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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ____________
Commission file number: 1-13107
</TABLE>
REPUBLIC INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 73-1105145
(State of Incorporation) (I.R.S. Employer Identification No.)
110 S.E. 6TH STREET 33301
FORT LAUDERDALE, FLORIDA (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's telephone number, including area code: (954) 769-7200
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on which Registered
------------------- -----------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE THE NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 25, 1998, the registrant had 447,082,516 shares of Common Stock
outstanding and, at such date, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was approximately
$10,409,508,000.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C>
Part III Portions of the Registrant's Proxy Statement relative to the
1998 Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration
statements.
</TABLE>
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<PAGE> 2
EXPLANATORY NOTE TO FORM 10-K/A
The Registrant is filing on this Amendment No. 1 on Form 10-K/A:
(i) audited consolidated financial statements as of December 31, 1997
and 1996 and for each of the three years in the period ended December
31, 1997; and
(ii) management's discussion and analysis of financial condition and
results of operations for each of the periods described above, all of
which have been restated for various businesses acquired in 1997 and
1996 accounted for under the pooling of interests method of accounting.
These acquisitions had been accounted for as immaterial pooling of interests
transactions for which prior periods were not restated in the Registrant's 1997
Annual Report on Form 10-K. The restatement resulted from a change in the
Registrant's evaluation of the aggregate impact of individually immaterial
pooling of interests transactions on the Registrant's prior period financial
statements.
The financial statements and related financial disclosures being filed herewith
were previously filed by the Registrant on Form 8-K dated July 22, 1998, as
amended by Amendment No. 1 on Form 8-K/A filed on September 11, 1998.
The Items of Form 10-K affected by this Amendment No. 1 on Form 10-K/A are as
follows:
Part II - Item 6. Selected Financial Data
Part II - Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II - Item 8. Financial Statements and Supplementary Data
Part IV - Item 14. Exhibits, Financial Statement Schedules and Report on
Form 8-K
Page numbers for the amended Items set forth in this Form 10-K/A correspond to
the page numbering of the same Items in the original Form 10-K.
<PAGE> 3
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS," the Company's Consolidated Financial Statements and Notes
thereto and other financial information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Restated) (Restated) (Restated) (Restated)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $ 10,305.6 $ 6,586.4 $ 5,159.5 $ 3,923.0 $ 3,151.2
Income from continuing
operations before extraordinary
charge............................. 200.2 16.5 54.8 59.0 44.1
Net income (loss).................... 439.7 (6.7) 34.6 57.6 18.5
Basic earnings (loss) per share:
Continuing operations.............. .50 .05 .21 .28 .21
Discontinued operations............ .59 .03 (.08) (.01) (.12)
Extraordinary charge............... -- (.10) -- -- --
Net income (loss).................. 1.09 (.02) .13 .27 .09
Diluted earnings (loss) per share:
Continuing operations.............. .46 .05 .21 .28 .21
Discontinued operations............ .56 .02 (.08) (.01) (.12)
Extraordinary charge............... -- (.09) -- -- --
Net income (loss).................. 1.02 (.02) .13 .27 .09
Total assets......................... 10,527.3 6,908.5 5,549.8 3,593.8 3,084.7
Revenue earning vehicle debt......... 4,172.1 3,380.4 2,961.2 1,829.2 1,509.1
Long-term debt, net of current
maturities......................... 370.9 434.8 375.9 344.3 305.0
Shareholders' equity................. 3,484.3 1,419.9 789.0 427.4 359.8
</TABLE>
See Notes 2, 4, 6, 10 and 11 of Notes to Consolidated Financial Statements
for discussion of business combinations, notes payable and long-term debt,
shareholders' equity, restructuring and other charges and discontinued
operations and their effect on comparability of year-to-year data. See "ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS" for a
discussion of the Company's dividend policy.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (RESTATED)
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of Republic Industries, Inc.
(the "Company") which are included elsewhere herein. The historical financial
statements of the Company have been restated to include the financial position
and results of operations of various businesses acquired and accounted for under
the pooling of interests method of accounting as if the companies had operated
as one entity since inception. All references to historical share and per share
data of the Company's common stock, par value $.01 per share ("Common Stock"),
have been retroactively adjusted to reflect the two-for-one stock split that
occurred in June 1996, which is more fully described in Note 6, Shareholders'
Equity, of Notes to Consolidated Financial Statements.
In October 1997, the Company sold its electronic security services
division. Accordingly, the operating results and gain on disposition of the
electronic security services segment have been classified as discontinued
operations for all periods presented in the accompanying Consolidated Financial
Statements.
In July 1998, the Company's solid waste subsidiary, Republic Services, Inc.
("RSI") completed an initial public offering of approximately 36.1% of its
outstanding common stock, resulting in net proceeds of approximately $1.4
billion. The Company intends to distribute its remaining interest in RSI to the
Company's shareholders in 1999, subject to certain conditions and consents (the
"Distribution"). The Distribution is contingent, in part, on the Company
obtaining a private letter ruling from the Internal Revenue Service to the
effect that, among other things, the Distribution will qualify as a tax free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended, in form and substance satisfactory to the
Company.
BUSINESS COMBINATIONS
The Company makes its decisions to acquire or invest in businesses based on
financial and strategic considerations.
Significant businesses acquired through December 31, 1997 and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception. Businesses acquired through December 31,
1997 and accounted for under the purchase method of accounting are included in
the Consolidated Financial Statements from the date of acquisition.
During the year ended December 31, 1997, the Company acquired various
businesses in the automotive retail, automotive rental and solid waste services
industries. The Company issued an aggregate of approximately 53.7 million shares
of Common Stock and paid approximately $346.6 million of cash or notes in such
transactions which have been accounted for under the purchase method of
accounting, and issued an aggregate of approximately 83.5 million shares of
Common Stock in such transactions which have been accounted for under the
pooling of interests method of accounting. Included in the shares of Common
Stock issued for acquisitions accounted for under the pooling of interests
method of accounting are approximately .3 million shares issued for acquisitions
which were not material individually or in the aggregate and, consequently,
prior period financial statements were not restated for such acquisitions.
During the year ended December 31, 1996, the Company acquired various
businesses in the automotive retail, automotive rental, solid waste services and
electronic security services industries. The Company issued an aggregate of
approximately 9.1 million shares of Common Stock and paid approximately $52.1
million of cash in such transactions which have been accounted for under the
purchase method of accounting, and issued an aggregate of approximately 71.4
million shares of Common Stock in such transactions which have been accounted
for under the pooling of interests method of accounting. Included in the shares
of Common Stock issued for acquisitions accounted for under the pooling of
interests method of accounting are approximately 1.1 million shares issued for
acquisitions which were not material individually or in the aggregate and,
consequently, prior period financial statements were not restated for such
acquisitions.
During the year ended December 31, 1995, the Company acquired various
businesses in the automotive rental, solid waste services and electronic
security services industries. The Company issued an aggregate of approximately
17.3 million shares of Common Stock and paid approximately $1.3 billion of cash
in such transactions which have been accounted for under the purchase method of
accounting, and issued an aggregate of approximately 36.3 million shares of
Common Stock for such transactions which have been accounted for under the
pooling of interests method of accounting. The cash paid for acquisitions in
1995 relates primarily to National Car Rental System, Inc.'s ("National")
acquisition of its predecessor company
32
<PAGE> 5
from General Motors Corporation. National was acquired by the Company during
1997 and accounted for under the pooling of interests method of accounting.
As discussed in Note 11, Discontinued Operations, of Notes to Consolidated
Financial Statements, the Company sold its electronic security services division
in October 1997. Accordingly, the financial position and results of operations
of businesses acquired in the electronic security services segment have been
accounted for as discontinued operations in the accompanying Consolidated
Financial Statements.
Subsequent to December 31, 1997, the Company acquired various businesses in
the automotive retail and solid waste services industries for an aggregate
purchase price of approximately $901.5 million consisting of cash and/or shares
of Common Stock. These acquisitions will be accounted for under the purchase
method of accounting.
See Note 2, Business Combinations, of Notes to Consolidated Financial
Statements, for further discussion of business combinations.
CONSOLIDATED RESULTS OF OPERATIONS
Overview
The Company reported net income of $439.7 million or $1.02 per share on a
diluted basis for the year ended December 31, 1997 as compared to a net loss of
$6.7 million or $.02 per share in 1996 and net income of $34.6 million or
$.13 per share in 1995. Operating results for the year ended December 31, 1997
include gains on the sale of the electronic security services division and the
ADT Limited common stock which were partially offset by restructuring and other
pre-tax charges as further described below. Operating results for the year ended
December 31, 1996 also include restructuring and other pre-tax charges as well
as an extraordinary charge, both of which are further described below.
The diluted earnings per share effect of restructuring and other pre-tax
charges and certain non-recurring gains (losses) on the Company's net income was
to increase diluted earnings per share by $.32 from $.70 to $1.02 in 1997, and
to decrease diluted earnings per share by $.33 in 1996 and $.12 in 1995.
Restructuring and Other Charges
During the year ended December 31, 1997, the Company recorded pre-tax
charges of approximately $244.1 million. These charges consisted of $150.0
million associated with combining the Company's franchised automotive
dealerships and used vehicle megastore operations into one automotive retail
division and $94.1 million associated with integrating the Company's automotive
rental operations. Approximately $85.0 million of the automotive retail charge
appears as restructuring and other charges in the Company's Consolidated
Statement of Operations for the year ended December 31, 1997 and consists of:
$42.0 million for consolidation of information systems; $25.0 million related
primarily to relocating the Company's Valu Stop(SM) operations; and $18.0
million of severance and other costs. The remaining $65.0 million of the
automotive retail charge relates to inventory consolidation and is included in
cost of automotive retail sales in the Company's Consolidated Statement of
Operations for the year ended December 31, 1997. The primary components of the
$94.1 million automotive rental charge are as follows: $32.0 million related to
elimination of redundant information systems; $18.0 million related to fleet
consolidation; and $44.1 million related to closure or sale of duplicate rental
facilities and merger and other non-recurring expenses. Through December 31,
1997, the Company has spent approximately $58.1 million related to integration
and other activities and has recorded $92.3 million of these charges against
certain assets. As of December 31, 1997, approximately $93.7 million remained in
accrued liabilities related to these charges. The Company believes the
integration activities associated with these charges will be substantially
completed within one year.
33
<PAGE> 6
During the year ended December 31, 1996, the Company recorded pre-tax
charges of approximately $95.5 million related primarily to the integration of
the operations of Alamo Rent-A-Car, Inc. ("Alamo")into those of the Company.
Also included in these charges are merger expenses associated with certain
acquisitions accounted for under the pooling of interests method of accounting.
Approximately $38.3 million of such expenses appear as restructuring and other
charges in the Company's Consolidated Statement of Operations for the year ended
December 31, 1996 with the remainder of approximately $57.2 million included in
cost of automotive rental operations and selling, general and administrative
expenses. These costs primarily include asset write-offs, severance benefits,
accounting and legal merger costs and changes in various estimated reserve
requirements. Through December 31, 1997, the Company has spent substantially all
of the $38.3 million included in restructuring and other charges in the 1996
Consolidated Statement of Operations.
Extraordinary Charge
During the year ended December 31, 1996, in connection with refinancing
Alamo's debt at substantially lower interest rates, the Company recorded an
extraordinary charge of approximately $31.6 million, net of income taxes.
Included in this charge are bond redemption premiums, the write-off of debt
issue costs, prepayment penalties and other related fees. See Note 4, Notes
Payable and Long-Term Debt, of Notes to Consolidated Financial Statements for
further discussion of this charge.
Discontinued Operations
In October 1997, the Company sold its electronic security services division
for approximately $610.0 million resulting in an after tax gain of approximately
$230.0 million. Accordingly, the operating results and the gain on disposition
of the electronic security services segment have been classified as discontinued
operations for all periods presented in the accompanying Consolidated Financial
Statements.
During the year ended December 31, 1995, the Company disposed of its mining
and citrus operations and spun-off its hazardous waste services segment
resulting in a loss from discontinued operations of approximately $25.1 million,
net of income taxes. Operating results for the periods prior to disposition have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements.
See Note 11, Discontinued Operations, of Notes to Consolidated Financial
Statements, for further discussion of these transactions.
BUSINESS SEGMENT INFORMATION
The following table sets forth revenue with percentages of total revenue,
and sets forth cost of operations, selling, general and administrative expenses,
restructuring and other charges and operating income (loss) with percentages of
the applicable segment revenue, for each of the Company's business segments for
the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1997 % 1996 % 1995 %
-------- --- -------- --- -------- ---
(Restated) (Restated)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Automotive retail......................................... $6,122.8 59 $2,933.7 45 $2,361.7 46
Automotive rental......................................... 3,055.1 30 2,699.4 41 1,992.8 39
Solid waste services...................................... 1,127.7 11 953.3 14 805.0 15
-------- --- -------- --- -------- ---
10,305.6 100 6,586.4 100 5,159.5 100
-------- -------- --------
Cost of Operations:
Automotive retail......................................... 5,459.0 89 2,611.3 89 2,068.4 87
Automotive rental......................................... 2,377.0 78 2,167.2 80 1,613.9 81
Solid waste services...................................... 809.1 72 703.6 74 570.1 71
-------- -------- --------
8,645.1 5,482.1 4,252.4
-------- -------- --------
Selling, General and Administrative:
Automotive retail......................................... 647.2 11 289.1 10 251.0 11
Automotive rental......................................... 497.4 16 537.1 20 393.5 20
Solid waste services...................................... 107.1 9 126.9 13 133.4 17
Corporate................................................. 30.1 -- 21.7 -- 4.3 --
-------- -------- --------
1,281.8 974.8 782.2
-------- -------- --------
</TABLE>
34
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<TABLE>
<CAPTION>
1997 % 1996 % 1995 %
-------- --- -------- --- -------- ---
(Restated) (Restated)
<S> <C> <C> <C> <C> <C> <C>
Restructuring and Other Charges:
Automotive retail......................................... 85.0 1 -- -- -- --
Automotive rental......................................... 94.1 3 23.5 1 -- --
Solid waste services...................................... -- -- 8.8 1 3.3 --
Corporate................................................. -- -- 6.0 -- -- --
-------- -------- --------
179.1 38.3 3.3
-------- -------- --------
Operating Income (Loss):
Automotive retail......................................... (68.4) (1) 33.3 1 42.3 2
Automotive rental......................................... 86.6 3 (28.4) (1) (14.6) (1)
Solid waste services...................................... 211.5 19 114.0 12 98.2 12
Corporate................................................. (30.1) -- (27.7) -- (4.3) --
-------- -------- --------
$ 199.6 $ 91.2 $ 121.6
======== ======== ========
</TABLE>
AUTOMOTIVE RETAIL
The Company's automotive retail business consists of the sale, lease and
financing of new and used vehicles and related automotive services and products.
The Company owns and operates franchised automotive dealerships and used vehicle
megastores under the name AutoNation USA(SM). The Company has aggressively
expanded its automotive retail operations through the acquisition of franchised
automotive dealerships and currently plans to continue this expansion. The
Company has established framework agreements with various manufacturers which
allow the Company to acquire franchised automotive dealerships nationwide.
Automotive retail revenue was $6.1 billion, $2.9 billion and $2.4 billion
for the years ended December 31, 1997, 1996 and 1995, respectively. The increase
in 1997 over 1996 of $3.2 billion or 109% is a result of acquisitions (85%),
volume (17%) and pricing (7%). The increase in 1996 over 1995 of $571.9 million
or 24% is primarily a result of volume and acquisitions.
Cost of automotive retail operations was $5.5 billion, $2.6 billion and
$2.1 billion or, as percentages of automotive retail revenue, 89%, 89% and 87%
for the years ended December 31, 1997, 1996 and 1995, respectively. The
increases in aggregate dollars are attributed to acquisitions and higher volume
of vehicle sales during the periods. The 1996 increase in cost of operations as
a percentage of revenue over 1995 is primarily due to changes in product mix and
1996 start-up costs associated with the initial development of the Company's
used vehicle megastore operations.
Selling, general and administrative expenses related to the Company's
automotive retail operations were $647.2 million, $289.1 million and $251.0
million or, as percentages of automotive retail revenue, 11%, 10% and 11% for
the years ended December 31, 1997, 1996 and 1995, respectively. The increases in
aggregate dollars primarily reflect the expansion of the Company's automotive
retail operations.
Operating income (loss) from the Company's automotive retail operations was
$(68.4) million, $33.3 million and $42.3 million for the years ended December
31, 1997, 1996 and 1995, respectively. Excluding restructuring and other pre-tax
charges in 1997 as previously discussed, operating income from the Company's
automotive retail operations would have been $81.6 million or 1% of automotive
retail revenue.
The Company is in the process of acquiring and/or developing additional
AutoNation USA megastore sites. As the Company opens new AutoNation USA
megastores and reconditioning centers such operations will incur fixed operating
and administrative costs immediately while revenue volume will tend to grow more
gradually.
AUTOMOTIVE RENTAL
The Company's automotive rental business primarily rents vehicles on a
daily or weekly basis to leisure and business travelers principally from
on-airport or near airport locations through Alamo and National.
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<PAGE> 8
Automotive rental revenue was $3.1 billion, $2.7 billion and $2.0 billion
for the years ended December 31, 1997, 1996 and 1995, respectively. The increase
in 1997 over 1996 of $355.7 million or 13% is a result of volume (5%), pricing
(4%) and acquisitions (4%). The increase in 1996 over 1995 of $706.6 million or
35% is primarily a result of acquisitions.
Cost of automotive rental operations was $2.4 billion, $2.2 billion and
$1.6 billion or, as a percentage of automotive rental revenue, 78%, 80% and 81%
for the years ended December 31, 1997, 1996 and 1995, respectively. The
increases in aggregate dollars are primarily attributed to rental volume,
acquisitions and maintaining a larger fleet. The 1997 decrease in such expenses
as a percentage of revenue versus 1996 is primarily a result of revenue
improvement from rental rate increases. The 1996 decrease in such expenses as a
percentage of revenue versus 1995 is primarily due to lower fleet costs.
Selling, general and administrative expenses related to the Company's
automotive rental operations were $497.4 million, $537.1 million and $393.5
million or, as percentages of automotive rental revenue, 16%, 20% and 20% for
the years ended December 31, 1997, 1996 and 1995, respectively. The 1997
decrease in aggregate dollars and as a percentage of automotive rental revenue
is primarily due to the reduction of selling and administrative expenses of
acquired businesses. The 1996 increase in aggregate dollars over 1995 is
primarily due to acquisitions.
Operating income (loss) from the Company's automotive rental operations was
$86.6 million, $(28.4) million and $(14.6) million for the years ended December
31, 1997, 1996 and 1995, respectively. Excluding restructuring and other pre-tax
charges as previously discussed, operating income from the Company's automotive
rental operations would have been $180.7 million and $47.3 million in 1997 and
1996, respectively.
SOLID WASTE SERVICES
The Company's solid waste services business provides integrated solid waste
disposal services. The Company owns and operates 42 solid waste landfills in 13
states. The Company also owns or operates 54 transfer stations, and provides
collection and recycling services to municipal, residential, commercial and
industrial customers in 23 states.
Revenue from the Company's solid waste services operations was $1.1
billion, $953.3 million and $805.0 million for the years ended December 31,
1997, 1996 and 1995, respectively. The increase in 1997 over 1996 of $174.4
million or 18% is a result of acquisitions (8%) as well as increases from volume
(7%) and "tuck-in" acquisitions (3%). The increase in 1996 over 1995 of $148.3
million or 18% is a result of acquisitions (11%) as well as increases from
volume (6%) and "tuck-in" acquisitions (1%).
Cost of solid waste services operations was $809.1 million, $703.6 million
and $570.1 million or, as a percentage of solid waste revenue, 72%, 74% and 71%
for the years ended December 31, 1997, 1996 and 1995, respectively. The
increases in aggregate dollars are a result of the expansion of the Company's
solid waste services operations through acquisitions and internal growth. The
1997 decrease in cost of solid waste services operations as a percentage of
revenue is primarily a result of improvements in overall operating efficiency
achieved through reductions in operating costs of acquired businesses. The 1996
increase in cost of solid waste services operations as a percentage of solid
waste revenue is primarily a result of certain of the Company's acquired
collection companies which had higher levels of operating costs than the
Company's historical operations.
Selling, general and administrative expenses related to the Company's solid
waste services operations were $107.1 million, $126.9 million and $133.4 million
or, as percentages of solid waste revenue, 9%, 13% and 17% for the years ended
December 31, 1997, 1996 and 1995, respectively. The decreases in selling,
general and administrative expenses in aggregate dollars and as percentages of
revenue in each of the years are primarily due to the reduction of
administrative expenses for acquired businesses and, in 1997, cost savings from
centralizing administrative functions in certain regions.
36
<PAGE> 9
Operating income from the Company's solid waste services operations was
$211.5 million, $114.0 million and $98.2 million for the years ended December
31, 1997, 1996 and 1995, respectively. Excluding restructuring and other
charges, operating income from the Company's solid waste services operations
would have been $122.8 million and $101.5 million in 1996 and 1995,
respectively.
CORPORATE
Excluding restructuring and other charges, corporate expenses were $30.1
million, $21.7 million and $4.3 million for the years ended December 31, 1997,
1996 and 1995, respectively. Such increases are a result of the overall growth
experienced by the Company.
INTEREST INCOME
Interest income was $18.2 million, $31.5 million and $22.1 million for the
years ended December 31, 1997, 1996 and 1995, respectively. The decrease in 1997
versus 1996 is primarily a result of lower cash balances on hand during 1997.
The increase in 1996 over 1995 is due to the increase in interest income from
proceeds from sales of Common Stock. For further discussion of the sales of
Common Stock, see Note 6, Shareholders' Equity, of Notes to Consolidated
Financial Statements.
INTEREST EXPENSE
Interest expense was incurred on general corporate debt and the debt
assumed in acquisitions. Interest expense was $16.8 million, $48.4 million and
$40.1 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease in 1997 versus 1996 is primarily due to the repayment
of debt. The increase in 1996 over 1995 is primarily due to higher average
outstanding borrowings and debt assumed in acquisitions. Interest expense
related to revenue earning vehicle financing and vehicle inventory financing is
included in cost of automotive rental operations and cost of automotive retail
sales, respectively, in the accompanying Consolidated Statements of Operations.
OTHER INCOME
Other income, net for the year ended December 31, 1997 consists primarily
of a $102.3 million pre-tax gain from the May 1997 sale of the Company's 15.0
million shares of ADT Limited common stock, net of fees and expenses. Such
shares of ADT Limited common stock were received in March 1997 upon the
Company's exercise of a warrant which became exercisable upon termination of the
Company's agreement to acquire ADT Limited by mutual agreement of the parties in
September 1996.
INCOME TAXES
The provision for income taxes was $115.2 million, $64.8 million and $60.8
million for the years ended December 31, 1997, 1996 and 1995, respectively. The
effective income tax rate was 36.5%, 79.7% and 52.6% for the years ended
December 31, 1997, 1996 and 1995, respectively. The higher 1996 and 1995
effective income tax rates are primarily due to the Company providing valuation
allowances on certain deferred tax assets and varying higher historical
effective income tax rates of acquired businesses.
ENVIRONMENTAL AND LANDFILL MATTERS
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 will be fully accrued for these landfills at the time that such facilities
cease to accept waste and are closed. At December 31, 1997, approximately $280.0
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. The
Company periodically reassesses such costs based on various methods and
assumptions regarding landfill airspace and the technical requirements of the
Environmental Protection Agency's Subtitle D regulations and adjusts such
accruals accordingly.
37
<PAGE> 10
In the normal course of business, the Company is subject to ongoing
environmental investigations by certain regulatory agencies, as well as other
claims and disputes that could result in litigation. Environmental costs are
accrued by the Company through a charge to income in the period such liabilities
become probable and can be reasonably estimated.
FINANCIAL CONDITION
At December 31, 1997, the Company had $148.0 million in cash and
approximately $681.0 million of availability under its $1.0 billion unsecured
revolving credit facility which may be used for general corporate purposes.
In October 1997, the Company completed a refinancing program to finance
vehicle purchases for its automotive rental operations. The aggregate program of
$3.35 billion is comprised of a $2.3 billion commercial paper program and three
commercial paper conduit facilities totaling $1.05 billion. Bank lines of credit
of $2.1 billion (terminating October 1998) and $945.0 million (terminating
October 2000) provide liquidity backup for the facilities. Letters of credit
totaling $335.0 million provide collateral and additional liquidity backup for
the facilities. Borrowings under these programs are secured by eligible vehicle
collateral and bear interest based on market-dictated commercial paper rates.
The Company refinanced borrowings under its pre-existing commercial paper
programs with borrowings under this program. As of December 31, 1997, the
Company had approximately $400.0 million of availability under this program. The
Company expects to continue to fund its purchases of revenue earning vehicles
with secured vehicle financings. Revenue earning vehicles with a net book value
of $3.8 billion at December 31, 1997 were acquired under programs that allow the
Company to require counterparties to repurchase vehicles held for periods of up
to 24 months. The Company has various other credit facilities to finance its
automotive retail and rental operations.
In connection with the development of the AutoNation USA megastores, the
Company is the lessee under a $500.0 million operating lease facility
established to acquire and develop properties used in its business. The Company
has guaranteed the residual value of the properties under this facility which
guarantee totaled approximately $326.5 million at December 31, 1997.
The Company uses interest rate swap agreements to manage the impact of
interest rate changes on the Company's variable rate revenue earning vehicle
obligations. The amounts exchanged by the counterparties to interest rate swap
agreements normally are based upon the notional amounts and other terms,
generally related to interest rates, of the derivatives. While notional amounts
of interest rate swaps form part of the basis for the amounts exchanged by the
counterparties, the notional amounts are not themselves exchanged, therefore, do
not represent a measure of the Company's exposure as an end user of derivative
financial instruments. At December 31, 1997, notional principal amounts related
to interest rate swaps (variable to fixed rate) were $2.25 billion. As of
December 31, 1997, the weighted average fixed rate payment on variable to fixed
rate swaps was 5.93%. Variable rates received are indexed to the Commercial
Paper Nonfinancial rate ($2.2 billion notional principal amount) and LIBOR
($50.0 million notional principal amount). Including the Company's variable to
fixed interest rate swaps, the Company's ratio of fixed interest rate debt to
total debt outstanding was 60% as of December 31, 1997.
The Company believes that it has sufficient operating cash flow and other
financial resources necessary to meet its anticipated capital requirements and
obligations as they come due.
38
<PAGE> 11
CASH FLOWS
Cash and cash equivalents decreased by $216.4 million and $37.0 million
during the years ended December 31, 1997 and 1996, respectively, and increased
$314.1 million during the year ended December 31, 1995. The major components of
these changes are discussed below.
Cash Flows from Operating Activities
Cash (used in) provided by operating activities was $(548.7) million,
$(291.6) million and $410.1 million for the years ended December 31, 1997, 1996
and 1995, respectively. The increases in cash used in operating activities in
1997 and 1996 versus cash provided in 1995 is due to increased revenue earning
vehicle purchases.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of cash used for
capital additions and business acquisitions and other transactions as further
described below.
Capital additions were $459.8 million, $252.8 million and $223.9 million
during the years ended December 31, 1997, 1996 and 1995, respectively. The
increases are primarily a result of expansion of the Company's businesses.
Cash used in business acquisitions was $216.6 million, $51.5 million and
$1.3 billion for the years ended December 31, 1997, 1996 and 1995. See "Business
Combinations" of Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2, "Business Combinations" of Notes to
Consolidated Financial Statements for a further discussion of businesses
acquired.
In October 1997, the Company sold its electronic security services division
for approximately $610.0 million.
In March 1997, the Company exercised its warrant to acquire 15.0 million
common shares of ADT Limited for $20 per share. In May 1997, the Company sold
the 15.0 million ADT Limited common shares for $27.50 per share to certain
institutional investors.
The Company expects capital expenditures and cash used in business
acquisitions to increase during 1998 and in the foreseeable future due to
continued internal growth of existing businesses and future acquisitions. The
Company intends to finance capital expenditures and cash used in business
acquisitions through cash on hand, revolving credit facilities and other
financings.
Cash Flows from Financing Activities
Cash flows from financing activities during the years ended December 31,
1997, 1996 and 1995 included revenue earning vehicle financing, commercial bank
borrowings, repayments of debt and issuances of Common Stock.
During the year ended December 31, 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.
During the year ended December 31, 1996, the Company sold an aggregate of
22.0 million shares of Common Stock in private placement transactions resulting
in net proceeds of approximately $550.9 million.
During the year ended December 31, 1995, the Company sold an aggregate of
44.1 million shares of Common Stock and warrants to purchase an additional 33.4
million shares of Common Stock in various private placement and other equity
transactions resulting in net proceeds of approximately $262.4 million. The
warrants are exercisable at prices ranging from $2.25 to $3.50 per share.
39
<PAGE> 12
These financing activities were used to fund revenue earning vehicle
purchases, capital additions and acquisitions as well as to repay debt assumed
in acquisitions and expand the Company's business during these years.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (ITEM 7A)
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates, primarily in
the United States. The Company's policy is to manage interest rates through use
of a combination of fixed and floating rate debt. Interest rate swaps may be
used to adjust interest rate exposures when appropriate, based upon market
conditions. These swaps are entered into with a group of financial institutions
with investment grade credit ratings, thereby minimizing the risk of credit
loss. All items described are non-trading.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
---------------------------------------------------------------------- FAIR VALUE
1998 1999 2000 2001 2002 THEREAFTER TOTAL DECEMBER 31, 1997
-------- ------ -------- ------ ------ ---------- -------- -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VARIABLE RATE DEBT
Current................... $2,715.0 $ -- $ -- $ -- $ -- $ -- $2,715.0 $2,715.0
Average interest
rates................. 6.17%
Non-current............... -- 155.2 1,074.4 1.8 286.9 35.1 1,553.4 1,553.4
Average interest
rates................. -- 6.19% 5.86% 4.75% 5.96% 4.75%
Interest rate swaps....... 300.0 650.0 1,000.0 150.0 150.0 -- 8.0
Average pay rate........ 5.85% 5.81% 5.95% 6.50% 5.88%
Average receive rate.... 5.50% 5.50% 5.50% 5.50% 5.50%
</TABLE>
SEASONALITY
The Company's automotive retail operations generally experience higher
volumes of vehicle sales in the second and third quarters of each year in part
due to manufacturer incentives and consumer buying trends.
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 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.
YEAR 2000 SYSTEMS COSTS
The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000. The
Company is in the process of evaluating the full scope and related costs to
insure that the Company's systems continue to meet its internal needs and those
of its customers. Anticipated costs for system modifications will be expensed as
incurred and are not expected to have a material impact on the Company's
consolidated results of operations. However, the Company cannot measure the
impact that the Year 2000 issue will have on its vendors, suppliers, customers
and other parties with which it conducts business.
40
<PAGE> 13
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will adopt SFAS
130 beginning January 1, 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued by the Financial Accounting Standards Board in June 1997. This Statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will adopt SFAS 131 beginning
January 1, 1998. Adoption of this standard will not have a material impact on
the Company's existing segment reporting disclosures.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 prospectively beginning January 1, 1999. Adoption of this
Statement will not have a material impact on the Company's consolidated
financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
Adoption of this Statement will not have a material impact on the Company's
consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. SFAS 133 cannot be
applied retroactively. SFAS 133 must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after December 31, 1997. The Company
has not yet quantified the impact of adopting SFAS 133 on the Company's
consolidated financial statements and has not determined the timing of adoption
of SFAS 133. However, SFAS 133 could increase volatility in earnings and other
comprehensive income.
FORWARD-LOOKING STATEMENTS
Certain statements and information included herein constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, the ability to develop and implement operational and financial systems
to manage rapidly growing operations; competition in the Company's lines of
business; the ability to integrate and successfully operate acquired businesses
and the risks associated with such businesses; the ability to obtain financing
on acceptable terms to finance the Company's operations and growth strategy and
for the Company to operate within the limitations imposed by financing
arrangements; the dependence on vehicle manufacturers to approve dealership
acquisitions and the restrictions imposed by vehicle manufacturers on dealership
acquisitions and operations; the possibility of unfavorable changes to the cost
or financing of the Company's vehicle rental fleet; the Company's dependence on
key personnel; and other factors contained in the Company's filings with the
Securities and Exchange Commission.
41
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants.......... 43
Consolidated Balance Sheets as of December 31, 1997 and
1996 (Restated)........................................... 44
Consolidated Statements of Operations for Each of the Three
Years Ended December 31, 1997 (Restated).................. 45
Consolidated Statements of Shareholders' Equity for Each of
the Three Years Ended December 31, 1997 (Restated)........ 46
Consolidated Statements of Cash Flows for Each of the Three
Years Ended December 31, 1997 (Restated).................. 47
Notes to Consolidated Financial Statements (Restated)....... 48
Financial Statement Schedule II, Valuation and Qualifying
Accounts and Reserves, for Each of the Three Years
Ended December 31, 1997................................... 71
</TABLE>
42
<PAGE> 15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Republic Industries, Inc.:
We have audited the accompanying consolidated balance sheets (restated) of
Republic Industries, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations (restated), shareholders' equity (restated) and cash flows (restated)
for each of the years in the three-year period ended December 31, 1997. These
financial statements and the schedule (restated) referred to below 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
As described in Note 19, the Company has restated its 1996 and 1995
consolidated financial statements to include the financial position, results of
operations and cash flows of various businesses acquired in 1997 and 1996 which
had been treated as immaterial pooling of interests transactions for which prior
periods were not previously restated.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 11, 1998.
43
<PAGE> 16
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
--------- --------
(Restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 148.0 $ 364.4
Receivables, net.......................................... 977.3 598.9
Revenue earning vehicles, net............................. 4,466.5 3,583.0
Inventory................................................. 1,094.8 381.1
Other current assets...................................... 139.2 451.5
--------- --------
Total Current Assets.............................. 6,825.8 5,378.9
PROPERTY AND EQUIPMENT, NET................................. 2,096.9 1,205.8
INTANGIBLE AND OTHER ASSETS, NET............................ 1,604.6 323.8
--------- --------
$10,527.3 $6,908.5
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 260.8 $ 228.1
Accrued liabilities....................................... 557.9 294.8
Liability insurance reserves.............................. 297.2 222.4
Revenue earning vehicle debt.............................. 2,209.4 2,535.6
Notes payable and current maturities of long-term debt.... 532.0 385.5
Other current liabilities................................. 405.3 272.8
--------- --------
Total Current Liabilities......................... 4,262.6 3,939.2
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 370.9 434.8
LONG-TERM REVENUE EARNING VEHICLE DEBT...................... 1,962.7 844.8
OTHER LIABILITIES........................................... 446.8 269.8
COMMITMENTS AND CONTINGENCIES...............................
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 5,000,000
shares authorized; none issued......................... -- --
Common stock, par value $.01 per share; 1,500,000,000 and
500,000,000 shares authorized, respectively;
432,705,796 and 340,913,014 shares issued and
outstanding, respectively.............................. 4.3 3.4
Additional paid-in capital................................ 3,051.5 1,387.6
Retained earnings......................................... 428.5 28.9
--------- --------
Total Shareholders' Equity........................ 3,484.3 1,419.9
--------- --------
$10,527.3 $6,908.5
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
44
<PAGE> 17
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(Restated) (Restated)
<S> <C> <C> <C>
REVENUE:
Automotive retail sales................................... $6,122.8 $2,933.7 $2,361.7
Automotive rental revenue................................. 3,055.1 2,699.4 1,992.8
Solid waste services revenue.............................. 1,127.7 953.3 805.0
-------- -------- --------
10,305.6 6,586.4 5,159.5
EXPENSES:
Cost of automotive retail sales........................... 5,459.0 2,611.3 2,068.4
Cost of automotive rental operations...................... 2,377.0 2,167.2 1,613.9
Cost of solid waste services operations................... 809.1 703.6 570.1
Selling, general and administrative....................... 1,281.8 974.8 782.2
Restructuring and other charges........................... 179.1 38.3 3.3
-------- -------- --------
OPERATING INCOME............................................ 199.6 91.2 121.6
INTEREST INCOME............................................. 18.2 31.5 22.1
INTEREST EXPENSE............................................ (16.8) (48.4) (40.1)
OTHER INCOME, NET........................................... 114.4 7.0 12.0
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 315.4 81.3 115.6
PROVISION FOR INCOME TAXES.................................. 115.2 64.8 60.8
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
CHARGE.................................................... 200.2 16.5 54.8
-------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of income
taxes.................................................. 9.5 8.4 10.3
Gain (loss) on disposal of segment, net of income tax
provision of $233.7 in 1997 and benefit of $10.0 in
1995................................................... 230.0 -- (30.5)
-------- -------- --------
Income (loss) from discontinued operations................ 239.5 8.4 (20.2)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE.......................... 439.7 24.9 34.6
EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF
DEBT, NET OF BENEFIT FOR INCOME TAXES OF $15.0............ -- (31.6) --
-------- -------- --------
NET INCOME (LOSS)........................................... $ 439.7 $ (6.7) 34.6
======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ .50 $ .05 $ .21
Discontinued operations................................... .59 .03 (.08)
Extraordinary charge...................................... -- (.10) --
-------- -------- --------
Net income (loss)......................................... $ 1.09 $ (.02) $ .13
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ .46 $ .05 .21
Discontinued operations................................... .56 .02 (.08)
Extraordinary charge...................................... -- (.09) --
-------- -------- --------
Net income (loss)......................................... $ 1.02 $ (.02) $ .13
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE> 18
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK PAID-IN CAPITAL EARNINGS
------ --------------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994................................ $2.1 $ 293.9 $131.5
Sales of common stock and warrants........................ .4 262.0 --
Stock issued in acquisitions.............................. .2 83.9 --
Exercise of stock options and warrants, including income
tax benefit of $4.1 million............................ -- 15.7 --
Distributions to former owners of pooled companies........ -- -- (70.6)
Other..................................................... .3 20.1 14.9
Net income................................................ -- -- 34.6
---- -------- ------
BALANCE AT DECEMBER 31, 1995................................ 3.0 675.6 110.4
Sales of common stock..................................... .2 550.7 --
Stock issued in acquisitions.............................. .1 86.5 --
Exercise of stock options and warrants, including income
tax benefit of $20.3 million........................... -- 43.7 --
Distributions to former owners of pooled companies........ -- -- (78.4)
Other..................................................... .1 31.1 3.6
Net loss.................................................. -- -- (6.7)
---- -------- ------
BALANCE AT DECEMBER 31, 1996................................ 3.4 1,387.6 28.9
Sales of common stock..................................... .2 552.5 --
Stock issued in acquisitions.............................. .6 942.5 --
Exercise of stock options and warrants, including income
tax benefit of $32.7 million........................... .1 92.0 --
Distributions to former owners of pooled companies........ -- -- (30.6)
Other..................................................... -- 76.9 (9.5)
Net income................................................ -- -- 439.7
---- -------- ------
BALANCE AT DECEMBER 31, 1997................................ $4.3 $3,051.5 $428.5
==== ======== ======
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE> 19
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(Restated) (Restated)
<S> <C> <C> <C>
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS:
Net income (loss)......................................... $ 439.7 $ (6.7) $ 34.6
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation on revenue earning vehicles............... 831.9 747.9 555.1
Depreciation, amortization and depletion on property
and equipment........................................ 138.8 114.2 93.2
Amortization of intangible assets...................... 32.9 13.8 9.9
Non-cash restructuring and other charges............... 186.0 95.5 3.3
Loss on extinguishment of debt, net of income taxes.... -- 31.6 --
Gain on sale of marketable securities.................. (102.3) -- --
(Income) loss from discontinued operations, net of
income taxes......................................... (239.5) (8.4) 20.2
Purchases of revenue earning vehicles.................. (5,227.3) (4,695.3) (3,195.5)
Sales of revenue earning vehicles...................... 3,892.3 3,356.4 2,841.6
Changes in assets and liabilities, net of effects from
business acquisitions
Receivables.......................................... (209.3) (110.9) (47.1)
Inventory............................................ (205.9) (21.4) (44.9)
Other assets......................................... 93.5 (51.0) 1.1
Accounts payable and accrued liabilities............. (291.0) 76.3 98.9
Other liabilities.................................... 111.5 166.4 39.7
--------- --------- ----------
(548.7) (291.6) 410.1
--------- --------- ----------
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS.......... (48.0) (50.1) (19.6)
--------- --------- ----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Cash received on disposal of segment...................... 610.0 -- 34.3
Purchases of property and equipment....................... (459.8) (252.8) (223.9)
Purchases of marketable securities........................ (300.0) -- --
Sale of marketable securities............................. 402.3 -- --
Cash used in business acquisitions, net of cash
acquired............................................... (216.6) (51.5) (1,333.7)
Other..................................................... (55.5) (214.8) 45.8
--------- --------- ----------
(19.6) (519.1) (1,477.5)
--------- --------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing........... 29,103.7 17,802.7 11,134.4
Payments on revenue earning vehicle financing............. (28,688.7) (17,452.0) (9,990.9)
Proceeds from long-term debt and notes payable............ 378.4 271.5 199.3
Payments of long-term debt and notes payable.............. (832.3) (442.0) (236.2)
Net (payments) proceeds from revolving credit and vehicle
inventory financing facilities......................... (139.7) 158.6 16.8
Sales of common stock..................................... 552.7 550.9 262.4
Other..................................................... 25.8 (65.9) 15.3
--------- --------- ----------
399.9 823.8 1,401.1
--------- --------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (216.4) (37.0) 314.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 364.4 401.4 87.3
--------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 148.0 $ 364.4 $ 401.4
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
47
<PAGE> 20
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
Republic Industries, Inc. and its subsidiaries ("Republic" or the "Company").
All intercompany accounts and transactions have been eliminated. In October
1997, the Company sold its electronic security services division. In 1995, the
Company disposed of all of its mining and citrus operations and spun-off its
hazardous waste services segment to the Company's shareholders. Accordingly, as
discussed in Note 11, Discontinued Operations, these operations have been
accounted for as discontinued operations and the accompanying Consolidated
Financial Statements presented herein have been restated to report separately
the operating results of these discontinued operations.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements 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.
The accompanying Consolidated Financial Statements have been restated to
include the financial position and results of operations of various businesses
acquired in 1997 and accounted for under the pooling of interests method of
accounting (the "Pooled Entities") as if the companies 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
consolidated financial statements and notes thereto have been adjusted to
reflect a two-for-one stock split in the form of a 100% stock dividend that
became effective in June 1996, as more fully described in Note 6, Shareholders'
Equity.
RECEIVABLES
The components of receivables, net of allowance for doubtful accounts at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Trade....................................................... $ 445.2 $301.5
Vehicle..................................................... 357.6 230.9
Other....................................................... 225.4 86.4
-------- ------
1,028.2 618.8
Less: allowance for doubtful accounts....................... (50.9) (19.9)
-------- ------
$ 977.3 $598.9
======== ======
</TABLE>
REVENUE EARNING VEHICLES
Revenue earning vehicles are stated at cost less accumulated depreciation.
The straight-line method is used to depreciate revenue earning vehicles to their
estimated residual values over periods typically ranging from three to twelve
months. Depreciation expense includes costs relating to damaged vehicles and
gains and losses on revenue earning vehicle sales in the ordinary course of
business and is included as a component of cost of automotive rental operations
in the accompanying Consolidated Statements of Operations.
48
<PAGE> 21
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
A summary of revenue earning vehicles at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenue earning vehicles.................................... $4,980.1 $4,011.2
Less: accumulated depreciation.............................. (513.6) (428.2)
-------- --------
$4,466.5 $3,583.0
======== ========
</TABLE>
Revenue earning vehicles with a net book value of $3.8 billion at December
31, 1997 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.
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 thirteen months. Many agreements
provide for an option to terminate the leases early and allow for the purchase
of leased vehicles subject to certain restrictions.
INVENTORY
Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method, net of reserves. Cost includes acquisition
expenses, including reconditioning and transportation costs. Parts and
accessories are valued at the factory list price which approximates lower of
cost (first-in, first-out) or market.
A summary of inventory at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
New vehicles................................................ $ 642.7 $287.7
Used vehicles............................................... 377.4 60.0
Parts, accessories and other................................ 74.7 33.4
-------- ------
$1,094.8 $381.1
======== ======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
Consolidated Statements of Operations.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation is provided over the estimated
useful lives of the assets involved using the straight-line method. The
estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for trucks and equipment and five to ten
years for furniture and fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. All indirect landfill development costs are
expensed as incurred.
49
<PAGE> 22
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
A summary of property and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land, landfills and improvements............................ $ 895.0 $ 543.1
Furniture, fixtures, trucks and equipment................... 968.7 737.2
Buildings and improvements.................................. 878.6 456.7
-------- --------
2,742.3 1,737.0
Less: accumulated depreciation, amortization and
depletion................................................. (645.4) (531.2)
-------- --------
$2,096.9 $1,205.8
======== ========
</TABLE>
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired and other
intangible assets. The cost in excess of the fair value of net assets is
amortized over forty years on a straight-line basis. Other intangible assets
include values assigned to customer lists, long-term contracts and covenants not
to compete and are amortized generally over periods ranging from 5 to 25 years.
Accumulated amortization of intangible assets was $89.6 million and $58.4
million at December 31, 1997 and 1996, 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.
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 will be
fully accrued for these landfills at the time that such facilities cease to
accept waste and are closed. At December 31, 1997, approximately $280.0 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. The
Company periodically reassesses such costs based on various methods and
assumptions regarding landfill airspace and the technical requirements of the
Environmental Protection Agency's Subtitle D regulations and adjusts such
accruals accordingly.
In the normal course of business, the Company is subject to ongoing
environmental investigations by certain regulatory agencies, as well as other
claims and disputes that could result in litigation. Environmental costs are
accrued by the Company through a charge to income in the period such liabilities
become probable and can be reasonably estimated.
LIABILITY INSURANCE
The Company retains up to $1.0 million of risk per claim plus claims
handling expense under its various liability insurance programs for third party
property damage and bodily injury claims, primarily relating to claims arising
from the Company's automotive rental operations. Costs in excess of this
retained risk per claim are insured under various contracts with insurance
carriers. The ultimate costs of these retained insurance risks are estimated by
management and by actuarial evaluation based on historical claims experience,
adjusted for current trends and changes in claims-handling procedures. In 1996,
the Company changed its method of
50
<PAGE> 23
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
accounting for estimated auto rental liability insurance claims by no longer
discounting such liability. The effect of this change was not material to the
Company's consolidated financial position or results of operations.
REVENUE RECOGNITION
Revenue from the Company's automotive retail operations consists of sales
of new and used vehicles, parts and service and finance and insurance products.
An estimated allowance for chargebacks against revenue recognized from sales of
finance and insurance products is established during the period in which related
revenue is recognized. Revenue from the Company's automotive rental operations
consists primarily of fees from rentals and the sale of related rental products
from the leisure, business travel and insurance replacement segments. 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. The Company recognizes revenue over the period in
which products are sold, vehicles are rented or services are provided.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes interest rate protection agreements with several
counterparties to manage the impact of interest rate changes on the Company's
debt obligations. The Company does not use derivative financial instruments for
trading purposes. Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference between fixed-rate
and floating-rate interest amounts calculated by reference to an agreed notional
principal amount. Income or expense on derivative financial instruments used to
manage interest rate exposure is recorded on an accrual basis, as an adjustment
to the yield of the underlying exposures over the periods covered by the
contracts. If an interest rate swap is terminated early, any resulting gain or
loss is deferred and amortized as an adjustment of the cost of the underlying
exposure position over the remaining periods originally covered by the
terminated swap. If all or part of an underlying position is terminated, the
related pro-rata portion of any unrecognized gain or loss on the swap is
recognized in income at that time as part of the gain or loss on the
termination. Amounts receivable or payable under the agreements are included in
receivables or accrued liabilities in the accompanying Consolidated Balance
Sheets and were not material at December 31, 1997 or 1996.
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, 1997 or 1996. Advertising expense was $318.2 million, $149.8
million and $120.4 million for the years ended December 31, 1997, 1996 and 1995,
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
accompanying Consolidated Statements of Cash Flows.
The Company made interest payments on revenue earning vehicle debt and
notes payable and long-term debt of approximately $248.2 million, $296.3 million
and $221.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company made income tax payments of approximately $72.1
million, $20.4 million and $18.9 million for the years ended December 31, 1997,
1996 and 1995, respectively.
51
<PAGE> 24
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will adopt SFAS
130 beginning January 1, 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued by the Financial Accounting Standards Board in June 1997. This Statement
establishes standards for reporting of selected information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company will
adopt SFAS 131 beginning January 1, 1998. Adoption of this standard will not
have a material impact on the Company's existing segment reporting disclosures.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 prospectively beginning January 1, 1999. Adoption of this
Statement will not have a material impact on the Company's consolidated
financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
Adoption of this Statement will not have a material impact on the Company's
consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. SFAS 133 cannot be
applied retroactively. SFAS 133 must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after December 31, 1997. The Company
has not yet quantified the impact of adopting SFAS 133 on the Company's
consolidated financial statements and has not determined the timing of adoption
of SFAS 133. However, SFAS 133 could increase volatility in earnings and other
comprehensive income.
2. BUSINESS COMBINATIONS
Significant businesses acquired through December 31, 1997 and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception. Businesses acquired through December 31,
1997 and accounted for under the purchase method of accounting are included in
the Consolidated Financial Statements from the date of acquisition.
During the year ended December 31, 1997, the Company acquired various
businesses in the automotive retail, automotive rental and solid waste services
industries. The Company issued an aggregate of approximately 53.7 million shares
of Common Stock and paid approximately $346.6 million of cash or notes in such
transactions which have been accounted for under the purchase method of
accounting, and issued an aggregate of approximately 83.5 million shares of
Common Stock in such transactions which have been accounted for under the
pooling of interests method of accounting. Included in the shares of Common
Stock issued for acquisitions accounted for under the pooling of interests
method of accounting are approximately .3 million shares issued for acquisitions
which were not material individually or in the aggregate and, consequently,
prior period financial statements were not restated for such acquisitions.
Details of the results of operations of the Company and the Pooled Entities
for the periods before the pooling of interests combinations were consummated
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Revenue:
The Company........................................... $ 8,704.6 $2,280.2 $1,926.0
Pooled Entities....................................... 1,601.0 4,306.2 3,233.5
--------- -------- --------
$10,305.6 $6,586.4 $5,159.5
========= ======== ========
Income (loss) from continuing operations before
extraordinary charge:
The Company........................................... $ 149.7 $ (36.3) $ .8
Pooled Entities....................................... 50.5 52.8 54.0
--------- -------- --------
$ 200.2 $ 16.5 $ 54.8
========= ======== ========
</TABLE>
52
<PAGE> 25
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The Company's unaudited pro forma consolidated results of operations
assuming all significant 1997 acquisitions accounted for under the purchase
method of accounting had occurred on January 1, 1996 are as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Revenue..................................................... $11,786.9 $10,168.4
Income (loss) from continuing operations before
extraordinary charge...................................... 200.0 (7.4)
Diluted earnings (loss) per share from continuing
operations................................................ .45 (.02)
</TABLE>
The unaudited pro forma 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.
During the year ended December 31, 1996, the Company acquired various
businesses in the automotive retail, automotive rental, solid waste services and
electronic security services industries. The Company issued an aggregate of
approximately 9.1 million shares of Common Stock and paid approximately $52.1
million of cash in such transactions which have been accounted for under the
purchase method of accounting, and issued an aggregate of approximately 71.4
million shares of Common Stock in such transactions which have been accounted
for under the pooling of interests method of accounting. Included in the shares
of Common Stock issued for acquisitions accounted for under the pooling of
interests method of accounting are approximately 1.1 million shares issued for
acquisitions which were not material individually or in the aggregate and,
consequently, prior period financial statements were not restated for such
acquisitions.
In July 1996, the Company entered into an agreement to acquire ADT Limited
(the "ADT Agreement"), which was terminated by mutual agreement of the parties
in September 1996. In connection with the execution of the ADT Agreement, ADT
Limited granted to the Company a warrant ("the ADT Warrant") to purchase 15.0
million common shares of ADT Limited at a purchase price of $20 per share (which
approximated fair market value). In March 1997, the Company exercised the ADT
Warrant resulting in the purchase of 15.0 million common shares of ADT Limited
at $20 per share. In May 1997, the Company sold the ADT Limited common shares
for $27.50 per share resulting in a gain of approximately $102.3 million, net of
fees and expenses.
During the year ended December 31, 1995, the Company acquired various
businesses in the automotive rental, solid waste services and electronic
security services industries. The Company issued an aggregate of approximately
17.3 million shares of Common Stock and paid approximately $1.3 billion of cash
in such transactions which have been accounted for under the purchase method of
accounting, and issued an aggregate of approximately 36.3 million shares of
Common Stock for such transactions which have been accounted for under the
pooling of interests method of accounting. The cash paid for acquisitions in
1995 relates primarily to National Car Rental System, Inc.'s ("National")
acquisition of its predecessor company from General Motors Corporation. National
was acquired by the Company during 1997 and accounted for under the pooling of
interests method of accounting.
53
<PAGE> 26
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting (including historical
accounts of immaterial acquisitions accounted for under the pooling of interests
method of accounting) for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- --------
<S> <C> <C> <C>
Revenue earning vehicles................................ $ 415.3 $ 79.4 $1,455.2
Property and equipment.................................. 554.6 75.2 99.3
Intangible and other assets............................. 1,282.5 101.2 101.3
Working capital (deficiency), net of cash acquired...... 43.6 (29.2) 16.8
Long-term debt assumed.................................. (1,122.6) (86.4) (123.5)
Other liabilities....................................... (13.7) (2.1) (131.3)
Common stock issued..................................... (943.1) (86.6) (84.1)
--------- ------- --------
Cash used in acquisitions, net of cash acquired......... $ 216.6 $ 51.5 $1,333.7
========= ======= ========
</TABLE>
As discussed in Note 11, Discontinued Operations, the Company sold its
electronic security services division in October 1997. Accordingly, the
financial position and results of operations of businesses acquired in the
electronic security services segment have been accounted for as discontinued
operations in the accompanying Consolidated Financial Statements.
Subsequent to December 31, 1997, the Company acquired various businesses in
the automotive retail and solid waste services industries for an aggregate
purchase price of approximately $901.5 million consisting of cash and/or shares
of Common Stock. These acquisitions will be accounted for under the purchase
method of accounting.
54
<PAGE> 27
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
3. REVENUE EARNING VEHICLE DEBT
Revenue earning vehicle debt at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Amounts under various commercial paper programs secured by
eligible vehicle collateral; interest based on
market-dictated commercial paper rates; weighted average
interest rates of 5.85% and 5.93% at December 31, 1997 and
1996, respectively........................................ $ 2,919.4 $2,253.1
Amounts under various medium-term note programs secured by
eligible vehicle collateral:
Fixed rate component; weighted average interest rates of
7.09% and 7.13% at December 31, 1997 and 1996,
respectively; maturities through 2003.................. 736.3 656.3
Floating rate component based on a spread over 3 month
LIBOR; maturities through 2001......................... 166.5 143.3
Other uncommitted secured financings primarily with
financing institutions in the United Kingdom; secured by
eligible vehicle collateral for periods that approximate
the expected hold period for the vehicle at LIBOR based
interest rates; weighted average interest rates of 6.99%
and 6.29% at December 31, 1997 and 1996, respectively..... 349.9 327.7
--------- --------
4,172.1 3,380.4
Less: long-term portion..................................... (1,962.7) (844.8)
--------- --------
$ 2,209.4 $2,535.6
========= ========
</TABLE>
In October 1997, the Company refinanced borrowings under its pre-existing
commercial paper programs with borrowings under a $3.35 billion financing
program comprised of a $2.3 billion commercial paper program and three
commercial paper conduit facilities totaling $1.05 billion. Bank lines of credit
of $2.1 billion (terminating October 1998) and $945.0 million (terminating
October 2000) provide liquidity backup for the facilities. Letters of credit
totaling $335.0 million provide collateral and additional liquidity backup for
the facilities. The weighted average interest rate on total revenue earning
vehicle debt was 6.17% and 6.20% at December 31, 1997 and 1996, respectively.
Interest expense on revenue earning vehicle debt is included as a component of
cost of automotive rental operations in the accompanying Consolidated Statements
of Operations.
At December 31, 1997, aggregate maturities of revenue earning vehicle debt
were as follows:
<TABLE>
<S> <C>
1998........................................................ $2,209.4
1999........................................................ 310.0
2000........................................................ 1,144.0
2001........................................................ 333.7
2002........................................................ --
Thereafter.................................................. 175.0
--------
$4,172.1
========
</TABLE>
55
<PAGE> 28
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Revolving credit facility; interest payable using LIBOR
based rates; unsecured; matures 2002...................... $ 250.0 $ 150.0
Vehicle inventory credit facilities; secured by the
Company's vehicle inventory; weighted average interest
rates of 6.36% and 9.25% at
December 31, 1997 and 1996, respectively.................. 472.5 262.0
Other notes; secured by real property, equipment and other
assets; interest ranging from 4% to 13%; maturing through
2009...................................................... 180.4 408.3
------- -------
902.9 820.3
Less: current portion....................................... (532.0) (385.5)
------- -------
$ 370.9 $ 434.8
======= =======
</TABLE>
In April 1997, the Company replaced its existing $250.0 million credit
facility with a $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.
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.
Interest expense on vehicle inventory credit facilities is included as a
component of cost of automotive retail sales in the accompanying Consolidated
Statements of Operations.
At December 31, 1997, aggregate maturities of long-term debt were as
follows:
<TABLE>
<S> <C>
1998........................................................ $532.0
1999........................................................ 26.6
2000........................................................ 9.4
2001........................................................ 5.4
2002........................................................ 288.8
Thereafter.................................................. 40.7
------
$902.9
======
</TABLE>
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 and accounted for under the pooling of
interests method of accounting were subchapter S corporations for income tax
purposes. The subchapter S corporation status of these companies was terminated
effective with the closing date of the
56
<PAGE> 29
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
acquisitions. For purposes of these Consolidated Financial Statements, federal
and state income taxes have been recorded 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 components of the provision for income taxes related to continuing
operations for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Current:
Federal................................................... $ 23.1 $ 54.7 $33.8
State..................................................... 7.0 5.6 6.3
Federal and state deferred.................................. 89.6 (7.2) 18.7
Foreign deferred............................................ (4.5) (8.8) (1.4)
Change in valuation allowance............................... -- 20.5 3.4
------ ------ -----
Provision for income taxes.................................. $115.2 $ 64.8 $60.8
====== ====== =====
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for continuing operations for the years ended December 31 is
shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Non-deductible expenses..................................... .5 7.6 4.8
State income taxes, net of federal benefit.................. 2.0 5.6 4.5
Change in valuation allowance............................... -- 25.2 3.0
Other, net.................................................. (1.0) 6.3 5.3
---- ----- -----
Effective tax rate.......................................... 36.5% 79.7% 52.6%
==== ===== =====
</TABLE>
Components of the net deferred income tax liability included in other
liabilities in the accompanying Consolidated Balance Sheets at December 31 are
as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis..................... $ 450.3 $ 308.4
Deferred income tax assets:
Net operating losses...................................... (59.0) (103.3)
Accruals not currently deductible......................... (293.0) (97.1)
Valuation allowance......................................... 146.1 66.9
------- --------
Net deferred income tax liability........................... $ 244.4 $ 174.9
======= ========
</TABLE>
At December 31, 1997, the Company had available domestic net operating loss
carryforwards of approximately $61.8 million which begin to expire in the year
2011 and foreign net operating loss carryforwards of approximately $60.1
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.
The foreign losses included in income from continuing operations before
income taxes and extraordinary charge for the years ended December 31, 1997,
1996 and 1995 were $(11.5) million, $(22.0) million and $(20.8) million,
respectively.
57
<PAGE> 30
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
6. SHAREHOLDERS' EQUITY
During the year ended December 31, 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 addition, 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.
During the year ended December 31, 1996, the Company sold an aggregate of
22.0 million shares of Common Stock in private placement transactions resulting
in net proceeds of approximately $550.9 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 addition, 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.
During the year ended December 31, 1995, the Company sold an aggregate of
44.1 million shares of Common Stock and warrants to purchase an additional 33.4
million shares of Common Stock in various private placement and other equity
transactions resulting in net proceeds of approximately $262.4 million. The
warrants are exercisable at prices ranging from $2.25 to $3.50 per share.
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. On January 3, 1997, the Compensation Committee of
the Company's Board of Directors approved management's recommended 1997 annual
employee stock option grant of 6.7 million shares of Common Stock (2.0 million
shares of which were granted under the Company's 1997 Employee Stock Option Plan
subject to shareholder approval obtained in May 1997). These stock options were
granted using the quoted market price at the date of management's recommendation
($28.625 at December 31, 1996) as opposed to the quoted market price at the
grant date ($29.9375 at January 3, 1997). No compensation expense associated
with these grants has been recognized in the accompanying Consolidated Financial
Statements as it would not be material to the consolidated financial position or
results of operations.
58
<PAGE> 31
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
A summary of stock option and warrant transactions is as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants outstanding at
beginning of period................ 52.5 $ 7.63 49.6 $ 4.87 8.1 $4.54
Granted.............................. 15.2 28.52 8.7 21.86 45.1 4.92
Exercised............................ (18.7) 3.24 (5.6) 4.03 (2.9) 4.14
Canceled............................. (.9) 24.59 (.2) 9.44 (.7) 7.49
----- ---- ----
Options and warrants outstanding at
end of period...................... 48.1 15.67 52.5 7.63 49.6 4.87
===== ==== ====
Options and warrants exercisable at
end of period...................... 26.8 8.71 38.5 4.12 39.9 3.50
Options available for future
grants............................. 14.0 7.9 4.3
</TABLE>
The following table summarizes information about outstanding and
exercisable stock options and warrants at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE(YRS.) PRICE SHARES PRICE
----------------------- ------ ----------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$ 1.13 -- $ 3.50 16.4 1.28 $ 3.03 16.1 $ 3.05
3.78 -- 27.00 16.8 7.18 15.16 7.8 12.80
27.25 -- 41.88 14.9 8.78 30.18 2.9 29.06
---- ----
1.13 -- 41.88 48.1 5.67 15.67 26.8 8.71
==== ====
</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 net income (loss) and
earnings (loss) per share would have decreased (increased) accordingly. Using
the Black-Scholes option pricing model for all options granted after December
31, 1994, the Company's pro forma net income (loss), pro forma earnings (loss)
per share and pro forma weighted average fair value of options granted, with
related assumptions, are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ---------------
<S> <C> <C> <C>
Pro forma net income (loss)....... $375.3 $(25.4) $26.5
Pro forma diluted earnings (loss)
per share....................... .88 (.08) .10
Pro forma weighted average fair
value of options granted........ 10.03 9.80 5.28
Risk free interest rates.......... 5.74% - 5.78% 5.98% - 6.17% 5.98% - 6.17%
Expected lives.................... 5-7 years 5-7 years 5-7 years
Expected volatility............... 40% 40% 40%
</TABLE>
59
<PAGE> 32
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (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 the Company's wholly-owned subsidiary,
AutoNation USA of infringing CarMax's trademark rights by using the marks
AutoNation USA(SM) and "The Better Way to Buy a Car(SM)." 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 its 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 damages and an order enjoining AutoNation USA from using certain marks,
including the marks AutoNation USA and "The Better Way to Buy a Car." The case
is in the court's October 1998 trial calendar. Although it is impossible to
predict the outcome of this litigation, the Company believes that AutoNation USA
has a valid basis for its complaint and that CarMax's allegations and
counterclaims are without merit.
The Company is also a party to various other general corporate legal
proceedings which have arisen in the ordinary course of business. While the
results of these matters, as well as the matter described above cannot be
predicted with certainty, the Company believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, cash flows or
financial position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the quarterly periods in
which they are resolved.
LEASE COMMITMENTS
The Company and its subsidiaries lease real property, equipment and
software under various operating leases with terms from 1 to 25 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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Real property............................................... $ 61.8 $ 58.3 $ 51.7
Equipment and software...................................... 43.7 23.8 25.0
Airport concession and permit fees:
Minimum fixed obligations................................. 93.3 89.6 68.0
Additional amounts, based on revenue from vehicle
rentals................................................ 103.0 94.5 60.1
------ ------ ------
Total............................................. $301.8 $266.2 $204.8
====== ====== ======
</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, 1997 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1998........................................................ $154.4
1999........................................................ 117.8
2000........................................................ 101.1
2001........................................................ 73.3
2002........................................................ 53.6
Thereafter.................................................. 119.8
------
$620.0
======
</TABLE>
60
<PAGE> 33
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
In connection with the development of the AutoNation USA megastores, the
Company is the lessee under a $500.0 million operating lease facility
established to acquire and develop properties used in its business. The Company
has guaranteed the residual value of the properties under this facility which
guarantee totaled approximately $326.5 million at December 31, 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, 1997, letters of credit and surety bonds totaling $368.6 million
expire through October 1999.
The Company's solid waste and environmental services activities are
conducted in the context of a developing and changing statutory and regulatory
framework. 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.
9. EARNINGS (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share" during 1997. SFAS 128 establishes standards
for computing and presenting basic and diluted earnings (loss) per share. Basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the year. Diluted
earnings (loss) per share is based on the combined weighted average number of
common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of warrants and options. In
computing diluted earnings (loss) per share, the Company has utilized the
treasury stock method. All prior period earnings (loss) per share data have been
restated to conform with SFAS 128.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share is as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Weighted average shares outstanding used in calculating
basic earnings per share.................................. 403.1 320.9 258.7
Gross common equivalent shares.............................. 63.6 58.1 53.8
Weighted average treasury shares purchased.................. (24.3) (15.2) (7.6)
Effect of using weighted average common equivalent shares
outstanding............................................... (11.5) (8.3) (35.6)
----- ----- -----
Weighted average common and common equivalent shares used in
calculating diluted earnings per share.................... 430.9 355.5 269.3
===== ===== =====
</TABLE>
10. RESTRUCTURING AND OTHER CHARGES
During the year ended December 31, 1997, the Company recorded pre-tax
charges of approximately $244.1 million. These charges consisted of $150.0
million associated with combining the Company's franchised automotive
dealerships and used vehicle megastore operations into one automotive retail
division and $94.1 million associated with integrating the Company's automotive
rental operations. Approximately $85.0 million of the automotive retail charge
appears as restructuring and other charges in the Company's Consolidated
Statement of Operations for the year ended December 31, 1997 and consists of:
$42.0 million for
61
<PAGE> 34
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
consolidation of information systems; $25.0 million related primarily to
relocating the Company's Valu Stop(SM) operations; and $18.0 million of
severance and other costs. The remaining $65.0 million of the automotive retail
charge relates to inventory consolidation and is included in cost of automotive
retail sales in the Company's Consolidated Statement of Operations for the year
ended December 31, 1997. The primary components of the $94.1 million automotive
rental charge are as follows: $32.0 million related to elimination of redundant
information systems; $18.0 million related to fleet consolidation; and $44.1
million related to closure or sale of duplicate rental facilities and merger and
other non-recurring expenses. Through December 31, 1997, the Company has spent
approximately $58.1 million related to integration and other activities and has
recorded $92.3 million of these charges against certain assets. As of December
31, 1997, approximately $93.7 million remained in accrued liabilities related to
these charges. The Company believes the integration activities associated with
these charges will be substantially completed within one year.
During the year ended December 31, 1996, the Company recorded pre-tax
charges of approximately $95.5 million related primarily to the integration of
the operations of Alamo Rent-A-Car, Inc. into those of the Company. Also
included in these charges are merger expenses associated with certain
acquisitions accounted for under the pooling of interests method of accounting.
Approximately $38.3 million of such expenses appear as restructuring and other
charges in the Company's Consolidated Statement of Operations for the year ended
December 31, 1996 with the remainder of approximately $57.2 million included in
cost of automotive rental operations and selling, general and administrative
expenses. These costs primarily include asset write-offs, severance benefits,
accounting and legal merger costs and changes in various estimated reserve
requirements. Through December 31, 1997, the Company has spent substantially all
of the $38.3 million included in restructuring and other charges in the 1996
Consolidated Statement of Operations.
11. DISCONTINUED OPERATIONS
In October 1997, the Company sold its electronic security services division
for approximately $610.0 million resulting in an after tax gain of approximately
$230.0 million. Accordingly, the operating results and gain on disposition of
the electronic security services segment have been classified as discontinued
operations for all periods presented in the accompanying Consolidated Financial
Statements. Revenue from the electronic security services segment was $83.8
million in 1997 for the period prior to disposition and $85.3 million and $49.8
million for the years ended December 31, 1996 and 1995, respectively.
During the year ended December 31, 1995, the Company disposed of its mining
and citrus operations and spun-off its hazardous waste services segment
resulting in a loss from discontinued operations of approximately $25.1 million,
net of income taxes. Included in the 1995 loss from discontinued operations is a
$30.5 million loss on disposal of the Company's mining and citrus operations,
net of income tax benefits of $10.0 million. Revenue from the mining and citrus
and hazardous waste services operations was $118.4 million in 1995 for the
period prior to disposition. Operating results for the period prior to
disposition have been classified as discontinued operations in the accompanying
Consolidated Financial Statements.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to market risks arising from changes in interest
rates. Due to its limited foreign operations, the Company does not have material
market risk exposures relative to changes in foreign exchange rates.
CREDIT EXPOSURE
The Company is exposed to credit related losses in the event of
non-performance by counterparties to certain derivative financial instruments.
The Company monitors the credit worthiness of the counterparties and presently
does not expect default by any of the counterparties. The Company does not
obtain collateral in connection with its derivative financial instruments.
62
<PAGE> 35
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The credit exposure that results from interest rate contracts is
represented by the fair value of contracts with a positive fair value as of the
reporting date. See Note 13, Fair Value of Financial Instruments, for the fair
value of derivatives. The Company's credit exposure on its interest rate
derivatives was not material at December 31, 1997 or 1996.
INTEREST RATE RISK MANAGEMENT
The Company uses interest rate swap agreements to manage the impact of
interest rate changes on the Company's variable rate revenue earning vehicle
obligations. The amounts exchanged by the counterparties to interest rate swap
agreements normally are based upon the notional amounts and other terms,
generally related to interest rates, of the derivatives. While notional amounts
of interest rate swaps form part of the basis for the amounts exchanged by the
counterparties, the notional amounts are not themselves exchanged, therefore, do
not represent a measure of the Company's exposure as an end user of derivative
financial instruments. At December 31, 1997 and 1996, notional principal amounts
related to interest rate swaps (variable to fixed rate) were $2.25 billion and
$801.9 million, respectively. The swap portfolio maturities are as follows as of
December 31, 1997: $300.0 million in 1998; $650.0 million in 1999; $1.0 billion
in 2000; $150.0 million in 2001; and $150.0 million in 2002. As of December 31,
1997, the weighted average fixed rate payment on variable to fixed rate swaps
was 5.93%. Variable rates received are indexed to the Commercial Paper
Nonfinancial rate ($2.2 billion notional principal amount) and LIBOR ($50.0
million notional principal amount).
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. The assumptions
used have a significant effect on the estimated amounts reported.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
- Cash and cash equivalents, receivables, other current assets, accounts
payable, accrued liabilities and variable rate debt: The amounts reported
in the accompanying Consolidated Balance Sheets approximate fair value.
- Medium-term notes payable: The estimated fair value of medium-term notes
payable is estimated based on the quoted market prices for the same or
similar issues.
- Other fixed-rate debt: Fixed rate mortgages are valued based upon
discounted expected cash flows at rates then offered to the Company for
debt of similar terms. The carrying amount of remaining fixed-rate debt
approximates fair value.
- Interest rate swaps: The fair value of interest rate swaps was determined
from dealer quotations and represents the discounted future cash flows
through maturity or expiration using current rates, and is effectively
the amount the Company would pay or receive to terminate the agreements.
63
<PAGE> 36
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The following table sets forth the carrying amounts and fair values of the
Company's financial instruments, except for those noted above for which carrying
amounts approximate fair values, as of December 31:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
(ASSETS) LIABILITIES AMOUNT VALUE AMOUNT VALUE
- -------------------- -------- ------ -------- ------
<S> <C> <C> <C> <C>
Medium-term notes payable............................ $902.8 $917.7 $799.6 $792.8
Other fixed-rate debt................................ 70.3 70.3 184.6 186.5
Interest rate swaps.................................. -- 8.0 -- .7
</TABLE>
14. BUSINESS AND CREDIT CONCENTRATIONS
AUTOMOTIVE RETAIL INDUSTRY
The Company owns and operates franchised automotive dealerships and used
vehicle megastores under the name AutoNation USA in the United States.
Automotive dealerships operate pursuant to franchise agreements with
vehicle manufacturers. Franchise agreements generally provide the manufacturers
with considerable influence over the operations of the dealership and generally
provide for termination of the franchise agreement for a variety of causes. The
success of any franchised automotive dealership is dependent, to a large extent,
on the financial condition, management, marketing, production and distribution
capabilities of the vehicle manufacturers of which the Company holds franchises.
The Company purchases substantially all of its new vehicles from various
manufacturers at the prevailing prices charged by the manufacturers to all
franchised dealers. The Company's sales volume could be adversely impacted by
the manufacturers' inability to supply the dealerships with an adequate supply
of vehicles.
Concentrations of credit risk with respect to trade receivables related to
the Company's automotive retail operations are limited due to the wide variety
of customers and markets in which the Company's products are sold as well as
their dispersion across many different geographic areas in the United States.
Consequently, at December 31, 1997, the Company does not consider itself to have
any significant concentrations of credit risk in the automotive retail segment.
AUTOMOTIVE RENTAL INDUSTRY
The Company owns and operates vehicle rental facilities primarily in the
United States. The automotive rental industry in which the Company operates is
highly seasonal.
The Company enters into vehicle repurchase programs with one principal
vehicle manufacturer, as well as other vehicle manufacturers. At December 31,
1997 and 1996, the Company had vehicle receivables from manufacturers of $214.9
million and $125.4 million, respectively. During model year 1997, the Company
purchased approximately 70% of its vehicle fleet under repurchase programs with
one vehicle manufacturer.
Concentrations of credit risk with respect to non-vehicle receivables
related to the Company's automotive rental operations are limited due to the
wide variety of customers and markets in which services are provided as well as
their dispersion across many different geographic areas primarily in the United
States. Consequently, at December 31, 1997, the Company does not consider itself
to have any significant non-vehicle receivable concentrations of credit risk in
the automotive rental segment.
SOLID WASTE SERVICES INDUSTRIES
Concentrations of credit risk with respect to trade receivables related to
the Company's solid waste services segment are limited due to the wide variety
of customers and markets in which services are provided
64
<PAGE> 37
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
as well as their dispersion across many different geographic areas in the United
States. As a result, at December 31, 1997, the Company does not consider itself
to have any significant concentrations of credit risk in the solid waste
services segment.
15. RELATED PARTY TRANSACTIONS
As of December 31, 1996, approximately $247.5 million was due from
AutoNation Incorporated ("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 prior to its acquisition by the Company in
January 1997.
The Company purchased approximately $631.3 million and $351.8 million of
revenue earning vehicles from a group of automotive dealerships owned primarily
by a former director of a pooled company during the years ended December 31,
1996 and 1995, respectively.
16. OPERATIONS BY INDUSTRY SEGMENT
The Company operates subsidiaries in the automotive retail, automotive
rental and solid waste services industries. The following table presents
financial information regarding the Company's different industry segments as of
and for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Revenue:
Automotive retail..................................... $ 6,122.8 $2,933.7 $2,361.7
Automotive rental..................................... 3,055.1 2,699.4 1,992.8
Solid waste services.................................. 1,127.7 953.3 805.0
--------- -------- --------
$10,305.6 $6,586.4 $5,159.5
========= ======== ========
Cost of operations:
Automotive retail..................................... $ 5,459.0 $2,611.3 $2,068.4
Automotive rental..................................... 2,377.0 2,167.2 1,613.9
Solid waste services.................................. 809.1 703.6 570.1
--------- -------- --------
$ 8,645.1 $5,482.1 $4,252.4
========= ======== ========
Selling, general and administrative:
Automotive retail..................................... $ 647.2 $ 289.1 $ 251.0
Automotive rental..................................... 497.4 537.1 393.5
Solid waste services.................................. 107.1 126.9 133.4
Corporate............................................. 30.1 21.7 4.3
--------- -------- --------
$ 1,281.8 $ 974.8 $ 782.2
========= ======== ========
Restructuring and other charges:
Automotive retail..................................... $ 85.0 $ -- $ --
Automotive rental..................................... 94.1 23.5 --
Solid waste services.................................. -- 8.8 3.3
Corporate............................................. -- 6.0 --
--------- -------- --------
$ 179.1 $ 38.3 $ 3.3
========= ======== ========
Operating income (loss):
Automotive retail..................................... $ (68.4) $ 33.3 $ 42.3
Automotive rental..................................... 86.6 (28.4) (14.6)
Solid waste services.................................. 211.5 114.0 98.2
Corporate............................................. (30.1) (27.7) (4.3)
--------- -------- --------
$ 199.6 $ 91.2 $ 121.6
========= ======== ========
</TABLE>
65
<PAGE> 38
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Depreciation and amortization:
Automotive retail..................................... $ 32.6 $ 9.3 $ 8.1
Automotive rental..................................... 878.6 789.3 586.0
Solid waste services.................................. 86.1 75.3 63.0
Corporate............................................. 6.3 2.0 1.1
--------- -------- --------
$ 1,003.6 $ 875.9 $ 658.2
========= ======== ========
Capital expenditures:
Automotive retail..................................... $ 168.9 $ 57.6 $ 53.7
Automotive rental..................................... 84.5 45.1 22.3
Solid waste services.................................. 165.3 146.9 147.9
Corporate............................................. 41.1 3.2 --
--------- -------- --------
$ 459.8 $ 252.8 $ 223.9
========= ======== ========
Assets:
Automotive retail..................................... $ 3,078.8 $ 995.6 $ 630.7
Automotive rental..................................... 5,899.1 4,691.7 3,908.3
Solid waste services.................................. 1,348.0 1,090.3 838.9
Corporate............................................. 201.4 130.9 171.9
--------- -------- --------
$10,527.3 $6,908.5 $5,549.8
========= ======== ========
</TABLE>
17. QUARTERLY FINANCIAL INFORMATION (RESTATED) (UNAUDITED)
The Company's automotive retail operations generally experience higher
volumes of vehicle sales in the second and third quarters of each year in part
due to manufacturer incentives and consumer buying trends.
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 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 second and fourth quarters of 1997 included restructuring and other
pre-tax charges of approximately $94.1 million and $150.0 million, respectively,
as described in Note 10, Restructuring and Other Charges. The second quarter of
1997 also contained a gain on the sale of ADT Limited common shares of
approximately $102.3 million as described in Note 2, Business Combinations.
The third and fourth quarters of 1996 included pre-tax charges of
approximately $7.6 million and $87.9 million, respectively, as described in Note
10, Restructuring and Other Charges. 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, Notes
Payable and Long-Term Debt.
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1997 and 1996. Quarterly amounts have
been restated from amounts previously reported for significant business
combinations accounted for under the pooling of interests method of accounting,
to account for the Company's electronic security services segment as
discontinued operations and for the effect of adopting SFAS 128.
66
<PAGE> 39
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue........................................ 1997 $1,942.2 $2,513.9 $2,921.3 $2,928.2
1996 1,472.7 1,692.6 1,745.1 1,676.0
Operating income (loss)........................ 1997 $ 49.8 $ 12.2 $ 190.3 $ (52.7)
1996 41.2 61.4 84.9 (96.3)
Income (loss) from continuing operations before
extraordinary charge......................... 1997 $ 36.0 $ 70.9 $ 122.1 $ (28.8)
1996 22.0 31.6 46.4 (83.5)
Basic earnings (loss) per share from continuing
operations before extraordinary charge....... 1997 $ .09 $ .18 $ .30 $ (.07)
1996 .07 .10 .14 (.25)
Diluted earnings (loss) per share from
continuing operations before extraordinary
charge....................................... 1997 $ .09 $ .17 $ .28 $ (.07)
1996 .07 .09 .13 (.23)
Net income (loss).............................. 1997 $ 38.7 $ 74.5 $ 125.3 $ 201.2
1996 23.9 34.8 48.3 (113.7)
</TABLE>
18. SUBSEQUENT EVENT
In July 1998, the Company's solid waste subsidiary, Republic Services, Inc.
("RSI") completed an initial public offering of approximately 36.1% of its
outstanding common stock, resulting in net proceeds of approximately $1.4
billion. The Company intends to distribute its remaining interest in RSI to the
Company's shareholders in 1999, subject to certain conditions and consents (the
"Distribution"). The Distribution is contingent, in part, on the Company
obtaining a private letter ruling from the Internal Revenue Service to the
effect that, among other things, the Distribution will qualify as a tax free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended, in form and substance satisfactory to the
Company.
19. RESTATEMENT
The Company has restated its 1996 and 1995 consolidated financial
statements to include the financial position, results of operations and cash
flows of various businesses acquired in 1997 and 1996 accounted for under the
pooling of interests method of accounting. These acquisitions had been accounted
for as immaterial pooling of interests transactions for which prior periods were
not restated in the Company's previously issued financial statements included in
the Company's 1997 Annual Report on Form 10-K. The restatement is a result of a
change in the Company's evaluation of the aggregate impact of individually
immaterial pooling of interests transactions on the Company's prior period
financial statements. The effect of the restatement is as follows:
<TABLE>
<CAPTION>
Diluted Net Income
Revenue Net Income (Loss) (Loss) Per Share
--------------------- ------------------- ------------------
1996 1995 1996 1995 1996 1995
-------- -------- ------ ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
As previously reported $6,094.6 $4,526.9 $(15.8) $18.1 $(.05) $.07
Effect of restatement 491.8 632.6 9.1 16.5 .03 .06
-------- -------- ------ ----- ----- ----
As restated $6,586.4 $5,159.5 $ (6.7) $34.6 $(.02) $.13
======== ======== ====== ===== ===== ====
</TABLE>
67
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Company are set forth in Part II,
Item 8.
(2) Financial Statement Schedule II, Valuation and Qualifying Accounts
and Reserves, for each of the three years ended December 31, 1997
(Restated) is submitted herewith.
(3) Exhibits -- (See Index to Exhibits included elsewhere herein.)
69
<PAGE> 41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant, Republic Industries, Inc., has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
REPUBLIC INDUSTRIES, INC.
By: /s/ MARY E. WOOD
----------------------------------
Mary E. Wood
VICE PRESIDENT AND
CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Date: September 11, 1998
<PAGE> 42
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNT AND RESERVES (RESTATED)
SCHEDULE II
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE
AT ADDITIONS ACCOUNTS BALANCE
BEGINNING CHARGED TO WRITTEN AT END
OF YEAR INCOME OFF OTHER(1) OF YEAR
--------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CLASSIFICATIONS
Allowance for doubtful accounts:
1997............................................. $19.9 $12.5 $(9.0) $27.5 $50.9
1996............................................. 14.7 10.1 (6.8) 1.9 19.9
1995............................................. 9.4 5.0 (1.3) 1.6 14.7
</TABLE>
- ---------------
(1) Allowance of acquired businesses.
71
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <C> <S>
23.1* -- Consent of Arthur Andersen LLP.
</TABLE>
- ---------------
* Filed herewith.
74
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K/A, 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, 333-29217, 333-35749 and 333-44611),
Forms S-4 (Registration Nos. 333-17915 and 333-41505) and Forms S-8
(Registration Nos. 33-93742, 333-07623, 333-19453, 333-20669, 333-29265,
333-42891 and 333-56967).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 11, 1998.
