<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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
REPUBLIC INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1105145
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
110 S.E. 6TH STREET
FT. LAUDERDALE, FLORIDA 33301
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 769-7200
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[ ]
On April 28, 1998 the registrant had 453,496,108 outstanding shares of
common stock, par value $.01 per share.
<PAGE> 2
REPUBLIC INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as
of March 31, 1998 and December 31, 1997................................................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 and
1997 (Restated)........................................................................... 4
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Three Months Ended March 31, 1998.......................................... 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997 (Restated)............................. 6
Notes to Unaudited Condensed Consolidated Financial Statements............................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................. 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................... 19
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES........................................................................ 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................. 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 273.5 $ 148.0
Receivables, net.................................................... 1,137.1 977.3
Revenue earning vehicles, net....................................... 4,407.2 4,466.5
Inventory .......................................................... 1,384.3 1,094.8
Other current assets................................................ 159.5 139.2
--------- ------------
Total Current Assets.......................................... 7,361.6 6,825.8
PROPERTY AND EQUIPMENT, NET............................................ 2,338.7 2,096.9
INTANGIBLE AND OTHER ASSETS, NET....................................... 2,295.0 1,604.6
--------- ------------
$11,995.3 $ 10,527.3
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 303.7 $ 260.8
Accrued liabilities................................................. 682.9 557.9
Liability insurance reserves........................................ 305.1 297.2
Revenue earning vehicle debt........................................ 2,465.5 2,209.4
Notes payable and current maturities of
long-term debt.................................................... 1,089.8 532.0
Other current liabilities........................................... 338.3 405.3
--------- ------------
Total Current Liabilities..................................... 5,185.3 4,262.6
LONG-TERM DEBT, NET OF CURRENT MATURITIES.............................. 571.7 370.9
LONG-TERM REVENUE EARNING VEHICLE DEBT................................. 1,858.1 1,962.7
OTHER LIABILITIES ..................................................... 437.8 446.8
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 shares authorized;
450,272,002 and 432,705,796 shares
issued and outstanding, respectively............................... 4.5 4.3
Additional paid-in capital.......................................... 3,429.8 3,048.1
Retained earnings................................................... 511.9 434.8
Cumulative translation adjustment................................... (3.8) (2.9)
--------- ------------
Total Shareholders' Equity........................... 3,942.4 3,484.3
--------- ------------
$11,995.3 $ 10,527.3
========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
---------- ----------
(Restated)
<S> <C> <C>
REVENUE:
Automotive retail sales............................................. $2,343.4 $ 947.0
Automotive rental revenue........................................... 775.7 641.3
Solid waste services revenue........................................ 300.8 237.1
-------- --------
3,419.9 1,825.4
EXPENSES:
Cost of automotive retail sales..................................... 2,026.1 836.3
Cost of automotive rental
operations........................................................ 605.4 513.6
Cost of solid waste operations...................................... 209.7 171.8
Selling, general and administrative................................. 454.6 256.2
-------- --------
OPERATING INCOME....................................................... 124.1 47.5
INTEREST INCOME........................................................ 1.0 7.6
INTEREST EXPENSE....................................................... (2.7) (3.7)
OTHER INCOME (EXPENSE), NET............................................ (2.0) 3.5
-------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.................................................. 120.4 54.9
PROVISION FOR INCOME TAXES............................................. 43.3 20.0
-------- --------
INCOME FROM CONTINUING OPERATIONS...................................... 77.1 34.9
DISCONTINUED OPERATIONS:
Income from discontinued operations,
net of income taxes................................................. -- 2.7
-------- --------
NET INCOME............................................................. $ 77.1 $ 37.6
======== ========
BASIC EARNINGS PER SHARE:
Continuing operations............................................ $ .18 $ .09
Discontinued operations.......................................... -- .01
-------- --------
Net income....................................................... $ .18 $ .10
======== ========
DILUTED EARNINGS PER SHARE:
Continuing operations............................................ $ .17 $ .09
Discontinued operations.......................................... -- --
-------- --------
Net income....................................................... $ .17 $ .09
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In millions)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENT
----- ------- -------- ----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 ............................. $4.3 $3,048.1 $ 434.8 $(2.9)
Stock issued in acquisitions........................... .2 375.6 -- --
Exercise of stock options and
warrants............................................. -- 6.1 -- --
Foreign currency translation
adjustments.......................................... -- -- -- (.9)
Net income............................................. -- -- 77.1 --
---- -------- ------- -----
BALANCE AT MARCH 31, 1998................................. $4.5 $3,429.8 $ 511.9 $(3.8)
==== ======== ======= =====
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- ----------
(Restated)
<S> <C> <C>
CASH USED IN OPERATING ACTIVITIES OF
CONTINUING OPERATIONS:
Net income ........................................................... $ 77.1 $ 37.6
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation of revenue earning vehicles .......................... 199.7 172.3
Depreciation and amortization ..................................... 54.9 35.4
Income from discontinued operations, net of
income taxes ................................................... -- (2.7)
Purchases of revenue earning vehicles ............................. (1,460.7) (1,465.4)
Sales of revenue earning vehicles ................................. 1,094.4 844.0
Changes in assets and liabilities, net of
effects from business combinations:
Receivables .............................................. (70.3) 88.6
Inventory ................................................ 80.7 (29.7)
Other assets ............................................. (6.8) 32.1
Accounts payable and accrued liabilities 4.1 (79.5)
Other liabilities ........................................ (81.2) 19.0
----------- ----------
(108.1) (348.3)
----------- ----------
CASH USED IN DISCONTINUED OPERATIONS .................................... -- (32.7)
----------- ----------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment .................................. (118.9) (122.3)
Purchase of marketable securities .................................... -- (300.0)
Cash used in business acquisitions, net of
cash acquired ..................................................... (347.7) (40.6)
Other ................................................................ (14.6) (38.8)
----------- ----------
(481.2) (501.7)
----------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Payments of revenue earning vehicle financing ........................ (10,779.7) (3,033.8)
Proceeds from revenue earning vehicle financing ...................... 11,164.5 3,160.4
Payments of notes payable and long-term debt ......................... (102.4) (329.9)
Proceeds from notes payable and long-term debt ....................... 8.2 398.4
Net proceeds from revolving credit and vehicle
inventory financing facilities .................................... 424.9 42.0
Sale of common stock ................................................. -- 552.7
Other ................................................................ (.7) 2.3
----------- ----------
714.8 792.1
----------- ----------
INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS ......................... 125.5 (90.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 148.0 341.1
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 273.5 $ 250.5
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except per share data)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
include the accounts of Republic Industries, Inc. and its subsidiaries (the
"Company") and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. All significant
intercompany accounts and transactions have been eliminated. Certain information
related to the Company's organization, significant accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These unaudited condensed consolidated financial statements reflect, in
the opinion of management, all material adjustments (which include only normal
recurring adjustments) necessary to fairly state the financial position and the
results of operations for the periods presented and the disclosures herein are
adequate to make the information presented not misleading.
Operating results for interim periods are not necessarily indicative of
the results that can be expected for a full year. These interim financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto included in the Company's most recent
Annual Report on Form 10-K. The accompanying Unaudited Condensed Consolidated
Statements of Operations and Cash Flows for the three months ended March 31,
1997 have been restated from amounts previously reported in Form 10-Q for
significant 1997 business combinations accounted for under the pooling of
interests method of accounting.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.
In October 1997, the Company sold its electronic security services
division. Accordingly, operating results of the electronic security services
segment for the three months ended March 31, 1997 have been classified as
discontinued operations in the accompanying unaudited condensed consolidated
financial statements. Revenue of the discontinued operations was $26.6 million
for the three months ended March 31, 1997.
2. BUSINESS COMBINATIONS
Businesses acquired through March 31, 1998 and accounted for under the
purchase method of accounting are included in the unaudited condensed
consolidated financial statements from the date of acquisition.
during the three months ended March 31, 1998, the Company acquired
various businesses in the automotive retail and solid waste services industries.
The Company issued an aggregate of approximately 17.0 million shares of its
common stock, par value $.01 per share ("Common Stock") and paid approximately
$385.8 million of cash in such transactions which have been accounted for under
the purchase method of accounting.
7
<PAGE> 8
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following summarizes 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 during the three months ended
March 31, 1997) consummated during the three months ended March 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Property and equipment.......................................................... $ 159.1 $ 349.2
Intangible assets............................................................... 678.6 480.2
Working capital (deficiency), net of cash acquired.............................. 320.1 (16.9)
Debt assumed.................................................................... (428.9) (275.6)
Other liabilities, net.......................................................... (5.4) (16.6)
Common stock issued............................................................. (375.8) (479.7)
------- -------
Cash used in acquisitions, net of cash acquired................................. $ 347.7 $ 40.6
======= =======
</TABLE>
The Company's unaudited pro forma consolidated results of operations
assuming all significant acquisitions accounted for under the purchase method of
accounting, had occurred on January 1, 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Revenue......................................................................... $3,715.3 $2,952.6
Income from continuing operations............................................... $ 79.5 $ 37.9
Diluted earnings per share from continuing
operations.................................................................... $ .17 $ .09
</TABLE>
The unaudited pro forma consolidated results of operations are
presented for informational purposes only and may not necessarily reflect the
future results of operations of the Company or what the results of operations
would have been had the Company owned and operated these businesses as of
January 1, 1997.
3. RECEIVABLES
The components of receivables, net of allowance for doubtful accounts
are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Trade........................................................................... $ 613.0 $ 465.0
Vehicle......................................................................... 394.6 357.6
Contracts in transit............................................................ 130.8 96.6
Other........................................................................... 56.4 109.0
---------- ------------
1,194.8 1,028.2
Less: allowance for doubtful accounts........................................... (57.7) (50.9)
---------- ------------
$ 1,137.1 $ 977.3
========== ============
</TABLE>
8
<PAGE> 9
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Revenue earning vehicles........................................................ $ 4,900.6 $ 4,980.1
Less: accumulated depreciation.................................................. (493.4) (513.6)
--------- ------------
$ 4,407.2 $ 4,466.5
========= ============
</TABLE>
5. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
New vehicles.................................................................... $ 928.7 $ 642.7
Used vehicles................................................................... 370.9 377.4
Parts, accessories and other.................................................... 84.7 74.7
--------- ------------
$ 1,384.3 $ 1,094.8
========= ============
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Land, landfills and improvements................................................ $ 991.2 $ 895.0
Furniture, fixtures and equipment............................................... 1,060.1 968.7
Buildings and improvements...................................................... 963.0 878.6
--------- ------------
3,014.3 2,742.3
Less: accumulated depreciation and depletion.................................... (675.6) (645.4)
--------- ------------
$ 2,338.7 $ 2,096.9
========= ============
</TABLE>
7. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net tangible assets acquired. The cost
in excess of the fair value of net tangible assets is amortized over forty years
on a straight-line basis.
Accumulated amortization of intangible assets at March 31, 1998 and
December 31, 1997 was $102.7 million and $89.6 million, respectively.
9
<PAGE> 10
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. REVENUE EARNING VEHICLE DEBT
Revenue earning vehicle debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- -----------
<S> <C> <C>
Amounts under various commercial paper programs
secured by eligible vehicle collateral;
interest based on market-dictated commercial
paper rates................................................................... $ 3,262.0 $ 2,919.4
Amounts under various medium-term note programs
secured by eligible vehicle collateral:
Fixed rate component; maturities through 2003............................... 730.7 736.3
Floating rate component based on a spread over
3 month LIBOR; maturities through 2001.................................... 166.5 166.5
Other financings secured by eligible vehicle
collateral; interest at LIBOR based rates..................................... 164.4 349.9
--------- ----------
4,323.6 4,172.1
Less: current portion........................................................... (2,465.5) (2,209.4)
--------- ----------
$ 1,858.1 $ 1,962.7
========= ==========
</TABLE>
9. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Revolving credit facility; interest
payable using LIBOR based rates;
unsecured; matures 2002....................................... $ 450.0 $ 250.0
Vehicle inventory credit facilities;
secured by the Company's vehicle
inventory..................................................... 1,028.6 472.5
Other notes; maturities
through 2009.................................................. 182.9 180.4
--------- ------------
1,661.5 902.9
Less: current portion........................................... (1,089.8) (532.0)
--------- ------------
$ 571.7 $ 370.9
========= ------------
</TABLE>
10
<PAGE> 11
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income", effective January 1, 1998. SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in financial statements. The components of the Company's
comprehensive income are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------ -----
<S> <C> <C>
Net income............................................................. $77.1 $37.6
Unrealized gain on marketable
securities, net of income taxes...................................... -- 43.7
Foreign currency translation
adjustments, net of income taxes..................................... (.9) (2.8)
----- -----
Comprehensive income................................................... $76.2 $78.5
===== =====
</TABLE>
11. INCOME TAXES
Income taxes have been provided for based upon the Company's
anticipated annual effective income tax rate.
12. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common
Stock may be granted to 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.
A summary of stock option and warrant transactions for the three months
ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ -----
<S> <C> <C>
Options and warrants outstanding at beginning of year............................... 48.1 $15.67
Granted............................................................................. 14.4 22.04
Exercised........................................................................... (.5) 11.56
Canceled............................................................................ (.3) 24.55
------
Options and warrants outstanding at March 31, 1998.................................. 61.7 17.17
======
Options and warrants exercisable at March 31, 1998.................................. 28.4 10.24
Options available for future grants at March 31, 1998............................... 29.2 N/A
</TABLE>
Options available for future grants at March 31, 1998 include options
available under the Company's 1998 Stock Option Plan approved by the Company's
Board of Directors subject to shareholder approval at the Company's annual
shareholder meeting to be held on May 20, 1998.
11
<PAGE> 12
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings 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 per share, the Company has utilized the treasury
stock method.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
Weighted average shares outstanding
used in calculating basic
earnings per share .................................. 440.0 379.5
Gross common equivalent shares ........................ 46.1 57.2
Weighted average treasury
shares purchased .................................... (26.7) (22.6)
Effect of using weighted average
common equivalent shares
outstanding ......................................... (1.0) (10.0)
------ ------
Weighted average common and common
equivalent shares used in
calculating diluted earnings per
share ............................................... 458.4 404.1
====== ======
</TABLE>
14. LEGAL MATTERS
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 expected to go to trial in the near future. 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.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
under Item 1. In addition, reference should be made to the Company's audited
consolidated financial statements and notes thereto and related Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's most recent Annual Report on Form 10-K. The
accompanying Unaudited Condensed Consolidated Statements of Operations and Cash
Flows for the three months ended March 31, 1997 have seen restated from amounts
previously reported in Form 10-Q for significant 1997 business combinations
accounted for under the pooling of interests method of accounting.
In October 1997, the Company sold its electronic security services
division. Accordingly, operating results of the electronic security services
segment for the period prior to disposition have been classified as discontinued
operations in the accompanying unaudited condensed consolidated financial
statements.
BUSINESS COMBINATIONS
The Company makes its decisions to acquire or invest in businesses
based on financial and strategic considerations.
Businesses acquired through March 31, 1998 and accounted for under the
purchase method of accounting are included in the Unaudited Condensed
Consolidated Financial Statements from the date of acquisition.
During the three months ended March 31, 1998, the Company acquired
various businesses in the automotive retail and solid waste services industries.
The Company issued an aggregate of approximately 17.0 million shares of its
common stock, par value $.01 per share ("Common Stock") and paid approximately
$385.8 million of cash in such transactions which have been accounted for under
the purchase method of accounting.
CONSOLIDATED RESULTS OF OPERATIONS
The Company's consolidated revenue was $3.4 billion and $1.8 billion
for the three months ended March 31, 1998 and 1997, respectively. Consolidated
operating income was $124.1 million and $47.5 million for the three months ended
March 31, 1998 and 1997, respectively. Net income was $77.1 million and $37.6
million for the three months ended March 31, 1998 and 1997, respectively.
Diluted earnings per share was $.17 and $.09 for the three months ended March
31, 1998 and 1997, respectively. The operating results for each of the Company's
business segments are discussed below.
13
<PAGE> 14
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 and operating income with percentages of the applicable segment revenue
for each of the Company's business segments for the periods indicated (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 % 1997 %
---- - ---- -
<S> <C> <C> <C> <C>
Revenue:
Automotive retail.................................. $2,343.4 68.5 $ 947.0 51.9
Automotive rental.................................. 775.7 22.7 641.3 35.1
Solid waste services............................... 300.8 8.8 237.1 13.0
-------- ----- -------- ------
3,419.9 100.0 1,825.4 100.0
Cost of Operations:
Automotive retail.................................. 2,026.1 86.5 836.3 88.3
Automotive rental.................................. 605.4 78.0 513.6 80.1
Solid waste services............................... 209.7 69.7 171.8 72.5
-------- --------
2,841.2 1,521.7
Selling, General and
Administrative:
Automotive retail.................................. 260.9 11.1 96.5 10.2
Automotive rental.................................. 151.2 19.5 128.0 20.0
Solid waste services............................... 28.3 9.4 25.5 10.7
Corporate.......................................... 14.2 -- 6.2 --
-------- --------
454.6 256.2
Operating Income:
Automotive retail.................................. 56.4 2.4 14.2 1.5
Automotive rental.................................. 19.1 2.5 (0.3) (.1)
Solid waste services............................... 62.8 20.9 39.8 16.8
Corporate.......................................... (14.2) -- (6.2) --
-------- --------
$ 124.1 $ 47.5
======== ========
</TABLE>
AUTOMOTIVE RETAIL
Automotive retail revenue was $2.3 billion for the three months ended
March 31, 1998 versus $947.0 million for the comparable 1997 period, an increase
of 147%. Acquisitions accounted for 125% of the increase and new AutoNation USA
megastores accounted for 22% of the increase.
Cost of automotive retail operations was $2.0 billion and $836.3
million or, as a percentage of automotive retail revenue, 86.5% and 88.3% for
the three months ended March 31, 1998 and 1997, respectively. The increase in
aggregate dollars is due primarily to acquisitions. The decrease in such costs
as a percentage of automotive retail revenue is primarily due to product mix as
well as reduced inventory costs.
Selling, general and administrative expenses were $260.9 million and
$96.5 million or, as a percentage of automotive retail revenue, 11.1% and 10.2%
for the three months ended March 31, 1998 and 1997, respectively. The increase
in aggregate dollars is primarily from acquisitions. The increase in such
expenses as a percentage of automotive retail revenue is due to costs associated
with the opening of AutoNation USA megastores. As the Company opens additional
AutoNation USA megastores such operations will incur fixed operating and
administrative costs immediately while revenue volume will tend to grow more
gradually.
14
<PAGE> 15
AUTOMOTIVE RENTAL
Automotive rental revenue was $775.7 million and $641.3 million for the
three months ended March 31, 1998 and 1997, respectively, an increase of 21%.
Acquisitions accounted for 19% of the increase and price accounted for 2% of the
increase.
Cost of automotive rental operations was $605.4 million and $513.6
million or, as a percentage of automotive rental revenue, 78.0% and 80.1% for
the three months ended March 31, 1998 and 1997, respectively. The increase in
aggregate dollars is due to acquisitions. The decrease in such costs as a
percentage of automotive rental revenue is primarily a result of rental rate
increases and lower fleet costs.
Selling, general and administrative expenses were $151.2 million and
$128.0 million or, as a percentage of automotive rental revenue, 19.5% and 20.0%
for the three months ended March 31, 1998 and 1997, respectively. The increase
in aggregate dollars is due to acquisitions.
SOLID WASTE SERVICES
Solid waste services revenue was $300.8 million and $237.1 million for
the three months ended March 31, 1998 and 1997, respectively, an increase of
27%. Acquisitions accounted for 17% of the increase and volume (including
"tuck-ins") accounted for 10% of the increase.
Cost of solid waste services operations was $209.7 million and $171.8
million or, as a percentage of solid waste services revenue, 69.7% and 72.5% for
the three months ended March 31, 1998 and 1997, respectively. The increase in
aggregate dollars is primarily due to acquisitions. The decrease in such costs
as a percentage of solid waste services revenue is primarily a result of
improvements in overall operating efficiency achieved through reductions in
operating costs of acquired businesses.
Selling, general and administrative expenses were $28.3 million and
$25.5 million or, as a percentage of solid waste services revenue, 9.4% and
10.7% for the three months ended March 31, 1998 and 1997, respectively. The
increase in aggregate dollars is primarily due to acquisitions. The decrease in
such expenses as a percentage of solid waste services revenue is primarily due
to the reduction of administrative expenses of acquired businesses.
CORPORATE
Corporate expenses were $14.2 million and $6.2 million for the three
months ended March 31, 1998 and 1997, respectively. Such increase is a result of
the overall growth experienced by the Company.
INTEREST INCOME
Interest income was $1.0 million and $7.6 million for the three months
ended March 31, 1998 and 1997, respectively. Such decrease is primarily due to
lower cash balances on hand during the period.
INTEREST EXPENSE
Interest expense was incurred primarily on borrowings under the
Company's revolving credit facility as well as debt assumed in acquisitions.
Interest expense was $2.7 million and $3.7 million for the three months ended
March 31, 1998 and 1997, respectively. 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.
15
<PAGE> 16
INCOME TAXES
The provision for income taxes was $43.3 million and $20.0 million for
the three months ended March 31, 1998 and 1997, respectively. Income taxes have
been provided based upon the Company's anticipated annual effective income tax
rate.
FINANCIAL CONDITION
At March 31, 1998, the Company had $273.5 million in cash and
approximately $489.3 million of availability under its $1.0 billion unsecured
revolving credit facility which may be used for general corporate purposes.
The Company finances vehicle purchases for its automotive rental
operations through a $3.35 billion program comprised of a $2.3 billion
commercial paper program and three commercial paper conduit facilities totaling
$1.05 billion. Borrowings under this program are secured by eligible vehicle
collateral and bear interest based on market-dictated commercial paper rates. At
March 31, 1998, the Company had approximately $90.0 million of availability
under this program. The Company expects to continue to fund its revenue earning
vehicle purchases with secured vehicle financings.
The Company has vehicle inventory financing and other credit facilities
to fund its automotive retail 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 $381.2 million at
March 31, 1998.
The Company believes that it has sufficient financial resources
available to meet its anticipated capital requirements and obligations as they
come due.
CASH FLOWS
Cash and cash equivalents increased by $125.5 million and decreased by
$90.6 million during the three months ended March 31, 1998 and 1997,
respectively. The major components of these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash used in operating activities was $108.1 million and $348.3 million
during the three months ended March 31, 1998 and 1997, respectively. Excluding
purchases of revenue earning vehicles (net of sales) which are financed through
secured vehicle financings, the Company generated positive operating cash flow
of $258.2 million and $273.1 million during the three months ended March 31,
1998 and 1997, respectively.
16
<PAGE> 17
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities consist primarily of cash used for
capital additions, business acquisitions and other transactions as further
described below.
Capital additions were $118.9 million and $122.3 million during the
three months ended March 31, 1998 and 1997, respectively.
Cash used in business acquisitions was $347.7 million and $40.6 million
for the three months ended March 31, 1998 and 1997, respectively. See "Business
Combinations" of Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2, "Business Combinations" of Notes to Unaudited
Condensed Consolidated Financial Statements for a further discussion of
businesses acquired.
During the three months ended March 31, 1997, the Company exercised its
warrant to acquire 15.0 million common shares of ADT Limited for $20 per share.
The Company expects capital expenditures and cash used in business
acquisitions to increase during the remainder of 1998 and in the foreseeable
future due to expansion of the Company's existing businesses and future
acquisitions. The Company intends to finance capital expenditures through cash
on hand, revolving credit facilities and other financings.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities during the three months ended
March 31, 1998 and 1997 resulted from revenue earning vehicle financings,
commercial bank borrowings, repayments of debt and, in 1997, the sale of Common
Stock in a private placement transaction.
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 ("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.
17
<PAGE> 18
NEW ACCOUNTING PRONOUNCEMENTS
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.
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 filing with the
Securities and Exchange Commission.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following information about the Company's market sensitive
financial instruments 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.
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. Interest rate swaps are entered into with a group of financial
institutions with investment grade credit ratings, thereby minimizing the risk
of credit loss.
Reference is made to the Company's quantitative disclosures about
market risk as of December 31, 1997 included under Item 7A of the Company's most
recent Annual Report on Form 10-K. At March 31, 1998, notional principal amounts
related to interest rate swaps (variable to fixed rate) were $2.8 billion
maturing as follows: $250.0 million in the remainder of 1998; $650.0 million in
1999; $1.0 billion in 2000; $250.0 million in 2001; $150.0 million in 2002; and
$500.0 million in 2003. As of March 31, 1998, the weighted average fixed rate
payment on variable to fixed rate swaps was 5.87%. Variable rates received are
indexed to the Commercial Paper Nonfinancial rate ($2.7 billion notional
principal amount) and LIBOR ($100.0 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 61% as of March
31, 1998.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Sales of unregistered shares during the three months ended March
31, 1998:
All transactions listed below involve the issuance of shares of Common
Stock by the Company in reliance upon Section 4(2) of the Securities Act of
1933, as amended.
From time to time throughout the three months ended March 31, 1998, the
Company issued an aggregate of 32,500 shares of Common Stock to certain warrant
holders in connection with the exercise of warrants to purchase shares of Common
Stock at exercise prices ranging from $2.75 to $3.50.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Republic Industries, Inc. 1998 Employee Stock Option Plan
(incorporated by reference to Appendix B to the
Registrant's Proxy Statement for the 1998 annual meeting
of stockholders).
27.1 Financial Data Schedule for the Three Months Ended March
31, 1998 (for SEC use only)
27.2 Financial Data Schedule for the Three Months Ended March
31, 1997 (Restated) (for SEC use only)
(b) Reports on Form 8-K:
Form 8-K dated February 20, 1998, Item 5, reporting certain
financial information for consummated acquisitions.
20
<PAGE> 21
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: May 1, 1998
21
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<S> <C>
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<PERIOD-START> JAN-01-1998
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<CURRENT-LIABILITIES> 5,185,300
<BONDS> 2,429,800
0
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<EPS-DILUTED> .17
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<TABLE> <S> <C>
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