Inc., an Ohio corporation, and its wholly owned subsidiaries as of
December 28, 1996 and December 31, 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
then ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Snappy Car Rental, Inc. as of
December 28, 1996 and December 31, 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 28, 1997
F-48
<PAGE> 49
SNAPPY CAR RENTAL, INC.
CONSOLIDATED BALANCE SHEETS
JULY 5, 1997, DECEMBER 28, 1996 AND DECEMBER 31, 1995
(in thousands, except share information)
<TABLE>
<CAPTION>
July 5, December 28, December 31,
1997 1996 1995
------------ ------------ ------------
ASSETS (Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents $ 951 $ 1,557 $ 7,646
Receivables - net 13,174 12,417 10,857
Prepaid expenses and other 5,911 5,767 7,147
Vehicles - net 145,265 150,810 139,893
Property and equipment - net 2,796 2,185 1,757
Goodwill, net of accumulated amortization of $486 and $262 4,977 5,091 5,315
----------- ----------- -----------
$ 173,074 $ 177,827 $ 172,615
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Vehicle obligations $ 121,296 $ 123,535 $ 137,496
Fleet facilities 20,640 23,999 -
Line of credit 5,950 4,350 -
Accounts payable 5,223 4,647 5,878
Accrued liabilities - employees 784 1,323 1,384
Accrued interest payable 798 648 1,536
Accrued liabilities - claims 3,682 3,923 6,556
Accrued liabilities - other 1,232 2,306 1,959
Deferred income taxes 3,274 3,504 6,355
Subordinated debt to shareholders 8,836 8,244 7,750
----------- ----------- -----------
Total liabilities 171,715 176,479 168,914
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares authorized 54 54 53
Additional paid-in capital 3,921 3,921 3,797
Accumulated deficit (2,566) (2,577) (149)
Treasury stock, 50,000 shares at cost (50) (50) -
----------- ----------- -----------
1,359 1,348 3,701
----------- ----------- -----------
$ 173,074 $ 177,827 $ 172,615
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated balance sheets.
F-49
<PAGE> 50
SNAPPY CAR RENTAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 5, 1997 AND JUNE 30, 1996 AND
FOR THE YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
----------------------------- -------------------------------------
July 5, 1997 June 30, 1996 December 28, 1996 December 31, 1995
------------ ------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES - Vehicle rentals $ 49,640 $ 44,405 $ 91,409 $ 84,470
-------- -------- -------- --------
COSTS AND EXPENSES:
Direct operating 6,386 6,163 12,836 12,234
Depreciation, net 15,041 11,922 28,376 20,799
Salaries and employee benefits 14,003 13,862 28,105 25,354
Selling, general and administrative 7,696 7,534 15,611 13,229
Amortization of goodwill 114 114 224 206
-------- -------- -------- --------
Total costs and expenses 43,240 39,595 85,152 71,822
-------- -------- -------- --------
OPERATING INCOME 6,400 4,810 6,257 12,648
INTEREST EXPENSE, net 6,326 4,924 11,097 10,388
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS
74 (114) (4,840) 2,260
PROVISION (BENEFIT) FOR INCOME TAXES 63 (22) (2,412) 947
-------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 11 (92) (2,428) 1,313
EXTRAORDINARY LOSS, net of tax - - - 1,949
-------- -------- -------- --------
NET LOSS $ 11 $ (92) $ (2,428) $ (636)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial
statements.
F-50
<PAGE> 51
SNAPPY CAR RENTAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
----------------- Paid in (Accumulated Treasury
Shares Amount Capital Deficit) Stock Total
------ ------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 5,300 $ 53 $3,797 $ 487 $ - $ 4,337
Net loss - - - (636) - (636)
------ ----- ------ ------ ------ -------
BALANCE, December 31, 1995 5,300 53 3,797 (149) - 3,701
Proceeds from sale of common stock 125 1 124 - - 125
Purchase of treasury stock - - - - (50) (50)
Net loss - - - (2,428) - (2,428)
------ ------ ------ ------- ------ -------
BALANCE, December 28, 1996 5,425 $ 54 $3,921 $(2,577) $ (50) $ 1,348
====== ====== ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral
part of these consolidated financial
statements.
F-51
<PAGE> 52
SNAPPY CAR RENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 5, 1997 AND JUNE 30, 1996 AND
FOR THE YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
----------------------------- --------------------------------------
July 5, 1997 June 30, 1996 December 28, 1996 December 31, 1995
------------ ------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ 11 $ (92) $ (2,428) $ (636)
Adjustments to reconcile net loss to cash provided
by operating activities-
Extraordinary loss, net of tax -- -- -- 1,949
Depreciation and amortization 15,155 12,036 28,600 21,005
Gain on sale of investment -- -- -- (62)
Provision for losses on receivables 126 (33) (33) (301)
Amortization of loan fees 219 185 657 396
Write-off of swap and cap fees -- -- -- 660
Provision for deferred income taxes (230) (62) (2,851) (234)
Change in assets and liabilities:
Receivables (883) (5,511) (1,527) (1,344)
Prepaid expenses and other (363) (125) 1,695 619
Accounts payable 576 1,006 (1,231) 2,958
Accrued liabilities - employees (539) (11) (61) (264)
Accrued interest payable 742 (628) (394) 415
Accrued liabilities - claims (241) (1,511) (2,633) (1,516)
Accrued liabilities - other (1,074) 111 347 265
--------- --------- --------- ---------
Net cash provided by operating activities 13,499 5,365 20,141 23,910
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of vehicles (33,498) (52,991) (105,343) (80,142)
Proceeds from sales of vehicles 24,002 31,557 66,781 35,932
Purchases of property and equipment (611) (185) (1,159) (1,920)
Proceeds from sale of investment -- -- -- 2,562
Payment of investment banking fee -- -- -- (300)
--------- --------- --------- ---------
Net cash used in investing activities (10,107) (21,619) (39,721) (43,868)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from vehicle obligations 33,050 25,937 96,016 54,597
Proceeds from fleet facility -- -- 23,999 --
Payments on vehicle obligations (38,648) (12,504) (109,977) (181,366)
Line of credit borrowings 1,600 -- 4,350 --
Proceeds from stock issuance -- -- 125 --
Payment for treasury stock -- (50) (50) --
Proceeds from debt issuance -- -- -- 150,000
Debt issuance costs -- -- (972) (2,300)
Proceeds from termination of swap and cap agreement -- -- -- 1,050
--------- --------- --------- ---------
Net cash provided by financing activities (3,998) 13,383 13,491 21,981
========= ========= ========= =========
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(606) (2,871) (6,089) 2,023
CASH AND CASH EQUIVALENTS, beginning of period 1,557 7,646 7,646 5,623
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 951 $ 4,775 $ 1,557 $ 7,646
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-52
<PAGE> 53
SNAPPY CAR RENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1996 AND DECEMBER 31, 1995
(in thousands, except share information)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Snappy Car Rental, Inc., (the "Company") provides replacement car rental
services primarily to customers whose automobiles are out of service. The
Company operates rental locations in 39 states across the United States.
In connection with a fleet financing agreement (see Note 5), two wholly owned
subsidiaries were formed: Snappy Funding Corporation ("SFC") and Snappy Fleet
Finance Corporation ("SFFC"), both Delaware corporations. Snappy Funding L.P.,
a Delaware limited partnership ("SFLP") was formed pursuant to an agreement of
limited partnership between SFC, as general partner and the Company, as limited
partner. The financial statements include the consolidated statements of the
Company and the above entities. All significant intercompany balances have been
eliminated.
OPERATIONS
The Company had unfavorable operating results in 1996 resulting from lower
fleet utilization, fleet acquisition costs increasing faster than rental rates,
higher operating expenses and a general softening of selling prices in the used
car market in the fall of 1996. Due in part to unfavorable operating results, a
management reorganization was made on September 24, 1996. Under new management,
actions have been taken to increase fleet utilization, reduce expenses and
increase daily yields. Additionally, the Company's line of credit financing has
been renewed through October 31, 1997, and increased from $10,000 to $11,700.
The line of credit can increase to $12,500, if preceded by an $800 capital
investment (see Note 7). Management believes line of credit financing will
continue to be available at existing terms in the future. Management further
expects positive cash flows in 1997 to result from the operating changes
described above.
FISCAL YEAR
During 1996, the Company changed its fiscal year end from a calendar year end
to the Saturday nearest December 31. Fiscal year 1996 was comprised of 52 weeks
and ended on December 28, 1996.
F-53
<PAGE> 54
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit including highly
liquid investments with initial maturities of three months or less.
VEHICLES
Vehicles are stated at cost net of related discounts. Depreciation is
calculated based on the vehicles' estimated residual value. Depreciation rates
range from 1.00% to 1.75% per month. Gains and losses from sales of vehicles
are recorded as an adjustment to depreciation expense. Net gains were
approximately $824 and $2,220, for the years ended December 28, 1996 and
December 31, 1995, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated or amortized
using principally the straight-line method over the estimated useful lives of
the related assets or the lives of the related leases, if shorter, ranging from
5 to 40 years.
GOODWILL
Goodwill is being amortized over a 25-year period on a straight-line basis.
INCOME TAXES
The Company has provided for income taxes on its taxable income or loss and
other tax attributes. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
REVENUE RECOGNITION
The Company rents vehicles under rental contracts. Revenues are recognized as
earned under the terms of the rental contracts.
ADVERTISING
The Company expenses the costs of advertising the first time the advertising
takes place, except for direct-response advertising which is capitalized and
amortized over its expected period of future benefits. Direct-response
advertising consists primarily of yellow-page advertisements. Capitalized costs
of $494 and $442 are included in prepaid expenses and other as of December 28,
1996 and December 31, 1995, respectively. Advertising expense was approximately
$1,728 and $1,366 for the years ended December 28, 1996 and December 31, 1995,
respectively.
DEBT ISSUANCE COSTS
Approximately $3,276 in debt issuance costs has been deferred and is being
amortized over 60 months. At December 28, 1996 and December 31, 1995, net debt
issuance costs of $2,615 and
F-54
<PAGE> 55
$2,300, respectively, were recorded as prepaid expenses and other in the
consolidated balance sheets.
PREFERRED STOCK
The Company has 500 shares of voting preferred stock, par value $.01 per share
authorized, and 500 shares of non-voting preferred stock, par value $.01 per
share authorized. The Company has not issued any preferred stock.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 financial statements to
conform with the 1996 presentations. Such reclassifications did not effect the
1995 net loss.
2. RECEIVABLES:
Receivables consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Trade $ 9,967 $ 8,208
Auto manufacturers 372 286
Claims 1,463 1,520
Other 1,254 1,515
------- -------
13,056 11,529
Less-allowance for doubtful accounts 639 672
------- -------
$12,417 $10,857
======= =======
</TABLE>
Trade receivables are due from customers and arise from billings under standard
credit terms for services provided in the normal course of business.
3. VEHICLES:
Vehicles are purchased from a variety of sources, primarily major
manufacturers. The vehicles consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Vehicles $175,323 $158,208
Less- accumulated depreciation 24,513 18,315
-------- --------
$150,810 $139,893
======== ========
</TABLE>
F-55
<PAGE> 56
4. PROPERTY AND EQUIPMENT:
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land and buildings $ 84 $ 84
Furniture, computers and equipment 3,605 2,438
Leasehold improvements 122 190
------ ------
Total property and equipment 3,811 2,712
Less- accumulated depreciation and amortization 1,626 955
------ ------
$2,185 $1,757
====== ======
</TABLE>
5. VEHICLE OBLIGATIONS:
On November 14, 1995, the Company, through its limited partnership, SFLP,
issued $150,000 in Series 1995-1 Rental Car Asset Backed Notes ("Series 1995-1
Notes") through a Private Placement. The Series 1995-1 Notes are as follows:
<TABLE>
<CAPTION>
Interest Rate at
Class Principal Amount Rate Type December 28, 1996
----- ---------------- ----------------- -----------------
<S> <C> <C> <C>
A-1 $ 60,000 Fixed 6.850%
A-2 $ 61,750 LIBOR + 0.85% 6.491%
A-3 $ 20,000 Fixed 6.600%
B $ 8,250 LIBOR + 1.875% 7.516%
</TABLE>
Interest is payable monthly on all classes of notes. Principal payments are due
in 12 equal monthly installments on the Class A notes ($11,813 per payment),
beginning May 2000. The principal payment for Class B notes is due May 2001.
The collateral consists of the related vehicles.
The Series 1995-1 Notes contain certain operating and financial covenants,
including a monthly fleet valuation comparison to a defined market value. The
Company was in compliance with all covenants as of December 28, 1996.
Prior to the Series 1995-1 Notes, the Company's vehicle obligations were with
General Electric Capital Corporation ("GECC"). The outstanding obligations to
GECC were paid with a portion of the Series 1995-1 Notes proceeds. The net loss
to extinguish the obligations to GECC was recorded as an extraordinary item,
net of $1,181 income tax benefit. The majority of the loss consisted of a
termination fee and the write-off of unamortized loan costs related to GECC
funding.
Monthly amortization payments into SFLP, as well as proceeds related to car
sales, are accumulated in SFLP cash accounts. These balances, including a
$7,500 minimum cash balance requirement, are utilized for additional vehicle
purchases. Vehicle obligations reflect
F-56
<PAGE> 57
the $150,000 principal amount of the notes net of cash balances of $26,465 and
$12,504 at December 28, 1996 and December 31, 1995, respectively.
6. FLEET FACILITIES:
The Company has a fleet facility available from a bank for up to $20,000. The
amount of borrowings outstanding at December 28, 1996 was $14,834. The interest
rate on the facility is at the option of the Company based on the Prime rate or
LIBOR rate plus 2.50% (8.00% at December 28, 1996). The facility expires in
March 2000. The Company is required to make payments on the facility for
individual vehicles based on odometer mileage or three years from the original
finance date. The facility contains certain operating and financial covenants.
At December 28, 1996, the Company was in compliance with the provisions of the
facility or had obtained waivers from the bank. Subsequent to December 28,
1996, the amount available on the facility was reduced to $15,000.
The Company also has a fleet facility available from a vehicle credit company
for $10,000. The amount of borrowings outstanding at December 28, 1996 was
$9,165. The interest rate on the facility is based on the two-year treasury
bill rate on the date of drawdown plus 3.35% (9.31% to 9.65% at December 28,
1996). The facility requires payments for specific vehicles two years from the
original finance date. The facility is revocable, however, the Company would
have two years to pay the remaining balance if revoked.
7. LINE OF CREDIT:
The Company has a line of credit available from a bank for up to $10,000. The
interest rate on the line of credit is at the option of the Company based on
the Prime rate or LIBOR rate plus 2.75% (8.25% at December 28, 1996). The
Company had $4,350 in borrowings outstanding on the line of credit at December
28, 1996. In conjunction with insurance bonding, the Company has provided
letters of credit totaling $1,850. The outstanding borrowings and letters of
credit reduce the Company's availability on the line for other uses to $3,800
at December 28, 1996. The line of credit contains certain operating and
financial covenants. At December 28, 1996, the Company was in compliance with
the provisions of the line of credit or had obtained waivers from the bank.
Subsequent to December 28, 1996, the bank increased the line of credit to
$11,700. The bank has committed to increase the line of credit to $12,500 upon
the contribution of $800 of additional capital by certain shareholders of the
Company. The agreement was extended to October 31, 1997.
8. SUBORDINATED DEBT:
At December 28, 1996 and December 31, 1995, subordinated debt to shareholders
was $8,244 and $7,750, respectively. Interest at 10-12% is payable semiannually
and the principal is payable in two equal installments in September 2000 and
2001. During 1996, the subordinated debt holders converted their interest
payments due in December 1996 into subordinated debt bearing interest of 12%.
The subordinated debt holders also agreed to convert their June 1997 and
December 1997 interest payments into subordinated debt. As consideration for
the deferrals, the Company issued 1,179,718 warrants to purchase one share of
the Company's common stock for $1 to subordinated debt holders.
F-57
<PAGE> 58
9. INCOME TAXES:
Total income taxes differ from the amounts computed by applying the federal
statutory income tax rate to income before taxes. The reasons for the
differences are as follows:
<TABLE>
<CAPTION>
December 28, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Tax expense (benefit) on income (loss) before
extraordinary loss at statutory rates $ (1,646) $ 769
Differences resulting from:
State taxes, net of federal benefit (181) 56
Amortization of goodwill 85 78
Utilization of investment tax credits (ITC) (684) -
Other 14 44
-------- --------
$ (2,412) $ 947
======== ========
Tax benefit on extraordinary loss $ - $ (1,181)
======== ========
</TABLE>
Components of income taxes are as follows:
<TABLE>
<CAPTION>
December 28, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current $ 439 $ -
Deferred (2,851) (234)
-------- ------
Total $ (2,412) $ (234)
======== ======
</TABLE>
The significant components of the net deferred income tax balance are as
follows:
<TABLE>
<CAPTION>
December 28, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Deductible temporary differences:
Receivables $ 125 $ 83
Accrued liabilities - employees 296 448
Accrued liabilities - claims 1,740 2,723
Accrued liabilities - other 68 215
NOL carryforward 1,308 2,440
Investment tax credits 2,137 3,349
---------- ----------
Total Deferred Tax Assets 5,674 9,258
---------- ----------
</TABLE>
F-58
<PAGE> 59
<TABLE>
<S> <C> <C>
Taxable temporary differences:
Vehicles 6,736 11,871
Prepaid expenses and other 305 270
All other - 123
-------- --------
Total Deferred Tax Liabilities 7,041 12,264
-------- --------
Net deferred tax liability 1,367 3,006
Valuation allowance 2,137 3,349
-------- --------
Deferred tax liability $ 3,504 $ 6,355
======== ========
</TABLE>
The NOL carryforwards expire in 2010. Expiration of the Company's ITC
carryforwards are as follows:
<TABLE>
<CAPTION>
Amount Expiration Date
------ ---------------
<S> <C>
$ 1,204 December 31, 1997
933 December 31, 1998
</TABLE>
Given the uncertainty regarding the realization of its ITCs, management has
recorded a valuation allowance related to the ITCs.
10. OTHER RELATED PARTY TRANSACTIONS:
The Company has an agreement with Jacobson Partners ("Jacobson") that requires
payment of an annual management fee of $400 for assisting the Company with
management of its affairs. During 1996, the Company converted $100 of the
management fee to subordinated debt.
The Company paid Jacobson an investment banking fee in two installments of
which one was paid at the purchase date and the remaining payment made in 1995.
11. EMPLOYEE BENEFIT PLAN:
The Company sponsors a 401(k) plan which covers substantially all employees
meeting specified age and length of service requirements. Matching
contributions from the Company are discretionary and during 1996 and 1995 were
50% of employee contributions up to 4% of compensation. The Company's
contributions to the plan were $122 and $105 for the years ended December 28,
1996 and December 31, 1995, respectively.
12. STOCK OPTION PLANS:
The Company established the 1994 Incentive Stock Plan (the "Incentive Plan")
for the purpose of retaining certain key employees and established the Director
Stock Plan (the "Director Plan") to attract and retain nonemployee members of
the board of directors. The total amount of common stock currently authorized
for issuance under the Incentive and Director Plans is 1,000,000 and 200,000
shares, respectively. The total amount of common stock available for future
grants under the Incentive and Director Plans is 852,670 and 135,000 shares,
respectively, at December 28, 1996.
F-59
<PAGE> 60
The price of options granted under the Incentive Plan is determined by the
compensation committee of the board of directors and such price (for incentive
stock options) may not be less than 100 percent of the fair market value of the
shares on the date of grant. Options granted under the Incentive Plan have an
option period of ten years and become exercisable over a period of five years
at the rate of one-fourth at the end of each of the second, third, fourth and
fifth years. Under the Incentive Plan, the compensation committee has the
authority to grant options to employees under various terms, restrictions and
conditions, except that no option may be exercised until six months after the
date of grant or more than ten years after the date of grant. Options to
purchase 24,332 shares of common stock were exercisable at December 28, 1996.
The Director Plan states that each new nonemployee director is to be granted an
option to acquire 5,000 shares. Annually, each reelected director receives an
option to purchase an additional 5,000 shares. Director options currently
outstanding may not be exercised until six months after the date of grant, with
certain restrictions upon termination, retirement or death, and expire five
years from the date of grant. Options to purchase 40,000 shares of common stock
were exercisable at December 28, 1996.
At December 31, 1995, the Incentive Plan had 411,163 options outstanding having
an exercise price of $1 per share and 41,000 options outstanding having an
exercise price of $5 per share. At December 31, 1995, the Director Plan had
20,000 options outstanding having an exercise price of $1 per share and 20,000
options outstanding having an exercise price of $5 per share. During 1995,
41,000 options were granted under the Incentive Plan having an exercise price
of $5 per share and 20,000 options were granted under the Director Plan having
an exercise price of $5 per share. No options were exercised and no
compensation expense was recorded related to the stock options during the year
ended December 31, 1995. During the year ended December 31, 1995, 11,802
Incentive Plan options having an exercise price of $1 per share were terminated
due to termination of employees.
At December 28, 1996, the Incentive Plan had 112,330 options outstanding having
an exercise price of $1 per share and 35,000 options outstanding having an
exercise price of $5 per share. At December 28, 1996, the Director Plan had
45,000 options outstanding having an exercise price of $1 per share and 20,000
options outstanding having an exercise price of $5 per share. During 1996,
15,000 options were granted under the Incentive Plan having an exercise price
of $1 per share and 25,000 options were granted under the Director Plan having
an option price of $1 per share. No options were exercised and no compensation
expense was recorded related to the stock options during the year ended
December 28, 1996. During the year ended December 28, 1996, 313,833 and 6,000
Incentive Plan options having an exercise price of $1 and $5 per share,
respectively, were terminated due to termination of employees.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. This statement defines a fair value-based method of accounting
for stock-based compensation plans. The Company adopted the disclosure-only
provisions of the statement. The adoption of SFAS No. 123 did not have a
material effect on the net loss of the Company for the years ended December 28,
1996 and December 31, 1995.
F-60
<PAGE> 61
13. COMMITMENTS AND CONTINGENCIES:
The Company operates from various leased premises under operating leases with
terms ranging from one to five years. Certain leases contain renewal options.
Rent expense, net of sublease rental income, under operating leases for office
space was $3,154 and $2,864 for the years ended December 28, 1996 and December
31, 1995, respectively.
At December 28, 1996, future minimum rental commitments under operating leases
for office space were payable as follows:
1997 $ 2,487
1998 1,628
1999 1,001
2000 621
2001 504
Thereafter 6
--------
$ 6,247
========
The Company is self-insured or has policy deductibles to certain limits with
respect to liabilities for claims arising as a result of personal injury and/or
property damage and employee health claims. Accrued liabilities claims include
amounts for incurred losses and incurred but not reported losses. Such
liabilities are necessarily based on estimates and the Company believes that
the amounts accrued are adequate.
Various claims and legal proceedings have been asserted or instituted against
the Company, including some which seek large monetary damages or other relief
which would require significant expenditures. Although presently the ultimate
cost of resolving these matters cannot be precisely determined, the Company has
established reserves which it believes will be sufficient to resolve these
matters. After giving effect to these reserves, management believes, based on
currently known facts and circumstances, that the disposition of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
14. FAIR VALUE INFORMATION:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate the
value:
CASH AND CASH EQUIVALENTS
The carrying amount is a reasonable estimate of fair value.
VEHICLE OBLIGATIONS, FLEET FACILITIES AND LINE OF CREDIT
Based on the expected current rates which would be offered to the Company for
debt of the same maturities, the carrying amount is a reasonable estimate of
fair value.
F-61
<PAGE> 62
15. INTEREST RATE MANAGEMENT:
During 1995, the Company had limited involvement with swaps and caps and did
not use them for trading purposes. They were used to manage well-defined
interest rate risk. The Company sold the interest rate swap and cap agreements
in October 1995 resulting in a gain of $392. This gain is shown as a reduction
of interest expense in the consolidated statement of operations. The Company
did not participate in any swaps or caps during 1996.
16. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash payments for interest during the years ended December 28, 1996 and
December 31, 1995, respectively, totaled $12,600 and $11,875. No cash payments
were made for income taxes during the aforementioned periods.
During 1995, additional purchase adjustments of approximately $900 were
recorded which increased both goodwill and certain liabilities, resulting in a
noncash activity.
During 1996, $494 of management fees and accrued interest on subordinated debt
was converted to subordinated debt, resulting in a noncash activity.
F-62
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
Board of Directors
Silver State Disposal Service, Inc.
and Affiliates
Las Vegas, Nevada
We have audited the accompanying combined balance sheet of
Silver State Disposal Service, Inc. and Affiliates (collectively, the
Companies) as of September 30, 1996, and the related combined statements of
income, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Companies management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the financial position of
Silver State Disposal Service, Inc. and Affiliates as of September 30, 1996,
and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
As discussed in Note 2, previously the Companies presented
their financial statements separately, which separate financial statements have
been retroactively restated on a combined basis.
/s/ Piercy, Bowler, Taylor, & Kern
Las Vegas, Nevada
August 21, 1997
F-63
<PAGE> 64
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
--------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 23,579 $ 13,800
Accounts receivable, less allowance for doubtful
accounts of $1,600 and $647 6,008 7,395
Other 3,996 1,997
-------- -------------
33,583 23,192
-------- -------------
PROPERTY AND EQUIPMENT, AT COST 107,377 102,481
LESS ACCUMULATED DEPRECIATION (75,869) (70,042)
-------- -------------
31,508 32,439
-------- -------------
OTHER ASSETS 1,460 1,918
-------- -------------
$ 66,551 $ 57,549
======== =============
</TABLE>
(continued)
F-64
<PAGE> 65
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
----------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,397 $ 2,163
Current maturities of long-term debt 1,755 1,920
Accrued expenses:
Payroll and related 2,418 1,985
Franchise fee 1,198 1,170
Profit-sharing contribution 450 600
Federal income taxes 802
Legal fees 2,200
Other 949 435
Unearned revenue 353
--------- -------------
13,367 9,428
--------- -------------
LONG-TERM DEBT 8,150 9,775
--------- -------------
MUNICIPAL SOLID WASTE LANDFILL CLOSURE AND
postclosure care costs 807 537
--------- -------------
REDEEMABLE PREFERRED STOCK, PAR VALUE $100 6,087 6,087
--------- -------------
COMMON STOCKHOLDERS' EQUITY:
Paid-in capital 282 282
Retained earnings 40,472 34,054
Common stock held in treasury, at cost (2,614) (2,614)
--------- -------------
38,140 31,722
--------- -------------
$ 66,551 $ 57,549
========= =============
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-65
<PAGE> 66
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended Year ended
June 30, September 30,
---------------------- ---------------
1997 1996 1996
---------------------- ---------------
(Unaudited)(Unaudited)
<S> <C>> <C> <C>
OPERATING REVENUES:
Disposal service revenues $ 77,030 $ 69,549 $ 93,831
Transfer station revenues 2,679 2,458 3,229
Dumping fees 3,729 2,780 3,878
Container revenues 4,745 4,350 5,844
Recycling revenues 6,610 6,740 9,110
Real estate rentals 55 65 13
Hazardous service fees 4,239 6,566 6,556
Aggregate 1,817 1,324 1,804
-------- --------- ---------
100,904 93,832 124,265
-------- --------- ---------
COSTS AND EXPENSES:
Disposal operating expense 70,948 70,542 90,138
Hazardous service expense 2,421 2,623 3,445
Aggregate cost and expense 2,425 1,763 2,576
Administrative and general expense 14,553 10,591 14,112
-------- --------- ---------
90,347 85,519 110,271
-------- --------- ---------
OPERATING INCOME 10,557 8,313 13,994
-------- --------- ---------
OTHER INCOME (EXPENSE):
Interest and dividend income 902 504 736
Interest expense (530) (708) (893)
Miscellaneous, net (326) (79) (322)
-------- --------- ---------
46 (283) (479)
-------- --------- ---------
INCOME BEFORE INCOME TAXES 10,603 8,030 13,515
INCOME TAXES 3,693 2,735 4,730
-------- --------- ---------
NET INCOME $ 6,910 $ 5,295 $ 8,785
======== ========= =========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-66
<PAGE> 67
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR YEAR ENDED SEPTEMBER 30, 1996, AND
THE NINE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
loss on
Paid-in marketable Retained Treasury
capital securities earnings stock Total
------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 $ 282 ($ 133) $ 26,336 ($ 2,614) $ 23,871
NET INCOME 8,785 8,785
NET UNREALIZED LOSS ON
MARKETABLE SECURITIES 133 133
ACCRETION OF REDEEMABLE
PREFERRED STOCK DISCOUNT (252) (252)
CASH DIVIDENDS:
Common stock (384) (384)
Preferred stock (431) (431)
------- ---------- --------- --------- --------
BALANCE, SEPTEMBER 30, 1996 282 34,054 (2,614) 31,722
NET INCOME 6,910 6,910
CASH DIVIDENDS:
Common stock (306) (306)
Preferred stock (186) (186)
------- ---------- --------- --------- --------
BALANCE, JUNE 30, 1997 $ 282 $ $ 40,472 ($2,614) $ 38,140
======= ========== ========= ========= ========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-67
<PAGE> 68
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended Year ended
June 30, September 30,
-------------------------------- ----------------
1997 1996 1996
-------------- --------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 6,910 $ 5,295 $ 8,785
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,828 6,702 8,896
Gain on sale of assets (17) (118) (14)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net 1,519 (30) 759
(Increase) decrease in other current assets (1,549) 163 (272)
Increase (decrease) in accounts payable and
accrued expenses 5,529 (1,163) (908)
Increase (decrease) in accrued federal
income taxes (845) (219) 184
Increase (decrease) in unearned revenue (352) (5) (85)
---------- ------------ -------------
Net cash provided by operating activities 17,023 10,625 17,345
---------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets 16 138 1,511
Capital expenditures (4,896) (9,483) (11,657)
Proceeds from sales of marketable securities 1,327
Loans to related parties (82) (512) (702)
Payments received on loans to related parties 108 12
---------- ------------ -------------
Net cash used in investing activities (4,962) (9,749) (9,509)
---------- ------------ -------------
</TABLE>
(continued)
F-68
<PAGE> 69
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
June 30, Year ended
------------------------------ September 30,
1997 1996 1996
----------- ----------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (1,790) (1,862) (2,359)
Redemption of preferred stock (1,100)
Dividends paid (492) (523) (815)
-------- ---------- -------------
Net cash used in financing activities (2,282) (2,385) (4,274)
-------- ---------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,779 (1,509) 3,562
CASH AND CASH EQUIVALENTS, BEGINNING 13,800 10,238 10,238
-------- ---------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 23,579 $ 8,729 $ 13,800
======== ========== =============
CASH PAID DURING THE YEAR FOR:
Interest $ 583 $ 778 $ 921
======== ========== =============
Income taxes $ 6,150 $ 2,825 $ 4,628
======== ========== =============
NON-CASH INVESTING ACTIVITIES:
Property acquired by release of deposit
in escrow $ 388
=============
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-69
<PAGE> 70
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997, AND
FOR THE PERIODS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED.)
1. BUSINESS OF THE COMPANY:
Silver State Disposal Service, Inc. and Affiliates (collectively, the
Companies) provides both commercial and residential refuse removal
service for most of the communities in Clark County, Nevada.
Consequently, the Companies' future operations and realization of its
accounts receivable could be affected by adverse changes in economic
conditions in the area. In addition, the Companies operate refuse
transfer stations, landfills, a recycling facility and hazardous waste
removal.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying combined financial statements include the accounts of
Silver State Disposal Service, Inc. (Silver State), its wholly-owned
subsidiary, Disposal Urban Maintenance Processing, Inc. (DUMPCO) and
Environmental Technologies of Nevada, Inc. (ET), which is under common
ownership. For the year ended September 30, 1996, these combined
financial statements have been restated on a combined basis from the
previously issued separate financial statements of these entities.
Material intercompany balances and transactions have been eliminated.
Timely preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures, some of
which may require revision in future periods.
CASH EQUIVALENTS:
The Companies consider all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
DEPRECIATION:
Depreciation of property and equipment is provided over the estimated
useful lives of the assets by the straight-line or declining balance
methods.
F-70
<PAGE> 71
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND
FOR THE PERIODS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
MUNICIPAL SOLID WASTE LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS:
As an operator of a municipal solid waste landfill (MSWL), the Companies
are required by laws and regulations to incur certain costs upon and
following closure of the landfill site (Notes 7 and 9). Management has
opted to account for estimated future closure and postclosure care costs
as provided for in Statement No. 18 of the Governmental Accounting
Standards Board, Accounting for Municipal Solid Waste Landfill Closure
and Postclosure Care Costs, the requirements of which apply to
governmental owners and operators. Accordingly, although closure and
post-closure care costs will be paid only near or after the date that the
landfill stops accepting waste, a portion of these costs, estimated in
current dollars (with no discounting to reflect the time value of money),
is accrued and charged as an operating expense in each period, based on
the estimated percentage of landfill capacity filled to date. These
estimates are subject to annual reevaluation and adjustment. Accordingly,
although material changes in estimate in the next year are unlikely,
actual costs may be higher than estimated due to inflation, changes in
technology, or changes in regulations.
3. FINANCIAL INSTRUMENTS:
Management believes that it is impractical to estimate the fair values of
its receivables from an officer (carried at $991,857 and $909,692 at June
30, 1997 and September 30, 1996, respectively) because of the nature of
related party transactions. Management believes that the carrying value
of its long-term debt ($9,905,000 and $11,695,000 at June 30, 1997 and
September 30, 1996, respectively) approximates its fair value based on
the availability of alternate financing under similar terms and
circumstances. Management believes the carrying value of its accrued
closure and post-closure costs ($806,630 and $536,630 at June 30, 1997
and September 30, 1996, respectively) approximates its fair value based
on the estimated capacity and life of the landfill and the cost to close
and provide postclosure care, and that any applicable discount to present
value would not be material.
The carrying amounts of cash and cash equivalents ($23,579,078 and
$13,800,416 at June 30, 1997 and September 30, 1996, respectively)
approximate their fair value because of the nature of these instruments.
The Companies are not parties to any financial instruments with
significant "off balance-sheet" risk of accounting loss.
F-71
<PAGE> 72
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND
FOR THE PERIODS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED.)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
--------- -------------
<S> <C> <C>
Land and improvements $ 6,772 $ 6,613
Buildings and improvements 23,015 22,379
Automotive equipment 28,076 24,869
Rental containers 19,522 18,186
Other equipment 29,992 30,434
-------- --------
$107,377 $102,481
======== ========
</TABLE>
Depreciation expense was $5,640,953, $5,108,706 and $8,639,422 for the
nine months ended June 30, 1997 and 1996 and the year ended September 31,
1996, respectively.
5. LONG-TERM DEBT:
Long-term obligations payable of the Companies are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Net
Due date carrying
of last Maturities value
principal Interest ---------- of assets Monthly
payment rate Current Long-term pledged payments
------------ ------------ -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1996:
Bonds(a) January 2011 7% to 15% $ 675 $ 3,440 $ 4,933 $55, plus
interest
Bonds(b) June 2001 5.3% to 6.8% 380 1,800 783 $44 to
$45
Bank loan(c) December 2003 6% 865 4,535 unsecured $72, plus
------- ------- interest
$ 1,920 $ 9,775
======= =======
</TABLE>
The bond indentures require monies to be held in trust. These trust funds
have been maintained as required.
(a) Industrial Development Revenue Bonds, Series 1991A and Series 1991B,
collateralized by the recycling facilities and the equipment
purchased with the loan proceeds.
F-72
<PAGE> 73
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND FOR THE
PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED.)
5. LONG-TERM DEBT (CONTINUED):
(b) City of North Las Vegas, Nevada Pollution Control Revenue Refunding
Bonds, Series 1991C, collateralized by the transfer station land,
building and improvements and guaranteed by the U.S. Small Business
Administration.
(c) The Company has an $8,000,000 term loan agreement with a bank.
Interest and principal are due monthly until December 1, 2003 when
the entire unpaid balance comes due. The interest rate is fixed at 6%
from November 1993 until November 1999. At that time, the rate will
be adjusted to the then prevailing rate every two year.
Aggregate principal maturities (in thousands) of long-term debt are as
follows for the respective years ending:
<TABLE>
<CAPTION>
June 30, September 30,
-------------- ----------------
<S> <C> <C>
1997 $ N/A $ 1,920
1998 1,755 1,650
1999 1,550 1,550
2000 1,575 1,575
2001 1,615 1,615
2002 1,115 1,115
Thereafter 2,295 2,270
-------------- ----------------
$ 9,905 $ 11,695
============== ================
</TABLE>
6. INCOME TAXES:
Federal income taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
Nine months ended
June 30, Year ended
----------------- September 30,
1997 1996 1996
------ ------- -------------
<S> <C> <C> <C>
Current $4,294 $2,730 $ 4,815
Deferred (601) 5 (85)
------ ------ -------------
$3,693 $2,735 $ 4,730
====== ====== =============
</TABLE>
F-73
<PAGE> 74
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND
FOR THE PERIODS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED.)
6. INCOME TAXES (CONTINUED):
Deferred tax assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
-------- ------------
<S> <C> <C>
Unearned income $ 150 $ 120
Accounts receivable allowance 714 219
Vacation accruals 186 116
Workers' compensation accruals 247 54
Closure and postclosure costs 182
Deferred bond issue costs 23
Depreciation 43 25
-------- ------------
1,340 739
Current portion 1,340 512
-------- ------------
Non-current portion $ $ 227
======== ============
</TABLE>
7. MUNICIPAL SOLID WASTE LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS:
State and federal laws and regulations require the Companies to place a
final cover on its MSWL site when it stops accepting waste and to perform
certain maintenance and monitoring functions at the site for thirty year
after closure. The accrued closure and postclosure care costs at June 30,
1997 and September 30, 1996, are based on the estimated cumulative use of
7% and 4%, respectively, of the estimated capacity of the MSWL. The
Companies will recognize the remaining estimated cost of closure and
postclosure care of $11,828,133 as the remaining estimated capacity is
filled.
The Companies expect to close the MSWL in the year 2029.
8. PROFIT-SHARING AND PENSION PLANS:
The Companies have a profit-sharing plan (the Plan) for all eligible
employees not covered by a collective bargaining agreement. Contributions
to the Plan are made annually, the amounts of which are at the discretion
of the Board of Directors. Contributions for the nine months ended June
30, 1997 and 1996 and for the year ended September 30, 1996, were
$450,000, $450,000 and $600,000, respectively.
F-74
<PAGE> 75
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND FOR THE
PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED.)
8. PROFIT-SHARING AND PENSION PLANS (CONTINUED):
The Companies participate in a multi-employer pension plan sponsored and
administered by the Western Conference of Teamsters Pension Trust Fund to
which its employees subject to collective bargaining agreements belong
(Teamsters Union Members). This plan is a defined benefit plan; however,
specified benefit levels are ordinarily not negotiated by or made known to
participating employers. Aggregate contributions to this plan made under
the respective collective bargaining agreement for the nine months ended
June 30, 1997 and 1996 and year ended September 30, 1996 amounted to
$2,848,382, $2,686,354 and $3,592,990, respectively.
Although it is possible that a liability would be incurred by the Companies
in the event of its withdrawal from participation in, or termination of
this plan, such liability is not subject to reasonable estimation based on
available information. Moreover, the Companies have no intention of
withdrawing from, and has not been informed of any intention by the
sponsoring union to terminate, this plan.
9. COMMITMENTS AND CONTINGENCIES:
CONTRACTS:
The Companies have exclusive franchise contracts for the collection and
disposal of refuse with various municipalities within Clark County,
Nevada. These contracts and their expiration dates are summarized below:
<TABLE>
<CAPTION>
Municipality Date of expiration (including options)
--------------------- --------------------------------------
<S> <C>
City of Las Vegas January 31, 2006
City of Las Vegas-Water
Pollution Control Facility November 3, 1998
Clark County, Nevada* September 30, 2020
Clark County Sanitation District October 6, 1996**
City of Henderson December 1, 2002
City of North Las Vegas April 3, 2016
</TABLE>
The Companies have a contract with Nellis Air Force Base for collection and
disposal of solid waste until terminated with 365 days advance notice at
the option of the United States government.
--------------------
* The Clark County contract covers all unincorporated rural areas including
Blue Diamond and Laughlin, Nevada.
** The Companies have decided not to renew this contract.
F-75
<PAGE> 76
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND FOR THE
PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED.)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
The Companies have a contract requiring it to supply aggregate products up
to an annual minimum amount of 240,000 tons beginning October 1, 1996
through September 30, 1998.
The Companies have used a sanitary landfill facility under contract from
Clark County, Nevada. The Companies are responsible for all closure and
postclosure costs for a period of five year subsequent to closure. Said
closure and postclosure costs and a reasonable profit are to be recovered
by the Companies amortized over a period of eight year through dumping
fees and disposal service revenues.
The Companies also have an agreement with Clark County, Nevada, to develop
and make available a regional MSWL in conformity with applicable federal
and state laws and regulations. The Companies are entitled to recover the
capital costs, costs for operations and maintenance, and a reasonable
profit through dumping fees and disposal service revenues amortized over
an eight-year period.
The Companies have another agreement with Clark County, Nevada, to maintain
and operate a landfill facility to service an outlying community.
SELF-INSURANCE PLAN:
The Companies have a self-insurance plan for workers' compensation. An
unused, irrevocable letter of credit for $1,500,000 has been deposited
with the State of Nevada, Department of Insurance, Workers' Compensation
Section, in lieu of a surety bond, to comply with State requirements for
the self-insurance plan.
LITIGATION:
The Companies are involved in legal proceedings with the National Labor
Relations Board (the Board) and Teamsters, Chauffeurs, Warehouseman and
Helpers, Local No. 631 (the Union) wherein damages are sought for the
alleged wrongful termination by the Companies of employees who refused to
report for work. The Board has ruled that the discharges violated federal
law. The Companies believe the decision is erroneous and has filed an
appeal. After taking into consideration legal counsels' evaluation of such
proceedings, management is of the opinion that the outcome of this and
other legal proceedings in the ordinary course of business will not have a
material effect on the Companies' combined financial statements.
F-76
<PAGE> 77
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND FOR THE
PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED.)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
In addition, the Companies and certain officers, directors and other
employees have been indicted on charges currently pending in the United
States District Court for the District of Nevada. The indictment alleges
activities, that if upheld in court, may subject the Companies to
additional federal income tax liability and associated penalties and
interest. Discovery in this case is ongoing, with trial set for October
20, 1997. The Companies' legal counsel is not able, at this time, to
evaluate the likelihood of an unfavorable outcome, or to estimate the
amount or range of possible loss.
SALARY CONTINUATION AGREEMENT AND OFFICER RETIREMENT PLAN:
The Companies have a salary continuation agreement allowing for 80%
continued compensation for each of the five officer/directors or their
surviving spouses, including health insurance, in the event of disability
or death. Expense charged to income pursuant to this agreement was
$164,400, $159,150 and $212,198 for the nine months ended June 30, 1997
and 1996 and the year ended September 30, 1996, respectively.
In August 1996, the Companies approved an officer retirement plan allowing
for 80% (after 25 year) or 90% (after 30 year) of annual compensation for
each of the five officer/directors or their surviving spouses.
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Post-retirement Benefits Other than Pensions (FAS 106) does not apply
to these agreements.
10. REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY:
At June 30, 1997, and September 30, 1996, Silver State had issued and
outstanding 67,474 shares of redeemable preferred stock, ($100 par value,
200,000 shares authorized), as well as 15,829 shares of (100,000 shares
authorized) common stock, no par or stated value of which 3,042 shares of
common were held in the treasury. ET had issued and outstanding 19,937
shares of (30,000 shares authorized) common stock, no par or stated value
of which 5,023 shares were held in the treasury.
The preferred stock is non-voting and non-convertible, with cumulative
dividends of 5.5% per annum, payable January 15 and July 15; and
redeemable at par value on a lottery basis, in accordance with the
following schedule:
1. Through July 15, 1999, annually, 10% or more of the original issue; and
2. On July 15, 2000 the remaining shares then outstanding.
F-77
<PAGE> 78
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND FOR THE
PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED.)
10. REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY (CONTINUED):
On July 15, 1996, 11,000 shares of the preferred stock, including shares
redeemed in excess of requirements, were redeemed.
The above redemption schedule provides payments (including dividends) to
the preferred shareholders as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
July 1997 $ 1,376
July 1998 1,321
July 1999 1,265
July 2000 3,938
-------
$ 7,900
=======
</TABLE>
The redeemable preferred shares were issued in 1990 in exchange for common
shares. Accordingly, the carrying amount originally assigned to these
redeemable preferred shares was their fair value at the date of issuance,
determined to be equivalent to the present value, discounted at 10% per
annum, of all then future payments to be made to the preferred
shareholders, including dividends. The excess of the redemption value
over the carrying value is being accreted by periodic charges to retained
earnings over the life of the issue.
11. NONCOMPETE AGREEMENTS:
Other assets at June 30, 1997, and September 30, 1996, include $286,466
and $470,633, respectively, in unamortized costs of noncompete
agreements, discounted at their present value at the date of agreement at
7% per annum over the lives of the agreements (two to seven year).
12. RELATED PARTY TRANSACTIONS:
At June 30, 1997, and September 30, 1996, the Companies had balances due
from an officer of $991,857 and $909,692, respectively, included in other
assets.
Effective January 1, 1995, the Companies entered into a lease agreement
with an entity owned by shareholders of the Companies. The Companies
lease land and equipment for use in servicing an outlying area. The lease
term is for one year with annual renewal terms through January 1, 1997.
The total lease expense for the nine months ended June 30, 1997 and 1996
and year ended September 30, 1996, was $141,354, $143,502 and $191,485,
respectively.
F-78
<PAGE> 79
SILVER STATE DISPOSAL SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997, AND FOR THE
PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED.)
12. RELATED PARTY TRANSACTIONS (CONTINUED):
Total related party interest income calculated at the "applicable federal
rate" and credited to operations for the nine months ended June 30, 1997
and 1996 and year ended September 30, 1996, amounted to $40,527, $11,969
and $23,061, respectively.
13. UNAUDITED INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements as of June 30, 1997, and for the
nine months ended June 30, 1997 and 1996, are unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary to a fair presentation of these
financial statements for the interim periods shown have been made. The
results of operations and cash flows for interim periods are not
necessarily indicative of the operating results and cash flows expected
to be obtained for a full year.
14. SUBSEQUENT EVENT:
On or about July 31, 1997, the Companies and the shareholders of the
Companies entered into an asset purchase agreement with Republic
Industries, Inc. (Republic) wherein the Companies and the shareholders of
the Companies agreed to sell all of the assets, properties and business
of the Companies excluding certain assets and cash to be used for the
payment of 1997 income tax liabilities of the Companies and costs and
expenses associated with the charges currently pending in the United
States District Court for the District of Nevada and otherwise associated
with the orderly liquidation and winding up of the Companies. The
transaction is to be consummated on or prior to August 31, 1997, is to be
accounted for as a pooling-of-interests and treated as a tax-free
reorganization. In exchange for the sale of the assets, the Companies
will receive common stock of Republic valued at $378,000,000. On or prior
to closing, the Companies will redeem all outstanding redeemable
preferred stock, complete a merger of DUMPCO into Silver State and
terminate the Companies' officer retirement plan and salary continuation
agreements.
F-79
<PAGE> 80
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of
De La Cruz Auto Group
In our opinion, the accompanying combined balance sheets and the related
statements of operations, of changes in stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of De La Cruz
Auto Group (Bull Motors, Inc., Central Motor Company, Ltd. and Bengal Motor
Company Ltd.) at December 31, 1996, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
combined financial statements based on our audit. We conducted our audit of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the combined financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Miami, FL
January 24, 1997
F-80
<PAGE> 81
DE LA CRUZ AUTO GROUP
COMBINED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,077,900 $ 1,317,416
Contracts in transit 5,118,630 6,401,556
Trade accounts receivable 4,380,285 4,933,492
Inventories 26,318,898 31,166,206
Other current assets 726,009 307,762
------------ ------------
Total current assets 38,621,722 44,126,432
Property and equipment 18,983,597 18,778,610
Less: accumulated depreciation (2,793,942) (2,524,370)
------------ ------------
Net property and equipment 16,189,655 16,254,240
------------ ------------
Intangible assets 4,949,443 4,954,616
Less: accumulated amortization (3,790,445) (3,760,700)
------------ ------------
Net intangible assets 1,158,998 1,193,916
------------ ------------
Total assets $ 55,970,375 $ 61,574,588
============ ============
LIABILITIES, PARTNERS' CAPITAL AND
STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payable $ 22,166,588 $ 25,017,526
Trade accounts payable 4,089,300 3,650,677
Accrued liabilities 3,539,885 3,716,969
Notes payable to stockholders -- 1,472,755
Current portion of long-term debt 475,344 569,813
------------ ------------
Total current liabilities 30,271,117 34,427,740
Long-term debt 11,574,745 12,103,993
------------ ------------
Total liabilities 41,845,862 46,531,733
------------ ------------
Partners' capital 7,798,232 8,559,747
Stockholders' Equity
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding 1,000 1,000
Capital in excess of par 5,299,000 5,299,000
Retained earnings 1,026,281 1,183,108
------------ ------------
Total stockholders' equity 6,326,281 6,483,108
------------ ------------
Total liabilities, partners' capital and
stockholders' equity $ 55,970,375 $ 61,574,588
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE> 82
DE LA CRUZ AUTO GROUP
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
--------------------------------- Year ended
June 30, June 30, December 31,
1997 1996 1996
------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenue:
Vehicles $ 79,275,106 $ 83,723,170 $ 164,182,916
Service 3,877,373 3,822,332 7,496,092
Parts and accessories 6,958,349 7,708,915 14,587,889
Body shop 509,206 589,649 1,160,886
Finance, insurance and warranty commissions 1,963,776 2,267,102 4,430,490
------------- ------------- -------------
92,583,810 98,111,168 191,858,273
------------- ------------- -------------
Cost of sales:
Vehicles 73,785,923 77,527,981 151,916,492
Service 1,360,191 1,498,129 2,909,599
Parts and accessories 4,974,766 5,642,357 10,518,976
Body shop 264,823 336,036 640,621
------------- ------------- -------------
80,385,703 85,004,503 165,985,688
------------- ------------- -------------
Gross profit 12,198,107 13,106,665 25,872,585
------------- ------------- -------------
Selling, general and administrative expenses:
Selling 5,309,383 6,012,743 11,600,169
General and administrative 5,069,527 4,569,092 8,466,648
------------- ------------- -------------
10,378,910 10,581,835 20,066,817
------------- ------------- -------------
Income before the following items 1,819,197 2,524,830 5,805,768
------------- ------------- -------------
Other income (expense):
Depreciation (269,572) (260,830) (484,347)
Amortization of intangibles (29,745) (298,678) (338,492)
Interest income 95,397 115,581 179,486
Interest expense (1,097,419) (1,092,786) (1,929,702)
------------- ------------- -------------
Net income $ 517,858 $ 988,117 $ 3,232,713
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE> 83
DE LA CRUZ AUTO GROUP
COMBINED STATEMENTS OF CHANGES IN PARTNERS'
CAPITAL AND STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND THE YEAR ENDED
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Capital Total
General Limited Partner's Common in Excess Retained Stockholders'
Partner Partner Capital Stock of Par Earnings Equity
----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995 $ 7,470,384 $ 497,270 $ 7,967,654 $ 1,000 $ 5,299,000 $ 1,656,214 $ 6,956,214
Net income 1,687,100 32,479 1,719,579 -- -- 1,513,142 1,513,142
Distributions to
partners (1,085,910) (41,576) (1,127,486) -- -- -- --
Dividends -- -- -- -- -- (1,986,248) (1,986,248)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December
31, 1996 8,071,574 488,173 8,559,747 1,000 5,299,000 1,183,108 6,483,108
Net income 391,617 (16,947) 374,670 -- -- 143,188 143,188
Distributions to
partners (1,102,100) (34,086) (1,136,186) -- -- -- --
Dividends -- -- -- -- -- (300,015) (300,015)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30,
1997 $ 7,361,091 $ 437,140 $ 7,798,231 $ 1,000 $ 5,299,000 $ 1,026,281 $ 6,326,281
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE> 84
DE LA CRUZ AUTO GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
----------------------------- Year ended
June 30, June 30, December 31,
1997 1996 1996
----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 517,858 $ 988,117 $ 3,232,721
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 299,317 554,880 835,874
(Increase) decrease in:
Contracts in transit 1,282,926 (2,975,081) (2,135,869)
Trade accounts receivable 553,207 1,304,125 968,224
Inventories 4,847,308 (2,692,408) (5,717,821)
Other current assets (418,247) (117,065) (43,666)
(Decrease) increase in:
Trade accounts payable 438,624 1,461,200 1,070,597
Accrued liabilities (177,084) 727,062 782,631
----------- ----------- -----------
Net cash provided by (used in)
operating activities 7,343,909 (749,170) (1,007,309)
----------- ----------- -----------
Cash flows from investing activities:
Deletions of intangible assets 5,173 -- --
Additions to property and equipment (204,987) (113,134) (360,205)
----------- ----------- -----------
Net cash used in investing activities (199,814) (113,134) (360,205)
----------- ----------- -----------
Cash flows from financing activities:
Increase in floor plan payable (2,850,938) 2,487,918 4,099,250
Increase (decrease) in notes payable
to stockholders (1,472,755) 295,690 133,290
Net increase (decrease) in long-term debt (623,717) (285,260) (559,757)
Expenditures for loan acquisition fees -- -- --
Distributions to partners (1,436,201) (767,486) (1,127,486)
Dividends paid to stockholders -- (1,478,250) (1,986,248)
----------- ----------- -----------
Net cash provided by financing activities (6,383,611) 252,612 559,049
Net (decrease) in cash and cash equivalents 760,484 (609,692) (808,465)
Cash and cash equivalents at beginning of year 1,317,416 2,125,881 2,125,881
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,077,900 $ 1,516,189 $ 1,317,416
----------- ----------- -----------
Supplemental disclosures of cash flows information:
Cash paid during the year for interest $ 1,939,018 $ 1,595,797 $ 1,936,108
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE> 85
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
The combined financial statements include all operations of Bull Motors,
Inc., Central Motor Company, Ltd. and Bengal Motor Company, Ltd. (the "De
La Cruz Auto Group" or "the Group").
BULL MOTORS, INC. was formed in June 1993 when the stockholders contributed
$5,300,000 in capital to fund the acquisition of a Ford Motor Company
automobile dealership in Dade County, Florida. The Company is 100% owned by
the de la Cruz family as follow:
Ownership
%
---------
Carlos M. de la Cruz, Sr
and Rosa R. de la Cruz 25%
Carlos M. de la Cruz, Jr 25%
Isabel de la Cruz Ernst 25%
Alberto E. de la Cruz 25%
---------
100%
---------
CENTRAL MOTOR COMPANY, LTD. was formed on February 21, 1990, as a Florida
limited partnership. The Partnership owns and operates a Hyundai automobile
dealership in Dade County, Florida. Mr. and Mrs. Carlos M. de la Cruz own
100% of the Partnership as general and limited partners. The Partners'
ownership percentages and income/loss participation at December 31, 1996
are as follows:
Ownership Income/loss
% Participation
--------- -------------
General Partner 83% 83%
Limited Partner 17% 17%
--------- -------------
Total 100% 100%
--------- -------------
BENGAL MOTOR COMPANY, LTD. was formed on February 21, 1990, as a Florida
limited partnership. The Partnership owns and operates a Honda automobile
dealership in Dade County, Florida. Mr. and Mrs. Carlos M. de la Cruz own
100% of the Partnership as general and limited partners. The Partners'
ownership percentages and income/loss participation at December 31, 1996
are as follows:
F-85
<PAGE> 86
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Ownership Income/loss
% Participation
--------- -------------
General Partner 93% 93%
Limited Partner 7% 7%
--------- -------------
Total 100% 100%
--------- -------------
During 1996, Bengal Motors Company, Ltd. established a Kia dealership,
which began operations in February. The accompanying financial statements
include all assets, liabilities and operations of this new line of
business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINATION
The accompanying financial statements include the accounts of the De La
Cruz Auto Group. All material intercompany transactions have been
eliminated.
RECOGNITION OF REVENUE
Revenue on vehicle and parts sales, and finance, insurance and warranty
commissions, net of estimated charge backs, is recognized at the time the
title is transferred. Service and body shop revenue is recognized at the
time work is completed.
INVENTORIES
Vehicle inventories are stated at the lower of cost or market, cost being
determined on a specific identification basis for vehicles and
demonstrators. Parts and accessories are stated at current replacement
cost.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation.
The cost of property and equipment is depreciated over the estimated useful
life using the straight-line method. Expenditures for repairs and
maintenance are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets include a covenant not to compete, organization costs,
franchise and other costs. The covenant not to compete and organization
costs are stated at cost and are amortized over 3 and 5 years. The
franchise and other costs are stated at cost and are amortized over 25
years.
F-86
<PAGE> 87
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ADVERTISING
Cost for television, radio, newspaper and other media advertising are
expensed as incurred.
INCOME TAXES
BULL MOTORS, INC. has elected to be taxed under the Subchapter S provisions
of the Internal Revenue Code. These provisions provide that any taxable
income of the Company is to be included in the Federal income tax returns
of the stockholders. As a result, no provision for income taxes has been
included in the accompanying statement of operations. Distributions are
generally made to the stockholders to pay income taxes related to the
operations of the Company.
CENTRAL MOTOR COMPANY, LTD. and BENGAL MOTOR COMPANY, LTD. are not subject
to income taxes. Instead, the partners are required to include in their
income tax returns their share of the Partnership's income or loss. As a
result, no provision for income taxes has been recorded in the accompanying
statements of operations. Distributions are generally made to the partners
to pay income taxes related to the operations of the Partnerships.
STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company and
Partnerships have defined cash equivalents as those highly liquid
investments purchased with original maturities of three months or less.
ACCOUNTING ESTIMATES
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,
principally related to depreciable lives, allowance for doubtful accounts
and for chargebacks, and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.
F-87
<PAGE> 88
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
3. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following at December 31, 1996:
Trace - parts and service $ 983,070
Trade - vehicles 1,055,324
Drafts receivable 943,777
Finance income receivable 882,102
Warranty claims (314)
Factory receivable 619,164
Other receivables 509,404
Allowance for doubtful accounts (59,035)
-----------
$ 4,933,492
===========
4. INVENTORIES
Inventories are comprised of the following at December 31, 1996:
New vehicles and demonstrators $22,916,671
Used vehicles 6,218,158
Parts and accessories 2,019,018
Other 12,359
-----------
$31,166,206
===========
5. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following at December 31, 1996:
Land $ 10,916,168
Buildings and improvements 5,550,942
Machinery and equipment 1,780,542
Furniture and fixtures 496,523
Other 34,435
------------
18,778,610
Less: accumulated depreciation (2,524,370)
------------
$ 16,254,240
------------
F-88
<PAGE> 89
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
BULL MOTORS, INC.
The land and building, as a result of an agreement with Ford Motor Company,
can only be utilized to operate the Ford Dealership. The agreement includes
certain options and other covenants.
BENGAL MOTOR COMPANY, LTD.
In 1995, the Partnership purchased land in Dade County, Florida, at the
cost of approximately $3,266,000. A portion of the purchase price was
financed with a mortgage in the amount of $2,450,000. The land is expected
to be used as a possible future site for the dealership. During 1996, the
Partnership has capitalized $198,505 as cost of this project, corresponding
to the interest expense of the year of the above mentioned mortgage.
6. INTANGIBLE ASSETS
Intangible assets are comprised of the following at December 31, 1996:
Covenant not to compete $ 2,791,177
Franchise costs 1,300,000
Organizational and other costs 863,439
-----------
4,954,616
Less: accumulated amortization (3,760,700)
-----------
$ 1,193,916
===========
7. FLOOR PLAN PAYABLE
BULL MOTORS, INC.
The Company maintains floor plan financing for new vehicles with Ford Motor
Credit Corporation. The floor plan loans bear interest at the bank's prime
lending rate plus 1% for vehicles (8.25% at December 31, 1996). Principal
on each note is due when the vehicle to which the note relates is sold.
Interest is due monthly. Inventories of new cars and demonstrators are
pledged as collateral for the notes. The vehicle floor plan financing is
personally guaranteed by the stockholders.
The Company receives certain refunds from Ford Corporation of interest paid
to Ford Motor Credit Corporation.
CENTRAL MOTOR COMPANY, LTD.
The Partnership maintains a floor plan financing arrangement with a
financial institution bearing interest at the bank's prime lending rate
(7.725% at December 31, 1996). The maximum amount available under the
arrangement is $1,500,000. Principal on each note is due when the vehicle
to which the note relates is sold. Interest is due monthly. Inventories of
new cars and demonstrators are pledged as collateral for the notes. In
addition, Bengal Motor Company, Ltd., an affiliated company, is a guarantor
on this loan.
F-89
<PAGE> 90
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Under the floor plan loan arrangement, the Partnership must meet certain
financial ratios and minimum capital amounts.
BENGAL MOTOR COMPANY, LTD.
The Partnership maintains floor plan financing for new vehicles with a
financial institution. The floor plan loans bear interest at the bank's
prime lending rate (7.85% at December 31, 1996). The maximum amount
available under the arrangement is $8,000,000. Principal on each note is
due when the vehicle to which the note relates is sold and interest is due
monthly. Inventories of new cars and demonstrators are pledged as
collateral for the notes. In addition, Central Motor Company, Ltd., an
affiliated company, acts as a guarantor on this loan.
F-90
<PAGE> 91
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Mortgage note, secured by real estate, interest at
9.86%, principal and interest due in monthly
installments of $27,939 through October 4, 1999,
with a balloon payment in November 1999. $ 2,415,312
Mortgage note, secured by real estate, interest at the
bank's prime lending rate (8.75% at December 31,
1995), principal and interest due in monthly
installments of $24,850 through May 25, 2002,
with a balloon payment in June 2002. 2,339,136
Mortgage note, secured by real estate, interest rate at
9.86%, principal and interest due in monthly installments
of $16,044 through October 1999 with a balloon payment
in November 1999. 1,402,676
Mortgage note, secured by real estate, interest at prime
(8.25% at December 31, 1996), principal and interest
due in monthly installments of $55,165 through May 28,
2000, with a balloon payment in April 2000. 5,900,082
Working capital loan, secured by inventory and personally
guaranteed by the stockholders, maturity date in April 2000,
interest at prime plus 1% (9.25% at December 31, 1996),
principal and interest due in monthly installments of $20,225. 616,600
------------
12,673,806
Less: current portion (569,813)
------------
$ 12,103,993
============
</TABLE>
F-91
<PAGE> 92
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Minimum annual payments under the debt agreements are as follows:
1997 $ 569,813
1998 572,537
1999 1,856,971
2000 5,863,214
2001 305,533
Thereafter 3,330,082
-----------
$12,498,150
-----------
9. RELATED PARTY TRANSACTIONS
The Group was charged by an affiliated company approximately $613,932
during 1996 for services rendered by employees of the affiliated company on
the Group's behalf.
Accounts payable at December 31, 1996 include approximately $487,165 of
amounts due to affiliated companies.
At December 31, 1996 there was approximately $238,000 of dividends payable
to shareholders included in accrued liabilities.
10. EMPLOYEE BENEFITS
The Group adopted a 401-k plan covering substantially all employees who
meet certain age and tenure requirements. The Group matches employee
contributions of up to 6% of employee's pre-tax earnings at a rate of 50
cents for every dollar contributed by the employee. The Group's
contributions, included in general and administrative expenses, during
1996, were approximately $110,000.
11. SUBSEQUENT EVENTS (UNAUDITED)
In July 1997 the Group was acquired by Republic Industries, Inc., in
exchange of 1.8 million shares of common stock, and this transaction has
been accounted for under the pooling of interests method of accounting.
F-92
<PAGE> 93
DE LA CRUZ AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND 1996 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
12. UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The interim financial data as of June 30, 1997 and 1996 and for the six
months ended June 30, 1997 and 1996 is unaudited. The information reflects
all adjustments, consisting only of normal recurring adjustments that, in
the opinion of management, are necessary to present fairly the financial
position and results of operations of the Group for the periods indicated.
Results of operations for the interim periods are not necessarily
indicative of the results of operations for the full year.
In February 1997, FASB issued Statement of Financial Accounting Standards
No. 129 (FAS 129) - Disclosure of Information about Capital Structure. The
statement is effective for financial statements issued for periods ending
after December 15, 1997. FAS 129 supersedes specific disclosure
requirements of APB Opinion No. 10 and No. 15 and FASB Statement No. 47 and
consolidates them in this statement. FAS 129 contains no change in
disclosure requirements for the Group as the Group was previously subject
to the requirements of the above superseded statements.
* * * * * *
F-93
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of
Pierce Automotive Group:
We have audited the accompanying combined balance sheet of Pierce Automotive
Group as of December 31, 1996, and the related combined statements of operations
and changes in owners' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pierce Automotive Group as of
December 31, 1996, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 25, 1997
F-94
<PAGE> 95
PIERCE AUTOMOTIVE GROUP
-----------------------
COMBINED BALANCE SHEETS
-----------------------
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------- ---------------
1996 1997
--------- -------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,555 $ 3,919
Accounts receivable, net 2,152 2,451
Inventories 10,432 10,623
Prepaids and other current assets 61 75
------- -------
Total current assets 17,200 17,068
PROPERTY AND EQUIPMENT, net 7,867 7,853
OTHER ASSETS 19 32
------- -------
Total assets $25,086 $24,953
======= =======
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $ 7,687 $ 6,998
Accounts payable and accrued liabilities 2,903 2,363
Current maturities of amounts due to related parties
(Notes 8 and 13) 1,699 3,789
Current maturities of long-term debt 1,949 2,095
------- -------
Total current liabilities 14,238 15,245
AMOUNTS DUE TO RELATED PARTIES, net of current
maturities (Notes 8 and 13) 3,058 --
LONG-TERM DEBT, net of current maturities 1,948 4,415
------- -------
Total liabilities 19,244 19,660
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)
OWNERS' EQUITY 5,842 5,293
------- -------
Total liabilities and owners' equity $25,086 $24,953
======= =======
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-95
<PAGE> 96
PIERCE AUTOMOTIVE GROUP
-----------------------
COMBINED STATEMENTS OF OPERATIONS AND
-------------------------------------
CHANGES IN OWNERS' EQUITY
-------------------------
(In Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE
ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------ -------------------------
1996 1996 1997
------------ --------- ---------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Sales $ 133,409 $ 29,936 $ 32,796
Other operating revenue 5,227 890 993
--------- --------- ---------
Total revenues 138,636 30,826 33,789
COST OF SALES 120,360 26,938 29,035
--------- --------- ---------
Gross profit 18,276 3,888 4,754
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,068 2,324 2,979
--------- --------- ---------
Income from operations 7,208 1,564 1,775
OTHER INCOME (EXPENSE):
Interest expense, net (769) (174) (326)
Other income (expense), net (117) 88 76
--------- --------- ---------
INCOME BEFORE INCOME TAXES 6,322 1,478 1,525
PROVISION FOR INCOME TAXES -- -- --
--------- --------- ---------
NET INCOME 6,322 1,478 1,525
CAPITAL CONTRIBUTIONS 540 70 --
DISTRIBUTIONS (6,358) (423) (2,074)
OWNERS' EQUITY, beginning of period 5,338 5,338 5,842
--------- --------- ---------
OWNERS' EQUITY, end of period $ 5,842 $ 6,463 $ 5,293
========= ========= =========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
F-96
<PAGE> 97
PIERCE AUTOMOTIVE GROUP
-----------------------
COMBINED STATEMENTS OF CASH FLOWS
---------------------------------
(In Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE
ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------ ---------------------
1996 1996 1997
------------ ------- -------
<S> <C> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,322 $ 1,478 $ 1,525
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization 331 45 81
Amortization of discount on note payable 54 20 21
Change in-
Accounts receivable (625) (774) (299)
Inventories (1,098) (1,175) 752
Prepaids and other assets (13) (93) (27)
Floor plan notes payable 230 (568) (689)
Accounts payable and accrued liabilities 775 (411) (540)
------- ------- -------
Net cash provided by (used in) operating activities 5,976 (1,478) 824
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (928) (340) (52)
------- ------- -------
Net cash used in investing activities (928) (340) (52)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (166) -- (1,812)
Amounts due to related parties 1,263 26 (968)
Proceeds from borrowings of long-term debt 500 500 3,446
Capital contributions 540 70 --
Distributions (6,358) (423) (2,074)
------- ------- -------
Net cash (used in) provided by financing activities (4,221) 173 (1,408)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 827 (1,645) (636)
CASH AND CASH EQUIVALENTS, beginning of period 3,728 3,728 4,555
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $ 4,555 $ 2,083 $ 3,919
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 911 $ 181 $ 222
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING ACTIVITY:
Issuance of Owner Note and assumption of outstanding
note payable in exchange for property and equipment in
October 1996 $ 4,920 $ -- $ --
======= ======= =======
Inventory acquired pursuant to capital lease $ 751 $ 138 $ 787
======= ======= =======
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
F-97
<PAGE> 98
PIERCE AUTOMOTIVE GROUP
-----------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
(In Thousands)
1. BUSINESS, ORGANIZATION
AND BASIS OF PRESENTATION:
--------------------------
The Pierce Automotive Group (the Companies) is engaged in the retail and
commercial sale of new and used motor vehicles, finance and insurance products,
vehicle service and parts, after-market products and in selling third-party
financing contracts on new and used vehicle sales originated by dealerships
within the group. The Companies operate primarily in the Tempe, Arizona, area.
The accompanying combined financial statements include the accounts of the
following entities. The Companies have been presented on a combined basis due to
their related operations, common ownership and common management control. All
significant intercompany balances and transactions have been eliminated in the
combination.
The Pierce Corporation, an Arizona corporation, d.b.a. Tempe Toyota,
Inc. (Tempe Toyota)
The Pierce Corporation II, Inc., an Arizona corporation, d.b.a. Tempe
Toy's Budget Lot
Automart Superstore, Inc., an Arizona corporation (Automart)
Pierce Automotive Corporation, an Arizona corporation
M&JP I, L.L.C., an Arizona limited liability company M&JP II, L.L.C.,
an Arizona limited liability company
The Pierce Corporation II, Inc., and Automart are 65 percent owned by the
Companies' principal owner. Automart was incorporated during 1996 and is
primarily engaged in selling used cars and light trucks.
Tempe Toyota purchases substantially all of its new vehicles from Toyota Motor
Corporation at the prevailing prices charged by the manufacturer to all
franchised dealers. Tempe Toyota's sales volume could be adversely impacted by
the manufacturers' inability to supply the dealership with an adequate supply of
popular models or as result of an unfavorable allocation of vehicles by the
automaker.
Tempe Toyota operates a dealership which holds a six-year franchise agreement
with Toyota Motor Distributors, Inc., expiring in May 1998. In accordance with
the individual franchise agreement, Tempe Toyota is subject to certain rights
and restrictions typical of the industry, including limitations on changes in
dealership management and ownership and minimum net worth requirements. The
ability of the manufacturer to influence the operations of Tempe Toyota or the
loss of a franchise agreement could have a negative impact on the operating
results and financial position of the Companies.
INTERIM FINANCIAL INFORMATION
The unaudited financial statements as of March 31, 1997, and for the three
months ended March 31, 1996 and 1997, include, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the Company's position, results of operations and cash flows.
Operating results for the three months ended March 31, 1997, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
F-98
<PAGE> 99
2. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments that have an
original maturity of three months or less at the date of purchase. The Companies
have invested funds through Tempe Toyota in a cash management fund (CMF) with
the Companies' floor plan lender, Toyota Motor Credit Corporation (TMCC). All
funds invested in the CMF are redeemable by the Companies upon demand and accrue
interest at a rate equivalent to Tempe Toyota's floor plan rate. The amount of
such funds totaled approximately $4.3 million as of December 31, 1996, of which
approximately $1,399 was payable to the principal owner and employees of the
Companies.
INVENTORIES
New vehicle inventories are stated at the lower of cost, determined using the
last-in, first-out (LIFO) method, or market on a specific-unit identification
basis. Used vehicles are stated at the lower of cost or market, on a
specific-unit identification basis. Rental vehicles held under capital leases
include vehicles leased from Toyota Motor Sales under a master lease agreement
(see Note 8). Rental vehicles are placed in rental service for periods not to
exceed one year, at which time they are purchased by the Companies and placed
into used vehicle inventory. Rental vehicles are depreciated over the life of
the lease or the estimated economic life, whichever is shorter. Parts
inventories are stated at the lower of cost, determined using the LIFO method,
or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their estimated
useful lives, ranging from five to 39 years, using the double-declining balance
method. Useful lives for purposes of computing depreciation are as follows:
Buildings and improvements 39 years
Furniture and fixtures 5 to 7 years
Machinery and equipment 5 to 7 years
Service and rental vehicles 5 years
The cost of assets sold or retired and the related accumulated depreciation are
removed from the accounts at the time of disposition, and any resulting gain or
loss is included in the combined statement of operations. Maintenance, repairs
and minor replacements are charged to operations as incurred; major replacements
and improvements are capitalized and amortized over the remaining useful lives
of the assets.
REVENUE RECOGNITION - SALES
Sales includes revenues from new and used vehicles and from parts and services
sales. Revenues from the sale of new and used vehicles are recognized at the
time the vehicle is delivered to the customer and the earlier of acceptance of
the note by a financial institution or payment or deposit having been received.
Revenues from the sale of parts and services are recognized at the time the
parts are delivered to the customer or service is completed.
F-99
<PAGE> 100
REVENUE RECOGNITION - OTHER OPERATING REVENUE
Other operating revenue includes finance, insurance and service contract income.
Finance income represents amounts earned by the Companies for financing arranged
by the Companies with financial institutions on behalf of customers in
connection with vehicle sales. Finance income, net of estimates for future
chargebacks, is recognized by the Companies upon acceptance of the note by a
financial institution. Insurance income represents commissions earned on credit
life and accident and disability insurance sold by the Companies as agents for
insurance carriers. Insurance commissions, net of estimates for future
chargebacks, are recognized as income upon customer acceptance of the insurance
terms as evidenced by contract execution. Service contract income represents
commissions earned on extended warranty service contracts sold by the Companies
as agents for extended service warranty companies. Commissions earned, net of
estimates of future chargebacks, are recognized upon customer acceptance of the
service contract terms as evidenced by contract execution.
The agreements between the Companies and the financial institutions and
insurance companies provide that the Companies will receive a chargeback equal
to a pro rata portion of the finance income or insurance premium paid to the
Companies in the event the customer prepays or defaults on the financing prior
to its scheduled maturity. Generally, the terms of the agreements between the
Companies and the financial institutions provide that the period during which
the Companies are contingently liable for financing chargebacks is limited to 90
days following the placement of the note, provided that the financial
institution has received three payments from the customer. Generally, the
Companies are contingently liable for chargebacks equal to a pro rata portion of
the premium collected pursuant to insurance and service contracts during the
period of time the insurance policy or the service contract is in effect. The
Companies record an estimated allowance for these chargebacks which is based
upon the Companies' historical experience for prepayments or defaults. Finance
income and insurance commissions, net of estimates for future chargebacks, are
classified as other operating revenues in the accompanying combined statement of
operations and changes in owners' equity.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and included in
selling, general and administrative expenses in the accompanying combined
statements of operations and changes in owners' equity. Total advertising and
promotional expenses, net of approximately $93 in rebates, were approximately
$1,021 for the year ended December 31, 1996.
INCOME TAXES
For income tax purposes, certain of the Companies have elected S Corporation
status and certain of the Companies are limited liability companies under the
U.S. Internal Revenue Code. In accordance with the provisions of elections to be
treated as an S Corporation or a limited liability company, the Companies'
income and losses are passed through to their shareholders or members;
accordingly, no provision for income taxes has been recorded for the Companies.
F-100
<PAGE> 101
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Companies to concentrations
of credit risk, consist principally of cash and cash equivalents, contracts in
transit and accounts receivable. The Companies invest a substantial portion of
their excess cash with financial institutions within FDIC-guaranteed limits. The
Companies have not incurred significant losses related to these financial
instruments in the past.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies' financial instruments primarily consist of cash and cash
equivalents, floor plan notes payable, long-term debt, and amounts due to
related parties. The carrying amount of these financial instruments approximates
fair value due either to length of maturity or existence of interest rates that
approximate prevailing market rates.
OWNERS' EQUITY
Four of the affiliated companies which comprise the Companies are individual
entities which have issued stock at different and unrelated prices. Two of the
affiliated companies which comprise the Companies are organized as limited
liability companies whose members have contributed certain real property in
exchange for a membership interest in the limited liability companies. For
purposes of these combined financial statements, the owners' equity activity of
the individual affiliates has been summed to present combined totals of activity
and balances of the Companies (see Note 12).
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Companies consider all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents. Additionally, the net change in floor plan financing of
inventory, which is a customary financing technique in the industry, is
reflected as an operating activity in the statement of cash flows.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March 1995.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Companies adopted SFAS No. 121 on January 1, 1996, and such
implementation did not have a material effect on the Companies' combined results
of operations, financial position or cash flows.
EARNINGS PER SHARE
Earnings per share data are not presented as the historical capital structure
prior to the contemplated merger with Republic Industries, Inc., as hereinafter
discussed, is not comparable to the capital structure that will exist after this
merger (see Note 14).
F-101
<PAGE> 102
USE OF ESTIMATES
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.
3. ACCOUNTS RECEIVABLE:
--------------------
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ------- -------
(Unaudited)
<S> <C> <C> <C>
Contracts in transit $ 1,070 $ 1,505 $ 1,346
Vehicle receivables 560 260 547
Manufacturers 251 255 133
Other 348 332 502
------- ------- -------
2,229 2,352 2,528
Less- Allowance for doubtful accounts (77) (50) (77)
------- ------- -------
$ 2,152 $ 2,302 $ 2,451
======= ======= =======
</TABLE>
Contracts in transit and vehicle receivables primarily represent receivables
from financial institutions which provide funding for customer vehicle
financing. These receivables are generally collected within 30 days from the
vehicle sale. Amounts due from manufacturers represent receivables for parts and
service work performed on vehicles pursuant to the automotive manufacturer
warranty coverage and manufacturer holdbacks and incentives pursuant to the
dealership agreements; such amounts are generally remitted to the Companies on a
regular basis. Other receivables include receivables for the sale of parts to
commercial customers and finance fees receivable from financial institutions
earned from arranging financing for the Companies' customers.
4. INVENTORIES:
------------
Inventories are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
December 31, -----------------------
1996 1996 1997
------------ -------- --------
(Unaudited)
<S> <C> <C> <C>
New vehicles $ 6,859 $ 8,133 $ 7,302
Used vehicles 3,200 1,961 2,894
Rental vehicles 907 294 944
Parts and other 257 277 274
Cumulative LIFO reserve (791) (768) (791)
-------- -------- --------
$ 10,432 $ 9,897 $ 10,623
======== ======== ========
</TABLE>
F-102
<PAGE> 103
The cost basis and accumulated depreciation of rental vehicles under capital
lease were approximately $985 and $78, respectively, as of December 31, 1996.
For the year ended December 31, 1996, the effect of using the LIFO method as
compared to the first-in, first-out method was a decrease in net income by $23.
If the first-in, first-out (FIFO) method of inventory accounting had been used
by the Companies, inventories, net working capital and owners' equity would have
been higher than reported by $791, $768 and $791 as of December 31, 1996, and
March 31, 1996 and 1997, respectively.
5. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ------- -------
(Unaudited)
<S> <C> <C> <C>
Land $ 3,663 $ 1,732 $ 3,662
Buildings and improvements 3,920 636 3,927
Furniture and fixtures 547 412 570
Machinery and equipment 232 163 235
Service and rental vehicles 137 172 143
------- ------- -------
8,499 3,115 8,537
Less- Accumulated depreciation and amortization (632) (497) (684)
------- ------- -------
$ 7,867 $ 2,618 $ 7,853
======= ======= =======
</TABLE>
6. ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES:
------------------------
Accounts payable and accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ------------------
1996 1996 1997
------------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Accounts payable $1,371 $ 688 $ 598
Accrual for finance, insurance and service
contract chargebacks 484 232 500
Payroll-related accruals 316 303 347
Other 732 494 918
------ ------ ------
$2,903 $1,717 $2,363
====== ====== ======
</TABLE>
7. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflect amounts for the purchase of specific new
vehicle inventory, are payable to TMCC and bear interest at prime (8.25 percent
as of December 31, 1996) plus 0.5 percent. The approved credit lines are $15
million for new vehicles and $4.5 million for used vehicles as of December 31,
1996. Payments on the notes are due when the related vehicles are sold. As of
F-103
<PAGE> 104
December 31, 1996, the Companies had no borrowings outstanding for used
vehicles. The notes are collateralized by substantially all assets of Tempe
Toyota and are guaranteed by the Companies' principal owner.
Interest under the floor plan notes payable is payable on a monthly basis.
Interest expense on floor plan notes payable totaled approximately $777 for the
year ended December 31, 1996, before manufacturer interest assistance.
Manufacturer interest assistance, which has been recorded as a reduction to cost
of sales in the accompanying combined financial statements, totaled
approximately $640 for the year ended December 31, 1996.
8. LONG-TERM DEBT:
Long-term debt with third parties is comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ------- -------
(Unaudited)
<S> <C> <C> <C>
Note payable to TMCC; $4,351 note dated March 1997, payable in 60 monthly
installments of $24 in principal plus interest with balance due in March
2002. Interest at LIBOR plus 2.12% collateralized by the land and building of
M&JP I, L.L.C., and guaranteed by the Companies' principal
owner $ -- $ -- 4,351
Note payable to TMCC; $2,491 note dated December 1994, payable in monthly
installments of $10 in principal plus interest. The note provides for
interest at prime plus 1.25%. Collateralized by certain land owned by M&JP I,
L.L.C. The note was refinanced in March 1997, as described below 1,793 -- --
Note payable to Suncor Development Company; $840 noninterest-bearing note dated
December 1994, due December 1997. The note has been discounted to its present
value using an imputed interest rate of 7.48%. The note is collateralized by
certain land owned by M&JP I, L.L.C 778 670 800
Note payable to TMCC; $500 note dated February 1996, payable in 60 monthly
installments of $5 in principal plus interest. Final principal payment of
$188 due January 2001. The note provides for interest at prime plus 1.0%
Collateralized by substantially all assets of Tempe Toyota 435 490 416
Obligations under capital leases 891 370 943
------- ------- -------
3,897 1,530 6,510
Less- Current maturities (1,949) (360) (2,095)
------- ------- -------
$ 1,948 $ 1,170 $ 4,415
======= ======= =======
</TABLE>
F-104
<PAGE> 105
Amounts due to related parties are as follows:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ------- -------
(Unaudited)
<S> <C> <C> <C>
Note payable to principal owner; $2,558 due upon the Companies securing
additional long-term financing from TMCC (which occurred in March 1997 as
described below); $500 due on February 1, 1998. The note provides for
interest at 6.5%. Secured by certain land and facilities owned by M&JP I,
L.L.C $ 3,058 $ -- $ 500
Amounts payable to principal owner representing the principal owner's invested
funds pursuant to CMF 1,285 331 2,828
Note payable to principal owner with principal and interest payable on February
1, 1998. The note provides for interest at 6.5%. Secured by the assets of
Pierce Automotive Corporation 300 -- 300
Amounts payable to employees representing the employees' invested funds
pursuant to CMF 114 130 161
------- ------- -------
4,757 461 3,789
Less- Current maturities (1,699) (461) (3,789)
------- ------- -------
$ 3,058 $ -- $ --
======= ======= =======
</TABLE>
The aggregate maturities of long-term debt and amounts due to related parties as
of December 31, 1996, are as follows:
THIRD RELATED
PARTIES PARTIES
------ ------
1997 $1,949 $1,699
1998 353 500
1999 353 --
2000 353 --
2001 475 --
Thereafter 414 2,558
------ ------
$3,897 $4,757
====== ======
In March 1997, the Companies issued a $4,351 note payable to TMCC. Proceeds from
the note were used to repay $2,558 of the $3,058 note payable to the principal
owner and to repay $1,793 of the $2,491 note payable to TMCC dated December
1994. The $4,351 note payable to TMCC (the TMCC Note) matures on March 2002 and
is payable in 60 monthly payments of $24 in principal plus interest, with the
balance of $2,900 due at maturity. Accordingly, $2,558 of the $3,058 note
payable to the principal owner and $1,576 of the note payable to TMCC has been
reclassified as long-term in the December 31, 1996, balance sheet. The TMCC Note
may be extended for an additional 120 months at the Companies' option and may be
prepaid at any time, subject to a 2 percent penalty if paid prior to March 1998.
Interest on the TMCC Note accrues at the London Interbank Borrowing Rate (LIBOR)
plus 2.12 percent. The TMCC Note has been guaranteed by the Companies' principal
owner and Tempe Toyota and is secured by the land and property of M&JP I,
L.L.C., with $1,500 being senior to the Companies' note payable to Suncor
Development Company.
The Companies' loan agreements with TMCC provide that, in the event of loss of
Tempe Toyota's
F-105
<PAGE> 106
franchise agreement with Toyota Motor Distributors, Inc., amounts borrowed by
the Companies from TMCC will become currently payable.
The principal owner and certain employees and affiliates of the Companies have
loaned amounts to Tempe Toyota which Tempe Toyota has invested in the CMF with
TMCC. During the year ended December 31, 1996, the Companies recorded interest
income and interest expense of approximately $85 on the amounts Tempe Toyota
invested in the CMF arising from amounts loaned by the majority owner and
certain employees and affiliates. The combined financial statements of the
Pierce Automotive Group reflect $256 net interest income earned on the CMF
during the year ended December 31, 1996.
The Companies lease certain rental vehicles from Toyota Motor Sales under a
master lease arrangement accounted for as a capital lease. The leases require
monthly payments of principal, interest and insurance. Total payments for the
year ended December 31, 1996, were $187. The individual leases are typically for
an 18 to 24 month term with interest ranging from 8.5 to 9.0 percent. The
vehicles must be purchased by the Companies upon the expiration of the lease but
may be purchased at an earlier date for the fair value of the lease obligation.
Generally, the Companies elect to purchase vehicles during the first year of
their lease at which point they are placed into used vehicle inventory.
Interest expense on long-term debt (including interest on obligations under
capital leases of $46) for the year ended December 31, 1996, was $248.
9. LEASE COMMITMENTS:
------------------
The Companies lease property used by The Pierce Corporation II, Inc., under a
noncancellable operating lease. The lease expires in 1997. Remaining payments
under the lease are $57. The lease provides that the Companies pay all property
taxes, insurance and repair costs. Lease expense was approximately $382 for the
year ended December 31, 1996.
10. INCOME TAXES:
-------------
In the event that the Companies terminate S Corporation status, deferred income
taxes will arise due to the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities. Under the provisions of SFAS No. 109, "Accounting for Income
Taxes," recording of these deferred taxes is required in the period S
Corporation status is terminated. If the Companies' S Corporation status had
been terminated on December 31, 1996, the deferred tax asset (related primarily
to allowances for accounts receivable and chargebacks) as of that date would
have been approximately $162.
11. COMMITMENTS AND CONTINGENCIES:
------------------------------
EMPLOYEE 401(k) RETIREMENT PLAN
The Companies participate in a 401(k) plan (the Plan) which covers certain
full-time employees (over 21 years old) who have worked a minimum of one year
for the Companies. The Plan is funded by employee deferrals of their income and
discretionary contributions by the Companies. The Companies matching
contributions totaled $42 for the year ended December 31, 1996.
F-106
<PAGE> 107
12. OWNERS' EQUITY:
Owners' equity is comprised of the following as of December 31, 1996:
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN PARTNERS' RETAINED OWNERS'
STOCK CAPITAL INTEREST EARNINGS EQUITY
------ ---------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
The Pierce Corporation $550 $ -- $- $2,512 $3,062
The Pierce Corporation II, Inc. 100 100 -- 191 391
Automart Superstore, Inc. 350 -- -- 373 723
Pierce Automotive Corporation -- -- -- 289 289
M&JP I, L.L.C -- -- 567 57 624
M&JP II, L.L.C -- -- 703 50 753
------ ------ ------ ------ ------
$1,000 $ 100 $1,270 $3,472 $5,842
====== ====== ====== ====== ======
</TABLE>
During 1996, Automart was incorporated and capitalized with $350 in capital
contributions. Additionally, the Companies' principal owner contributed $190 of
capital to M&JP II, L.L.C., which owns the land and facilities on which Automart
operates. This $190 capital contribution was primarily used for enhancements of
the facilities. Common stock of the Companies with the following shares
authorized, issued and outstanding as of December 31, 1996, is as follows:
<TABLE>
<CAPTION>
SHARES SHARES
PAR VALUE AUTHORIZED ISSUED
------------ --------- ---------
<S> <C> <C> <C>
The Pierce Corporation no par value 50 10
The Pierce Corporation II, Inc. $1.00 500 100
Automart Superstore, Inc. no par value 50 10
Pierce Automotive Corporation no par value 50 10
--------- ---------
650 130
========= =========
</TABLE>
13. RELATED-PARTY TRANSACTIONS:
Prior to October 1996, Tempe Toyota leased the land and buildings used for its
operations from a third party. In October 1996, the Companies' principal owner
purchased the land and buildings and contributed land and buildings valued at
$1,930 and $2,990, respectively, to M&JP I, L.L.C., in exchange for a $3,058
note. Additionally, the Companies assumed a $1,862 TMCC note secured by the land
and building.
In April 1996, the Companies obtained $300 from their principal owner in
exchange for a note payable. These funds were placed into the CMF under the
Companies' name. These amounts have been reflected as cash and amounts due to
related parties as of December 31, 1996.
The Companies arrange the sale of credit life insurance policies that cover
certain financing contracts on new and used cars. Premium income, net of
estimated future chargebacks, is recognized by the Companies, and the remainder
of the premium dollars is passed to a reinsurance company, in which the
principal owner of the Companies is a 0.2 percent shareholder, from which claims
are paid. The amount of premium dollars paid to the reinsurance company was $186
and the premium income recognized on these policies by the Companies was $36
during 1996.
F-107
<PAGE> 108
14. SUBSEQUENT EVENTS:
In March 1997, the owners of the Companies entered into a definitive agreement
with Republic Industries, Inc. The transaction is subject to obtaining
manufacturer approval.
F-108
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
Courtesy Auto Group, Inc.
Longwood, Florida
We have audited the accompanying balance sheets of Courtesy Auto Group, Inc. as
of December 31, 1996 and 1995 and the related statements of income, changes in
shareholders' equity and cash flows, for the years then ended. 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 assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Courtesy Auto Group, Inc. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
We have compiled the accompanying balance sheet of Courtesy Auto Group, Inc. as
of June 30, 1997, and the related statements of income and cash flows for the
six months ended June 30, 1997 and 1996, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying June 30, 1997 and 1996 financial statements and
accordingly, do not express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles as of June 30, 1997 and six months
ended June 30, 1997 and June 30, 1996. If the omitted disclosures were included
in the financial statements, they might influence the user's conclusions about
the Company's financial position, results of operations and cash flows.
Accordingly, these financial statements are not designed for those who are not
informed about such matters.
BOWDEN & WOOD
Louisville, Kentucky
September 5, 1997.
F-109
<PAGE> 110
COURTESY AUTO GROUP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
--------------------- ----------------------------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalent:
Cash on hand and in banks $ 1,072,849 $ 659,631 $ 64,911
Contracts in transit 321,587 2,939,846 945,484
--------------- -------------- ---------------
Total cash and cash equivalent 1,394,436 3,599,477 1,010,395
Accounts and notes receivable:
Trade 1,812,967 1,619,084 1,011,973
Factory net of warranty advance 896,921 615,681 497,865
Less allowance for doubtful accounts (118,875) (118,875) (39,563)
Note receivable, Courtesy Acceptance
Corporation (note B) 0 22,736 245,273
Note receivable, Easy Auto Sales &
Finance, Inc. (note B) 0 0 720,520
Note receivable, Diamond Technology,
Inc. (formerly Security National
Recovery & Insurance, Inc.) (note B) 0 31,308 139,126
Finance commissions receivable 389,358 318,058 291,111
Prepaid expenses 148,701 91,281 31,667
Inventories held for sale (note A):
New vehicles 21,801,182 17,046,873 12,288,950
Used vehicles 3,029,682 3,464,198 3,420,832
Parts and accessories 1,339,408 1,090,247 895,626
Other 63,512 68,051 32,523
--------------- -------------- ---------------
Total current assets 30,757,292 27,848,119 20,546,298
--------------- -------------- ---------------
Fixed assets (notes A and C):
Cost 18,669,094 13,528,824 11,996,915
Less accumulated depreciation and
amortization 2,294,040 1,986,179 1,391,091
--------------- -------------- ---------------
Book value of fixed assets 16,375,054 11,542,645 10,605,824
--------------- -------------- ---------------
Other assets:
Deposits with vendors 14,068 14,068 20,896
--------------- -------------- ---------------
Total other assets 14,068 14,068 20,896
--------------- -------------- ---------------
Total assets 47,146,414 39,404,832 31,173,018
=============== ============== ===============
</TABLE>
See accountants' report and notes to financial statements.
F-110
<PAGE> 111
COURTESY AUTO GROUP, INC.
BALANCE SHEET (continued)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
--------------------------- ----------------------------------
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft, books only $ 0 $ 0 $ 146,660
Wholesale finance liability (note D) 24,344,694 21,522,489 15,369,086
Notes payable to banks and others (note E) 2,223,357 2,223,357 2,154,022
Notes payable, shareholders (note F) 4,482,480 4,334,333 3,195,496
Notes payable, service loaners 162,706 176,081 145,828
Trade accounts payable 827,551 1,214,831 957,355
Accrued payroll 360,491 407,602 375,126
Accrued payroll taxes and withholdings 133,011 128,290 182,536
Accrued retirement plan contributions and
withholdings 113,718 45,303 67,488
Sales and use taxes payable 49,502 249,367 129,355
Accrued interest 124,686 131,835 93,390
Other current liabilities 396,636 742,825 193,017
--------------- --------------- ---------------
Total current liabilities 33,218,832 31,176,313 23,009,359
--------------- --------------- ---------------
Long-term debt:
Notes payable to banks and others (note E) 10,977,421 5,360,666 6,100,073
Notes payable, shareholders (note F) 731,250 731,250 887,091
--------------- --------------- ---------------
Total long-term debt 11,708,671 6,091,916 6,987,164
--------------- --------------- ---------------
Total liabilities 44,927,503 37,268,229 29,996,523
--------------- --------------- ---------------
Shareholders' equity:
Common stock, $1.00 par value, 300 shares
issued and outstanding 300 300 300
Additional paid in capital 250,734 250,734 250,734
Retained earnings 1,967,877 1,885,569 925,461
--------------- --------------- ---------------
Total shareholders' equity 2,218,911 2,136,603 1,176,495
--------------- --------------- ---------------
Total liabilities and shareholders' equity 47,146,414 39,404,832 31,173,018
=============== =============== ===============
</TABLE>
See accountants' report and notes to financial statements.
F-111
<PAGE> 112
COURTESY AUTO GROUP, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
1997 1996 1996 1995
---------------------------- -----------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Sales $84,322,922 $96,187,550 $182,847,152 $162,433,053
Cost of sales 74,454,277 86,842,066 164,241,381 147,482,422
----------- ----------- ------------ ------------
Gross profit margin 9,868,645 9,345,484 18,605,771 14,950,631
Finance, insurance and service
contract commissions 1,161,990 1,130,998 3,391,818 3,064,394
----------- ----------- ------------ ------------
11,030,635 10,476,482 21,997,589 18,015,025
Variable selling expense 1,854,543 1,997,801 4,209,515 3,548,299
----------- ----------- ------------ ------------
9,176,092 8,478,681 17,788,074 14,466,726
Operating expense 9,505,072 8,544,075 17,810,124 14,637,700
----------- ----------- ------------ ------------
Operating loss from sales and service (328,980) (65,394) (22,050) (170,974)
Other income and deductions 729,655 1,337,884 2,132,911 2,118,850
----------- ----------- ------------ ------------
Income before income taxes 400,675 1,272,490 2,110,861 1,947,876
Provision for income taxes (note A) 0 0 0 0
----------- ----------- ------------ ------------
Net income for the period 400,675 1,272,490 2,110,861 1,947,876
=========== =========== ============ ============
</TABLE>
See accountants' report and notes to financial statements.
F-112
<PAGE> 113
COURTESY AUTO GROUP, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained shareholders'
stock capital earnings equity
<S> <C> <C> <C> <C>
Balances, January 1,
1995 $200 $199,800 $1,642,585 $1,842,585
Merger of H & S
Performance Management,
Inc. into
Courtesy Auto Group,
Inc. 100 50,934 51,034
Net Income for 1995 1,947,876 1,947,876
Dividends, 1995 (2,665,000) (2,665,000)
---- -------- ----------- -----------
Balances, December 31,
1995 300 250,734 925,461 1,176,495
Net income for 1996 2,110,861 2,110,861
Dividends, 1996 (1,150,753) (1,150,753)
---- -------- ----------- -----------
Balances, December 31,
1996 300 250,734 1,885,569 2,136,603
==== ======== =========== ===========
</TABLE>
See accountants' report and notes to financial statements.
F-113
<PAGE> 114
COURTESY AUTO GROUP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
1997 1996 1996 1995
------------------------- -----------------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 400,675 $1,272,490 $ 2,110,861 $ 1,947,876
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Non-cash expense (income):
Depreciation and amortization including
non-compete 307,861 254,997 595,088 380,266
Provision for uncollectible accounts 0 79,312 14,776
Changes in assets and liabilities:
Decreases (increases) in assets:
Accounts receivable (475,123) (990,550) (724,927) (522,536)
Finance commissions receivable (71,300) (293,264) (26,947) (158,007)
Prepaid expenses (57,420) (397,864) (59,614) 12,385
Inventories (4,564,415) (3,181,728) (5,031,438) (7,588,582)
Other assets 0 (1,566) 6,828 39,886
Increases (decreases) in liabilities:
Wholesale finance liability 2,822,205 3,250,570 6,183,656 6,811,205
Accounts payable (387,280) 741,135 257,476 660,908
Customer deposits 0 0 0 0
Accrued payroll (47,111) (24,658) 32,476 97,491
Accrued payroll taxes and withholdings 4,721 (115,367) (54,246) 55,827
Accrued pension contributions and
withholdings 68,415 6,880 (22,185) (14,087)
Other current liabilities (566,578) 826,051 708,264 45,994
----------- ----------- ----------- ------------
Total adjustments (2,966,025) 74,636 1,943,743 (164,474)
----------- ----------- ----------- ------------
Net cash (used) provided by operating activities (2,565,350) 1,347,126 4,054,604 1,783,402
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (net of purchase debt
incurred) (127,615) (665,117) (1,531,909) (2,418,592)
Net decrease (increase) in loan to:
Courtesy Acceptance Corporation 22,736 0 222,537 580,099
Easy Auto Sales & Finance, Inc. 0 0 720 520 (720,520)
Diamond Technology, Inc. (formerly Security
National Recovery & Insurance, Inc.) 31,308 0 107,818 (139,126)
----------- ----------- ----------- -------------
Net cash used by investing activities (73,571) (665,117) (481,034) (2,698,139)
----------- ----------- ----------- -------------
</TABLE>
See accountants' report and notes to financial statements.
F-114
<PAGE> 115
COURTESY AUTO GROUP, INC.
STATEMENT OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
1997 1996 1996 1995
----------------------- --------------------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowed from shareholders and other
lenders $ 148,147 $ 451,285 $ 1,289,335 $3,507,399
Payments on loans to shareholders and
other lenders (383,245) (417,174) (976,410) (553,239)
Dividends paid (318,367) (113,000) (1,150,753) (2,665,000)
Cash overdraft, books only 0 (146,660) (146,660) 146,660
Borrowing in excess of purchase cost
on acquisition 987,345 0 0 0
Cash from mergers and acquisitions 0 0 0 19,068
---------- ---------- ----------- ----------
Net cash provided (used) by financing
activities 433,880 (225,549) (984,488) 454,888
---------- ---------- ----------- ----------
NET (DECREASE) INCREASE IN CASH AND
EQUIVALENT (2,205,041) 456,460 2,589,082 (459,849)
CASH AND EQUIVALENT, BEGINNING OF
PERIOD 3,599,477 1,010,395 1,010,395 1,470,244
---------- ---------- ----------- ----------
CASH AND EQUIVALENT, END OF PERIOD 1,394,436 1,466,855 3,599,477 1,010,395
========== ========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest
expense 869,208 595,735 1,693,314 1,172,424
Cash paid for income tax 0 0 0 0
</TABLE>
See accountants' report and notes to financial statements.
F-115
<PAGE> 116
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
A SIGNIFICANT ACCOUNTING POLICIES
CORPORATE INFORMATION
Courtesy Auto Group, Inc. was incorporated under the laws of Florida on
January 9, 1984. The corporation conducts Pontiac, Saturn, and Acura
dealerships at 650 North Highway 17- 92, Longwood, Florida and 8620 South
Orange Blossom Trail, Orlando, Florida.
In January, 1994, a used vehicle sales lot was leased at 4215 Highway
17-92, Sanford, Florida, replacing the used vehicle lot at 3219 Orlando
Drive, Sanford, Florida, which was abandoned. In August, 1995, the used
vehicle sales lot operations were transferred to Easy Auto Sales &
Finance, Inc.
A new Saturn and Suzuki sales and service location was constructed and
opened at 2184 East Irlo Bronson Memorial Highway, Kissimmee, Florida in
late 1995.
In July, 1995, the Company acquired the rights to the Isuzu/Suzuki
franchise f/k/a Magic Isuzu/Suzuki from George Boomer. Under the terms of
the agreement, the Company agreed to retain Boomer as an employee for
three years through July, 1998. Boomer is paid $6,184/month ($74,000
yearly).
FINANCE COMMISSIONS RECEIVABLE
Finance commissions receivable are amounts due for commissions earned on
finance contracts sold to financial institutions. Financial institution
chargebacks resulting from prepayment of finance contracts are charged to
income as incurred.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of new
vehicles, used vehicles, and parts is determined by the last-in, first-out
(LIFO) method. The cost of incidental other inventories is determined by
the first-in, first-out (FIFO) method. Market is the lower of replacement
cost or net realizable value. If the specific cost method had been used to
determine inventories, instead of the LIFO method, they would have been
higher by $2,804,357 at December 31, 1996 ($2,582,298, 1995).
FIXED ASSETS, DEPRECIATION AND AMORTIZATION
Fixed assets are reflected at cost and depreciated over estimated lives by
the straight line method. Costs of acquisitions and improvements are
capitalized, while costs of repairs and maintenance are expensed. The cost
and accumulated depreciation or amortization are removed from the accounts
when assets are disposed of or retired and any resultant gains or losses
are included in other income and deductions.
INCOME TAXES
The Company and its stockholders have elected to be treated as a "Small
Business Corporation" for income tax purposes under Subchapter "S" of the
Internal Revenue Code and a similar section in the Florida Code. In
accordance with the provisions of such elections, the Company's income and
losses were passed through to its stockholders; accordingly, no provision
for income taxes was recorded for the year.
F-116
<PAGE> 117
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 1996 AND 1995
A SIGNIFICANT ACCOUNTING POLICIES (continued)
CONSIDERATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at a high credit
quality financial institution. The balances, at times, may exceed
federally insured limits.
NADART 401K PLAN
The Company provides a 401K plan for eligible employees. Plan costs are
funded as accrued.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers
contracts in transit to be cash equivalents. Additionally, the net change
in floor plan financing of inventory is reflected in operating activities.
B RELATED-PARTY TRANSACTIONS
In the ordinary course of business, the Company engages in transactions
with Samuel G. Swope, D. Kim Hackett, Swope Automotive Group, Inc.,
Courtesy Acceptance Corporation, Diamond Technology, Inc. (formerly
Security National Recovery and Insurance, Inc.) and Swope Group Employee
Benefit Fund which are related through common management and/or ownership.
The transactions, which are summarized below, include management services,
the leasing of the real estate for the dealership facilities, interest and
employee group health insurance.
A summary of these related-party transactions for the year ended December
31, follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Interest income $103,137 $ 96,802
President's salary and bonus 224,747 198,317
Management fee expense 637,002 693,351
Interest expense 303,256 264,192
Employee benefit insurance expense 80,447 455,769
Rent expense 246,900 244,450
</TABLE>
The following accounts receivable balance existed with related parties at
December 31:
Current:
Due from related parties $244,433 $3,917
The amounts are classified as current, relate to operations and are
expected to be paid within the subsequent year.
F-117
<PAGE> 118
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 1996 AND 1995
B RELATED-PARTY TRANSACTIONS (continued)
The following notes receivable balance existed with related parties at
December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note receivable from Courtesy Acceptance
Corporation is unsecured and due on demand
plus interest varying with the "prime rate"
(7.5% at December 31, 1996, 8.25% at
December 31,1995) $22,736 $ 245,273
Note receivable from Easy Auto Sales & Finance,
Inc. is unsecured and due on demand plus
interest varying with the "prime rate" (7.5% at
December 31, 1996, 8.25% at December 31, 1995 0 720,520
Note receivable from Diamond Technology, Inc.
(formerly Security National Recovery
& Insurance, Inc.) is unsecured and due on
demand plus interest varying with the "prime
rate" (7.5% at December 31, 1996, 8.25% at
December 31, 1995) 31,308 139,126
------- ----------
54,044 1,104,919
======= ==========
</TABLE>
The Company has notes payable to Swope Automotive Group, Inc. (note E)
and to the shareholders (note F).
Related party and shareholder debt is subordinated to debt owed to Barnett
Bank.
C FIXED ASSETS, DEPRECIATION, AND AMORTIZATION
Fixed assets, depreciation, and amortization are summarized below:
<TABLE>
<CAPTION>
Primary
useful
life in 1996 Book
Description years expense Cost value
<S> <C> <C> <C> <C>
Land $ 0 $ 3,212,198 $ 3,212,198
Buildings 40 159,243 5,487,294 5,276,981
Service equipment 10 109,256 1,376,918 848,992
Furniture, signs and
office equipment 10 232,075 2,122,257 1,179,833
Leasehold improvements 10 94,514 1,330,157 1,024,641
-------- ----------- -----------
Totals 595,088 13,528,824 11,542,645
======== =========== ===========
</TABLE>
F-118
<PAGE> 119
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 1996 AND 1995
C FIXED ASSETS, DEPRECIATION, AND AMORTIZATION (continued)
Depreciation and amortization expense for the year ended December 31, 1995
was $383,064.
D WHOLESALE FINANCE LIABILITY
Barnett Bank provides financing secured by new and used vehicle inventory,
bearing interest varying with the "prime rate" which was 7.42% at the end
of 1996 (8.25%, 1995)
Total interest expense on all indebtedness was approximately $1,303,633
for 1996 ($961,364, 1995).
E NOTES PAYABLE, BANKS AND OTHERS
<TABLE>
<CAPTION>
Owed to Current
Collateral Interest
Terms Amount Rate
1996 1995
<S> <C> <C> <C>
Barnett Bank
Real estate, 8620 South Orange
Blossom Trail, Orlando, Florida
$14,852 per month plus
interest with balance due
July 14, 2000 $1,886,234 $2,064,459 7.5%
Real Estate, 8600 South Orange
Blossom Trail, Orlando, Florida
$3,293 per month plus
interest with balance due
July 14, 2000 418,213 457,729 7.5%
Real estate, 4165 North Highway
17-92, Sanford, Florida
$7,500 per month plus
interest with balance due
July 10, 2000 1,222,500 1,312,500 7.5%
Real estate, 2184 East Irlo
Bronson Memorial Highway,
Kissimmee, Florida
$10,833 per month plus
interest with balance due
August 3, 2000 1,776,667 1,895,833 7.5%
</TABLE>
F-119
<PAGE> 120
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 1996 AND 1995
E NOTES PAYABLE, BANKS AND OTHERS (continued)
<TABLE>
<CAPTION>
Owed to Current
Collateral Interest
Terms Amount Rate
1996 1995
<S> <C> <C> <C>
Unsecured
$26,042 per month plus
interest $ 807,292 $1,119,792 7.5%
---------- ----------
Total due Barnett Bank 6,110,906 6,850,313
---------- ----------
Swope Automotive Group, Inc.
Unsecured
Due on demand at variable
interest rate 99,000 99,000 8.5%
Unsecured
Due on demand at variable
interest rate 330,000 330,000 8.5%
---------- ----------
Total due Swope Automotive Group,
Inc. 429,000 429,000
---------- ----------
Individuals, other
Unsecured
Due on demand at
variable interest rate 202,036 187,675 7.5%
177,342 164,737 7.5%
129,835 120,501 7.5%
65,958 61,307 7.5%
111,595 103,539 7.6%
106,991 99,285 7.6%
191,344 187,137 7.6%
27,588 25,601 7.5%
-0- 25,000 7.5%
10,104 -0- 7.5%
21,324 -0- 7.25%
---------- ----------
Total due individuals, other 1,044,117 974,782
---------- ----------
Total notes payable 7,584,023 8,254,095
Less due within one year 2,223,357 2,154,022
---------- ----------
Long-term debt 5,360,666 6,100,073
========== ==========
</TABLE>
F-120
<PAGE> 121
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 1996 AND 1995
E NOTES PAYABLE, BANKS AND OTHERS (continued)
<TABLE>
<S> <C> <C>
Long-term debt matures during the years ended December 31, 1998 $ 750,240
1999 620,020
2000 3,990,406
----------
Total 5,360,666
==========
</TABLE>
F NOTES PAYABLE, SHAREHOLDERS
All notes are unsecured and payable on demand.
<TABLE>
<CAPTION>
Interest
Amount Rate
1996 1995
<S> <C> <C> <C>
Notes owed D. Kim Hackett $ 274,300 $ 288,800 6.5%
40,000 40,000 10.0%
10,000 10,000 8.5%
278,000 278,000 8.5%
320,000 -0- 6.5%
Notes owed Samuel G. Swope 400,000 400,000 7.5%
318,200 318,200 7.5%
100,000 100,000 8.0%
100,000 100,000 7.5%
500,000 500,000 8.0%
60,000 60,000 8.5%
160,000 160,000 10.0%
518,000 518,000 8.5%
125,000 125,000 8.5%
100,000 100,000 8.5%
650,000 -0- 7.5%
225,000 -0- 7.5%
Note owed Samuel G. Swope due in
monthly installments of $8,333 58,333 158,338 8.5%
Note owed Samuel G. Swope due in
monthly installments of $8,125 828,750 926,249
---------- ----------
Total 5,065,583 4,082,587
Less due within one year 4,334,333 3,195,496
---------- ----------
Long-term debt 731,250 887,091
========== ==========
</TABLE>
F-121
<PAGE> 122
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 1996 AND 1995
F NOTES PAYABLE, SHAREHOLDERS (continued)
Long-term debt matures du ing the years ended December 31,
<TABLE>
<S> <C>
1998 $ 97,500
1999 97,500
2000 97,500
2001 97,500
Thereafter 341,250
--------
Total 731,250
========
</TABLE>
G INCOME TAXES
None of the corporation's income tax returns have been examined by
Internal Revenue Service.
H RETIREMENT PLAN
The corporation maintains a 401K plan with National Automobile Dealers
Retirement Trust. The corporation matches 50% of the first 2% of employee
contributions, 25% of additional deferred cash contributions up to 6% and
makes an annual discretionary profit sharing contribution.
The corporation's expense relating to this plan was $50,536 in 1996
($55,934 , 1995).
I COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The company leases one parcel of real estate from a corporation controlled
by Samuel G. Swope. The lease will expire in September, 2000.
Minimum rental commitments on leases are listed below, by year:
<TABLE>
<S> <C>
1997 $246,900
1998 246,900
1999 246,900
2000 185,175
</TABLE>
Rent expense under all operating leases was approximately $542,606 for the
year ended December 31, 1996 ($657,605, 1995).
EQUIPMENT LEASE
An IBM computer upgrade was leased in January, 1995 at $6,064 per month
for 36 months.
F-122
<PAGE> 123
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 1996 AND 1995
I COMMITMENTS AND CONTINGENCIES (continued)
EQUIPMENT LEASE (continued)
A computer system lease from Reyna Financial, Inc. was assumed in June,
1995, at $5,876 per month. The lease will expire in June, 1997, and is
renewable on a month to month basis thereafter. A purchase option is
available at lease-end for a fair market value price.
INSURANCE COVERAGE
The Company and certain affiliates have a combined medical self-insured
retention limit of $100,000 per person, with $900,000 excess coverage over
the retention limit.
GOVERNMENTAL REGULATION
Substantially all of the Company's facilities are subject to federal,
state and local provisions regulating the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the
capital expenditures, net income, financial condition or competitive
position of the Company. Management believes that its current practices
and procedures for the control and disposition of such wastes comply with
applicable federal and state requirements.
CONTINGENCIES
Courtesy Auto Group, Inc. is the guarantor on loans from PNC Bank,
Kentucky, Bank One, Kentucky, NA and Barnett Bank. In 1994, the Company
guaranteed a computer purchase loan for Diamond Technology, Inc. (formerly
Security National Recovery and Insurance, Inc.) and a Barnett Bank loan
for Courtesy Acceptance Corporation.
J ECONOMIC DEPENDENCY
Substantially all new vehicle sales are supported by product purchases
from General Motors, Honda Motor Company, American Isuzu Motors, Inc. and
American Suzuki Motors Corporation, Automobile Division. New vehicle and
parts sales represent approximately 52% and 54% of sales for 1996 and
1995, respectively.
F-123
<PAGE> 124
COURTESY AUTO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
K. EVENTS SUBSEQUENT TO DECEMBER 31, 1996
On June 30, 1997, Courtesy Auto Group, Inc. acquired the real estate, fixed
assets and parts inventories of Quality Buick GMC Truck, Inc. for
$5,200,000. A loan for $6,000,000 was obtained from Sun Trust Bank to pay
for this purchase and provide working capital. The new vehicle inventory
was acquired for $6,366,440 and financed through GMAC. The acquisition has
been included in the attached financial statements.
Subsequently, as of June 30, 1997, all of the 300 shares of Courtesy Auto
Group, Inc. were acquired by Republic Industries, Inc., along with real
estate owned outside of Courtesy Auto Group, Inc., for 1,380,744 shares of
Republic Industries, Inc. stock. The amounts in the attached financial
statements have not been modified for the Republic acquisition.
F-124
<PAGE> 125
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC.,
GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP, AAA DISPOSAL SERVICE, INC.,
YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY,
BANKSTON AUTOMOTIVE GROUP, JOHN LANCE COMPANY,
VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP AND SNAPPY CAR RENTAL, INC.
The following Unaudited Condensed Consolidated Pro Forma Financial
Statements include the supplemental consolidated financial statements of
Republic Industries, Inc. and subsidiaries (the "Company") which include the
results of operations of Silver State Disposal Service, Inc. ("Silver State")
which the Company acquired in August 1997 and De La Cruz Auto Group ("De La
Cruz") which the Company acquired in July 1997. These transactions have been
accounted for under the pooling of interests method of accounting and,
accordingly, the Company's supplemental consolidated financial statements have
been retroactively adjusted as if the Company, Silver State and De La Cruz had
operated as one entity since inception. The supplemental consolidated financial
statements also include the 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") 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") which the Company
acquired in February 1997 and Carlisle Motors, Inc. ("Carlisle") which the
Company acquired in January 1997. These transactions have been accounted for
under the pooling of interests method of accounting and, accordingly, the
Company's historical consolidated financial statements have previously been
restated as if the Company, Pierce, Flemington, Spirit, Chesrown, Blesdoe,
National, Maroone, Wallace, Taormina and Carlisle had operated as one entity
since inception.
The following Unaudited Condensed Consolidated Pro Forma Balance Sheet
presents the pro forma financial position of the Company as of June 30, 1997 as
if the acquisitions of Value Rent-A-Car, Inc. ("Value") and Courtesy Auto Group
("Courtesy") which the Company acquired in July 1997 and Snappy Car Rental Inc.,
("Snappy") which the Company acquired in August 1997 had been consummated as of
June 30, 1997.
The following Unaudited Condensed Consolidated Pro Forma Statements of
Operations for the six months ended June 30, 1997 and for the year ended
December 31, 1996 present the pro forma results of operations of the Company as
if the acquisitions of Value, Courtesy and Snappy, as well as the acquisitions
of AutoNation Incorporated ("AutoNation"), Ed Mullinax, Inc. and subsidiaries
("Mullinax") and Grubb Automotive ("Grubb"), which were acquired in January
1997; Kendall Automotive Group ("Kendall"), AAA Disposal Service, Inc.
("AAA"), York Waste Disposal, Inc. ("York"), which were acquired in February
1997; Shad Management Company ("Shad") and Bankston Automotive Group
("Bankston") which were acquired in May 1997 and the John Lance Company
("Lance") which was acquired in June 1997 had been consummated as of January 1,
1996. The pro forma statement of operations for the year ended December 31, 1996
also contains pro forma adjustments related to certain equity transactions in
1996 and 1997 which resulted in net proceeds to the Company of approximately
$1.1 billion (the "Equity Transactions").
The unaudited pro forma income per common and common equivalent share is
based on the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
or conversion of warrants and options. In computing the unaudited pro forma
income per common and common equivalent share, the Company utilizes the treasury
stock method. Primary income per share is not presented as it does not
significantly differ from fully diluted income per share.
These Unaudited Condensed Consolidated Pro Forma Financial Statements
should be read in conjunction with the respective historical and supplemental
consolidated or combined financial statements and notes thereto of the Company,
Silver State, De La Cruz, Pierce, Flemington, Spirit, Chesrown, Bledsoe,
AutoNation, Mullinax, Grubb, Kendall, AAA, York, Shad, Bankston, Lance, Value,
Courtesy and Snappy. These Unaudited Condensed Consolidated Pro Forma Financial
Statements were prepared utilizing the accounting policies of the respective
entities as outlined in their historical financial statements except as
described in the accompanying notes. The acquisitions of AutoNation, Mullinax,
Grubb, Kendall, York, Shad, Bankston, Lance, Value, Courtesy and Snappy have
been accounted for under the purchase method of accounting. Accordingly, the
Unaudited Condensed Consolidated Pro Forma Financial Statements reflect the
Company's preliminary allocations of the purchase prices of such acquisitions
which will be subject to further adjustments as the Company finalizes the
allocations of the purchase prices in accordance with generally accepted
accounting principles. The acquisition of AAA has been accounted for under the
pooling of interests method of accounting and, accordingly, has been included in
the Company's historical results of operations for the six months ended June 30,
1997. Such acquisition was not material and consequently prior period financial
statements have not been restated and pro forma statements of operations for
1995 and 1994 have not been included herein. The unaudited condensed
consolidated pro forma results of operations do not necessarily reflect actual
results which would have occurred if the acquisitions or the Equity Transactions
had taken place on the assumed dates, nor are they necessarily indicative of the
results of future combined operations.
F-125
<PAGE> 126
REPUBLIC INDUSTRIES, INC.
VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP AND SNAPPY CAR RENTAL, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(In millions)
<TABLE>
<CAPTION>
SUPPLEMENTAL
REPUBLIC VALUE COURTESY SNAPPY COMBINED
------------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 155.7 $ .3 $ 1.1 $ .9 $ 158.0
Receivables, net 631.3 8.9 3.3 13.1 656.6
Inventory 783.9 -- 26.2 -- 810.1
Revenue earning vehicles, net 4,524.9 62.5 -- 145.3 4,732.7
Prepaid expenses and other current assets 129.2 6.5 .1 5.9 141.7
-------- ------ ------ ------ --------
Total current assets 6,225.0 78.2 30.7 165.2 6,499.1
Property and equipment, net 1,805.7 56.1 16.4 2.9 1,881.1
Intangible assets 871.7 -- -- 5.0 876.7
Investment in subscribers 120.3 -- -- -- 120.3
Other assets 23.3 -- -- -- 23.3
-------- ------ ------ ------ --------
Total assets $9,046.0 $134.3 $ 47.1 $173.1 $9,400.5
======== ====== ====== ====== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 669.4 $ 20.1 $ 1.5 $ 11.7 $ 702.7
Current portion of long-term
debt and notes payable 3,581.1 184.3 31.2 147.9 3,944.5
Other current liabilities 579.7 19.9 .4 3.3 603.3
-------- ------ ------ ------ --------
Total current liabilities 4,830.2 224.3 33.1 162.9 5,250.5
Long-term debt, net of current
maturities 1,060.3 -- 11.7 8.8 1,080.8
Other liabilities 448.7 .8 -- -- 449.5
-------- ------ ------ ------ --------
Total liabilities 6,339.2 225.1 44.8 171.7 6,780.8
-------- ------ ------ ------ --------
Shareholders' equity:
Common stock 3.9 -- -- .1 4.0
Additional paid-in capital 2,591.5 26.8 .3 3.9 2,622.5
Retained earnings (accumulated deficit) 111.4 (117.6) 2.0 (2.6) (6.8)
-------- ------ ------ ------ --------
Total shareholders' equity
(capital deficiency) 2,706.8 (90.8) 2.3 1.4 2,619.7
-------- ------ ------ ------ --------
Total liabilities and
shareholders' equity
(capital deficiency) $9,046.0 $134.3 $ 47.1 $173.1 $9,400.5
======== ====== ====== ====== ========
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------------------
DR. CR. PRO FORMA
--------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 158.0
Receivables, net 656.6
Inventory $ 2.9 (a) 813.0
Revenue earning vehicles, net 4,732.7
Prepaid expenses and other
current assets 141.7
------ ------ --------
Total current assets 2.9 6,502.0
Property and equipment, net $ 35.6 (b) 1,845.5
Intangible assets 105.4 (c) 982.1
Investment in subscribers 120.3
Other assets 23.3
------ ------ --------
Total assets $108.3 $ 35.6 $9,473.2
====== ====== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 702.7
Current portion of long-term
debt and notes payable $117.0 (b) 3,827.5
Other current liabilities 603.3
------ ------ --------
Total current liabilities $117.0 5,133.5
Long-term debt, net of current
maturities 1,080.8
Other liabilities 449.5
------ ------ --------
Total liabilities 117.0 6,663.8
------ ------ --------
Shareholders' equity:
Common stock .1 (d) $ .1 (e) 4.0
Additional paid-in capital 31.0 (d) 102.5 (e) 2,694.0
Retained earnings (accumulated deficit) 118.2 (d) 111.4
------ ------ --------
Total shareholders' equity
(capital deficiency) 31.1 220.8 2,809.4
------ ------ --------
Total liabilities and
shareholders' equity
(capital deficiency) $148.1 $220.8 $9,473.2
====== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-126
<PAGE> 127
REPUBLIC INDUSTRIES, INC.,
AUTONATION INCORPORATED, GRUBB AUTOMOTIVE,
KENDALL AUTOMOTIVE GROUP, BANKSTON AUTOMOTIVE GROUP,
JOHN LANCE COMPANY, VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP
AND SNAPPY CAR RENTAL, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(In millions, except per share data)
<TABLE>
<CAPTION>
SUPPLEMENTAL
REPUBLIC AUTONATION(1) GRUBB(2) KENDALL(2) BANKSTON(3) LANCE(4) VALUE
--------- ------------- -------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $4,308.4 $ 14.2 $42.0 $69.6 $87.0 $31.0 $ 97.0
Expenses:
Cost of operations 3,571.7 15.1 37.8 63.1 75.7 26.6 80.8
Selling, general and
administrative 575.7 8.9 3.8 5.4 10.4 3.0 24.8
Restructuring and
merger expenses 94.1 -- -- -- -- -- --
Other (income) expense:
Interest and other income (117.5) -- (.2) (.2) (.5) (.1) (.1)
Interest expense 10.2 1.1 -- .3 .2 3.7
-------- ------ ----- ----- ----- ----- ------
4,134.2 25.1 41.4 68.6 85.8 29.5 109.2
-------- ------ ----- ----- ----- ----- ------
Income (loss) before
income taxes 174.2 (10.9) 0.6 1.0 1.2 1.5 (12.2)
Provision for income taxes 63.3 -- -- -- -- -- --
-------- ------ ----- ----- ----- ----- ------
Net income (loss) $ 110.9 $(10.9) $ 0.6 $ 1.0 $ 1.2 $ 1.5 $(12.2)
======== ====== ===== ===== ===== ===== ======
Fully-diluted:
Income per share $ .27
========
Weighted average shares
outstanding 413.4 17.5 4.0 1.2 1.4 .8 3.4
======== ====== ===== ===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-------------------------
COURTESY SNAPPY COMBINED DR. CR. PRO FORMA
---------- ------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
Revenue $86.2 $49.6 $4,785.0 $4,785.0
Expenses:
Cost of operations 74.4 41.8 3,987.0 $ 2.5 (g) 3,989.5
Selling, general and
administrative 11.4 7.7 651.1 651.1
Restructuring and
merger expenses -- -- 94.1 94.1
Other (income) expense:
Interest and other income -- (.8) (119.4) (119.4)
Interest expense -- .9 16.4 16.4
----- ----- -------- ----- ---- --------
85.8 49.6 4,629.2 2.5 4,631.7
----- ----- -------- ----- ---- --------
Income (loss) before
income taxes .4 -- 155.8 2.5 153.3
Provision for income taxes -- -- 63.3 $7.7 (i) 55.6
----- ----- -------- ----- ---- --------
Net income (loss) $ .4 $ -- $ 92.5 $ 2.5 $7.7 $ 97.7
===== ===== ======== ===== ==== ========
Fully-diluted:
Income per share $ .23
========
Weighted average shares
outstanding 1.4 1.0 444.1 (21.1)(j) 423.0
===== ===== ======== ===== ========
- ---------------------
(1) Represents the pre-acquisition results of operations for the month of January 1997.
(2) Represents the pre-acquisition results of operations for the months of January and
February 1997.
(3) Represents the pre-acquisition results of operations for the months
January through April 1997.
(4) Represents the pre-acquisition results of operations for the months
January through May 1997.
</TABLE>
The accompanying notes are an integral part of these statements.
F-127
<PAGE> 128
REPUBLIC INDUSTRIES, INC.,
AUTONATION INCORPORATED, ED MULLINAX, INC.,
GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP,
AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC.,
SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP,
JOHN LANCE COMPANY, VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP
AND SNAPPY CAR RENTAL, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In millions, except per share data)
<TABLE>
<CAPTION>
SUPPLEMENTAL
REPUBLIC AUTONATION MULLINAX GRUBB KENDALL AAA YORK SHAD BANKSTON(1) LANCE VALUE
--------- ---------- -------- ------ ------- ----- ----- ----- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $6,179.9 $ 31.5 $659.0 $440.0 $405.8 $32.4 $39.3 $92.4 $ 285.7 $65.7 $ 173.8
Expenses:
Cost of operations 5,103.3 42.8 589.8 384.8 367.1 23.7 31.8 82.8 247.2 56.0 142.4
Selling, general and
administrative 950.5 38.5 54.5 46.9 34.3 5.1 4.6 9.4 32.7 7.8 44.2
Restructuring and merger
expenses 38.3 -- -- -- -- -- -- -- -- -- --
Other (income) expense:
Interest and other income (37.0) -- -- (2.0) (.7) (.2) (.3) (.2) -- (.1) 1.8
Interest expense 45.9 5.6 .9 4.3 1.3 .5 .7 -- 2.5 -- 6.6
-------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------
6,101.0 86.9 645.2 434.0 402.0 29.1 36.8 92.0 282.4 63.7 195.0
-------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------
Income (loss) before
income taxes and
extraordinary charge 78.9 (55.4) 13.8 6.0 3.8 3.3 2.5 .4 3.3 2.0 (21.2)
Provision for income taxes 63.1 -- -- -- -- -- -- .4 .1 -- --
-------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------
Income (loss) before
extraordinary charge 15.8 $(55.4) $ 13.8 $ 6.0 $ 3.8 $ 3.3 $ 2.5 $ -- $ 3.2 $ 2.0 $ (21.2)
======== ====== ====== ====== ====== ===== ===== ===== ======= ===== =======
Fully-diluted:
Income per share before
extraordinary charge $ .05
========
Weighted average shares
outstanding 344.1 17.5 3.6 4.0 1.2 2.9 1.1 .5 1.4 .8 3.4
======== ====== ====== ====== ====== ===== ===== ===== ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-------------------------
COURTESY SNAPPY COMBINED DR. CR. PRO FORMA
---------- ---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 186.2 $ 91.4 $8,683.1 $8,683.1
Expenses:
Cost of operations 165.3 80.5 7,317.5 $14.7 (g) $46.5 (h) 7,284.1
1.6 (a)
Selling, general and
administrative 20.3 15.8 1,264.6 1,264.6
Restructuring and merger
expenses -- -- 38.3 38.3
Other (income) expense:
Interest and other income (2.1) (1.4) (42.2) 5.6 (f) (36.6)
Interest expense 0.4 1.3 70.0 64.4 (h) --
5.6 (f)
-------- -------- -------- ------- ------- --------
183.9 96.2 8,648.2 20.3 118.1 8,550.4
-------- -------- -------- ------- ------- --------
Income (loss) before
income taxes and
extraordinary charge 2.3 (4.8) 34.9 20.3 118.1 132.7
Provision for income taxes -- (2.4) 61.2 21.8 (i) 83.0
-------- -------- -------- ------- ------- --------
Income (loss) before
extraordinary charge $ 2.3 $ (2.4) $ (26.3) $ 42.1 $ 118.1 $ 49.7
======== ======== ======== ======= ======= ========
Fully-diluted:
Income per share
before extraordinary charge $ .12
========
Weighted average shares
outstanding 1.4 1.0 382.9 25.8 (j) 408.7
======== ======== ======== ======= ========
- ------------------
(1) Represents the fiscal year ended March 31, 1997.
</TABLE>
The accompanying notes are an integral part of these statements.
F-128
<PAGE> 129
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
ED MULLINAX, INC., GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP,
AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY,
BANKSTON AUTOMOTIVE GROUP, JOHN LANCE COMPANY,
VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP AND SNAPPY CAR RENTAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(a) Represents an entry to conform the inventory accounting policies of
acquired companies from LIFO to the specific identification method.
(b) Represents an entry to eliminate certain real estate and liabilities
not acquired in the acquisition of Value.
(c) Represents an entry to record intangible assets resulting from the
preliminary allocations of the purchase prices for the acquisitions of
Value, Courtesy and Snappy as follows (in millions):
<TABLE>
<S> <C>
Shares of Republic Common Stock to be issued............... 5.8
Value of Republic Common Stock consideration............... $102.6
Historical net liabilities................................. 87.1
Net liabilities not acquired............................... (81.4)
Write-up of inventory to fair value........................ (2.9)
------
Allocation to intangible assets............................ $105.4
======
</TABLE>
(d) Represents an entry to eliminate the historical equity balances of
Value, Courtesy and Snappy.
(e) Represents the recording of equity resulting from the Company's issuance of
Common Stock to effect the acquisitions of Value, Courtesy and Snappy.
(f) Represents an entry to eliminate interest on advances from the Company to
AutoNation.
(g) Represents an adjustment to record amortization, on a straight-line basis,
of the intangible assets resulting from the preliminary purchase price
allocations of AutoNation, Mullinax (1996 only), Grubb, Kendall, York,
Shad, Bankston, Lance, Value, Courtesy and Snappy. Intangible assets
resulting from these purchases are being amortized over a 40 year life
which approximates the estimated useful life.
(h) Represents the assumed interest savings on the payoff of a portion of the
existing indebtedness outstanding as of January 1, 1996 of the combined
entity with the proceeds from the 1996 and 1997 Equity Transactions which
are also assumed to have occurred as of January 1, 1996.
(i) Represents the incremental change in the combined entity's provision for
income taxes as a result of the pre-tax income (loss) of AutoNation,
Mullinax, Grubb, Kendall, York, AAA, Shad, Bankston, Lance, Value,
Courtesy and Snappy and all pro forma adjustments as described above.
(j) Includes the weighted average effect of shares issued in the acquisitions
and/or the 1996 and 1997 Equity Transactions.
F-129
