<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 20, 1998
REPUBLIC INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
1-13107 73-1105145
------- ----------
(Commission (IRS Employer
File Number) Identification No.)
110 SE 6th Street
Ft. Lauderdale, FL 33301
--------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 769-7200
--------------
N.A.
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS
REPORTING OF CERTAIN FINANCIAL AND OTHER INFORMATION FOR REGISTRATION AND OTHER
PURPOSES
In connection with the consummation or pending consummation of certain
acquisitions of individually insignificant businesses which, in the aggregate,
are significant and in accordance with Rule 3-05 of Regulation S-X, the
Registrant is filing herewith certain historical and pro forma financial
information related to such consummated or pending acquisitions. Such financial
information is attached hereto as Exhibit 99 and incorporated herein by
reference. Exhibit 99 is hereby incorporated by reference into the Registrant's
Registration Statements on Form S-3, file numbers 33-61649, 33-62489, 33-63735,
33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667, 333-23415,
333-29217, 333-35749 and 333-44611; on Form S-4, file numbers 333-17915 and
333-41505; and on Form S-8, file numbers 33-93742, 333-07623, 333-19453,
333-20669, 333-29265 and 333-42891.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set forth
elsewhere herein.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REPUBLIC INDUSTRIES, INC.
By: /s/ Michael S. Karsner
----------------------------------
Michael S. Karsner
Senior Vice President
and Chief Financial Officer
Date: February 20, 1998
3
<PAGE> 4
REPUBLIC INDUSTRIES, INC.
EXHIBIT INDEX
Number and
Description of Exhibit
- ----------------------
1. None
2. None
3. None
4. None
15. None
16. None
17. None
21. None
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Price Waterhouse
23.3 Consent of Crowe, Chizek and Company LLP
23.4 Consent of Crowe, Chizek and Company LLP
23.5 Consent of Reynolds, Bone & Griesbeck P.L.C.
24. None
99. Financial Information
4
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K, into the previously filed
Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration
Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479,
333-18009, 333-20667, 333-23415, 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 and 333-42891).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
February 16, 1998.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements 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 and 333-42891) of Republic
Industries, Inc. of our report dated 12 June 1997 relating to the consolidated
financial statements of Eurodollar (Holdings) plc, which appears in the Current
Report on Form 8-K of Republic Industries, Inc. dated February 20, 1998.
PRICE WATERHOUSE
Leicester, England
February 20, 1998.
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITOR'S CONSENT
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K, into the previously filed
Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration
Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479,
333-18009, 333-20667, 333-23415, 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 and 333-42891).
CROWE CHIZEK AND COMPANY LLP
Fort Lauderdale, Florida
February 19, 1998.
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K, into the previously filed
Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration
Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479,
333-18009, 333-20667, 333-23415, 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 and 333-42891).
CROWE CHIZEK AND COMPANY LLP
Oak Brook, Illinois
February 20, 1998.
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K, into the previously filed
Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration
Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479,
333-18009, 333-20667, 333-23415, 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 and 333-42891).
REYNOLDS, BONE & GRIESBECK P.L.C.
Memphis, Tennessee
February 20, 1998.
<PAGE> 1
EXHIBIT 99
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) HISTORICAL FINANCIAL INFORMATION
DESERT AUTOMOTIVE GROUP
Report of Independent Certified Public Accountants............................................................. F-2
Combined Balance Sheets as of December 31, 1996 and September 30, 1997 (Unaudited)............................. F-3
Combined Statements of Operations and Changes in Owner's Equity for the Year
Ended December 31, 1996 and the Nine Months Ended September 30, 1996 and 1997 (Unaudited).................... F-4
Combined Statements of Cash Flows for the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1996 and 1997 (Unaudited).................................................... F-5
Notes to Combined Financial Statements......................................................................... F-6
EURODOLLAR (HOLDINGS) PLC
Report by the Auditors......................................................................................... F-17
Consolidated Profit and Loss Account for the Years Ended 31 March 1997 and 1996................................ F-18
Consolidated Balance Sheets at 31 March 1997 and 1996.......................................................... F-19
Consolidated Cash Flow Statements and Reconciliation of Net Cash Flow to Movement in Net Debt
for the Years Ended 31 March 1997 and 1996................................................................... F-20
Group Statements of Total Recognised Gains and Losses for the Years Ended
31 March 1997 and 1996....................................................................................... F-21
Reconciliation of Movements in Shareholders' Funds for the Year Ended 31 March 1997............................ F-21
Company Balance Sheets at 31 March 1997 and 1996............................................................... F-22
Notes to the Accounts.......................................................................................... F-25
QUINLAN AUTOMOTIVE GROUP
Report of Independent Auditors................................................................................. F-39
Combined Statements of Income for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited) and
for the Year Ended December 31, 1996......................................................................... F-40
Combined Balance Sheets as of September 30, 1997 and 1996
(Unaudited) and December 31, 1996............................................................................ F-41
Combined Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited) and
for the Year Ended December 31, 1996......................................................................... F-42
Notes to Combined Financial Statements......................................................................... F-43
EMICH OLDSMOBILE, INC. AND AFFILIATES
Report of Independent Auditors................................................................................. F-51
Combined Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996............................................................................ F-52
Combined Statements of Income and Retained Earnings for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited) and
for the Year Ended December 31, 1996......................................................................... F-53
Combined Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited) and
for the Year Ended December 31, 1996......................................................................... F-54
Notes to Combined Financial Statements......................................................................... F-55
ANDERSON DEALERSHIP GROUP AND AFFILIATES
Report of Independent Certified Public Accountants............................................................. F-63
Combined Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996............................................................................ F-64
Combined Statements of Operations and Changes in Owners'
Equity for the Nine Months Ended September 30, 1997
(Unaudited) and for the Year Ended December 31, 1996......................................................... F-65
Combined Statements of Cash Flows for the Nine Months
Ended September 30, 1997 (Unaudited) and
for the Year Ended December 31, 1996......................................................................... F-66
Notes to Combined Financial Statements......................................................................... F-67
DOBBS AUTOMOTIVE GROUP
Independent Auditor's Report................................................................................... F-81
Combined Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996............................................................................ F-82
Combined Statements of Income for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited) and
for the Year Ended December 31, 1996......................................................................... F-83
Combined Statements of Stockholders' Equity for the
Nine Months Ended September 30, 1997 (Unaudited) and
the Year Ended December 31, 1996............................................................................. F-84
Combined Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited) and
for the Year Ended December 31, 1996......................................................................... F-85
Notes to Combined Financial Statements......................................................................... F-86
ABRAHAM AUTOMOTIVE GROUP
Report of Independent Certified Public Accountants............................................................. F-98
Combined Balance Sheets as of December 31, 1996 and September 30, 1997 (Unaudited)............................. F-99
Combined Statements of Operations and Changes in Owners' Equity for the Year
Ended December 31, 1996 and the Nine Months Ended September 30, 1996 and 1997 (Unaudited)................... F-100
Combined Statements of Cash Flows for the Year Ended December 31, 1996 and the Nine Months
Ended September 30, 1996 and 1997 (Unaudited)............................................................... F-101
Notes to Combined Financial Statements......................................................................... F-102
CHAMPION AUTOMOTIVE GROUP
Report of Independent Public Accountants....................................................................... F-113
Combined Balance Sheet as of October 31, 1997.................................................................. F-114
Combined Statement of Operations for the Ten Months Ended October 31, 1997..................................... F-115
Combined Statement of Changes in Owners' Equity for the Ten Months Ended October 31, 1997...................... F-116
Combined Statement of Cash Flows for the Ten Months Ended October 31, 1997..................................... F-117
Notes to Combined Financial Statements......................................................................... F-118
SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
Report of Independent Public Accountants....................................................................... F-128
Combined Balance Sheet as of October 31, 1997.................................................................. F-129
Combined Statement of Operations for the Ten-Month Period Ended October 31, 1997............................... F-130
Combined Statement of Stockholders' Equity for the Ten-Month Period Ended October 31, 1997..................... F-131
Combined Statement of Cash Flows for the Ten-Month Period Ended October 31, 1997............................... F-132
Notes to Combined Financial Statements......................................................................... F-133
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
(b) PRO FORMA FINANCIAL INFORMATION
<S> <C> <C>
Unaudited Condensed Consolidated Pro Forma Financial Statements................................................ F-144
Unaudited Condensed Consolidated Pro Forma Balance Sheet
as of September 30, 1997..................................................................................... F-145
Unaudited Condensed Consolidated Pro Forma Statement
of Operations for the Nine Months Ended September 30, 1997................................................... F-146
Unaudited Condensed Consolidated Pro Forma Statement of Operations
for the Year ended December 31, 1996......................................................................... F-148
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements....................................... F-150
</TABLE>
F-1
<PAGE> 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Owners of
Desert Automotive Group:
We have audited the accompanying combined balance sheet of Desert Automotive
Group (the "Companies") as of December 31, 1996, and the related combined
statements of operations and changes in owners' equity and cash flows for the
year then ended. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Desert
Automotive Group as of December 31, 1996, and the combined results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Fort Lauderdale, Florida,
June 27, 1997 (except with respect to the matter discussed
in Note 15, as to which the date is September 29, 1997).
F-2
<PAGE> 4
DESERT AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,819 $ 9,257
Accounts receivable, net 2,586 3,051
Inventories 14,679 16,403
Prepaids and other current assets 524 1,428
-------- --------
Total current assets 27,608 30,139
PROPERTY AND EQUIPMENT, net 9,959 9,671
-------- --------
Total assets $37,567 $39,810
======== ========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $10,687 $14,368
Accounts payable and accrued liabilities 2,432 2,646
Amounts due to related parties 7,931 6,916
Current maturities of long-term debt 448 448
-------- --------
Total current liabilities 21,498 24,378
LONG-TERM DEBT, net of current maturities 4,012 3,680
-------- --------
Total liabilities 25,510 28,058
-------- --------
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY 12,057 11,752
-------- --------
Total liabilities and owners' equity $37,567 $39,810
======== ========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-3
<PAGE> 5
DESERT AUTOMOTIVE GROUP
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ----------------------------
1996 1996 1997
------------ ----------- ----------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Sales $103,169 $78,751 $83,250
Other operating revenues 2,371 1,956 1,687
--------- ------- -------
Total revenues 105,540 80,707 84,937
COST OF SALES 87,625 66,759 71,246
--------- ------- -------
Gross profit 17,915 13,948 13,691
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,722 9,485 9,815
--------- ------- -------
Income from operations 5,193 4,463 3,876
OTHER INCOME (EXPENSE):
Interest expense (440) (372) (532)
Interest income, net 137 103 150
Other, net 1,142 1,142 -
--------- ------- -------
NET INCOME 6,032 5,336 3,494
OWNERS' EQUITY, beginning of period 9,594 9,594 12,057
DISTRIBUTIONS TO OWNERS (3,569) (3,269) (3,859)
ISSUANCE OF COMMON STOCK - - 60
--------- ------- -------
OWNERS' EQUITY, end of period $ 12,057 $11,661 $11,752
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-4
<PAGE> 6
DESERT AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------ -------------------------------
1996 1996 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,032 $5,336 $3,494
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 485 337 364
Gain on sale of land (906) (906) -
Equity in earnings of limited partnership, net
of distributions 565 565 -
Changes in operating assets and liabilities:
Accounts receivable, net 947 1,443 (465)
Inventories 213 (199) (1,724)
Prepaids and other current assets (155) (1,340) (904)
Floor plan notes payable (2,021) (3,373) 3,681
Accounts payable and accrued liabilities (258) (281) 274
------ ------ ------
Net cash provided by operating
activities 4,902 1,582 4,720
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (415) (620) (76)
Net proceeds from sale of land 1,476 1,476 -
------ ------ ------
Net cash provided by (used in)
investing activities 1,061 856 (76)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (447) (332) (332)
Increase (decrease) in amounts due to related parties 3,991 4,198 (1,015)
Distributions to owners (3,569) (3,269) (3,859)
------ ------ ------
Net cash (used in) provided by
financing activities (25) 597 (5,206)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,938 3,035 (562)
CASH AND CASH EQUIVALENTS, beginning of period 3,881 3,881 9,819
------ ------ ------
CASH AND CASH EQUIVALENTS, end of period $9,819 $6,916 $9,257
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $1,604 $1,245 $1,127
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Obligation settled by issuance of common stock $ - $ - $ 60
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-5
<PAGE> 7
DESERT AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(UNAUDITED WITH RESPECT TO THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The Desert Automotive Group (the "Companies") is engaged in the retail and
commercial sale of new and used motor vehicles, finance and insurance products,
vehicle service and parts, after-market products and in selling third-party
financing contracts on new and used vehicle sales originated by dealerships
within the group. The Companies operate in the Las Vegas, Nevada area.
The accompanying combined financial statements include the accounts of the
following entities:
Desert GMC, Inc., a Nevada corporation, d.b.a. Desert Valley GMC Truck,
("Valley")
Desert GMC - East, Inc., a Nevada corporation, d.b.a. Desert GMC Volvo Trucks,
("East")
Desert Buick - GMC Trucks, Inc., a Nevada corporation, ("Buick")
Desert Buick - GMC Management Group, Inc., a Nevada corporation, ("Management
Group")
The Companies have been presented on a combined basis due to their related
operations, common ownership and common management control. All significant
intercompany balances and transactions have been eliminated in combination.
The Companies purchase substantially all of their new vehicles from various
divisions of General Motors Corporation (the "Manufacturer" or "General Motors")
at the prevailing prices charged by the manufacturer to all franchised dealers.
The Companies' sales volume could be adversely impacted by the Manufacturer's
inability to provide an adequate supply of popular models or as result of an
unfavorable allocation of vehicles by the Manufacturer.
The Companies operate under franchise agreements with various divisions of
General Motors, expiring from January to October 2000. In accordance with the
franchise agreements, the Companies are subject to certain rights and
restrictions typical of the industry, including limitations on changes in
dealership management, ownership and minimum net worth requirements. The ability
of the Manufacturer to influence the Companies' operations or the loss of a
franchise agreement could have a negative impact on the operating results and
financial position of the Companies.
In the opinion of management, the accompanying unaudited combined financial
statements contain all material adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the combined financial position of the
Companies at September 30, 1997, and the combined results of operations and
cash flows for the nine months ended September 30, 1997 and 1996. Operating
results for these interim periods are not necessarily indicative of the results
that can be expected for a full year.
F-6
<PAGE> 8
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments that have an
original maturity of three months or less at the date of purchase. The Companies
have invested funds in a cash management fund ("CMF") with the Companies' floor
plan lender, General Motors Acceptance Corporation ("GMAC"). All funds invested
in the CMF are redeemable by the Companies upon demand and accrue interest at a
rate equivalent to its floor plan rate (see Note 7). Funds invested in the CMF
serve as collateral for the Companies' floor plan notes payable with GMAC. The
amount of such funds totaled approximately $8,737 and $10,044 as of December 31,
1996, and September 30, 1997, respectively. Periodically, the Companies invest
funds on behalf of the shareholders, which is evidenced by the issuance of a
note payable of a like amount (see Note 12).
INVENTORIES
New and used vehicle inventories and parts inventories are stated at the lower
of cost or market, determined using a specific-unit identification basis for new
and used vehicle inventories and the first-in-first-out method for parts
inventories. The Companies capitalize the direct cost of acquiring new and used
vehicles and parts as inventory.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their estimated
useful lives, using the straight-line method. Useful lives for purposes of
computing depreciation are:
Buildings and improvements 5 to 31.5 years
Furniture and fixtures 3 to 7 years
Machinery and equipment 3 to 7 years
Service vehicles 5 years
The cost of assets sold or retired and the related accumulated depreciation are
removed from the accounts at the time of disposition, and any resulting gain or
loss is included in the combined statement of operations. Maintenance, repairs
and minor replacements are charged to operations as incurred; major replacements
and improvements are capitalized and amortized over the remaining useful lives
of the assets.
REVENUE RECOGNITION, SALES
Sales include revenues from new and used vehicles and from parts and services
sales. Revenues from the sale of new and used vehicles are generally recognized
at the time the vehicle is delivered to the customer and the payment or deposit
has been received. Revenues from the sale of parts and services are recognized
at the time the parts are delivered to the customer or when service is
completed.
REVENUE RECOGNITION, OTHER OPERATING REVENUES
Other operating revenues include finance, insurance, service contract income,
and processing fees. Finance income represents amounts earned by the Companies
for arranging vehicle financing with financial institutions on behalf of
customers. Finance income, net of estimates for future chargebacks, is
recognized by the Companies upon acceptance of the note by a financial
institution. Insurance income
F-7
<PAGE> 9
represents commissions earned on credit life and accident and disability
insurance sold by the Companies as agents for insurance carriers. Insurance
commissions, net of estimates for future chargebacks, are recognized as income
upon customer acceptance of the insurance terms as evidenced by contract
execution. Service contract income represents commissions earned on extended
warranty service contracts sold by the Companies as agents for extended warranty
service companies. Commissions earned, net of estimates of future chargebacks,
are recognized upon customer acceptance of the service contract terms as
evidenced by contract execution.
The agreements between the Companies and the financial institutions, insurance
companies and extended warranty service companies provide that the Companies
will receive a chargeback equal to a pro rata portion of the finance income,
insurance commission or extended warranty service contract commission paid to
the Companies in the event the customer prepays or defaults on the financing
prior to its scheduled maturity, or cancels an insurance or extended warranty
service contract. Generally, the terms of the agreements between the Companies
and the financial institutions, insurance carriers and extended warranty service
companies are gross arrangements, whereby the Companies are liable for
chargebacks for the life of the related loan or contract.
The Companies record an estimated allowance for these chargebacks which is based
upon historical experience for prepayments, defaults and cancellations. Finance
income and commissions on insurance and extended warranty service contracts, net
of estimates for future chargebacks, are classified as other operating revenues
in the combined financial statements.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and are included in
selling, general and administrative expenses in the combined financial
statements. Total advertising and promotional costs were approximately $636,
$508, and $679 for the year ended December 31, 1996, and for the nine months
ended September 30, 1996 and 1997, respectively. The Companies did not
capitalize any advertising and promotional costs for any period presented.
INCOME TAXES
For income tax purposes, the Companies have elected S Corporation status under
the U.S. Internal Revenue Code, which requires income and losses to be passed
through to the Companies' shareholders. Accordingly, no provision for income
taxes has been recorded in the accompanying combined financial statements.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Companies to concentrations
of credit risk consist principally of cash and cash equivalents, contracts in
transit and accounts receivable. The Companies invest a substantial portion of
their excess cash with financial institutions, which is periodically in excess
of FDIC-guaranteed limits, and in a CMF with GMAC (Note 2), which is not
insured. The Companies have not incurred significant losses related to these
financial instruments in the past.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies' financial instruments primarily consist of cash and cash
equivalents, floor plan notes payable, long-term debt, and amounts due to
related parties. The carrying amount of these financial
F-8
<PAGE> 10
instruments approximates fair value due either to their length of maturity or
existence of variable interest rates that approximate prevailing market rates.
OWNERS' EQUITY
Each entity included in the accompanying combined financial statements issues
equity securities at different and unrelated prices. For purposes of these
combined financial statements, the owners' equity activity of the individual
affiliates has been aggregated to present combined totals of activity and
balances of the Companies (see Note 11).
INTEREST EXPENSE AND INTEREST INCOME
Interest expense on long-term debt and floor plan notes payable are reflected in
the combined financial statements, gross of manufacturer interest assistance.
Manufacturer interest assistance is reflected as a reduction of cost of sales.
Interest income reflects interest earned, primarily on the Companies'
investments in the CMF with GMAC, net of interest expense on amounts due to
related parties (see Note 12).
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the net change in floor plan
financing of inventory, which is a customary financing technique in the
industry, is reflected as an operating activity in the statement of cash flows.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March 1995.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Companies adopted SFAS No. 121 on January 1, 1996, and such
implementation did not have a material effect on the Companies' combined results
of operations, financial position or cash flows.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
3. ACCOUNTS RECEIVABLE:
Accounts receivable are comprised of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
Contracts in transit $1,152 $1,463
F-9
<PAGE> 11
Manufacturers 880 956
Other 692 770
------ ------
2,724 3,189
Less- Allowance for doubtful accounts (138) (138)
------ ------
$2,586 $3,051
====== ======
Contracts in transit represent receivables from financial institutions that
provide funding for customer vehicle financing. These receivables are generally
collected within 30 days from the date of vehicle sale. Amounts due from
manufacturers represent receivables for parts and service work performed
pursuant to manufacturer warranty coverage and manufacturer holdbacks and
incentives; such amounts are remitted to the Companies on a regular basis. Other
receivables include receivables for the sale of parts and services and finance
fees receivable from financial institutions.
4. INVENTORIES:
Inventories are comprised of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
New vehicles $ 9,170 $ 9,557
Used vehicles 4,224 5,646
Parts and other 1,285 1,200
-------- --------
$ 14,679 $ 16,403
======== ========
F-10
<PAGE> 12
5. PROPERTY AND EQUIPMENT:
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
Land $ 3,810 $ 3,810
Buildings and improvements 6,228 6,254
Furniture and fixtures 976 1,001
Machinery and equipment 757 829
Service vehicles 206 158
-------- --------
11,977 12,052
Less- Accumulated depreciation and amortization
(2,018) (2,381)
-------- --------
$ 9,959 $ 9,671
======== ========
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
Accounts payable $ 970 $ 932
Accrual for finance, insurance and service contract
chargebacks 220 220
Payroll and related accruals 672 645
Sales taxes payable 303 462
Other 267 387
------ ------
$2,432 $2,646
====== ======
</TABLE>
7. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflect amounts for the purchase of specific new and
certain used vehicle inventory, are payable to GMAC, and bear interest at the
prime rate (8.25 percent as of December 31, 1996 and 8.5 percent as of September
30, 1997) plus 1 percent. The aggregate approved credit lines are $26,410 as of
December 31, 1996, and September 30, 1997. Payments on the floor plan notes
payable are due when the related vehicles are sold. The floor plan notes payable
are secured by the vehicle inventories of the Companies and contain cross
collateralization and cross default provisions to all current and future loans
of all dealerships. The floor plan notes payable of Valley are guaranteed by a
shareholder of the Companies.
Interest under the floor plan notes payable is due on a monthly basis. Interest
expense on floor plan notes payable, which has been recorded as a component of
cost of sales in the combined financial statements, totaled approximately
$1,157, $868, and $590 for the year ended December 31, 1996, and the nine months
ended September 30, 1996 and 1997, respectively, before manufacturer interest
assistance.
F-11
<PAGE> 13
Manufacturer interest assistance, which has been recorded as a reduction to cost
of sales in the combined financial statements, totaled approximately $964, $750,
and $614 for the year ended December 31, 1996, and the nine months ended
September 30, 1996 and 1997, respectively.
8. LONG-TERM DEBT:
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
Mortgage note payable to GMAC; payable in monthly principal
installments of $17 plus interest through November 1999 with a
balloon payment for the remaining principal plus interest due
December 1999; bearing interest at the prime rate plus 1 percent;
secured by the land and building of Valley. $1,135 $ 987
Mortgage note payable to GMAC; payable in monthly principal
installments of $9 plus interest through June 1998 with a balloon
payment for the remaining principal plus interest due July 1998;
bearing interest at the prime rate plus 1 percent; secured by the
land and building of East; guaranteed by two of the shareholders of
East. 1,281 1,198
Mortgage note payable to GMAC, payable in monthly principal
installments of $3 plus interest through July 2000 with a balloon
payment for the remaining principal plus interest due August 2000;
bearing interest at the prime rate plus 1 percent; secured by the
land and building of East; guaranteed by two of the shareholders of
East. 132 107
Mortgage note payable to GMAC; payable in monthly principal
installments of $9 plus interest through July 2000 with a balloon
payment for the remaining principal plus interest due August 2000;
bearing interest at the prime rate plus 1 percent; secured by the
land and building of Buick. 1,912 1,836
------ ------
4,460 4,128
Less- Current maturities (448) (448)
------ ------
$4,012 $3,680
====== ======
</TABLE>
The mortgage notes payable contain cross collateralization and cross default
provisions between each other and the floor plan notes payable of each
dealership.
Maturities of long-term debt as of December 31, 1996, are as follows:
F-12
<PAGE> 14
YEAR ENDING
DECEMBER 31,
- --------------------
1997 $ 448
1998 1,509
1999 872
2000 1,631
------
$4,460
======
Interest expense on long-term debt was approximately $441, $331, and $408 for
the year ended December 31, 1996, and the nine months ended September 30, 1996
and 1997, respectively.
9. INCOME TAXES:
In the event that the Companies terminate S Corporation status, deferred income
taxes will arise due to the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities. Under the provisions of SFAS No. 109, "Accounting for Income
Taxes," recording of these deferred taxes is required in the period S
Corporation status is terminated. If the Companies' S Corporation status had
been terminated on December 31, 1996, the deferred tax asset (related primarily
to allowances for accounts receivable and chargebacks) as of that date would
have been approximately $202.
10. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Companies lease certain equipment under noncancellable operating leases.
Rent expense was approximately $58, $44, and $44 for the year ended December 31,
1996, and the nine months ended September 30, 1996 and 1997, respectively. The
future minimum commitments under operating lease obligations are as follows:
YEAR ENDING
DECEMBER 31,
- --------------------
1997 $ 58
1998 58
1999 58
2000 58
2001 and thereafter 52
-----
$284
=====
EMPLOYEE 401(k) RETIREMENT PLAN
The Companies participate in a 401(k) plan (the "Plan") which covers employees
(over 21 years old) who have worked a minimum of one year (1,000 hours per
year). The Plan is funded by employee elective deferrals and matching and
discretionary contributions from the Companies. Matching and discretionary
contributions vest over seven years. The Companies' contributions totaled $122,
$100, and $107 for the year ended December 31, 1996, and the nine months ended
September 30, 1996 and 1997, respectively.
F-13
<PAGE> 15
LINE OF CREDIT
The Companies have a cash management agreement with GMAC, which enables all
transactions between the Companies, GMAC and the Manufacturer to be settled
daily. In conjunction with this agreement, the Companies have a $600 line of
credit with GMAC, which bears interest at the Companies floor plan rate and is
secured by substantially all of the Companies' assets. There was no balance
outstanding under the line of credit as of December 31, 1996 and September 30,
1997.
OTHER
In April 1997, the Companies entered into an agreement with a general contractor
for the construction of used car facilities at the Valley dealership. The
estimated cost of the construction is $1.1 million.
11. OWNERS' EQUITY:
Owners' equity is comprised of the following as of December 31, 1996:
TOTAL
OWNERS'
EQUITY
(DEFICIT)
--------------
Desert Valley GMC Truck $ 4,540
Desert GMC Volvo Trucks 3,339
Desert Buick - GMC Trucks, Inc. 4,187
Desert Buick - GMC Management Group, Inc. (9)
-------
$12,057
=======
F-14
<PAGE> 16
Common stock of the Companies, all with no par value, is as follows as of
December 31, 1996:
<TABLE>
<CAPTION>
VOTING NONVOTING
------------------------------- -----------------------------
SHARES ISSUED SHARES ISSUED
SHARES AND SHARES AND
AUTHORIZED OUTSTANDING AUTHORIZED AUTHORIZED
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Desert Valley GMC Truck 2,500 2,250 - -
Desert GMC Volvo Trucks 2,500 1,500 22,500 13,500
Desert Buick - GMC Trucks, Inc. 60,000 40,000 540,000 360,000
Desert Buick - GMC Management
Group, Inc. 2,500 100 - -
------ ------ ------- -------
67,500 43,850 562,500 373,500
====== ====== ======= =======
</TABLE>
Owners' equity is comprised of the following as of September 30, 1997
(unaudited):
TOTAL
OWNERS'
EQUITY
-----------
Desert Valley GMC Truck $ 4,253
Desert GMC Volvo Trucks 3,545
Desert Buick - GMC Trucks, Inc. 3,851
Desert Buick - GMC Management Group, Inc. 103
-------
$11,752
=======
Common stock of the Companies, all with no par value, is as follows as of
September 30, 1997 (unaudited):
<TABLE>
<CAPTION>
VOTING NONVOTING
------------------------------- -----------------------------
SHARES ISSUED SHARES ISSUED
SHARES AND SHARES AND
AUTHORIZED OUTSTANDING AUTHORIZED AUTHORIZED
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Desert Valley GMC Truck 2,500 2,250 - -
Desert GMC Volvo Trucks 2,500 1,551 22,500 13,505
Desert Buick - GMC Trucks, Inc. 60,000 40,120 540,000 361,083
Desert Buick - GMC Management Group, Inc. 2,500 100 - -
------ ------ ------- -------
67,500 44,021 562,500 374,588
====== ====== ======= =======
</TABLE>
In January 1997, the Companies issued shares of capital stock in Buick and East
to a general manager. The Companies issued 1,203 (120 voting and 1,083
nonvoting) shares in Buick and 56 (51 voting and 5 nonvoting) shares in East for
consideration of $60,000.
The capital stock of Buick, Valley, and East is subject to buy-sell agreements
(the "Agreements") between the shareholders. The Agreements restrict the
transfer of shares and provide the Companies a right of first refusal with
respect to any shares offered for sale to a third party, at a defined price. In
the event of the death or disability of a shareholder, the Companies are
obligated to purchase, and the holder is
F-15
<PAGE> 17
obligated to sell, the shares at a defined price. Further, the articles of
incorporation of Valley and East provide each dealership with the right of first
refusal as to any shares proposed for sale. The Companies cancelled these
buy-sell agreements and rights of first refusal prior to the completion of the
merger with Republic Industries, Inc. (see Note 15).
12. RELATED-PARTY TRANSACTIONS:
The Companies periodically invest funds in the CMF with GMAC on behalf of the
shareholders and parties related to the shareholders. Approximately $7,631 and
$6,616 was invested in the CMF on behalf of the related parties as of December
31, 1996, and September 30, 1997, respectively. Notes payable of a like amount
were issued and outstanding as of December 31, 1996, and September 30, 1997,
respectively. These amounts due to related parties generally bear interest at
the Companies' floor plan rate and are due on demand. These amounts have been
reflected as cash and cash equivalents and amounts due to related parties as of
December 31, 1996, and September 30, 1997. The combined financial statements
reflect interest income net of approximately $438, $276, and $425 in interest
expense on the amounts due to related parties during the year ended December 31,
1996, and the nine months ended September 30, 1996 and 1997, respectively.
As of December 31, 1996, and September 30, 1997, the Companies have issued
additional notes payable to shareholders in an aggregate amount of $300, bearing
interest at 10 percent. These amounts due to related parties are due on demand,
and require payments of interest only until redemption.
13. LIMITED PARTNERSHIP INTEREST:
Valley owns a 25 percent interest in a limited liability partnership (the
"Partnership") which is engaged in the acquisition and sale of commercial real
estate. The Companies account for this investment using the equity method.
During 1996, the Partnership sold the majority of its holdings and distributed
the proceeds. The Companies' share of the Partnership's net earnings is
reflected in other income in the combined financial statements. The Companies'
remaining interest in the Partnership is approximately $8 as of December 31,
1996, and September 30, 1997, and is included in other current assets in the
accompanying combined financial statements.
14. LITIGATION:
Certain claims and suits have been filed or are pending against the Companies.
In management's opinion, resolution of these matters will not have a material
impact on the Companies' combined financial position, results of operations or
cash flows and adequate provision for any potential losses has been made in the
accompanying combined financial statements.
15. MERGER:
In September 1997, the shareholders of the Companies completed a merger with
Republic Industries, Inc.
F-16
<PAGE> 18
REPORT BY THE AUDITORS
To the Shareholders of EuroDollar (Holdings) plc
AUDIT REPORT We have audited the financial statements on pages F-18 to F-38,
which have been prepared under the historical cost convention and the accounting
policies set out on pages F-23 and F-24.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's Directors are responsible for the preparation of the financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
BASIS OF OPINION We conducted our audit in accordance with Auditing Standards
issued by the Auditing Practices Board which do not differ in any material
respect from auditing standards generally accepted in the United States. An
audit includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgements made by the Directors in the
preparation of the financial statements, and of whether the accounting policies
are appropriate to the Company's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material mis-statement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 March 1997 and of the profit
and cash flows of the Group for the year then ended and have been properly
prepared in accordance with the Companies Act 1985.
PRICE WATERHOUSE
LEICESTER
Chartered Accountants
and Registered Auditors
12 June 1997
F-17
<PAGE> 19
EuroDollar (Holdings) plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 March 1997
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
Note (UK Pounds in thousands)
<S> <C> <C> <C>
TURNOVER .......................................... 1 107,406 96,220
Cost of sales ..................................... (46,110) (40,639)
------- -------
Gross profit ...................................... 61,296 55,581
Distribution costs ................................ (29,553) (28,504)
Administrative expenses ........................... (14,696) (14,225)
------- -------
OPERATING PROFIT .................................. 17,047 12,852
Result/(loss) from shares in associate undertakings _ (7)
Exceptional item:
Loss on disposal of discontinued operations ....... 2 _ (258)
Interest receivable ............................... 6 159 154
Interest payable and similar charges .............. 7 (8,955) (8,986)
------- -------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION ................................... 3 8,251 3,755
Tax on profit on ordinary activities .............. 8 (2,035) (738)
------- -------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION .................................... 6,216 3,017
Dividends on equity shares ........................ 9 (3,188) (2,020)
RETAINED PROFIT FOR THE FINANCIAL YEAR ............ 22 3,028 997
======= =======
Earnings per Ordinary share (pence) ............... 10 12.67 6.15
======= =======
</TABLE>
All operations of the Group, except as disclosed, are treated as continuing
activities.
F-18
<PAGE> 20
EuroDollar (Holdings) plc
CONSOLIDATED BALANCE SHEET
at 31 March 1997
<TABLE>
<CAPTION>
31 March 31 March
1997 1996
-------- -------
Note (UK Pounds in thousands) (UK Pounds in thousands)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets - vehicles ............................ 11 125,657 101,453
- other ............................... 11 14,590 14,120
Investments ........................................... 12 89 108
-------- -------
140,336 115,681
CURRENT ASSETS
Stocks ................................................ 13 935 693
Debtors ............................................... 14 41,522 33,057
Investments ........................................... 15 1,398 858
Cash at bank and in hand .............................. 16 2,401 649
-------- --------
46,256 35,257
CREDITORS: amounts falling due within one year:
Vehicle backed finance ................................ (117,197) (85,975)
Other ................................................. (27,606) (27,415)
-------- --------
17 (144,803) (113,390)
NET CURRENT LIABILITIES ............................... (98,547) (78,133)
-------- -------
TOTAL ASSETS LESS CURRENT
LIABILITIES ........................................... 41,789 37,548
CREDITORS: amounts falling due after more than one year 18 (884) --
PROVISIONS FOR LIABILITIES
AND CHARGES ........................................... 19 (9,389) (9,024)
-------- -------
NET ASSETS ............................................ 31,516 28,524
======== =======
CAPITAL AND RESERVES
Called up share capital ............................... 20 2,452 2,452
Share premium account ................................. 21 33,524 33,524
Profit and loss account ............................... 22 9,038 6,046
-------- -------
SHAREHOLDERS' FUNDS PRIOR TO GOODWILL WRITE OFF ....... 45,014 42,022
Goodwill reserve ...................................... (13,498) (13,498)
-------- -------
SHAREHOLDERS' FUNDS AFTER GOODWILL WRITE OFF .......... 31,516 28,524
======== =======
Equity ................................................ 31,516 28,524
Non-equity ............................................ -- --
-------- -------
SHAREHOLDERS' FUNDS AFTER GOODWILL WRITE OFF .......... 31,516 28,524
======== =======
</TABLE>
These financial statements were approved by the Board of Directors on 12 June
1997 and signed on its behalf by:
I C MOSLEY ]
] Directors
S C WESTOBY ]
F-19
<PAGE> 21
EuroDollar (Holdings) plc
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 March 1997
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
Note (UK Pounds in thousands)
<S> <C> <C> <C>
Net cash inflow from operating activities ............ 25 33,570 26,501
Returns on investments and servicing of finance ...... 26 (8,869) (8,789)
Taxation ............................................. (323) (1,669)
Capital expenditure and financial investment ......... 26 (48,715) (23,077)
Acquisition and disposals ............................ 26 -- 92
Exceptional item _ discontinued operations ........... 2 -- (258)
Equity dividends paid ................................ (1,471) (4,571)
------- -------
Cash flow before use of liquid resources and financing (25,808) (11,771)
Management of liquid resources ....................... 26 (550) (316)
Financing - increase/(decrease) in debt - vehicles ... 28 31,222 (963)
Financing - increase/(decrease) in debt - other ...... 29 -- (98)
------- -------
Increase/(decrease) in cash in the year .............. 4,864 (13,148)
======= =======
</TABLE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
Note UK Pounds in Thousands
<S> <C> <C> <C>
Increase/(decrease) in cash in the year .............. 27 4,864 (13,148)
(Increase)/decrease in debt and lease financing ...... 27 (31,222) 1,061
Increase in liquid resources ......................... 27 550 316
-------- --------
Changes in net debt from cash flows .................. (25,808) (11,771)
Non cash changes and exchange movements .............. 34 --
-------- --------
Movements in net debt in year ........................ (25,774) (11,771)
Net debt at 1 April .................................. 27 (88,594) (76,823)
-------- --------
Net debt at 31 March ................................. 27 (114,368) (88,594)
======== ========
</TABLE>
F-20
<PAGE> 22
EuroDollar (Holdings) plc
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
Profit for the financial year ............................................. 6,216 3,017
Currency translation differences on foreign currency net investments ...... (36) (1)
----- -----
Total recognised gains relating to the financial year ..................... 6,180 3,016
===== =====
</TABLE>
There is no material difference between the Group historical cost profit and the
profit reported in the year ended 31 March 1997.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Group Company
----- ------
(UK Pounds in thousands)
<S> <C> <C>
Profit for the financial year ............................................. 6,216 2,799
Dividends on equity shares (note 9) ....................................... (3,188) (3,188)
Foreign exchange movements ................................................ (36) --
------ ------
Net addition to/(deduction from) shareholders' funds ...................... 2,992 (389)
Opening shareholders' funds ............................................... 28,524 37,732
------ ------
Closing shareholders' funds ............................................... 31,516 37,343
====== ======
</TABLE>
F-21
<PAGE> 23
EuroDollar (Holdings) plc
COMPANY BALANCE SHEET
at 31 March 1997
<TABLE>
<CAPTION>
31 March 31 March
1997 1996
-------- -------
Note (UK Pounds in thousands) (UK Pounds in thousands)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Investments ...................................... 12 36,842 36,842
CURRENT ASSETS
Debtors .......................................... 14 3,500 2,856
Cash at bank ..................................... 16 1,052 --
CREDITORS: amounts falling due within one year ... 17 (4,051) (1,966)
------ ------
NET CURRENT ASSETS ............................... 501 890
------ ------
NET ASSETS ....................................... 37,343 37,732
====== ======
CAPITAL AND RESERVES
Called up share capital .......................... 20 2,452 2,452
Share premium account ............................ 21 33,524 33,524
Profit and loss account .......................... 22 1,367 1,756
------ ------
SHAREHOLDERS' FUNDS .............................. 37,343 37,732
====== ======
Equity ........................................... 37,343 37,732
Non-equity ....................................... -- --
------ ------
SHAREHOLDERS' FUNDS .............................. 37,343 37,732
====== ======
</TABLE>
These financial statements were approved by the Board of Directors on 12 June
1997 and signed on its behalf by:
I C MOSLEY ]
] Directors
S C WESTOBY ]
F-22
<PAGE> 24
EuroDollar (Holdings) plc
ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost convention
and in accordance with applicable Accounting Standards.
BASIS OF CONSOLIDATION
The consolidated financial information includes the results of all subsidiary
undertakings from the date of acquisition and the Group proportion of the
profits or losses and retained earnings of associate undertakings.
GOODWILL
Goodwill arising on the acquisition of subsidiaries or the assets and
liabilities of a business represents the difference between the fair value of
the consideration given over the fair value of the identifiable net assets
acquired and is written off or credited directly to reserves in the year of
acquisition.
FOREIGN CURRENCIES
Foreign currency assets and liabilities are translated at rates of exchange
ruling at the balance sheet date. Transactions during the year are recorded at
rates of exchange in effect when the transaction occurs. Profit and losses on
exchange are dealt with in the profit and loss account.
Assets and liabilities of subsidiary undertakings denominated in foreign
currencies are translated into sterling at rates of exchange at the date of the
balance sheet and results of foreign subsidiary undertakings are translated at
the average rate of exchange for the period. Differences on exchange resulting
from the translation of assets and liabilities of foreign subsidiary
undertakings and related borrowings are dealt with in reserves.
TURNOVER
Turnover represents the gross amount receivable from the rental of motor
vehicles, related motor insurance premiums and franchise royalties, exclusive of
value added tax and insurance premium tax.
TANGIBLE FIXED ASSETS AND DEPRECIATION
Freehold buildings are depreciated on a straight line basis over their estimated
useful lives of fifty years. Freehold land is not depreciated.
Leasehold properties are amortised on a straight line basis over the life of the
lease. The costs of minor improvements to properties are charged to revenue when
incurred.
Fleet vehicles are capitalised at the price paid for them, after deducting all
discounts received, and are depreciated by equal monthly instalments to write
down the net cost to estimated residual value over the expected holding period
which is six to twelve months for cars and twelve to twenty-four months for
vans.
Depreciation on other fixed assets is computed to write off their cost on a
straight line basis over their expected useful lives as follows:
Plant and machinery, fixtures and fittings 3 to 10 years
Computer equipment 3 to 5 years
STOCKS
Stocks are stated at the lower of cost and net realisable value.
F-23
<PAGE> 25
EuroDollar (Holdings) plc
ACCOUNTING POLICIES
continued
DEFERRED TAXATION
Deferred taxation assets and liabilities are calculated using the liability
method and are recognised or provided for to the extent that it is probable that
an asset or liability will crystallise in the foreseeable future.
LEASED ASSETS
Fixed assets acquired under finance leases have been capitalised at the price
paid for them and depreciated in accordance with the accounting policy shown
above. The capital element of future lease payments is included in creditors.
The finance element of the rental payments is charged to the profit and loss
account over the term of the lease.
Gross rentals arising on assets held under operating leases are charged to the
profit and loss account in the period to which they relate. In the case of
vehicle operating leases, the finance element of the rental is charged to
interest payable with the balance of the rental charged to cost of sales so as
to provide consistency of treatment with other methods of vehicle financing.
PENSIONS
Based on independent actuarial advice, pension costs are charged to the profit
and loss account on a basis whereby the regular cost is a substantially level
percentage of the current and expected future pensionable payroll. Variations
from the regular cost are allocated over the average expected remaining service
lives of current pensionable employees.
F-24
<PAGE> 26
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
- --------------------------------------------------------------------------------
1 SEGMENTAL REPORTING
All turnover relates to vehicle rental with the exception of Pound 1.0 million
in 1996 relating to franchise operations. The origin and destination of turnover
is all within Europe.
The profit on ordinary activities before taxation and net assets for both years
substantially relates to vehicle rental within Europe.
- --------------------------------------------------------------------------------
2 EXCEPTIONAL ITEM
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- ---------
(UK Pounds in thousands)
<S> <C> <C>
Loss arising from disposals of operations made in a previous year.......... -- 258
--------- ---------
</TABLE>
The loss recorded in the year to 31 March 1996 relates to the disposals made in
September 1993 of EuroDollar France SA and Autotravel Italiana SrL. The loss
represents the finalisation of certain claims under warranties given at the time
of sale. The costs include settlement with former employees, licensees and a
supplier including associated legal fees, for which no provision had previously
been made. There was no tax effect arising from this exceptional item.
- --------------------------------------------------------------------------------
3 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- ---------
(UK Pounds in thousands)
<S> <C> <C>
THIS IS STATED AFTER CHARGING/(CREDITING):
Depreciation of vehicles
- owned ................................................................. 9,039 7,697
- held under finance leases ............................................. 5,720 6,974
Depreciation of other tangible assets ..................................... 2,163 1,797
Operating lease rentals
- capital element of vehicle payments ................................... 5,949 5,848
- land and buildings .................................................... 4,459 4,326
Auditors' remuneration - audit services - Group ........................... 38 45
- Company ......................... 8 3
-non audit services ............... 96 39
Income from listed investments ............................................ (58) (35)
Foreign currency exchange gains ........................................... -- (1)
</TABLE>
F-25
<PAGE> 27
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- -------------------------------------------------------------------------------
4 DIRECTORS' EMOLUMENTS
The emoluments excluding pension contributions of Directors for the year to 31
March 1997 and 31 March 1996 amount to:
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
Salary 1997 1996
and fees Bonus Benefits Total Total
-------- ----- -------- -------- --------
(UK Pounds in thousands)
<S> <C> <C> <C> <C> <C>
F H Aldous ........................ 55 _ 8 63 79
I C Mosley ........................ 139 3 12 154 146
S C Westoby ....................... 111 2 10 123 119
J S Leigh ......................... 106 2 6 114 110
P R M Batchelor ................... 20 _ _ 20 20
W H Fryer ......................... 20 _ _ 20 20
J E V Rose ........................ 20 _ _ 20 20
--- --- --- --- ---
471 7 36 514 514
=== === === === ===
Year to 31 March 1996 ............. 473 _ 41 514
=== ==== === ===
</TABLE>
Mr Mosley, the highest paid director, Mr Westoby and Mr Leigh are members of the
EuroDollar Pension Scheme, a defined benefit scheme the details of which are
contained on page F-35.
At 31 March 1997 pension benefits earned by these Directors were:
<TABLE>
<CAPTION>
Accumulated
Increase in total
accrued accrued
pension Transfer pension
during the value of at March 31
year increase 1997
----------- --------- ------------
(UK Pounds in thousands)
<S> <C> <C> <C>
I C Mosley ........................ 5 36 74
S C Westoby ....................... 4 33 35
J S Leigh ......................... 3 15 53
----- ---- -----
12 84 162
===== ==== =====
</TABLE>
(i) The pension entitlement shown is that which would be paid annually on
retirement based on service to the end of the year.
(ii) The increase in accrued pension during the year excludes any increase for
inflation.
(iii) The transfer value has been calculated on the basis of actuarial advice in
accordance with Actuarial Guidance Note GN11.
(iv) Members of the Scheme have the option to pay Additional Voluntary
Contributions. Neither the contributions nor the resulting benefits are included
in the above table.
The Directors' beneficial interests (as defined by the Companies Act 1985 and
according to the register maintained thereunder) in Ordinary shares of 5p each
in the Company are shown below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
As at As at
31 March 1997 31 March 1996
Ordinary Ordinary
shares of 5p shares of 5p
- --------------------------------------------------------------------------------
<S> <C> <C>
F H Aldous 1,615,225 1,625,225
P R M Barchelor 9,100 9,100
W H Fryer 4,800 4,800
J S Leigh 1,400,000 1,400,000
I C Mosley 2,089,575 2,089,575
J E V Rose 1,500 1,500
S C Westoby 1,625,225 1,625,225
- --------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 28
The following Directors had options outstanding for Ordinary shares under the
terms of the EuroDollar Sharesave Scheme.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Date from
As at As at Exercise which
31 March 1997 31 March 1996 price exercisable
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J S Leigh 21,835 21,835 79p 1 May 2001
S C Westoby 8,734 8,734 79p 1 May 2001
- -------------------------------------------------------------------------------
</TABLE>
Full details of the EuroDollar Sharesave Scheme are set out in the Notes to the
Accounts on page F-33.
The Directors have no beneficial interests in any other company within the
Group at 31 March 1997 and as at 31 March 1996.
There has been no change in the Directors' interests since 31 March 1997.
F-27
<PAGE> 29
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- -------------------------------------------------------------------------------
5 STAFF NUMBERS AND COSTS
<TABLE>
<CAPTION>
Number of employees
Year to Year to
31 March 31 March
1997 1996
-------- --------
Average number of persons including executive Directors employed in:
<S> <C> <C>
United Kingdom ..................................................... 1,857 1,760
Continental Europe ................................................. 36 33
----- -----
1,893 1,793
===== =====
</TABLE>
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
Wages and salaries ................................................. 22,553 20,801
Social security costs .............................................. 1,940 1,838
Other pension costs ................................................ 305 285
------ ------
24,798 22,924
====== ======
</TABLE>
- --------------------------------------------------------------------------------
6 INTEREST RECEIVABLE
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
Bank interest receivable ........................................... 82 86
Other interest receivable .......................................... 69 61
Receivable from associate undertakings ............................. 8 7
------ ------
159 154
====== ======
</TABLE>
- --------------------------------------------------------------------------------
7 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
Payable on bank overdrafts ......................................... (191) (198)
Payable on vehicle financing and other loans ....................... (6,383) (6,478)
Finance element of operating leases ................................ (2,381) (2,310)
------ -------
(8,955) (8,986)
====== =======
</TABLE>
F-28
<PAGE> 30
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
8 TAXATION
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
UK corporation tax (charge)/credit at 33%:
Current year ................................ (1,998) 827
Prior year .................................. 1,952 368
Deferred taxation (charge):
Current year ................................ (845) (1,859)
Prior year .................................. (1,144) (74)
------ ------
(2,035) (738)
====== ======
</TABLE>
9 DIVIDENDS ON EQUITY SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
On Ordinary shares:
Interim paid 2p (1996 3.12p) per share ...... (981) (1,530)
Proposed final 4.5p (1996 1p) per share ..... (2,207) (490)
------ ------
(3,188) (2,020)
====== ======
</TABLE>
- -------------------------------------------------------------------------------
10 EARNINGS PER ORDINARY SHARE
Earnings per Ordinary share of 12.67 pence (1996 6.15 pence) is calculated on
profit after tax of Pound 6.2 million (1996 Pound 3.0 million) divided by
49,042,110, the number of Ordinary shares in issue throughout the year.
F-29
<PAGE> 31
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- -------------------------------------------------------------------------------
11 TANGIBLE FIXED ASSETS - GROUP
<TABLE>
<CAPTION>
Plant and
Freehold Short machinery
land and leasehold Fleet fixtures
buildings properties vehicles and fittings Total
--------- ---------- -------- ------------ -----
(UK Pounds in thousands)
<S> <C> <C> <C> <C> <C>
COST
AT 1 APRIL 1996 ......... 7,736 6,155 106,300 12,844 133,035
Additions ............... 464 856 217,145 1,323 219,788
Disposals ............... (25) (1,504) (190,443) (5,014) (196,986)
Currency adjustments .... _ _ _ (32) (32)
----- ------ -------- ------ --------
At 31 March 1997 ........ 8,175 5,507 133,002 9,121 155,805
----- ------ -------- ------ --------
DEPRECIATION
AT 1 APRIL 1996 ......... 521 2,845 4,847 9,249 17,462
Charge for year ......... 116 476 14,759 1,571 16,922
On disposals ............ (25) (1,504) (12,261) (5,013) (18,803)
Currency adjustments .... -- -- -- (23) (23)
----- ------ -------- ------ --------
AT 31 MARCH 1997 ........ 612 1,817 7,345 5,784 15,558
===== ====== ======== ====== ========
NET BOOK VALUE
AT 31 MARCH 1997 ........ 7,563 3,690 125,657 3,337 140,247
===== ====== ======== ====== ========
AT 1 APRIL 1996 ......... 7,215 3,310 101,453 3,595 115,573
===== ====== ======== ====== ========
</TABLE>
The analysis of assets included above and held under finance leases is as
follows:
<TABLE>
<CAPTION>
Plant and
machinery,
Fleet fixtures
vehicles and fittings
-------- ------------
(UK Pounds in thousands)
<S> <C> <C>
Cost ................................... 69,961 800
Accumulated depreciation ............... (1,985) (704)
------ ------
Net book value at 31 March 1997 ........ 67,976 96
====== ======
Cost ................................... 49,088 3,739
Accumulated depreciation ............... (1,240) (3,544)
------ ------
Net book value at 1 April 1996 ......... 47,848 195
====== ======
</TABLE>
F-30
<PAGE> 32
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- -------------------------------------------------------------------------------
12 INVESTMENTS
<TABLE>
<CAPTION>
Group Company
----------------------- -----------------------
31 March 31 March 31 March 31 March
1997 1996 1997 1996
-------- -------- -------- --------
(UK Pounds in thousands)
<S> <C> <C> <C> <C>
Subsidiary undertakings ........... -- -- 36,842 36,842
Associate undertakings ............ 89 108 -- --
----- ----- ------ ------
89 108 36,842 36,842
===== ===== ====== ======
</TABLE>
Interests in associate undertakings have moved as follows:
<TABLE>
<CAPTION>
At At
1 April Movement 31 March
1996 in year 1997
------- -------- --------
(UK Pounds in thousands)
<S> <C> <C> <C>
Shares at cost .................... 115 -- 115
Share of result ................... (7) -- (7)
Exchange movement ................. -- (19) (19)
----- ----- ----
108 (19) 89
===== ===== ====
</TABLE>
A list of the Company's principal subsidiary and associate undertakings is set
out in note 30.
In the opinion of the Directors, the value of investments in subsidiary and
associate undertakings is not less than the value recorded in the financial
statements.
During the year ended 31 March 1997, two of the subsidiaries, EuroDollar (UK)
Limited and EuroDollar Holland BV were charged Pound 1,117,000 (1996 Pound
647,000) for royalties and other services by the associate EuroDollar
International Limited. In the same period, EuroDollar (UK) Limited provided
administrative management services to EuroDollar International Limited of Pound
480,000 (1996 Pound 228,000) and charged interest of Pound 3,000 (1996 Pound
6,000).
In addition, for the year ended 31 March 1997, EuroDollar Holland BV paid rent
and related service charges to the associate Cooperative Vereniging `Main 2000'
UA of Pound 25,000 (1996 Pound 10,000) and received interest on loans made of
Pound 5,000 (1996 Pound 1,000).
Amounts owed to and from these associate undertakings are as stated in notes 14
and 17.
- --------------------------------------------------------------------------------
13 STOCKS - GROUP
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
Goods for resale ........ 935 693
-------- --------
- -------------------------------------------------------------------------------
14 DEBTORS
<TABLE>
<CAPTION>
Group Company
----------------------- ------------------------
31 March 31 March 31 March 31 March
1997 1996 1997 1996
-------- -------- -------- --------
(UK Pounds in thousands)
<S> <C> <C> <C> <C>
Trade debtors ............................... 31,180 22,665 -- --
Other debtors ............................... 431 130 1,533 760
Amounts owed by subsidiary undertakings ..... -- -- 1,962 2,091
Amounts owed by associate undertakings ...... 84 -- -- --
Prepayments and accrued income .............. 9,326 10,262 5 5
Corporation tax recoverable ................. 501 -- -- --
------ ------ ----- -----
41,522 33,057 3,500 2,856
====== ====== ===== =====
</TABLE>
F-31
<PAGE> 33
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
15 INVESTMENTS - GROUP
<TABLE>
<CAPTION>
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
Listed in the U.K. - at cost or market value if lower .... 1,398 858
------ ---
</TABLE>
- --------------------------------------------------------------------------------
16 CASH AT BANK AND IN HAND
<TABLE>
<CAPTION>
Group Company
------------------------ -----------------------
31 March 31 March 31 March 31 March
1997 1996 1997 1996
-------- -------- -------- --------
(UK Pounds in thousands)
<S> <C> <C> <C> <C>
Cash at bank and in hand .... 2,252 483 1,052 --
Cash held in escrow ......... 149 166 -- --
------- ----- ------- -----
2,401 649 1,052 --
======= ===== ======= =====
</TABLE>
- --------------------------------------------------------------------------------
17 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
Group Company
------------------------- -----------------------
31 March 31 March 31 March 31 March
1997 1996 1997 1996
-------- -------- -------- --------
(UK Pounds in thousands)
<S> <C> <C> <C> <C>
VEHICLE BACKED FINANCE:
Obligations under finance leases ............ 61,718 35,191 -- --
Other vehicle backed finance ................ 55,479 50,784 -- --
------- ------- ----- -----
117,197 85,975 -- --
OTHER:
Bank overdrafts ............................. 970 4,126 -- 98
Trade creditors ............................. 16,041 15,066 -- --
Amounts owed to subsidiary undertakings ..... -- -- 716 1,265
Amounts owed to associate undertakings ...... 123 123 -- --
Corporation tax ............................. 805 -- 975 --
Taxation and social security ................ 838 755 -- --
Accruals and deferred income ................ 6,622 6,855 153 113
Dividends proposed .......................... 2,207 490 2,207 490
------- ------- ----- -----
27,606 27,415 4,051 1,966
------- ------- ----- -----
144,803 113,390 4,051 1,966
======= ======= ===== =====
</TABLE>
The bank overdraft facilities are supported by a floating charge and by cross
guarantees in favour of National Westminster Bank Plc created by the Company and
its subsidiary EuroDollar (UK) Limited.
- --------------------------------------------------------------------------------
18 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR - GROUP
<TABLE>
<CAPTION>
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
Corporation tax ......... 884 --
------ ------
</TABLE>
F-32
<PAGE> 34
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
19 PROVISIONS FOR LIABILITIES AND CHARGES - GROUP
<TABLE>
<S> <C>
Deferred taxation (UK Pounds in thousands)
At 1 April 1996 ....................................... 9,024
Under provision prior year ............................ 1,144
Profit and loss account charge ........................ 845
Amounts reallocated between current and deferred tax .. (1,624)
------
At 31 March 1997 ...................................... 9,389
======
</TABLE>
The principal components of the deferred taxation provision are set out below:
<TABLE>
<CAPTION>
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
Difference between accumulated depreciation and capital allowances .. 10,285 8,338
Other timing differences ............................................ 799 1,748
ACT recoverable ..................................................... (1,695) (1,062)
------ ------
9,389 9,024
====== ======
</TABLE>
The Directors believe that under the Group's accounting policy for deferred
taxation, a full provision is appropriate. The amount of unprovided deferred tax
for the Group and Company at 31 March 1997 and at 31 March 1996 was therefore
pounds nil.
- --------------------------------------------------------------------------------
20 SHARE CAPITAL
<TABLE>
<CAPTION>
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C>
AUTHORISED
Ordinary shares of 5p (72,000,000) .......... 3,600 3,600
===== =====
ALLOTTED, CALLED UP AND FULLY PAID
Ordinary shares of 5p (49,042,110) .......... 2,452 2,452
===== =====
</TABLE>
Options on Ordinary shares have been granted to eligible employees under the
terms of the EuroDollar Sharesave Scheme. The movements in the number of options
in the year and the outstanding options at 31 March 1997 are as follows:
<TABLE>
<CAPTION>
Options at Options at Exercise
31 March 31 March price per
Date Granted 1996 Lapsed Issued 1997 share
- ------------ ---------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
30 December 1994 ........ 99,017 (48,060) -- 50,957 166.5p
28 March 1996 ........... 798,738 (84,009) -- 714,729 79p
</TABLE>
These options, ordinarily, may be exercised in the six months following the
expiry of five years after the date of the grant.
The mid market closing price of the shares on 27 March 1997, the nearest trading
day to the year end, was 133.5p and the range in the year was 65p to 156p.
- --------------------------------------------------------------------------------
21 SHARE PREMIUM ACCOUNT
<TABLE>
(UK Pounds in thousands)
<S> <C>
At 31 March 1997 and 31 March 1996................... 33,524
======
</TABLE>
F-33
<PAGE> 35
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
22 PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
Group Company
----- -------
(UK Pounds in thousands)
<S> <C> <C>
At 1 April 1996 .............. 6,046 1,756
Profit/(loss) for the year ... 3,028 (389)
Foreign exchange movements ... (36) --
----- -----
At 31 March 1997 ............. 9,038 1,367
===== =====
</TABLE>
The Company has taken advantage of the exemption contained in section 230 of the
Companies Act 1985, not to disclose a separate company profit and loss account.
The Company's loss for the year, after tax and dividends, was Pound 389,000
(1996 loss Pound 281,000).
- --------------------------------------------------------------------------------
23 COMMITMENTS _ GROUP
(i) Capital commitments for which no provision has been made in these financial
statements, are as follows:
<TABLE>
<CAPTION>
31 March 31 March
1997 1996
-------- --------
<S> <C> <C>
Authorised and contracted for
- vehicles ...................... 49,988 50,009
- other ......................... 88 498
------ ------
50,076 50,507
====== ======
</TABLE>
The Group also has an informal arrangement with certain motor dealers that for
every used vehicle sold to the dealer, the Group will acquire a new vehicle at a
later date.
The Company had no capital commitments at 31 March 1997 or 31 March 1996.
(ii)The Group had annual commitments under non-cancellable operating leases as
follows:
<TABLE>
<CAPTION>
31 March 1997
------------------------------------
Land and
buildings Vehicles Other
--------- -------- ------
(UK Pounds in thousands)
<S> <C> <C> <C>
Operating leases which expire:
Within one year ................... 720 1,276 19
Between one and five years ........ 862 337 49
After five years .................. 2,823 _ _
----- ----- ----
4,405 1,613 68
===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
31 March 1996
------------------------------------
Land and
buildings Vehicles Other
--------- -------- ------
(UK Pounds in thousands)
<S> <C> <C> <C>
Operating leases which expire:
Within one year ................... 515 2,172 24
Between one and five years ........ 1,246 320 63
After five years .................. 2,651 _ _
----- ----- ----
4,412 2,492 87
===== ===== ==
</TABLE>
The Company had no operating lease commitments at 31 March 1997 or 31 March
1996.
F-34
<PAGE> 36
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
24 PENSION COMMITMENTS
The Company established a funded defined benefit pension Scheme in March 1994
known as the EuroDollar Pension Scheme ("the Scheme"). The assets of the Scheme
are administered by a trustee Company, EuroDollar Pension Scheme Trustees
Limited, and are held separately from those of the Company. The principal asset
of the Scheme is a holding of units in the Gartmore Long Term Balanced Strategy
Fund.
The most recent actuarial valuation of the Scheme was carried out as at 1 July
1994 by qualified actuaries employed by Alexander Clay & Partners Consulting. At
the valuation date, the total market value of the Scheme's assets was Pound 6.1
million. The results of the valuation showed that the assets held were more than
sufficient to cover the liabilities of the Scheme in respect of completed
service on the funding basis. The surplus is being used to finance a temporary
reduction in the Company contribution rate.
The projected unit method was adopted for the purpose of calculating the pension
costs shown in these financial statements. The principal actuarial assumptions
were that, over the long term, the average yield which will be obtained on the
investment of all Scheme assets is 9.5% per annum compound and that members'
Scheme salaries will, on average, increase at a general rate of 7.0% per annum,
from the valuation date until the assumed retirement date. In addition,
allowance was made for further increases due to promotion etc. in accordance
with a suitable scale. Annual increases in present and future pension payments
were assumed to average 5.5% per annum for senior executives and 4.5% per annum
for other members. It was assumed that dividends would grow at an average future
rate of 5.5% per annum.
On the basis of these assumptions, there was a surplus of Pound 2.5 million of
assets over accrued liabilities, corresponding to a funding level of 162%. For
accounting purposes this surplus is being amortised over the average remaining
service lives of members at the valuation date.
Total pension costs for the Group charged to profit for the year amounted to
Pound 305,000 (1996 Pound 285,000) of which Pound 278,000 (1996 Pound 261,000)
is in respect of the Scheme; the remainder relates to amounts paid to
independently administered schemes.
The Group has no health and medical plans providing post-retirement benefits.
- -------------------------------------------------------------------------------
25 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
Year to Year to
31 March 31 March
1997 1996
---------- ---------
(UK Pounds in thousands)
Operating profit...................................... 17,047 12,852
Depreciation charges.................................. 16,922 16,468
Share of result/(loss) of associates.................. -- 7
(Increase)/decrease in stocks......................... (244) 16
Increase in debtors................................... (1,757) (4,923)
Increase in creditors................................. 1,602 2,081
------- -------
Net cash inflow from operating activities 33,570 26,501
======= =======
F-35
<PAGE> 37
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
26 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
YEAR TO YEAR TO
31 MARCH 31 March
1997 1996
----------------------- ---------------------------
(UK Pounds in thousands)
<S> <C> <C> <C> <C>
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received............................ 159 154
Interest paid................................ (5,508) (5,509)
Interest element of finance lease rental
payments................................... (3,520) (3,434)
-------- --------
NET CASH OUTFLOW FOR RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE................... (8,869) (8,789)
======= ======
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets............ (220,387) (182,275)
Sale of tangible fixed assets................ 171,672 159,198
-------- --------
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT....................... (48,715) (23,077)
======= ======
ACQUISITIONS AND DISPOSALS
Acquisition of associate undertaking......... -- (111)
50% disposal of subsidiary undertaking
Disposal proceeds............................ -- 4
Disposal of overdraft........................ -- 199
-------- --------
NET CASH INFLOW FOR ACQUISITIONS AND
DISPOSALS.................................. -- 92
======= ======
MANAGEMENT OF LIQUID RESOURCES
Purchase of listed investments............... (550) (316)
-------- --------
NET CASH OUTFLOW FROM MANAGEMENT OF LIQUID
RESOURCES.................................. (550) (316)
======= ======
</TABLE>
F-36
<PAGE> 38
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
27 ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
Other
At 1 April Cash non-cash Exchange At 31 March
1996 flow changes movement 1997
---------- ------- -------- -------- -----------
(UK Pounds in thousands)
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand........... 649 1,753 -- (1) 2,401
Bank overdrafts.................... (4,126) 3,111 -- 45 (970)
-------
4,864
-------
Debt due within 1 year............. (50,784) (4,695) -- -- (55,479)
Finance leases..................... (35,191) (26,527) -- -- (61,718)
-------
(31,222)
-------
Current asset
investments........................ 858 550 (10) -- 1,398
------- ------- ------ ----- --------
Total.............................. (88,594) (25,808) (10) 44 (114,368)
======= ======= ====== ===== ========
</TABLE>
- --------------------------------------------------------------------------------
28 VEHICLE BACKED FINANCE
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
--------- --------
(UK Pounds in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year.................... 85,975 86,938
Receipts from lease financing................... 127,876 106,108
Repayments of lease financing................... (101,349) (112,190)
Receipts from other vehicle backed finance...... 88,796 72,529
Repayments of other vehicle backed finance...... (84,101) (67,410)
--------- --------
Net cash inflow/(outflow) from vehicle backed
finance....................................... 31,222 (963)
------- -------
Balance at 31 March............................. 117,197 85,975
======= =======
</TABLE>
- --------------------------------------------------------------------------------
29 OTHER LEASE FINANCE
<TABLE>
<CAPTION>
Year to Year to
31 March 31 March
1997 1996
-------- --------
(UK Pounds in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year......................... -- 98
Repayments of other lease financing.................. -- (98)
------- ------
Net cash outflow from other lease finance............ -- (98)
------ ------
Balance at 31 March.................................. -- --
====== ======
</TABLE>
F-37
<PAGE> 39
EuroDollar (Holdings) plc
NOTES TO THE ACCOUNTS
continued
- --------------------------------------------------------------------------------
30 PRINCIPAL SUBSIDIARY AND ASSOCIATE UNDERTAKINGS
<TABLE>
<CAPTION>
Activity Company Proportion of Country of
Ordinary shares incorporation
held % and operation
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vehicle rental EuroDollar (UK) Limited 100% England
EuroDollar Holland BV 100% Holland*
Motor insurance EuroDollar (Insurances) Limited 100% Guernsey*
Vehicle inspection Provincial Assessors Limited 100% England*
Intermediate holding company EuroDollar (Properties) Limited 100% England*
Franchising EuroDollar International Limited 50% England
Rental of airport service area Cooperatieve Vereniging `Main 2000' UA 33.3% Holland
</TABLE>
* Owned directly by EuroDollar (Holdings) plc
Advantage has been taken of section 231(5) of the Companies Act 1985 in that a
full list of subsidiary undertakings will be annexed to the Company's next
Annual Return.
- --------------------------------------------------------------------------------
31 CONTINGENT LIABILITIES
(i) Save as set out below the Group has no contingent liabilities at 31 March
1997.
(a) In litigation with Maiellano Tours Inc. ("Maiellano"), both EuroDollar and
Maiellano are claiming breach of contract to provide car rental services to
Maiellano and in the payments of the amounts due thereunder. The maximum
amount of the Maiellano claim is US$7,717,059 of which US$6,000,000 relates
to compensation for damage to reputation and image. In respect of this
element of the claim, EuroDollar has been advised by its Italian lawyers
that, in their opinion, there is no risk of such a claim being successful.
In respect of the balance of the amount claimed, EuroDollar is disputing
the amount and is in turn claiming that it is Maiellano who owes money for
car rental services. EuroDollar has already obtained a sequestration order
from the Court of Rome in respect of up to Lit.1,300,000,000 of its claim.
The next hearing is scheduled for October 1997 at which a report prepared
by a court appointed technical expert will be reviewed. EuroDollar has been
advised by its Italian lawyers that this confirms that Maiellano owes money
for car rental services.
(ii) The Company has contingent liabilities in respect of guarantees of
borrowings of certain subsidiary undertakings which at 31 March 1997
amounted to Pound 55 million (31 March 1996 Pound 44 million).
F-38
<PAGE> 40
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Quinlan Automotive Group
Clearwater, Florida
We have audited the accompanying combined balance sheet of Quinlan Automotive
Group as of December 31, 1996, and the related combined statement of income and
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Quinlan Automotive
Group as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Ft. Lauderdale, Florida
September 19, 1997, except for Note 15
as to which the date is October 31, 1997
- --------------------------------------------------------------------------------
F-39
<PAGE> 41
QUINLAN AUTOMOTIVE GROUP
COMBINED STATEMENTS OF INCOME
For the nine months ended September 30, 1997 and 1996
and the year ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
September 30, September 30, December 31,
1997 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenue (Note 2) $ 163,108,181 $ 136,723,536 $ 175,289,895
Cost of revenue (Note 2) 143,347,400 119,360,491 151,782,913
------------- ------------- -------------
GROSS PROFIT 19,760,781 17,363,045 23,506,982
Operating expenses 15,701,178 14,651,539 20,045,199
------------- ------------- -------------
NET INCOME 4,059,603 2,711,506 3,461,783
Retained earnings at beginning of period 4,650,667 3,239,862 3,239,862
Dividends (2,799,366) (1,893,677) (2,050,978)
------------- ------------- -------------
RETAINED EARNINGS AT END OF PERIOD $ 5,910,904 $ 4,057,691 $ 4,650,667
============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
F-40
<PAGE> 42
QUINLAN AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
September 30, 1997 and 1996 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
September 30, September 30, December 31,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash $ 15,646 $ 2,850 $ 82,492
Receivables, net (Note 4) 8,089,695 6,238,221 6,348,797
Inventories (Note 5) 21,679,396 15,130,876 17,794,477
Prepaid expenses and other 551,819 490,449 376,828
Due from shareholder 40,000 40,000 40,000
----------- ----------- -----------
Total current assets 30,376,556 21,902,396 24,642,594
Property and equipment, net (Note 6) 4,708,865 5,326,781 5,197,503
Other assets
Intangible assets, net (Note 7) 1,776,685 1,935,619 1,894,523
Other assets 293,115 294,675 293,613
----------- ----------- -----------
2,069,800 2,230,294 2,188,136
----------- ----------- -----------
$37,155,221 $29,459,471 $32,028,233
=========== =========== ===========
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Checks written in excess of bank balance $ 2,299,783 $ 1,386,267 $ 1,605,789
Notes payable - floorplan (Note 8) 14,748,830 9,059,198 11,014,895
Current portion of notes payable (Note 9) 7,034,965 3,974,557 4,509,535
Accounts payable and other accrued
expenses 3,007,284 4,198,801 3,985,111
Liability for finance chargebacks and salary
longevity program 388,138 310,951 342,790
Due to shareholders (Note 10) 1,878,929 1,151,175 1,101,542
----------- ----------- -----------
Total current liabilities 29,357,929 20,080,949 22,559,662
Long-term portion of notes payable (Note 9) 45,557 2,351,818 1,918,505
Liability for finance chargebacks and salary
longevity program 306,473 355,725 290,387
Due to shareholders (Note 10) 27,853 1,106,783 1,102,507
Shareholders' equity
Common stock 120,400 120,400 120,400
Paid in capital 1,386,105 1,386,105 1,386,105
Retained earnings 5,910,904 4,057,691 4,650,667
----------- ----------- -----------
7,417,409 5,564,196 6,157,172
----------- ----------- -----------
$37,155,221 $29,459,471 $32,028,233
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
F-41
<PAGE> 43
QUINLAN AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996
and the year ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
September 30, September 30, December 31,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,059,603 $ 2,711,506 $ 3,461,783
Adjustments to reconcile net income to
net cash from operating activities
Depreciation and amortization 557,721 606,154 811,010
Amortization of intangible assets 117,838 151,305 192,401
Net loss (gain) on sale of property and
equipment (14,013) 811 147,711
Provision for doubtful accounts 99,991 60,210 90,344
Change in assets and liabilities
Receivables (1,840,889) 152,025 11,315
Inventories (3,884,919) 4,577,575 1,913,974
Prepaid expenses and other (174,991) (227,523) (113,902)
Other assets 498 499 1,561
Accounts payable and other
accrued expenses (977,827) 137,513 (76,177)
Net borrowings under floorplan
agreements 3,733,935 (3,334,453) (1,378,756)
Liability for finance chargebacks
and salary longevity program 61,434 27,705 (5,794)
----------- ----------- -----------
Net cash from operating activities 1,738,381 4,863,327 5,055,470
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and
equipment 131,335 63,287 63,287
Purchase of property and equipment (186,405) (349,504) (571,981)
Repayment from shareholder -- 210,000 210,000
----------- ----------- -----------
Net cash from investing activities (55,070) (76,217) (298,694)
CASH FLOWS FROM FINANCING ACTIVITIES
Checks written in excess of bank balance 693,994 (959,269) (739,747)
Repayment to affiliate -- (161,653) (161,653)
Due to shareholders (297,267) 111,232 57,323
Borrowings on notes payable 1,493,267 1,329,384 1,464,272
Payments on notes payable (840,785) (3,094,855) (3,128,079)
Dividends paid (2,799,366) (1,893,677) (2,050,978)
Return of shareholders' capital -- (120,000) (120,000)
----------- ----------- -----------
Net cash from financing activities (1,750,157) (4,788,838) (4,678,862)
----------- ----------- -----------
Net increase in cash (66,846) (1,728) 77,914
Cash at beginning of period 82,492 4,578 4,578
----------- ----------- -----------
CASH AT END OF PERIOD $ 15,646 $ 2,850 $ 82,492
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 1,587,173 1,444,446 $ 1,898,010
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
F-42
<PAGE> 44
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS: Quinlan Automotive Group (the Group) serves customers
principally in the Central Florida trading area. The Group offers a broad range
of products and services including new and used vehicle sales and replacement
parts and service and body shop repairs.
PRINCIPLES OF COMBINATION: The combined financial statements of Quinlan
Automotive Group consists of the entities listed below which operations are
being acquired by Republic Industries, Inc. The majority interest of the
entities are owned by members of the Quinlan family. A certain dealership
executive has ownership interest which is also to be acquired by Republic
Industries, Inc. The entities include:
Quinlan Motors, Inc. d/b/a Jim Quinlan Nissan
Jim Quinlan Ford Lincoln-Mercury, Inc.
Jim Quinlan Chevrolet Co., Inc.
All significant intercompany transactions have been eliminated in the combined
financial statements.
MAJOR SUPPLIERS AND DEALER AGREEMENTS: The Group purchases substantially all of
its new vehicles and replacement parts inventories from Nissan Motor
Corporation, Ford Motor Company, and Chevrolet Motor Division of General Motors
Corporation, at the prevailing prices charged to all franchised dealers. The
Group's overall sales could be impacted by a manufacturer's inability or
unwillingness to supply the Group with an adequate supply or mix of inventory.
The Group enters into Dealer Agreements with each manufacturer. The Dealer
Agreements limit the location of the dealership and give the manufacturer rights
to approve changes in the dealership's ownership. The manufacturer is entitled
to terminate the Dealer Agreement if the Group is in breach of its terms.
REVENUE RECOGNITION: Revenue from the sale of vehicles is recognized on delivery
and obtaining financing arrangements. Revenue from parts, service and body shop
sales is recognized on the delivery of the part or completion of the service.
The Group sells third party service contracts for which the Group receives a
commission. The Group arranges financing with financial institutions for its
customers' purchases of new and used vehicles for which the Group earns a fee
from the respective financial institution. The fees that the Group earns for
arranging financing contracts and selling service contracts are subject to
chargeback if the customer terminates the respective contract for predetermined
reasons. The Group records an estimate of the liability for future chargebacks
based on management's estimate and historical experience.
- --------------------------------------------------------------------------------
(Continued)
F-43
<PAGE> 45
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVENTORIES: Inventories are valued at the lower of cost or market. The cost of
the new and used vehicle inventories is determined on a last-in first-out basis
(LIFO), except for medium duty trucks which are determined using the first-in
first-out basis (FIFO). Parts inventory at Jim Quinlan Chevrolet Co., Inc. are
determined on a last-in first-out basis (LIFO), while all other parts and
accessories inventories are determined on a first-in first-out basis (FIFO).
CREDIT RISK CONCENTRATION: The Group's trade receivables are due primarily from
retail and wholesale customers. In addition, the majority of the contracts and
vehicle receivables are due from financial institutions relating to sales of new
and used vehicles. Additionally, there are receivables and payables to the
manufacturers.
The Group has cash deposited in various local banks. The first $100,000 of the
deposits for each individual company at each bank are insured by an agency of
the U.S. Government.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost less
accumulated depreciation. Expenditures for maintenance, repairs and minor
renewals are expensed as incurred. Betterments and additions are capitalized.
Depreciation is provided by the straight-line method over the estimated useful
lives of the assets.
INTANGIBLE ASSETS: The goodwill of Companies acquired is being amortized on a
straight-line basis over a period of 15 years. Recoverability is reviewed
annually or sooner if events or changes in circumstances indicate that the
carrying amount may exceed estimated undiscounted net cash flows to which the
goodwill applies.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS: Preparing financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates made in the preparation of the financial statements.
ADVERTISING: The Group expenses production and other costs of advertising as
incurred.
FAIR VALUES OF FINANCIAL INSTRUMENTS: The fair value of cash equivalents,
receivables and trade payables approximates the carrying value. The fair value
of floorplan debt, shareholder notes payable and other debt approximates the
carrying amount as these instruments bear market interest rates.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, cash
includes cash and short-term investments with original maturities of 90 days or
less.
- --------------------------------------------------------------------------------
(Continued)
F-44
<PAGE> 46
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 2 - REVENUE AND COST OF REVENUE
For the year ended December 31, 1996, the revenue and cost of revenue included
the following:
REVENUE
Automotive retail $129,016,239
Fleet 11,937,486
Wholesale parts 34,336,170
COST OF REVENUE
Automotive retail $110,012,811
Fleet 11,807,613
Wholesale parts 29,962,489
NOTE 3 - INCOME TAXES
The entities included in the Group, with the consent of their shareholders, have
elected to have their income taxed under Section 1362 of the Internal Revenue
Code and similar sections of state income tax law. Accordingly, the accompanying
financial statements reflect no provision for income taxes since the taxable
income or loss of the entities are reported by the shareholders, individually.
NOTE 4 -RECEIVABLES
Receivables at December 31, 1996 consist of the following:
Trade receivables $ 2,901,137
Contracts in transit and vehicle receivables 2,797,567
Factory receivables and others 753,472
------------
6,452,176
Less: allowance for doubtful accounts 103,379
------------
$ 6,348,797
============
- --------------------------------------------------------------------------------
(Continued)
F-45
<PAGE> 47
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 5 - INVENTORIES
Inventories at December 31, 1996 consist of the following:
New vehicles $ 9,264,275
Used vehicles 3,186,202
Parts, accessories and miscellaneous 5,344,000
------------
$ 17,794,477
============
At December 31, 1996 approximately 95% of the inventories were valued
on a LIFO basis. The LIFO reserve was $3,905,394.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consists of the following:
Land $ 181,884
Service equipment 1,585,820
Furniture and fixtures 1,260,748
Buildings and improvements 3,895,547
Leasehold improvements 377,882
Company vehicles 700,927
------------
8,002,808
Less: accumulated depreciation and amortization 2,805,305
------------
$ 5,197,503
============
NOTE 7 - INTANGIBLE ASSETS
Intangible assets at December 31, 1996 include the following:
Goodwill $ 2,247,120
Less: accumulated amortization 352,597
------------
$ 1,894,523
============
- --------------------------------------------------------------------------------
(Continued)
F-46
<PAGE> 48
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 8 - NOTES PAYABLE - FLOORPLAN
At December 31, 1996, the Group had floorplan financing agreements with General
Motors Acceptance Corporation and Ford Motor Credit Corporation bearing interest
at prime plus 1% (9.5%), secured by the respective vehicles floored. Payment is
due when the related vehicle is sold.
General Motors Acceptance Corporation and Ford Motor Credit Corporation allow
the Group to apply available cash against the floorplan in a Cash Management
Account (CMA) arrangement. The CMA and the related interest savings is reflected
as a reduction of the notes payable floorplan and interest expense in these
financial statements. At December 31, 1996, the Group had $1,453,000 in the Ford
Motor Credit Corporation account. This amount is recorded as an offset to the
notes payable floorplan.
NOTE 9 - NOTES PAYABLE
<TABLE>
<S> <C>
Notes payable consist of the following at December 31, 1996:
Note payable to Barnett Bank of Pinellas County due in 120 monthly
installments of $15,529 including interest at 7.25%; maturing June 1, 1998;
collateralized by land and building. $1,447,388
Note payable to Barnett Bank of Pinellas County due in 60 monthly installments of
$5,759 including interest at 7.25%; maturing June 1, 1998; collateralized by land
and building. 535,474
$4,000,000 line of credit arrangement with Barnett Bank of Pinellas County
requiring payment of interest monthly at the bank's prime rate; maturing June 1,
1997; secured by accounts receivable and parts inventory. The loan agreement
contains certain covenants which were met. 3,610,608
Line of credit with General Motors Acceptance Corp. in the amount of $750,000; due
January 1, 1997 with interest at 9.5% due monthly. 750,000
Capital lease payable to AT&T Capital Corporation in 84 monthly installments of
$2,906 including interest at 8.71%; collateralized by AT&T telephone system; final
payment due December 31, 2000. 84,570
----------
6,428,040
Less: current portion 4,509,535
----------
$1,918,505
==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-47
<PAGE> 49
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 9 - NOTES PAYABLE (Continued)
Long-term debt maturities are as follows:
1997 $ 4,509,535
1998 1,903,675
1999 14,830
Interest expense on all indebtedness amounted to $2,106,244 for the year ended
December 31, 1996.
Interest assistance credits of $956,232 received from the manufacturers in 1996
have been shown as a reduction in the cost of revenue.
NOTE 10 - DUE TO SHAREHOLDERS
Notes payable to shareholders in the amount of $1,085,000 bear interest at 9.25%
and are due on demand. Notes payable to shareholders in the amount of $1,062,893
bear interest at prime and mature January 1998.
Note payable to shareholder in the amount of $56,156 bears interest at 9%
maturing January 2000. The balance matures as follows:
1997 $ 16,542
1998 18,093
1999 19,791
2000 1,730
NOTE 11 - COMMON STOCK
At December 31, 1996, the common stock consisted of:
<TABLE>
<CAPTION>
PAR VALUE SHARES
OF COMMON SHARES ISSUED AND
SHARES AUTHORIZED OUTSTANDING AMOUNT
------------ ---------- ----------- ------
<S> <C> <C> <C> <C>
Quinlan Motors, Inc. d/b/a Jim
Quinlan Nissan $ 1 6,000 1,000 $ 1,000
Jim Quinlan Ford Lincoln-
Mercury, Inc. 1 10,000 6,500 6,500
Jim Quinlan Chevrolet Co., Inc. 100 2,700 1,129 112,900
---------
$ 120,400
=========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-48
<PAGE> 50
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 12 - LEASE COMMITMENTS
The Group leases land used in dealership operations from a shareholder through
January 3, 2020. The lease calls for annual payments of $120,000 plus real
estate taxes.
The Group leases facilities from shareholders for $21,675 a month plus real
estate taxes through November 1998.
The Group leases several trucks from unrelated parties for $13,061 a month
through various dates ranging from November 1999 to March 2001.
The Group leases additional facilities from unrelated parties for $3,660 a month
through various dates ranging from March 1997 to August 1999.
The minimum rental commitments at December 31, 1996 under these operating leases
are as follows:
1997 $ 524,367
1998 492,733
1999 245,581
2000 167,288
2001 125,662
Thereafter 2,170,000
-----------
$ 3,725,631
===========
Total rent expense under the lease agreements was $473,107 in 1996.
NOTE 13 - COMMITMENTS
In 1992, the Group guaranteed a note payable to General Motors Acceptance
Corporation (GMAC) by James Pontiac-GMC Truck, Inc. The balance of the note
payable from James Pontiac-GMC Truck, Inc. to GMAC as of December 31, 1996 was
$3,124,491, and is secured by the James Pontiac-GMC Truck dealership facilities.
NOTE 14 - SHAREHOLDERS' AGREEMENTS
Jim Quinlan Chevrolet Co., Inc. and its shareholders have agreements covering
the purchase and sale of the company's stock upon the occurrence of certain
events. The company has first right to purchase any shares contemplated in a
transfer by a shareholder. The purchase price of the shares is determined by
formulas in the agreements.
- --------------------------------------------------------------------------------
(Continued)
F-49
<PAGE> 51
QUINLAN AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 15 - SUBSEQUENT EVENTS
On August 27, 1997, the Quinlan Automotive Group and shareholders entered into a
purchase agreement with Republic Industries, Inc. In October 1997, the purchase
was completed and the Companies are now wholly-owned by Republic Industries,
Inc.
- --------------------------------------------------------------------------------
F-50
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Emich Oldsmobile, Inc. and Affiliates
Golden, Colorado
We have audited the accompanying combined balance sheet of Emich Oldsmobile,
Inc. and Affiliates, as of December 31, 1996, and the related combined
statements of income and retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Emich Oldsmobile,
Inc. and Affiliates as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
September 25, 1997
F-51
<PAGE> 53
EMICH OLDSMOBILE, INC. AND AFFILIATES
COMBINED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 12,156,183 $ 8,914,621
Receivables (Note 2) 11,848,205 8,809,811
Inventories (Note 3) 32,120,069 38,103,667
Prepaid expenses 386,671 170,590
------------ -----------
Total current assets 56,511,128 55,998,689
Property and equipment, net (Note 4) 2,181,607 1,318,865
Other assets
Investment in real estate 82,354 132,354
Intangible assets, net 160,414 76,667
Deferred finance receivables 108,509 101,980
Cash surrender value of officer's life insurance 281,368 239,684
----------- -----------
632,635 550,685
----------- -----------
$59,325,380 $57,868,239
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks written in excess of bank balance $ -- $ 314,510
Notes payable - floor plan (Note 5) 30,508,776 36,840,859
Current portion of capital lease obligation 43,835 80,958
Accounts payable and other accrued expenses 7,527,596 4,991,262
Accrued chargebacks 563,777 563,777
Due to shareholders (Note 6) 1,698,854 1,790,034
------------ -----------
Total current liabilities 40,342,838 44,581,400
Long-term portion of capital lease obligation -- 16,932
Accrued chargebacks 446,139 446,139
Shareholders' equity
Common stock (Note 9) 822,600 822,600
Paid-in capital 170,475 170,475
Retained earnings 17,543,328 11,830,693
----------- ----------
Total shareholders' equity 18,536,403 12,823,768
----------- -----------
Total liabilities and shareholders' equity $59,325,380 $57,868,239
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
F-52
<PAGE> 54
EMICH OLDSMOBILE, INC. AND AFFILIATES
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> Year Ended
Nine Months Ended September 30, December 31,
------------------------------- -------------
1997 1996 1996
------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
Sales $ 239,384,423 $ 235,148,657 $ 309,933,005
Cost of sales 208,682,355 205,079,685 269,683,343
------------- ------------- -------------
GROSS PROFIT 30,702,068 30,068,972 40,249,662
Operating expenses 23,336,925 22,369,219 36,748,422
------------- ------------- -------------
NET INCOME 7,365,143 7,699,753 3,501,240
Retained earnings at beginning of year 11,830,693 8,640,498 8,640,498
Distributions (1,652,508) (311,046) (311,045)
------------- ------------- -------------
RETAINED EARNINGS AT END OF YEAR $ 17,543,328 $ 16,029,205 $ 11,830,693
============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
F-53
<PAGE> 55
EMICH OLDSMOBILE, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Nine Months Ended September 30, December 31,
---------------------------------- ------------
1997 1996 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,365,143 $ 7,699,753 $ 3,501,240
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 433,438 359,423 491,995
Gain on sale of property and equipment (3,500) (6,368) (2,884)
Provision for doubtful accounts -- -- (36,325)
Reserve for chargebacks -- -- 16,174
Change in assets and liabilities
Receivables (3,038,394) 2,735,180 4,319,955
Inventories 5,983,598 6,138,098 (146,292)
Other assets (222,610) 163,301 17,088
Net payments under floor plan - manufacturer (6,332,083) (9,221,227) (777,184)
Accounts payable and accrued expenses,
including checks written in excess of bank balance 2,221,824 829,664 (972,480)
----------- ----------- -----------
Net cash provided by operating activities 6,407,416 8,371,222 6,411,287
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 3,500 29,200 49,701
Purchases of property and equipment (1,279,927) (295,752) (421,569)
Increase in cash surrender value of life insurance (41,684) (5,982) (5,982)
Other (50,000) -- --
----------- ----------- -----------
Net cash used in investing activities (1,368,111) (272,534) (377,850)
Cash flows from financing activities
Distributions (1,652,508) (311,046) (311,045)
Payments - capital lease obligation (54,055) (44,125) (46,234)
Loans - shareholder 25,797 77,908 221,189
Repayments - shareholder (116,977) 0 (145,000)
----------- ----------- -----------
Net cash used in financing activities (1,797,743) (277,263) (281,090)
----------- ----------- -----------
Net increase in cash 3,241,562 7,821,425 5,752,347
Cash at beginning of year 8,914,621 3,162,274 3,162,274
----------- ----------- -----------
CASH AT END OF YEAR $12,156,183 $10,983,699 $ 8,914,621
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest $ $ $ 392,126
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
F-54
<PAGE> 56
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION: The accompanying combined financial
statements of Emich Oldsmobile, Inc. and Affiliates (the "Companies") include
the accounts and balances of the following companies:
Emich Oldsmobile, Inc.
Emich Dodge, Inc.
Emich Lincoln-Mercury, Inc.
Emich Subaru West, Inc.
Englewood Chrysler Plymouth, Inc. d/b/a
Emich Chrysler Plymouth, Inc.
Emich Oldsmobile, Inc. includes three dealership facilities operating as Emich
Oldsmobile West, Emich Jeep Eagle, and Emich Oldsmobile South.
All significant intercompany accounts and transactions have been eliminated.
NATURE OF BUSINESS: The Companies sell new and used vehicles, service,
replacement parts, and body shop repairs to customers in the Denver, Colorado
area. As of December 31, 1996, trade receivables are due primarily from retail
customers. In addition, vehicle and contract receivables are due from factory
financing subsidiaries and financial institutions relating to sales of new and
used vehicles, various fleet customers, and various wholesale customers. The
Companies purchase vehicles, parts, and supplies from their manufacturers and
participate in various incentive programs. These transactions result in both
receivables from and payables to the factories.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: The allowance for doubtful accounts is based on
management's estimate of uncollectible accounts receivable.
INVENTORIES: New vehicles and demonstrators are valued at the lower of cost or
market, with cost determined by the last-in, first-out (LIFO) inventory method.
- --------------------------------------------------------------------------------
(Continued)
F-55
<PAGE> 57
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Parts and accessories are valued at the lower of cost or market, with cost
determined in the following manner:
Last-In, First-Out (LIFO) Lower of Cost or Current
Inventory Method Replacement Cost
------------------------- ------------------------
Emich Oldsmobile, Inc. Emich Subaru West, Inc.
Emich Lincoln-Mercury, Inc. Emich Chrysler Plymouth, Inc.
Emich Dodge, Inc.
Used vehicles are stated at the lower of cost or wholesale "as is" market value,
as determined by management. Cost is determined by the specific unit costing
method on purchased units and allowance value on traded units, plus
reconditioning costs. All other inventories are generally stated at the lower of
cost or market, with cost determined by the first-in, first-out (FIFO) inventory
method.
PROPERTY AND EQUIPMENT: All property and equipment are recorded at cost.
Depreciation, which includes the depreciation of assets recorded under capital
leases, is computed using straight-line and accelerated depreciation methods.
Upon sale or retirement, the cost and related accumulated depreciation are
eliminated from the respective accounts, and the resulting gain or loss is
included in current operations. Leasehold improvements are recorded at cost and
are amortized on a straight-line basis over the term of the leases.
Repairs and maintenance charges which do not increase the useful lives of the
assets are charged to current operations as incurred.
INVESTMENTS IN REAL ESTATE: Investments in real estate represent investments in
land and improvements and are recorded at cost. The improvements are amortized
over their estimated useful lives using the straight-line method.
ACCRUED CHARGEBACKS: The Companies reserve the estimated liability for
chargebacks on finance and insurance contracts sold to customers based on
historical chargebacks as a percentage of finance and insurance contract sales.
INTEREST EXPENSE: Interest expense is offset by dealer wholesale credit account
earnings. Total interest expense of the Companies for the year approximates
$321,250.
- --------------------------------------------------------------------------------
(Continued)
F-56
<PAGE> 58
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES: The Group and related Affiliates, with the consent of the
shareholders, have elected S corporation status under the Internal Revenue Code.
Instead of the Group and related Affiliates paying corporate income taxes, the
shareholders of an S corporation are taxed individually on their proportionate
share of the respective Company's taxable income. The Companies therefore
provide for no federal income tax expense or benefit.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, cash
includes cash and short-term investments with original maturities of 90 days or
less.
NOTE 2 - RECEIVABLES
Receivables at December 31, 1996 consist of the following:
Vehicles and contracts in transit $ 5,755,587
Parts and service 902,367
Factory and finance 1,902,646
Employee and other 286,516
-----------
8,847,116
Less allowance for doubtful accounts (37,305)
-----------
$ 8,809,811
===========
NOTE 3 - INVENTORIES
Inventories at December 31, 1996 consist of the following:
New vehicles $33,578,922
Used vehicles 9,250,972
Parts and accessories 2,015,973
Other 43,919
-----------
44,889,786
Less LIFO reserves - new and used
vehicles and part 6,786,119
-----------
$38,103,667
===========
As described in Note 1, new vehicles, demonstrators, and parts and accessories
(in some cases) are valued at cost as determined under the last-in, first-out
(LIFO) method. If the specific identification method for new vehicles and
demonstrators and the current replacement cost
- --------------------------------------------------------------------------------
(Continued)
F-57
<PAGE> 59
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
method for parts and accessories had been used by the Companies, cost would have
been $6,786,119 higher than reported at December 31, 1996 and the net income for
the year then ended would have increased by $485,270. New vehicles, used
vehicles, and demonstrators are pledged as collateral under trust receipt
agreements.
- --------------------------------------------------------------------------------
(Continued)
F-58
<PAGE> 60
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consist of the following:
Machinery and equipment $ 1,838,739
Furniture and fixtures 1,639,145
Leasehold improvements 792,127
-----------
4,270,011
Less accumulated depreciation (2,951,146)
-----------
$ 1,318,865
===========
NOTE 5 - NOTES PAYABLE - FLOOR PLAN
The Companies have floor plan financing agreements with General Motors
Acceptance Corporation bearing interest at prime (8.25% at December 31, 1996)
less .5%, secured by new and used vehicle inventories. Payment is due upon sale
of the related vehicle. General Motors Acceptance Corporation allows the
Companies to invest available cash against the floor plan in a cash management
account. The earnings on the cash management accounts are reflected as a
reduction of interest expense. The investment in the cash management accounts
are included with cash and cash equivalents and total $7,547,970 at December 31,
1996.
Interest expense on all indebtedness net of cash management earnings totals
$321,251 for the year ending December 31, 1996.
NOTE 6 - RELATED PARTY TRANSACTIONS
Notes payable to shareholders accrue interest at 1% over the prime rate
(approximately 9.25% at December 31, 1996) and are payable on demand. The net
interest expense of the Companies on balances due to the shareholders during the
year was approximately $160,000.
NOTE 7 - CONTINGENCIES AND COMMITMENTS
CUSTOMER PAPER DISCOUNTING: Customer finance paper has been sold without
recourse. Additionally, the Companies may be liable for refunds of finance and
insurance commissions received on customer finance paper. In the event of
customer default or prepayment, the Companies may be charged back for a
percentage of the finance and insurance commissions received. The refund
percentages vary based upon the agreements, and the estimated future liability
is based on historical experience.
- --------------------------------------------------------------------------------
(Continued)
F-59
<PAGE> 61
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
NOTE 7 - CONTINGENCIES AND COMMITMENTS (Continued)
LEASE COMMITMENTS: The following Companies have month-to-month lease agreements
with shareholders for the dealership facilities.
Monthly
Dealership Rental
---------- ------
Emich Oldsmobile West $31,000
Emich Jeep Eagle 26,000
Emich Subaru West, Inc. 10,000
In addition, the following dealerships conduct operations in facilities leased
from unrelated parties:
Monthly
Dealership Rental Lease Expiration
---------- ------ ----------------
Emich Dodge $21,207 January 31, 1999
Emich Oldsmobile South 25,000 May 6, 1999
Emich Lincoln-Mercury, Inc. 18,897 March 30, 1999
Emich Chrysler Plymouth, Inc. 25,000 August 31, 2000
The leases provide for the payment of taxes and other expenses by the
dealerships. Rent and related expenses for leased facilities for the year ended
December 31, 1996 were as follows:
Emich Oldsmobile West $ 447,600
Emich Oldsmobile South 323,995
Emich Jeep Eagle 430,800
Emich Dodge, Inc. 310,144
Emich Lincoln-Mercury, Inc. 274,764
Emich Subaru West, Inc. 142,200
Emich Chrysler Plymouth, Inc. 366,742
-----------
$ 2,296,245
===========
Future minimum lease payments subsequent to December 31, 1996 under
noncancelable operating leases are as follows:
Year Ending Payable to
December 31, Others
------------ ----------
1997 $ 1,081,248
1998 1,081,248
1999 477,898
2000 200,000
-----------
$ 2,840,394
===========
- --------------------------------------------------------------------------------
(Continued)
F-60
<PAGE> 62
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
NOTE 7 - CONTINGENCIES AND COMMITMENTS (Continued)
Assets recorded under capital leases consist of:
Computer equipment $ 387,259
Less: Accumulated depreciation 272,957
-----------
$ 114,302
===========
Future minimum lease payments under capital leases, with various interest rates,
for the next two years are as follows:
Year Ending
December 31, Amount
------------ ------
1997 $ 74,444
1998 30,184
----------
Total minimum lease payments 104,628
Less: Amount representing interest 6,738
----------
Present value of net minimum lease
payments $ 97,890
==========
NOTE 8 - EMPLOYEE PROFIT-SHARING PLAN
The Group has a profit-sharing plan for all employees with at least one year of
continuous service. The amount of the annual contribution is discretionary, but
is limited to the maximum allowable deduction for federal income tax purposes.
Contributions totaled $120,000 for the year ended December 31, 1996.
- --------------------------------------------------------------------------------
(Continued)
F-61
<PAGE> 63
EMICH OLDSMOBILE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1996
- --------------------------------------------------------------------------------
NOTE 9 - COMMON STOCK
Common stock is comprised of the following:
<TABLE>
<CAPTION>
Emich Emich Emich
Emich Emich Lincoln- Subaru Chrysler
Oldsmobile Dodge, Mercury, West, Plymouth,
Inc. Inc. Inc. Inc. Inc. Total
---------- ------ -------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Par value None None $ 100 None None N/A
Shares authorized 10,000 50,000 12,000 50,000 50,000 $172,000
Shares issued and
outstanding at
December 31, 1996 3,587 1,000 5,940 10,000 10,000 30,527
</TABLE>
NOTE 10 - SUBSEQUENT EVENT - MERGER OF BUSINESS
On September 5, 1997, the Companies and their shareholders entered into a merger
agreement with Republic Industries and its subsidiaries. Management expects the
effective date of this transaction to be November 1, 1997.
- --------------------------------------------------------------------------------
F-62
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Owners of
Anderson Dealership Group and Affiliates:
We have audited the accompanying combined balance sheet of Anderson Dealership
Group and Affiliates (the "Group") as of December 31, 1996, and the related
combined statements of operations and changes in owners' equity and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1996, and the combined results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Fort Lauderdale, Florida,
November 3, 1997.
F-63
<PAGE> 65
ANDERSON DEALERSHIP GROUP AND AFFILIATES
COMBINED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,803 $ 1,881
Accounts receivable, net 7,305 6,304
Inventories 30,417 30,131
Prepaids and other current assets 393 206
-------- --------
Total current assets 39,918 38,522
PROPERTY AND EQUIPMENT, NET 3,434 3,328
PREPAID LEASE OBLIGATION 1,320 1,397
GOODWILL (NET OF ACCUMULATED AMORTIZATION OF $9 AND $24) 601 616
OTHER ASSETS 381 506
-------- --------
Total assets $ 45,654 $ 44,369
======== ========
LIABILITIES AND OWNERS' EQUITY
- ------------------------------
CURRENT LIABILITIES:
Floor plan notes payable $ 29,899 $ 29,319
Accounts payable and accrued liabilities 6,672 6,104
Current maturities of long-term debt 539 786
-------- --------
Total current liabilities 37,110 36,209
AMOUNTS DUE TO RELATED PARTIES (NOTE 9) 1,140 1,140
LONG-TERM DEBT, NET OF CURRENT MATURITIES 2,271 2,162
-------- --------
Total liabilities 40,521 39,511
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 12)
OWNERS' EQUITY 5,133 4,858
-------- --------
Total liabilities and owners' equity $ 45,654 $ 44,369
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE> 66
ANDERSON DEALERSHIP GROUP AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN OWNERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
REVENUES:
Sales $216,811 $204,862
Other operating revenue 5,195 5,178
--------- ----------
Total revenues 222,006 210,040
COST OF SALES 194,763 184,184
--------- ----------
Gross profit 27,243 25,856
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,023 22,112
--------- ----------
Income from operations 4,220 3,744
OTHER INCOME (EXPENSE):
Interest expense, net (2,567) (2,762)
Other income (expense), net 573 180
--------- ----------
NET INCOME 2,226 1,162
CAPITAL CONTRIBUTIONS 108 3,955
DISTRIBUTIONS (2,059) (2,052)
OWNERS' EQUITY, BEGINNING OF PERIOD 4,858 1,793
--------- ----------
OWNERS' EQUITY, END OF PERIOD $ 5,133 $ 4,858
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-65
<PAGE> 67
ANDERSON DEALERSHIP GROUP AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,226 $1,162
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 438 459
Net change in assets and liabilities:
Accounts receivable (1,001) (1,695)
Inventories (286) (2,305)
Prepaids and other assets 15 (460)
Floor plan notes payable 580 4,647
Accounts payable and accrued liabilities 568 1,912
------ ------
Net cash provided by operating activities 2,540 3,720
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (529) (906)
Cash paid for acquisitions - (4,701)
------ -------
Net cash used in investing activities (529) (5,607)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (338) (2,861)
Proceeds from long-term debt 200 2,500
Capital contributions 108 3,955
Distributions (2,059) (2,052)
------ ------
Net cash provided by (used in) financing activities (2,089) 1,542
------- ------
Net Decrease in Cash and Cash Equivalents (78) (345)
CASH AND CASH EQUIVALENTS, beginning of period 1,881 2,226
------- -------
CASH AND CASH EQUIVALENTS, end of period $1,803 $1,881
======= =======
Supplemental Disclosure Of Cash Flow Information:
Cash paid for interest during the period $2,767 $2,810
======= =======
Vehicles acquired pursuant to capital lease $ - $ 266
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE> 68
ANDERSON DEALERSHIP GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(In Thousands)
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
Anderson Dealership Group and Affiliates (the "Group") is engaged in the retail
and commercial sale of new and used motor vehicles, vehicle service and parts,
after-market products and in selling third-party financing contracts on new and
used vehicle sales that are originated by dealerships within the Group. The
Group operates primarily in the San Francisco Bay area.
The accompanying Combined Financial Statements include the accounts of the
following entities:
Anderson Chevrolet ("Chevrolet"), a California corporation
Anderson Chevrolet Los Gatos ("Los Gatos"), a California corporation
Anderson Isuzu ("Honda/Isuzu"), a California corporation
Anderson-Hiller Lexus, LLC ("Lexus"), a California limited liability
corporation
Anderson-Hiller Cadillac, LLC ("Cadillac"), a California limited
liability corporation
Anderson-Hiller Driver's Mart, LLC ("Driver's Mart"), a California
limited liability corporation
Anderson-Hiller Leasing, LLC ("Leasing"), a California limited
liability corporation
Anderson Dealership Group ("ADG"), a California corporation providing
management services to Chevrolet, Los Gatos, Lexus and Cadillac
Sunridge Associates ("Sunridge"), a California general partnership
which leases certain property and equipment to Chevrolet
Coleridge Associates, LP ("Coleridge"), a California limited
partnership which leases certain property and equipment to Chevrolet
Lexus and Cadillac were incorporated in 1996 and are each 51 percent owned by
the Group's principal owner.
The Group has been presented on a combined basis due to their related
operations, common ownership and common management control. All significant
intercompany balances and transactions have been eliminated in the combination.
F-67
<PAGE> 69
Chevrolet, Los Gatos, Honda/Isuzu, Lexus and Cadillac (collectively, the
"Dealerships") purchase substantially all of their new vehicles from the
Chevrolet Motors and Cadillac Motor Car divisions of General Motors Corporation;
American Honda Motor Co., Inc.; American Isuzu Motors, Inc.; and the Lexus
division of Toyota Motor Sales, Inc., (collectively, the "Manufacturers") at the
prevailing prices charged by the Manufacturers to all franchised dealers. The
Group's sales volume could be adversely impacted by the Manufacturers' inability
to supply the Dealerships with an adequate supply of popular models or as result
of an unfavorable allocation of vehicles by the Manufacturers.
The Dealerships operate under franchise agreements with the Manufacturers,
expiring at various times from April 1997 through December 2001. In accordance
with each franchise agreement, the Dealerships are subject to certain rights and
restrictions typical of the industry, including limitations on changes in
dealership management and ownership and minimum net worth requirements. The
ability of the Manufacturers to influence the operations of the Dealerships or
the loss of a franchise agreement could have a significant negative impact on
the operating results and financial position of the Group.
INTERIM FINANCIAL INFORMATION
In the opinion of management, the unaudited combined financial statements
contain all material adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the combined financial position of the
Group as of September 30, 1997, and the combined results of its operations and
cash flows for the nine months ended September 30, 1997. Operating results for
this interim period are not necessarily indicative of the results that may be
expected for a full year.
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments that have an
original maturity of three months or less at the date of purchase.
INVENTORIES
New vehicle inventories are stated at the lower of cost, determined using the
first-in, first-out (FIFO) method, or market on a specific-unit identification
basis. Used vehicles are stated at the lower of cost or market, on a
specific-unit identification basis. Parts inventories are stated at the lower of
cost, determined using the FIFO method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their estimated
useful lives, using the double-declining balance method. Useful lives for
purposes of computing depreciation are:
F-68
<PAGE> 70
Buildings and improvements 39 years
Furniture and fixtures 5 to 7 years
Machinery and equipment 5 to 7 years
Service vehicles 5 years
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 Combined Statements of Operations and Changes in Owners'
Equity.
GOODWILL
Goodwill represents 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.
The Group continually evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful life of goodwill or whether
the remaining balance of goodwill should be evaluated for possible impairment.
REVENUE RECOGNITION - SALES
Sales include revenues from new and used vehicles and from parts and service
sales. These revenues are recognized each time a vehicle or part is delivered to
a customer or service is completed.
REVENUE RECOGNITION - OTHER OPERATING REVENUE
Other operating revenue includes finance and service contract income. Finance
income represents amounts earned by the Group for financing arranged by the
Group with financial institutions on behalf of customers in connection with
vehicle sales. Finance income, net of estimates for future chargebacks, is
recognized by the Group upon acceptance of the note by a financial institution.
Service contract income represents commissions earned on extended warranty
service contracts sold by the Group as agents for extended service warranty
companies. Commissions earned, net of estimates for future chargebacks, are
recognized upon customer acceptance of the service contract terms as evidenced
by contract execution.
The agreements between the Group and the financial institutions provide that the
Group will receive a chargeback equal to a pro rata portion of the finance
income paid to the Group in the event the customer prepays or defaults on the
financing prior to its scheduled maturity. The period during which the Group is
contingently liable for financing chargebacks varies among the agreements
between the Group and the financial institutions and ranges from 90 days
following the placement of a note up to the full term of a note. The Group is
contingently liable
F-69
<PAGE> 71
for service chargebacks equal to a pro rata portion of the premium collected
pursuant to service contracts during the period of time the contract is in
effect. The Group records an estimated allowance for chargebacks based upon the
Group's historical experience for prepayments or defaults. Finance and service
income, net of estimates for future chargebacks, is classified as other
operating revenue in the accompanying Combined Statements of Operations and
Changes in Owners' Equity.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and included in
selling, general and administrative expenses in the accompanying Combined
Statements of Operations and Changes in Owners' Equity. Total advertising and
promotional expenses, net of $1,312 in rebates, were approximately $1,677 for
the year ended December 31, 1996.
INCOME TAXES
All of the entities within the Group have elected, for tax purposes, to have
taxable income and losses pass through directly to the owners by virtue of their
S Corporation, Limited Liability Corporation or Partnership status. Accordingly,
no provision for income taxes or income tax liability has been recorded in the
accompanying Combined Financial Statements.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Group to concentrations of
credit risk, consist principally of contracts in transit and accounts
receivable. The Group has not incurred significant losses related to these
financial instruments in the past.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments primarily consist of cash and cash
equivalents, floor plan notes payable, long-term debt, and amounts due to
related parties. The carrying amount of these financial instruments approximates
fair value due either to length of maturity or existence of interest rates that
approximate prevailing market rates.
OWNERS' EQUITY
Chevy, Los Gatos, Honda/Isuzu and ADG are separate and distinct corporations
which issue stock at different and unrelated prices. Lexus, Cadillac and
Driver's Mart are organized as limited liability companies whose members have
contributed capital in exchange for a membership interest in the limited
liability companies. Sunridge and Coleridge are organized as partnerships whose
members have contributed real property in exchange for a membership interest in
the partnerships. For purposes of these combined financial statements, the
owners' equity activity of the individual entities has been summed to present
combined totals of activity and balances of the Group (see Note 13).
F-70
<PAGE> 72
STATEMENT OF CASH FLOWS
The Group considers all highly liquid debt instruments with an original maturity
of three months or less to be cash equivalents. Additionally, the net change in
floor plan financing of inventory, which is a customary financing technique in
the industry, is reflected as an operating activity in the accompanying Combined
Statements of Cash Flows.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March 1995.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Group adopted SFAS No. 121 on January 1, 1996, and such
implementation did not have a material effect on the Group's combined financial
position, results of operations or cash flows.
EARNINGS PER SHARE
Earnings per share data are not presented as the historical capital structure
prior to the contemplated merger with Republic Industries, Inc., as hereinafter
discussed in Note 14, is not comparable to the capital structure that will exist
after this merger.
USE OF ESTIMATES AND ASSUMPTIONS
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.
4. ACQUISITIONS:
In July 1996, the Group's principal owner and a partner formed Anderson-Hiller
Lexus, LLC. In October 1996, Lexus purchased the new vehicle inventory, parts
inventory and property and equipment of Tandick Motors, Inc. for $1,675 in cash.
The purchase price was allocated as follows:
New vehicle inventory $766
Parts inventory 84
Property and equipment 325
Excess of purchase price over fair value of
assets acquired 500
------
$1,675
======
F-71
<PAGE> 73
In August 1996, the Group's principal owner and a partner formed Anderson-Hiller
Cadillac, LLC. In December 1996, Cadillac purchased the new vehicle inventory,
parts inventory, prepaid assets and property and equipment of Stanford Cadillac,
Inc. for $3,026 in cash. The purchase price was allocated as follows:
New vehicle inventory $2,256
Parts inventory 183
Property and equipment 417
Prepaid assets 45
Excess of purchase price over fair value of
assets acquired 125
------
$3,026
======
The Group's unaudited pro forma combined results of operations assuming the
acquisitions of Tandick Motors, Inc. and Stanford Cadillac, Inc., both of which
have been accounted for under the purchase method of accounting, had occurred on
January 1, 1996, are as follows:
For the Year Ended
December 31, 1996
-----------------
Revenue $237,605
Net income $ 755
4. ACCOUNTS RECEIVABLE:
Accounts receivable is comprised of the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
Contracts in transit $3,372 $2,869
Vehicle receivables 794 831
Manufacturers 1,419 1,435
Other 1,883 1,324
------ ------
7,468 6,459
Less- Allowance for doubtful accounts (163) (155)
------ ------
$7,305 $6,304
====== ======
F-72
<PAGE> 74
Contracts in transit and vehicle receivables primarily represent receivables
from financial institutions which provide funding for customer vehicle
financing; such amounts are generally collected within 30 days from the vehicle
sale. Amounts due from manufacturers represent receivables for parts and service
work performed on vehicles pursuant to the automotive manufacturer warranty
coverage and manufacturer holdbacks and incentives pursuant to the dealership
agreements; such amounts are generally remitted to the Group on a regular basis.
Other receivables include receivables for the sale of parts to commercial
customers and finance fees receivable from financial institutions earned from
arranging financing for the Group's customers.
5. INVENTORIES:
Inventories are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
New vehicles $ 24,648 $ 24,545
Used vehicles 4,563 4,330
Parts and other 1,206 1,256
-------- --------
$ 30,417 $ 30,131
======== ========
6. PROPERTY AND EQUIPMENT:
Property and equipment are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
Buildings and improvements $ 1,759 $ 1,636
Furniture and fixtures 2,451 2,080
Machinery and equipment 974 928
Service vehicles 573 584
------- -------
5,757 5,228
Less- Accumulated depreciation and amortization (2,323) (1,900)
------- -------
$ 3,434 $ 3,328
======= =======
F-73
<PAGE> 75
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
Accounts payable $3,705 $2,618
Accrual for finance and service contract 403 353
chargebacks
Payroll-related accruals 446 415
Other 2,118 2,718
------ ------
$6,672 $6,104
====== ======
8. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflect amounts for the purchase of specific new
vehicle inventory, are payable to GMAC and bear interest at prime (8.25 percent
as of December 31, 1996) plus 0.5 percent. The approved credit line was $47.5
million at December 31, 1996. Payments on the notes are due when the related
vehicles are sold. The notes are collateralized by substantially all assets of
the Dealerships and are guaranteed by the Group's principal owner. In October
1996, GMAC granted the Group participation in GMAC's Wholesale Incentive Plan
("WIP") whereby the Group is eligible to earn interest rebates ranging from 0.75
percent to 1.50 percent so long as the combined floor plan borrowings remain in
excess of $12 million. Participation in the WIP is indefinite, subject to
modification or termination by GMAC at its sole discretion. During 1996, $262 in
WIP incentives were earned, which have been classified as a reduction of cost of
sales in the accompanying Combined Statements of Operations and Changes in
Owners' Equity.
Interest under the floor plan notes payable is payable on a monthly basis.
Interest expense on floor plan notes payable totaled approximately $2,495 for
the year ended December 31, 1996, before manufacturer interest assistance.
Manufacturer interest assistance, which has been recorded as a reduction to cost
of sales in the accompanying Combined Statements of Operations and Changes in
Owners' Equity, totaled approximately $2,211 for the year ended December 31,
1996.
F-74
<PAGE> 76
9. LONG-TERM DEBT:
Long-term debt with third parties is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Note payable to Union Bank; $2,500 note dated January 1996, payable in 95
monthly installments of $37 in principal plus interest, maturing in
March 2004. Interest at 8.5 percent, collateralized by certain land and
improvements of Sunridge and guaranteed by the Group's principal owner. $2,148 $2,331
$250 unsecured line of credit with National City Bank; balance due on demand
with interest at prime. 240 240
Note payable to Mid-Peninsula Bank; $125 note dated December 1995, due on demand
and payable in 25 installments of $5 in principal plus interest, maturing in
January 1998. Interest at prime plus 1.5 percent, collateralized by
substantially all the assets of Coleridge and guaranteed by the Group's
principal owner. 20 78
Note payable to Mid-Peninsula Bank; $146 note dated December 1994, due on demand
and payable in 28 installments of $6 in principal plus interest. Interest at
prime plus 1.5 percent, collateralized by substantially all the assets of
Coleridge and guaranteed by the Group's principal owner, repaid in 1997. - 17
Note payable to Mid-Peninsula Bank; $175 note dated January 1995, payable in 24
equal installments of $8 in principal and interest. Interest at 9%, repaid in
1997. - 24
Note payable to Union Bank; $200 note dated April 1997, payable in monthly
installments of $3 in principal plus interest, maturing in May 2002. Interest
at prime plus .5 percent, guaranteed by the Group's principal owner. 183 -
Obligations under capital lease 219 258
------- -------
2,810 2,948
Less- Current maturities (539) (786)
------- -------
$ 2,271 $ 2,162
======= =======
</TABLE>
F-75
<PAGE> 77
Amounts due to related parties are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Note payable to Ruth Johnson Estate, dated August 1995, payable in full on July
2005. Interest accrues at prime plus 1 percent. Group's principal
owner is trustee for the estate. $300 $300
Note Payable dated March 1994, payable in full on March 1999. Interest
payable monthly at prime plus 1 percent. 300 300
Note Payable dated March 1994, payable in full on March 1999. Interest
payable monthly at prime plus 0.5 percent. 500 500
Note payable to Ruth Johnson Estate, dated August 1995, payable in full on July
2005. Interest accrues at prime plus 1 percent. Group's principal
owner is trustee for the estate. 40 40
------ ------
1,140 1,140
Less- Current maturities - -
------ ------
$1,140 $1,140
====== ======
</TABLE>
F-76
<PAGE> 78
The aggregate maturities of long-term debt and amounts due to related parties as
of December 31, 1996 are as follows:
Third Related
Parties Parties
------- -------
1997 $ 786 $ -
1998 347 -
1999 293 800
2000 319 -
2001 348 -
Thereafter 855 340
-------- --------
$ 2,948 $ 1,140
======== =======
Interest expense on long-term debt for the year ended December 31, 1996 was
$388.
10. LEASE COMMITMENTS:
Future minimum lease obligations under noncancelable real property leases as of
December 31, 1996 are as follows:
Year Ending December 31,
1997 $ 1,951
1998 2,096
1999 1,669
2000 1,767
2001 1,699
Thereafter 9,185
-------
$18,367
=======
F-77
<PAGE> 79
11. INCOME TAXES:
In the event that the Group terminates S Corporation status, deferred income
taxes will arise due to the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities. If the Group's S Corporation status had been terminated on December
31, 1996, the deferred tax asset (related primarily to allowances for accounts
receivable and chargebacks) as of that date would have been approximately $193.
12. COMMITMENTS AND CONTINGENCIES:
EMPLOYEE 401(k) RETIREMENT PLAN
The Group participates in a 401(k) plan (the "Plan") which covers certain
full-time employees (over 21 years old) who have worked a minimum of one year.
The Plan is funded by employee deferrals of their income and mandatory and
discretionary contributions by the Group. The Plan requires the Group to match
all participant elective deferrals dollar for dollar up to 2 percent of the
participant's elective deferral. The Group's matching contributions totaled $84
for the year ended December 31, 1996.
LABOR UNION CONTRACTS/EMPLOYEE BENEFITS
The Group has entered into certain contracts with local labor unions which
govern, among other things, wage structures and vacation entitlements for
covered workers. These contracts also require the Group to make specified
contributions to union-sponsored benefit and pension funds. Contributions to
these funds totaled approximately $161 for the year ended December 31, 1996.
LITIGATION
The Group is a party to several lawsuits arising in the normal course of
business. In the opinion of management, the outcome of these lawsuits will not
have a material effect on the Group's financial position or results of
operations.
STOCK REPURCHASE AGREEMENTS
The Group and its shareholders have entered into certain stock repurchase
agreements (the "Repurchase Agreements"), which obligate the Group to repurchase
a shareholder's shares upon his death or disability or upon the termination of
employment in the case of each employee-shareholder. The Repurchase Agreements
generally require the Group to repurchase, in cash or through the issuance of a
note, the shares at a purchase price equivalent to book value plus either a
multiple of earnings or an agreed amount that intended to approximate fair
market value. The Group has purchased life and disability insurance to fund
their potential liabilities under certain of these agreements. The Repurchase
Agreements also grant the Group rights of first refusal to repurchase the shares
of a shareholder who wishes to voluntarily dispose of all or a part of his
shares at the purchase price specified above.
F-78
<PAGE> 80
13. OWNERS' EQUITY:
Owners' equity as of December 31, 1996 is comprised of the following:
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Members' Retained Owners'
Stock Capital Interest Earnings Equity
----- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Chevy $ 461 $ - $ - $ 15 $ 476
Los Gatos 1,000 - - (451) 549
Honda/Isuzu 1,200 - - (1,094) 106
ADG 5 - - 42 47
Lexus - - 2,000 (71) 1,929
Cadillac - - 1,500 (293) 1,207
Driver's Mart - - 450 (117) 333
Coleridge - - 30 67 97
Sunridge - - 6 108 114
------- ------ ------- -------- -------
$ 2,666 $ - $ 3,986 $ (1,794) $ 4,858
======= ====== ======= ======== =======
</TABLE>
F-79
<PAGE> 81
During 1996, Lexus and Cadillac were incorporated and capitalized with $2,000
and $1,500, respectively, in capital contributions. The Group's common stock, no
par value, consists of the following shares authorized, issued and outstanding
as of December 31, 1996:
Shares
Shares Issued &
Authorized Outstanding
---------- -----------
Chevy 20 11
Los Gatos 2,000 10
Honda/Isuzu 1,000 12
ADG 1,000 5
------- ---
4,020 38
======= ===
14. SUBSEQUENT EVENTS:
------------------
In April 1997, the Group's principal owner formed Anderson Cupertino, LLC
("Cupertino"), a California limited liability corporation. In October 1997,
Cupertino purchased the new vehicle inventory, parts inventory, prepaid assets
and property and equipment of Davidson Chevrolet/Geo, Inc. and Century Chrysler
Plymouth, Inc.
In July 1997, the owners of the Group entered into a definitive merger and
acquisition agreement with Republic Industries, Inc. The transaction is subject
to obtaining manufacturer approval and is to be accounted for under the purchase
method of accounting.
F-80
<PAGE> 82
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Dobbs Automotive Group
Memphis, Tennessee
We have audited the accompanying combined balance sheet of the corporations
listed in note 1 to the combined financial statements (the Company) as of
December 31, 1996, and the related combined statements of income, stockholders'
equity, and cash flows for the year then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the accompanying combined financial statements referred to above
present fairly, in all material respects, the combined financial position of the
corporations listed in note 1 to the combined financial statements, as of
December 31, 1996, and the results of their combined operations and their
combined cash flows for the year then ended in conformity with generally
accepted accounting principles.
Reynolds, Bone & Griesbeck P.L.C.
Memphis, Tennessee
September 30, 1997
F-81
<PAGE> 83
COMBINED BALANCE SHEET
DOBBS AUTOMOTIVE GROUP
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 (AUDITED)
- --------------------------------------------------------------------------------
September 30, December 31,
1997 1996
(Unaudited) (Audited)
------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 29,395,936 $ 30,669,303
Investments - available-for-sale 10,238,908 8,352,675
Receivables, net 20,368,475 19,826,190
Inventories 48,160,070 75,357,536
Prepaid expenses 309,096 400,190
Other, including rental vehicles 1,221,031 1,301,291
------------- -------------
Total current assets 109,693,516 135,907,185
Property, plant, and equipment, net 6,294,830 5,870,272
Intangibles, net 614,444 649,444
Other 452,741 581,629
------------- -------------
Total assets $117,055,531 $143,008,530
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - floorplan $ 49,654,249 $ 72,639,826
Notes payable - related parties 20,607,693 24,225,051
Current installments of long-term debt 842,733 196,346
Accounts payable 10,608,637 10,035,576
Accrued expenses 4,912,946 3,055,883
Stockholder distribution payable 1,621,914 4,106,805
Unearned revenue 2,212,655 2,365,639
Income taxes 402,219 --
------------- -------------
Total current liabilities 90,863,046 116,625,126
Long term debt, less current installments 49,812 861,348
Unearned revenue 5,624,321 5,908,120
Other liabilities 722,080 886,329
------------- -------------
97,259,259 124,280,923
Commitments and contingencies
Stockholders' equity
Common stock 2,478,363 2,478,363
Additional paid-in capital 7,726,314 7,705,591
Retained earnings 9,759,777 8,795,308
------------- -------------
19,964,454 18,979,262
Less treasury stock, at cost 168,182 251,655
------------- -------------
Total stockholders' equity 19,796,272 18,727,607
------------- -------------
Total liabilities and stockholders' equity $117,055,531 $143,008,530
============= =============
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-82
<PAGE> 84
COMBINED STATEMENT OF INCOME
DOBBS AUTOMOTIVE GROUP
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1996 (AUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1997 1996 1996
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Vehicles, parts, and services $678,286,967 $637,652,558 $838,935,382
Finance fees, insurance commissions,
and other revenue 16,553,589 17,345,777 22,308,989
------------ ------------ ------------
694,840,556 654,998,335 861,244,371
Cost of sales and expenses
Cost of vehicles, parts, and services sold 614,870,877 576,567,509 758,085,792
Selling, general, and administrative
expenses 60,390,717 59,392,092 78,438,715
Depreciation and amortization 951,552 966,093 1,322,118
Other 949,766 866,963 1,394,685
------------ ------------ ------------
677,162,912 637,792,657 839,241,310
------------ ------------ ------------
Revenues less cost of sales
and expenses 17,677,644 17,205,678 22,003,061
Interest income (expense)
Interest income 2,140,944 2,483,301 3,268,095
Interest expense (2,815,121) (4,376,380) (5,617,971)
------------ ------------ ------------
(674,177) (1,893,079) (2,349,876)
------------ ------------ ------------
Income before income taxes 17,003,467 15,312,599 19,653,185
Income taxes 935,975 687,354 742,829
------------ ------------ ------------
Net income $ 16,067,492 $ 14,625,245 $ 18,910,356
============ ============ ============
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-83
<PAGE> 85
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
DOBBS AUTOMOTIVE GROUP
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1996 (AUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
----------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1996 $ 2,478,363 $ 7,705,591 $ 7,444,817 $(251,655) $ 17,377,116
Net income -- -- 18,910,356 -- 18,910,356
Stockholder distributions -- -- (17,559,865) -- (17,559,865)
----------- ----------- ------------ --------- ------------
Balance at December 31,
1996 2,478,363 7,705,591 8,795,308 (251,655) 18,727,607
Net income -- -- 16,067,492 -- 16,067,492
Stockholder distributions -- -- (15,103,023) -- (15,103,023)
Sale of treasury stock -- 20,723 -- 83,473 104,196
----------- ----------- ------------ --------- ------------
Balance at September 30,
1997 $ 2,478,363 $ 7,726,314 $ 9,759,777 $(168,182) $ 19,796,272
=========== =========== ============ ========= ============
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-84
<PAGE> 86
COMBINED STATEMENT OF CASH FLOWS
DOBBS AUTOMOTIVE GROUP
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1996 (AUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1997 1996 1996
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 16,067,492 $ 14,625,245 $ 18,910,356
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization of
property, plant, and equipment 951,552 966,093 1,322,118
Amortization of intangibles 35,000 35,000 46,667
Loss (gain) on disposal of property,
plant, and equipment (14,080) 3,571 (24,252)
Deferred income taxes 204,716 (31,042) (26,091)
Changes in operating assets and liabilities
Receivables (542,285) (3,450,538) (2,223,693)
Inventories 27,197,466 (1,861,091) (3,159,788)
Other assets 95,526 (83,853) (47,194)
Other liabilities 2,231,311 3,101,842 95,838
------------ ------------ ------------
Net cash provided by operating
activities 46,226,698 13,305,227 14,893,961
Cash flows from investing activities
Proceeds from investments maturing 11,865,761 2,407,514 2,882,619
Purchases of investments (13,751,994) (4,076,726) (5,242,402)
Acquisition of property, plant, and
equipment (1,384,590) (930,605) (972,299)
Proceeds from disposal of property, plant,
and equipment 22,560 36,609 37,428
------------ ------------ ------------
Net cash used for investing
activities (3,248,263) (2,563,208) (3,294,654)
Cash flows from financing activities
Net changes in short-term notes payable (26,602,935) 4,247,264 2,808,774
Reduction of long-term debt (165,149) (152,580) (205,318)
Distributions to stockholders (17,587,914) (14,474,557) (15,895,259)
Proceeds from sale of treasury stock 104,196 -- --
------------ ------------ ------------
Net cash used for financing
activities (44,251,802) (10,379,873) (13,291,803)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (1,273,367) 362,146 (1,692,496)
Cash and cash equivalents at beginning of period 30,669,303 32,361,799 32,361,799
------------ ------------ ------------
Cash and cash equivalents at end of period $ 29,395,936 $ 32,723,945 $ 30,669,303
============ ============ ============
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-85
<PAGE> 87
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of Dobbs Automotive Group
(the Company) reflect the combined operations of American Way Motors, Inc.,
Consumer Car Care Corporation, Covington Pike Motors, Inc., DBL, Inc.,
Dobbs Brothers Buick - Pontiac, Inc., Dobbs Ford, Inc., Dobbs Mobile Bay,
Inc., Dobbs Motors of Arizona, Inc., Government Boulevard Motors, Inc.,
Hoover Toyota, Inc., Northside Nissan, Inc., Orange Park Toyota, Inc.,
Springhill Toyota, Inc., Superior Nissan, Inc., Tennco Life Insurance
Company, West Ashley Toyota, Inc., and West Side Motors, Inc.
The Company operates in one business segment which includes the sale and
service of new and used vehicles; the sale of vehicle parts and extended
vehicle service contracts; and the assumption of credit life and disability
insurance policies. The significant portion of the insurance that is
assumed by the Company relates to policies sold by the Company's
dealerships.
Information on the types, number, and locations of the Company dealerships
as of December 31, 1996 follows: Birmingham, Alabama - Kia (1) and Toyota
(1); Charleston, South Carolina - Nissan (1) and Toyota (1); Charlotte,
North Carolina - Nissan (1); Jacksonville, Florida - Toyota (1); Knoxville,
Tennessee - Honda (1); Memphis, Tennessee - Buick (1), Ford (1), GMC (1),
Honda (2), Lexus (1), Mazda (1), Mitsubishi (1), Pontiac (1), and Suzuki
(1); Mobile, Alabama - Ford (1), Honda (1), Kia (1), Lexus (1), and Toyota
(1); and Tucson, Arizona - Honda (1). See note 12 to the combined financial
statements for additional information on the dealer agreements.
The accompanying combined financial statements include the accounts of the
corporations listed above. All material intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
INVESTMENTS - AVAILABLE-FOR-SALE
Investments classified as available-for-sale are stated at fair value. Fair
values are determined by reference to current market quotations. Unrealized
gains and losses on available-for-sale securities are reported as a
separate component of stockholders' equity until realized. At December 31,
1996, the fair value of investments classified as available-for-sale
approximated the amortized cost.
Continued
F-86
<PAGE> 88
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Gains and losses on sale of available-for-sale securities are determined
using the specific identification method. Amortization of premium and
accretion of discount are reported as adjustments of interest income.
INVENTORIES
Inventories of new vehicles, parts, and accessories are stated at the lower
of cost (last-in, first-out) or market. Used vehicles and incidental other
inventories are stated at the lower of specific cost or market.
DEFERRED ACQUISITION COSTS
Commissions and other costs directly related to the acquisition of extended
vehicle service contracts and credit life and disability insurance policies
are deferred and charged to expense in proportion to the revenue
recognized. Deferred acquisition costs are included in other current and
other noncurrent assets.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation and
amortization are provided using straight-line and accelerated methods over
the estimated useful lives of the assets. Maintenance and repairs are
charged to expense as incurred; major renewals and betterments are
capitalized. When items of property, plant, and equipment are sold or
retired, the related cost and accumulated depreciation and amortization are
removed from the accounts and any gain or loss is included in the
determination of net income. The estimated useful lives of the assets for
depreciation and amortization purposes are:
Land improvements 15 to 39 years
Buildings and improvements 15 to 39 years
Furniture and fixtures 5 to 8 years
Machinery and equipment 5 to 8 years
Leasehold improvements 15 to 39 years
INTANGIBLES
Intangibles of $700,000, relating to excess of cost over net assets
acquired in conjunction with the acquisition of a dealership, are being
amortized over a 15 year period using the straight-line method. Accumulated
amortization on intangibles as of December 31, 1996 was $50,556.
Continued
F-87
<PAGE> 89
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
VEHICLE, PARTS, AND SERVICES REVENUE
Revenues from vehicle and parts sales and from service operations are
recognized at the time the vehicle is delivered to the customer or service
is completed.
UNEARNED INCOME
Unearned income relates to unearned extended vehicle service contracts
issued by the Company and unearned credit life and disability insurance
assumed by the Company. Revenue from the sale of extended vehicle service
contracts is recognized in income over the contract periods using the
straight-line basis. Premiums on insurance assumed by the Company are
reported as income over the contract period in proportion to the amount of
insurance protection provided.
FINANCE FEES AND COMMISSIONS FROM SALE OF EXTENDED VEHICLE SERVICE
CONTRACTS AND INSURANCE
Finance fees represent revenue earned by the Company on finance contracts
placed with financial institutions in connection with customer vehicle
financing. Finance fees are recognized in income upon acceptance of the
credit by the financial institution, net of estimates for future
chargebacks. Commissions on extended vehicle service contracts and on
credit life and disability insurance relate to contracts sold on behalf of
third-party companies. Such commissions are reported in income upon
customer acceptance of the terms as evidenced by execution of the contract,
net of estimates for future chargebacks.
OTHER REVENUE
Other revenue consists primarily of license and title fees, commissions and
income on extended service contracts, and premiums earned on credit life
and disability insurance assumed.
EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution retirement savings plan for
eligible employees. Employer matching contributions are determined at the
discretion of the Company. Participants may elect to contribute to the
plan. Total expense recognized by the Company in 1996 was $193,422.
Continued
F-88
<PAGE> 90
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
INCOME TAXES
Of the entities presented as Dobbs Automotive Group, all have elected S
Corporation status under the provisions of the Internal Revenue code except
for Tennco Life Insurance Company. The S Corporation election provides for
the earnings to be included in the stockholders' income tax returns and
taxed depending on their tax situations. Tennco Life Insurance Company is
subject to federal income tax. The entities are subject to state income
taxes in the states that do not recognize S Corporation status.
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of current and deferred income taxes.
Deferred taxes are recognized for differences between the bases of assets
and liabilities for financial statements and income tax purposes. Deferred
income tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and are included
in selling, general and administrative expenses in the combined statement
of income. Total advertising and promotional expenses were approximately
$6,759,000 in 1996.
MANAGEMENT FEES
The Company incurred management fees of $2,970,000 in 1996 that related to
services provided by a company that was related because of common
ownership.
CASH FLOWS
The Company considers cash on hand, deposits in banks and in cash
management accounts with financing sources, and highly liquid investments
with maturities of three months or less when purchased as cash and cash
equivalents for purposes of the combined statement of cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair value of financial instruments approximates
their recorded values due primarily to the short-term nature of their
maturities.
Continued
F-89
<PAGE> 91
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
2. INVESTMENTS - AVAILABLE-FOR-SALE
Information on the estimated fair value and contractual maturities of
available-for-sale investments at December 31, 1996 follows:
Estimated
Fair Value
----------
Due in one year
or less $6,147,325
Due in one to
five years 2,205,350
----------
$8,352,675
==========
At December 31, 1996, investments - available-for-sale consisted primarily
of U. S. Treasury securities.
Unrealized gains and losses on investments - available-for-sale as of
December 31, 1996 are insignificant. No investments were sold in 1996.
3. RECEIVABLES
Receivables at December 31, 1996 consist of the following:
Contracts in transit and finance fees $ 8,727,481
Trade receivables 7,364,714
Due from manufacturers 3,867,506
-----------
19,959,701
Less allowance for doubtful accounts 133,511
-----------
$19,826,190
===========
Continued
F-90
<PAGE> 92
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Contracts in transit and finance fees relate to amounts due from financial
institutions which provide funding for customer vehicle financing. These
receivables are normally collected in less than 5 days of the sale of the
vehicle. Trade receivables primarily relate to the sale of parts to
commercial customers. Due from manufacturers represents receivables for
parts and service work performed on vehicles pursuant to the automakers'
warranty coverages and amounts due in connection with the purchase of
vehicles (holdbacks) pursuant to dealership agreements.
Outstanding customer installment contracts previously sold to financial
institutions were without recourse.
4. INVENTORIES
The components of inventories as of December 31, 1996 are as follows:
New vehicles $57,831,201
Used vehicles 11,514,794
Parts, accessories, and other 6,011,541
-----------
$75,357,536
===========
If the first-in, first-out method had been used to value the inventories
that were valued using the last-in, first-out method, inventories would
have been approximately $20,500,000 higher at December 31, 1996 and net
income would have been approximately $680,000 higher for 1996.
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1996 consisted of the
following:
Land and land improvements $ 1,201,659
Buildings and improvements 1,155,440
Furniture and fixtures 5,611,452
Machinery and equipment 5,802,981
Leasehold improvements 4,665,862
-----------
18,437,394
Less accumulated depreciation
and amortization 12,567,122
-----------
$ 5,870,272
===========
Continued
F-91
<PAGE> 93
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
6. NOTES PAYABLE - FLOOR PLAN
Notes payable - floor plan consist of borrowings to finance new and certain
used vehicle inventories. The notes bear interest at variable rates and are
collateralized by the related new and used vehicle inventories. Interest on
the notes is payable monthly, and individual notes are paid upon sale of
the respective units. At December 31, 1996, borrowings of $72,639,826 were
outstanding under various financing agreements. The Company has the ability
to borrow up to $100,000,000 under such financing agreements. The weighted
average interest rate on notes payable - floor plan borrowings outstanding
as of December 31, 1996 was approximately 9.2%.
7. NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties are due on demand with interest at a
variable rate (7.3% to 8.3% ) at December 31, 1996. The weighted average
interest rate on notes payable - related party borrowings outstanding as of
December 31, 1996 was approximately 8.1%. Interest expense on notes payable
- related parties for 1996 was approximately $2,170,000.
8. LONG-TERM DEBT
Information on long-term debt as of December 31, 1996 follows:
<TABLE>
<S> <C>
Ford Motor Credit Corporation
Note payable in monthly installments of $17,239, including interest
at the prime rate plus 1%, through May 1998, with a final
principal and interest payment in June 1998; secured by land
and building $ 883,643
Related Parties
Mortgage notes payable in monthly installments of $7,064,
including interest at the prime rate plus .5%, through April
1999; secured by land and building 174,051
----------
1,057,694
Less current installments of long-term debt 196,346
----------
Long-term debt, less current installments $ 861,348
==========
</TABLE>
Continued
F-92
<PAGE> 94
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
The aggregate amount of long-term debt installments for each of the years
following December 31, 1996 is: 1997 - $196,346; 1998 - $831,260; and 1999
- $30,088.
Interest expense on long-term debt to related parties was $19,018 in 1996.
Total cash outlays in 1996 for all types of interest expense were
$5,668,465.
9. STOCKHOLDERS' EQUITY
Information on common stock as of December 31, 1996 follows:
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------------------
Par Value Treasury
Company Per Share Authorized Issued Stock
---------------------------------- ------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
American Way Motors, Inc. No par 2,000.00 1,000.00 --
Consumer Car Care Corporation No par 2,000.00 538.39 --
Covington Pike Motors, Inc. $ 100.00 5,000.00 217.78 --
DBL, Inc. 1.00 2,000.00 1,000.00 --
Dobbs Brothers Buick-Pontiac, Inc. No par 2,000.00 2,000.00 --
Dobbs Ford, Inc. 10.00 3,000.00 2,268.85 --
Dobbs Mobile Bay, Inc. 1.00 100,000.00 11,111.00 --
Dobbs Motors of Arizona, Inc. No par 2,000.00 1,059.00 --
Government Boulevard Motors, Inc. No par 20,000.00 10,000.00 --
Hoover Toyota, Inc. 100.00 500.00 375.00 37.50
Northside Nissan, Inc. No par 1,000.00 949.50 95.00
Orange Park Toyota, Inc. 100.00 1,000.00 888.88 --
Springhill Toyota, Inc. 100.00 500.00 375.00 --
Superior Nissan, Inc. No par 2,000.00 412.50 --
Tennco Life Insurance Company 1.00 5,000,000.00 100,000.00 --
West Ashley Toyota, Inc. No par 1,000.00 1,000.00 --
West Side Motors, Inc. No par 1,000.00 571.57 --
</TABLE>
Continued
F-93
<PAGE> 95
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
10. INCOME TAXES
Components of income taxes for 1996 follows:
Federal - current $ 109,328
State
Current 659,592
Deferred (26,091)
----------
$ 742,829
==========
At December 31, 1996, there were no deferred income tax liabilities. The
deferred income tax assets principally relate to extended vehicle service
contracts, inventories, and revenue and cost recognition on insurance
operations.
Deferred income tax assets are presented as other assets in the
accompanying balance sheet as follows:
Current deferred income tax asset $ 173,393
Noncurrent deferred income tax asset 400,177
----------
Deferred income tax asset $ 573,570
==========
Cash outlays for income taxes were $1,037,304 in 1996.
11. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents, receivables, and investments. The Company invests a
substantial portion of its excess cash in cash management accounts with
financing sources and, to a lesser extent, with financial institutions with
strong credit ratings and in investment securities. Cash investments with
financing sources can be withdrawn at any time. At December 31, 1996, cash
on deposit with financial institutions and financing sources exceeds
insurance limits of U.S. government agencies by approximately $29,300,000.
Continued
F-94
<PAGE> 96
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
12. MAJOR DEALER AGREEMENTS AND SUPPLIERS
The Company owns and operates the following types and number of franchised
dealerships as of December 31, 1996 under dealer agreements with the
following vehicle manufacturers that supply new vehicles and parts to its
dealerships: Buick (1), Ford (2), GMC (1), Honda (5), Kia (2), Lexus (2),
Mazda (1), Mitsubishi (1), Nissan (2), Pontiac (1), Suzuki (1), and Toyota
(4).
The Company's overall sales could be impacted by the manufacturers' ability
or unwillingness to supply the dealership with an adequate supply of
popular models. The Company's existing dealer agreements with Ford and
Nissan have no stated expiration dates and the other dealer agreements,
except for Kia and Suzuki dealer agreements which were terminated in early
1997, expire at various times through February 2003. Management currently
believes that all remaining dealer agreements, upon expiration, will be
renewed.
The dealer agreements generally limit locations of dealerships and retain
manufacturer approval rights over changes in dealership management. Each
manufacturer also is entitled to terminate the dealer agreement if the
dealership is in material breach of the terms.
The Company's ability to expand operations depends, in part, on obtaining
the consent of the manufacturers to the acquisition or establishment of
additional dealerships.
13. LEASES
The Company leases land, buildings, and certain equipment from related
parties and from other parties. The aggregate minimum rental commitments
for noncancelable operating leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Leases With
Leases With Related
Others Parties Total
----------- ----------- -----------
<S> <C> <C> <C>
1997 $ 696,111 $ 3,040,842 $ 3,736,953
1998 691,778 2,605,392 3,297,170
1999 657,037 1,948,676 2,605,713
2000 666,154 1,843,180 2,509,334
2001 649,657 927,468 1,577,125
Thereafter 2,291,209 1,730,312 4,021,521
----------- ----------- -----------
$ 5,651,946 $12,095,870 $17,747,816
=========== =========== ===========
</TABLE>
Continued
F-95
<PAGE> 97
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Rent expense for 1996 was approximately $4,170,000, including approximately
$3,325,000 of related party rent expense.
14. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal actions arising in the ordinary
course of its business. The liability, if any, associated with these
matters was not determinable at December 31, 1996. While it is not feasible
to determine the outcome of these actions, the Company's information,
including discussions with legal counsel, at this time does not indicate
that these matters will have a material adverse effect upon the Company's
financial condition, results of operations, or cash flows.
The Company is also subject to federal and state environmental regulations,
including rules relating to air and water pollution and the storage and
disposal of gasoline, oil, other chemicals, and waste. Local, state, and
federal regulations also affect automobile dealerships' advertising, sales,
service and financing activities. The Company believes that it complies
with all applicable laws relating to its business.
In general, the Company is required to pay for all vehicles purchased from
the manufacturers upon shipment of the vehicle at which time a credit line
draw is made. The Company has credit lines available from various financing
sources to fund vehicle purchases.
Certain related parties advance funds to the Company primarily for the
purpose of investing excess cash. The Company places a significant portion
of such funds in cash management accounts with the financing sources.
Aggregate amounts outstanding at December 31, 1996 of $24,225,051 are
presented as notes payable to related parties in the accompanying combined
balance sheet.
15. INSURANCE OPERATIONS
Under reinsurance agreements with an unrelated insurance company (the
ceding enterprise), the Company assumes certain life and disability
insurance policies. The significant portion of the insurance that is
assumed by the Company relates to policies sold by the Company's
dealerships. The life insurance policies are assumed by the Company when
written and, as of December 31, 1996, the accompanying combined balance
sheet includes unearned life insurance premiums of approximately
$1,980,000. The unearned premiums less future policy claims and deferred
acquisition costs will be reported in the Company's combined statements of
income during future periods. The disability insurance policies are assumed
by the Company when the premiums are earned. As of December 31, 1996, there
were approximately $2,880,000 of unearned disability insurance premiums
that will be assumed by the Company when earned. These unearned disability
insurance premiums less future policy claims and acquisition costs will be
reported in the Company's combined statements of income when assumed by the
Company during future periods.
Continued
F-96
<PAGE> 98
NOTES TO COMBINED FINANCIAL STATEMENTS
DOBBS AUTOMOTIVE GROUP
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Generally accepted accounting principles differ in respects from accounting
practices permitted by insurance regulatory authorities. The differences
between these bases of accounting as they relate to Tennco Life Insurance
Company are not significant to the Company's combined financial position or
combined results of operations. The maximum amount of dividends that can be
paid by Tennco Life Insurance Company without prior approval of the
regulatory authority of the domiciliary state is subject to restrictions
relating to statutory capital and surplus. Statutory capital and surplus at
December 31, 1996 was $4,490,597 and the maximum dividend that could be
made without the prior approval of the regulatory authority was $449,060.
16. SUBSEQUENT EVENT
In July 1997, an unrelated third party agreed to purchase the entities
presented in these financial statements as Dobbs Automotive Group. As of
September 30, 1997, the vehicle manufacturers and the insurance regulatory
authority have not approved this purchase, and there can be no assurance as
to whether approval can be obtained. The impact of not receiving the
approval cannot be determined.
17. UNAUDITED INTERIM COMBINED FINANCIAL INFORMATION
The interim combined financial information as of September 30, 1997 and
1996 and for the nine months then ended is unaudited. The information
reflects all adjustments consisting only of normal recurring adjustments
that, in the opinion of management, are necessary to present fairly the
combined financial position and results of combined operations of Dobbs
Automotive Group for the periods indicated. Results of combined operations
for the interim periods are not necessarily indicative of the results of
combined operations for the full year.
F-97
<PAGE> 99
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Owners of
Abraham Automotive Group:
We have audited the accompanying combined balance sheet of Abraham Automotive
Group (the "Companies", as identified in Note 1) as of December 31, 1996, and
the related combined statements of operations and changes in owners' equity and
cash flows for the year then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Abraham
Automotive Group as of December 31, 1996, and the combined results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Fort Lauderdale, Florida,
December 26, 1997.
F-98
<PAGE> 100
ABRAHAM AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,885 $ 5,761
Accounts receivable, net 6,570 8,810
Inventories 25,580 26,169
Prepaids and other current assets 109 261
------- -------
Total current assets 39,144 41,001
PROPERTY AND EQUIPMENT, NET 12,777 12,332
INVESTMENTS 612 615
OTHER ASSETS 872 831
------- -------
Total assets $53,405 $54,779
======= =======
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $16,737 $14,421
Accounts payable and accrued liabilities 5,845 7,727
Amounts due to related parties 2,243 2,755
Unearned warranty premiums 2,524 2,541
Deferred income tax liability 2,843 3,276
------- -------
Total current liabilities 30,192 30,720
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY 23,213 24,059
------- -------
Total liabilities and owners' equity $53,405 $54,779
======= =======
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-99
<PAGE> 101
ABRAHAM AUTOMOTIVE GROUP
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ --------------------------
1996 1996 1997
------------ --------- ---------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Sales $226,915 $176,172 $166,330
Other operating revenues 3,173 2,487 2,976
--------- --------- ---------
Total revenues 230,088 178,659 169,306
COST OF SALES 196,596 152,330 144,854
--------- --------- ---------
Gross profit 33,492 26,329 24,452
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 27,024 19,857 18,521
--------- --------- ---------
Income from operations 6,468 6,472 5,931
OTHER INCOME (EXPENSE):
Interest expense to related parties (143) (102) (141)
Interest income 452 342 521
--------- --------- ---------
Income before income taxes 6,777 6,712 6,311
PROVISION FOR INCOME TAXES (782) (593) (433)
--------- --------- ---------
NET INCOME 5,995 6,119 5,878
DISTRIBUTIONS TO OWNERS (5,166) (4,685) (5,032)
OWNERS' EQUITY, beginning of period 22,384 22,384 23,213
--------- --------- ---------
OWNERS' EQUITY, end of period $ 23,213 $ 23,818 $ 24,059
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-100
<PAGE> 102
ABRAHAM AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------ -------------------------------
1996 1996 1997
------- ------- -------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,995 $ 6,119 $ 5,878
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,006 755 669
Recognition of unearned warranty premiums (1,780) (1,315) (1,281)
Changes in operating assets and liabilities:
Accounts receivable, net 434 (3,651) (2,240)
Inventories 6,814 9,634 (589)
Prepaids and other current assets (31) (81) (152)
Other assets (6) 6 5
Floor plan notes payable (6,335) (9,788) (2,316)
Accounts payable and accrued liabilities (833) 2,848 1,882
Unearned warranty premiums 1,894 1,407 1,298
Deferred income taxes 782 593 433
------- ------- -------
Net cash provided by operating
activities 7,940 6,527 3,587
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (612) (542) (222)
Increase in investments (7) (10) (3)
Collections on notes receivable 47 35 36
------- ------- -------
Net cash used in investing activities (572) (517) (189)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amounts due to related parties (200) (54) 510
Distributions to owners (5,166) (4,685) (5,032)
------- ------- -------
Net cash used in financing activities (5,366) (4,739) (4,522)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,002 1,271 (1,124)
CASH AND CASH EQUIVALENTS, beginning of period 4,883 4,883 6,885
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $ 6,885 $ 6,154 $ 5,761
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,796 $ 2,097 $ 1,864
======= ======= =======
Cash paid for income taxes $ -- $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-101
<PAGE> 103
ABRAHAM AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(UNAUDITED WITH RESPECT TO THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The Abraham Automotive Group (the "Companies") is engaged in the retail and
commercial sale of new and used motor vehicles, finance, insurance and extended
warranty products, vehicle service and parts, after-market products and in
selling third-party financing contracts on new and used vehicle sales originated
by dealerships within the group. The Companies operate in Tampa and Miami,
Florida.
The accompanying combined financial statements include the accounts of the
following entities:
Anthony Abraham Chevrolet Company, Ltd., a Florida limited partnership
("Miami")
Abraham Chevrolet Company, Ltd., a Florida limited partnership ("Tampa")
A & R Insurance Enterprises, Inc., a Florida corporation ("A&R"), and
subsidiary
The accompanying combined financial statements have been presented on a combined
basis due to the related operations, common ownership and common management
control of the Companies. All significant intercompany balances and transactions
have been eliminated in combination.
The Companies purchase substantially all of their new vehicles from the
Chevrolet Motor Division of General Motors Corporation (the "Manufacturer" or
"General Motors") at the prevailing prices charged by the Manufacturer to all
franchised dealers. The Companies' sales volume could be adversely impacted by
the Manufacturer's inability to provide an adequate supply of popular models or
as result of an unfavorable allocation of vehicles by the Manufacturer.
The Companies operate under franchise agreements with the Manufacturer. In
accordance with the franchise agreements, the Companies are subject to certain
rights and restrictions typical of the industry, including limitations on
changes in dealership management, ownership and minimum net worth requirements.
The ability of the Manufacturer to influence the Companies' operations or the
loss of a franchise agreement could have a negative impact on the operating
results and financial position of the Companies.
In the opinion of management, the accompanying unaudited combined financial
statements contain all material adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the combined financial position of the
Companies as of September 30, 1997, and the combined results of operations and
cash flows for the nine months ended September 30, 1997 and 1996. Operating
results for these interim periods are not necessarily indicative of the results
that can be expected for a full year.
F-102
<PAGE> 104
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments that have an
original maturity of three months or less at the date of purchase.
INVENTORIES
New and used vehicle inventories and parts inventories are stated at the lower
of cost or market, determined using the last-in, first-out (LIFO) method (see
Note 4). The Companies capitalize the direct cost of acquiring new and used
vehicles and parts as inventory.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their estimated
useful lives, using the straight-line method. Useful lives for purposes of
computing depreciation are:
<TABLE>
<S> <C>
Buildings and improvements 5 to 28 years
Furniture and fixtures 5 to 10 years
Machinery and equipment 5 to 10 years
Service vehicles 3 years
</TABLE>
The cost of assets sold or retired and the related accumulated depreciation are
removed from the accounts at the time of disposition, and any resulting gain or
loss is included in the combined statement of operations. Maintenance, repairs
and minor replacements are charged to operations as incurred; major replacements
and improvements are capitalized and amortized over the remaining useful lives
of the assets.
INVESTMENTS
Investments are carried at cost, which approximates market value, and consist of
bank certificates of deposit, other deposits and municipal bonds, which earn
interest at fixed rates ranging between 4.35% and 5.52%.
ACCRUED ENVIRONMENTAL COSTS
The Companies' vehicle sales and service operations involve the storage,
dispensing and disposal of petroleum products, primarily gasoline and waste oil.
The Companies record as expense, on a current basis, costs associated with
remediation of environmental pollution. The Companies also accrue for their
proportionate share of costs associated with the remediation of environmental
pollution when it becomes probable that a liability has been incurred and the
F-103
<PAGE> 105
amount can be reasonably estimated. Estimated costs include anticipated site
testing, consulting, remediation, disposal, post-remediation monitoring and
legal fees, as appropriate. The liability does not reflect possible recoveries
from insurance companies or reimbursement of remediation costs.
The Companies periodically reassess their method and assumptions used to
estimate such accruals for environmental costs and adjust such accruals
accordingly. Factors considered are changing regulatory requirements, the
effects of inflation, changes in operating climates in the regions in which the
Companies' facilities are located and the expectations regarding costs of
securing environmental services.
REVENUE RECOGNITION, SALES
Sales include revenues from new and used vehicles and from parts and services
sales. Revenues from the sale of new and used vehicles are generally recognized
at the time the vehicle is delivered to the customer and the payment or deposit
has been received. Revenues from the sale of parts and services are recognized
at the time the parts are delivered to the customer or when service is
completed.
REVENUE RECOGNITION, OTHER OPERATING REVENUES
Other operating revenues includes finance, insurance, extended warranty, service
contract income, and processing fees. Finance income represents amounts earned
by the Companies for arranging vehicle financing with financial institutions on
behalf of customers. Finance income, net of estimates for future chargebacks, is
recognized by the Companies upon acceptance of the note by a financial
institution. Insurance income represents commissions earned on credit life and
accident and disability insurance sold by the Companies as agents for insurance
carriers. Insurance commissions, net of estimates for future chargebacks, are
recognized as income upon customer acceptance of the insurance terms as
evidenced by contract execution. A&R, through its wholly-owned subsidiary World
Wide Warranty Co., sells and underwrites extended warranty contracts. Premiums
received for extended warranty contracts sold by A&R are accounted for as
unearned warranty premiums and recognized as income ratably over the lives of
the contracts, which range from one to four years. Costs of servicing warranty
claims are expensed as incurred. Service contract income represents commissions
earned on extended warranty service contracts sold by the Companies as agents
for extended warranty service companies. Commissions earned, net of estimates of
future chargebacks, are recognized upon customer acceptance of the service
contract terms as evidenced by contract execution.
The agreements between the Companies and the financial institutions, insurance
companies and extended warranty service companies provide that the Companies
will receive a chargeback equal to a pro rata portion of the finance income,
insurance commission or extended warranty service contract commission paid to
the Companies in the event the customer prepays or defaults on the financing
prior to its scheduled maturity, or cancels an insurance or extended warranty
service contract. Generally, the terms of the agreements between the Companies
and the financial institutions, insurance companies and extended warranty
service companies are gross arrangements, whereby the Companies are liable for
chargebacks for the life of the related loan or contract.
The Companies record an estimated allowance for these chargebacks which is based
upon historical experience for prepayments, defaults and cancellations. Finance
income and commissions on insurance and extended warranty service contracts, net
of estimates for future chargebacks, are classified as other operating revenues
in the combined financial statements.
F-104
<PAGE> 106
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and are included in
selling, general and administrative expenses in the combined financial
statements. Total advertising and promotional costs were approximately $2,582
for the year ended December 31, 1996. The Companies did not capitalize any
advertising and promotional costs for the year ended December 31, 1996.
INCOME TAXES
Miami and Tampa are limited partnerships, which pass income and losses through
directly to their partners for income tax purposes. No provision for income
taxes has been recorded in the accompanying combined financial statements
relating to Miami and Tampa. A&R has elected to be taxed as a corporation under
the U.S. Internal Revenue Code.
The Companies follow Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", which requires, among other things, recognition
of future tax benefits and liabilities measured at enacted rates attributable to
deductible temporary differences between financial statement and income tax
bases of assets and liabilities. Net operating loss carryforwards are recognized
to the extent that realization of said benefits is "more likely than not." A&R
is in a net operating loss position for tax reporting purposes but has positive
retained earnings for financial reporting purposes due to certain temporary
differences between the financial statement and income tax bases of its assets
and liabilities. The income taxes that will become payable when the above
temporary differences are reversed in future periods have been recorded as a
deferred tax liability in the combined financial statements. The change in this
liability, measured at enacted tax rates, is shown as a deferred income tax
provision in the combined statement of operations.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Companies to concentrations
of credit risk consist principally of cash and cash equivalents, contracts in
transit and accounts receivable. The Companies invest a substantial portion of
their excess cash with financial institutions, which is periodically in excess
of FDIC-guaranteed limits, and also invest in a Cash Management Account ("CMA")
with General Motors Acceptance Corporation ("GMAC") (see Note 7), which is not
insured. The Companies have not incurred losses related to these financial
instruments in the past.
F-105
<PAGE> 107
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies' financial instruments primarily consist of cash and cash
equivalents, floor plan notes payable, long-term debt, and amounts due to
related parties. The carrying amount of these financial instruments approximates
fair value due either to their length of maturity or existence of variable
interest rates that approximate prevailing market rates.
OWNERS' EQUITY
The affiliates in the Companies consist of two limited partnerships and one
corporation. For purposes of these combined financial statements, the owners'
equity activity of the individual affiliates has been aggregated to present
combined totals of activity and balances of the Companies (see Note 10).
INTEREST EXPENSE AND INTEREST INCOME
Interest expense on floor plan notes payable, net of manufacturer interest
assistance and interest earned on the Companies' investments in the CMA with
GMAC, is reflected as a component of cost of sales in the combined financial
statements (see Note 7).
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the net change in floor plan
financing of inventory, which is a customary financing technique in the
industry, is reflected as an operating activity in the combined statement of
cash flows.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March 1995.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Companies adopted SFAS No. 121 on January 1, 1996, and such
implementation did not have a material effect on the Companies' combined results
of operations, financial position or cash flows.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-106
<PAGE> 108
3. ACCOUNTS RECEIVABLE:
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------
<S> <C>
Contracts in transit $2,005
Manufacturer 173
Other 4,665
------
6,843
Less- Allowance for doubtful accounts (273)
------
$6,570
======
</TABLE>
Contracts in transit represent receivables from financial institutions that
provide funding for customer vehicle financing. These receivables are generally
collected within 30 days from the date of vehicle sale. Amounts due from
manufacturers represent receivables for parts and service work performed
pursuant to manufacturer warranty coverage and manufacturer holdbacks and
incentives; such amounts are remitted to the Companies on a regular basis. Other
receivables include receivables for the sale of parts and services and finance
fees receivable from financial institutions.
4. INVENTORIES:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------
<S> <C>
New vehicles $15,442
Used vehicles 4,923
Parts and other 5,215
-------
$25,580
=======
</TABLE>
For the year ended December 31, 1996, the effect of using the LIFO method as
compared to the first-in, first-out method was a decrease in net income by $454.
If the first-in, first-out (FIFO) method of inventory accounting had been used
by the Companies, inventories, net working capital and owners' equity would have
been higher than reported by $7,629 as of December 31, 1996.
F-107
<PAGE> 109
5. PROPERTY AND EQUIPMENT:
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Land $ 8,155
Buildings and improvements 5,221
Furniture and fixtures 1,087
Machinery and equipment 3,414
Service vehicles 962
-------
18,839
Less- Accumulated depreciation and amortization (6,062)
-------
$12,777
=======
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Accounts payable $ 3,488
Accrual for finance, insurance and
service contract chargebacks
1,868
Payroll and related accruals 450
Sales taxes 39
------
$5,845
======
</TABLE>
7. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflect amounts for the purchase of specific new and
certain used vehicle inventory, are payable to GMAC and bear interest at the
prime rate (8.5 percent as of December 31, 1996) plus 1 percent, before GMAC
assistance. The aggregate approved credit lines covered up to 1,500 new vehicles
and 200 used vehicles as of December 31, 1996. Payments on the floor plan notes
payable are due when the related vehicles are sold. The floor plan notes payable
are secured by the vehicle inventories of the Companies and are cross
collateralized with and contain cross default provisions to all current and
future loans of all dealerships.
The Companies have invested funds in a CMA with GMAC. All funds invested in the
CMA are redeemable by the Companies upon demand and accrue interest at a rate
equivalent to its floor plan rate. Funds invested in the CMA serve as collateral
for the Companies' floor plan notes payable with GMAC who has a legal right of
offset between the floor plan notes payable and
F-108
<PAGE> 110
the CMA balance. The floor plan notes payable amount of $16,737 in the combined
balance sheet is shown net of CMA balances totaling $1,850 as of December 31,
1996. Periodically, the Companies' invest funds on behalf of their partners/
shareholders, which is evidenced by the issuance of a note payable of a like
amount (see Note 11).
Interest under the floor plan notes payable is payable on a monthly basis.
Interest incurred on floor plan notes payable totaled approximately $1,795 for
the year ended December 31, 1996 before manufacturer interest assistance.
Manufacturer interest assistance totaled approximately $1,302 for the year ended
December 31, 1996. All interest income and expense amounts relating to the
Companies' floor plan notes payable and CMA balances, along with manufacturer's
assistance and other interest incentives, have been recorded as a component of
cost of sales in the combined financial statements.
8. INCOME TAXES:
Miami and Tampa file separate federal partnership income tax returns. A&R files
separate federal and state corporate income tax returns. For purposes of these
combined financial statements, pro forma federal and state income taxes have not
been reflected as if Miami and Tampa had filed corporate income tax returns (and
thus been subject to income taxes at the corporate level) for any of the
periods.
The components of the provision for income taxes included in the accompanying
combined statements of operations and changes in owners' equity for the year
ended December 31, 1996 consist entirely of deferred federal and state income
taxes with respect to A&R. The effective income tax rate for the year ended
December 31, 1996 closely approximates the statutory federal income tax rate
applied to A&R's standalone earnings. Components of the net deferred income tax
liability included in the accompanying combined balance sheet as of December 31,
1996 consist of the following:
<TABLE>
<CAPTION>
Liability
(Asset)
---------
<S> <C>
Unearned warranty premiums $3,091
Net operating losses (248)
------
$2,843
======
</TABLE>
At December 31, 1996, A&R had available federal and state net operating loss
carryforwards of approximately $659 which begin to expire in the year 2009. A
valuation allowance has not been provided with respect to the resultant deferred
income tax asset.
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Companies lease certain equipment and other property under noncancellable
operating leases. Rent expense was approximately $114 for the year ended
December 31, 1996, which included $47 paid to a related party. The future
minimum commitments under operating lease obligations are as follows:
F-109
<PAGE> 111
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997 (includes $66 payable to a related party) $ 102
1998 40
1999 40
2000 40
2001 and thereafter 2,736
------
$2,958
======
</TABLE>
PLEDGED INVESTMENTS
Included in investments in the accompanying combined balance sheet as of
December 31, 1996 are certificates of deposit and other cash deposits carried at
$322 which are pledged to various state agencies to secure the Companies'
obligations under extended service warranty contracts and for the self-insured
portion of workers compensation claims.
SELF-INSURED WORKERS COMPENSATION
The Companies are self-insured for employee benefits under the Companies'
workers compensation plan. The Companies maintain stop loss coverage for
individual claims in excess of $250 and for annual group claims which exceed
approximately $1,000 in the aggregate. While the ultimate amount of claims
incurred are dependent on future developments, in management's opinion, recorded
reserves of approximately $410 (which are included in accounts payable and
accrued liabilities in the accompanying combined balance sheet as of December
31, 1996) are adequate to cover the future payment of claims. However, it is
reasonably possible that recorded reserves may not be adequate to cover the
future payment of claims. Adjustments, if any, to estimates recorded resulting
from ultimate claim payments will be reflected in operations in the periods in
which such adjustments are known.
F-110
<PAGE> 112
10. OWNERS' EQUITY:
Owners' equity is comprised of the following as of December 31, 1996:
<TABLE>
<CAPTION>
COMMON STOCK PARTNERS'
AND CAPITAL/
PAID-IN RETAINED TOTAL OWNERS'
CAPITAL EARNINGS EQUITY
------------ ---------- -------------
<S> <C> <C> <C>
Miami $ - $12,359 $12,359
Tampa - 10,007 10,007
A & R 336 1,520 1,856
Eliminations - (1,009) (1,009)
----- ------- -------
$ 336 $22,877 $23,213
===== ======= =======
</TABLE>
The common stock of A&R has a $1 per share par value. There are 7,500 shares
authorized, issued and outstanding as of December 31, 1996.
11. RELATED-PARTY TRANSACTIONS:
The Companies periodically invest funds in the CMA with GMAC on behalf of the
owners and parties related to the owners. Approximately $9,488 was invested in
the CMA on behalf of the related parties as of December 31, 1996. Notes payable
of a like amount were issued and outstanding as of December 31, 1996. These
amounts due to related parties generally bear interest at the Companies' floor
plan rate (which is equivalent to the rate paid by GMAC on funds invested in the
CMA) and are due on demand. The funds invested in the CMA on behalf of these
related parties have been offset against the notes payable thereto in the
accompanying combined balance sheet as of December 31, 1996. Interest earned by
the Companies on funds invested in the CMA on behalf of these related parties of
approximately $858 for the year ended December 31, 1996, has been offset against
the same amount of interest expense on the notes payable to related parties.
Included in other assets in the accompanying combined balance sheet as of
December 31, 1996 are notes receivable from related parties with an aggregate
principal balance of $718, maturing between 2005 and 2025. The notes bear
interest at approximately 7% and are repayable in monthly principal installments
of approximately $4. Included in interest income in the accompanying combined
statements of operations and changes in owners' equity for the year ended
December 31, 1996 is interest earned of $54 on these notes.
Amounts due to related parties as of December 31, 1996 bear interest at 8% and
are due upon demand. Interest expense on these amounts is reflected as interest
expense to related parties in the accompanying combined statements of operations
and changes in owners' equity for the year ended December 31, 1996.
F-111
<PAGE> 113
12. LITIGATION:
Certain claims and suits have been filed or are pending against the Companies.
In management's opinion, resolution of these matters will not have a material
impact on the Companies' combined financial position, results of operations or
cash flows and adequate provision for any potential losses has been made in the
accompanying combined financial statements.
13. SUBSEQUENT EVENTS:
On October 31, 1997, the owners of the Companies entered into a definitive
agreement to sell substantially all of Miami and Tampa's net assets, and all
outstanding shares of A&R to Republic Industries, Inc. Consummation of the
transaction is subject to obtaining manufacturer approval and other customary
closing conditions.
F-112
<PAGE> 114
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of
Champion Automotive Group:
We have audited the accompanying combined balance sheet of Champion Automotive
Group as of October 31, 1997, and the related combined statements of operations,
changes in owners' equity and cash flows for the ten months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Champion
Automotive Group as of October 31, 1997, and the results of its operations and
its cash flows for the ten months then ended in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
January 9, 1998
F-113
<PAGE> 115
CHAMPION AUTOMOTIVE GROUP
-------------------------
COMBINED BALANCE SHEET--OCTOBER 31, 1997
----------------------------------------
(In Thousands)
ASSETS
------
AUTO DEALERSHIPS:
Cash and cash equivalents $ 7,599
Accounts receivable, net 12,055
Inventories 52,125
Prepaids and other current assets 87
Deferred income taxes 907
---------
Total current assets 72,773
Property and equipment, net 8,979
Other assets, net 1,181
---------
Total auto dealerships assets 82,933
---------
AUTO FINANCE:
Cash and cash equivalents 35
Vehicle notes receivable, net 7,414
Amounts due from related parties 350
Other assets 47
---------
Total auto finance assets 7,846
---------
Total assets $ 90,779
=========
LIABILITIES AND OWNERS' EQUITY
------------------------------
AUTO DEALERSHIPS:
Floor plan notes payable $ 55,881
Notes payable 4,737
Amounts due to related parties 2,153
Accounts payable and accrued liabilities 9,773
---------
Total current liabilities 72,544
Deferred income taxes 2,598
---------
Total auto dealerships liabilities 75,142
---------
AUTO FINANCE:
Notes payable 4,700
Amounts due to related parties 1,226
Accounts payable and accrued liabilities 491
---------
Total auto finance liabilities 6,417
---------
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY 9,220
---------
Total liabilities and owners' equity $ 90,779
=========
The accompanying notes are an integral part of this combined
financial statement.
F-114
<PAGE> 116
CHAMPION AUTOMOTIVE GROUP
-------------------------
COMBINED STATEMENT OF OPERATIONS
--------------------------------
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
-----------------------------------------
(In Thousands)
AUTO DEALERSHIPS:
Sales $ 283,672
Other operating revenue 15,058
----------
Total auto dealerships revenue 298,730
Cost of sales 273,181
----------
Gross profit 25,549
Selling, general and administrative expenses 17,739
----------
Income from operations, auto dealerships 7,810
Other (income) expense-
Interest expense, net 168
Other income, net (226)
----------
Income before income taxes, auto dealerships 7,868
----------
AUTO FINANCE:
Interest income 1,025
Interest expense (287)
General and administrative expenses (325)
Provision for credit losses (681)
----------
Loss before income taxes, auto finance (268)
----------
INCOME BEFORE INCOME TAXES, Champion Automotive Group 7,600
PROVISION FOR INCOME TAXES 3,074
----------
NET INCOME $ 4,526
==========
The accompanying notes are an integral part of this combined
financial statement.
F-115
<PAGE> 117
CHAMPION PLANNING, INC.
-----------------------
COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY
-----------------------------------------------
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
-----------------------------------------
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Net Liabilities
------------------ Paid-in Retained Assumed From
Shares Amount Capital Earnings Partnership Total
------ ------ ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 (unaudited):
Champion Planning, Inc. 5,000 $ 5 $ 1,642 $ 3,605 $ - $ 5,252
Gracely Family Partnership - - - - 2,669 2,669
Net income (loss) - - - 5,040 (514) 4,526
Distributions - - - - (3,227) (3,227)
------ ------- ------- -------- ------- ---------
BALANCE, October 31, 1997 5,000 $ 5 $ 1,642 $ 8,645 $(1,072) $ 9,220
====== ======= ======= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of this combined
financial statement.
F-116
<PAGE> 118
CHAMPION AUTOMOTIVE GROUP
-------------------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
-----------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,526
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 1,169
Provision for doubtful accounts and credit losses 241
Provision for deferred income taxes 137
Change in assets and liabilities-
Accounts and vehicle notes receivable (6,474)
Inventories (7,366)
Prepaids and other current assets (74)
Other assets 147
Floor plan notes payable 7,966
Accounts payable and accrued liabilities 3,703
--------
Net cash provided by operating activities 3,975
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,011)
--------
Net cash used in investing activities (1,011)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes payable (2,448)
Borrowings on notes payable 4,700
Net payments of amounts due to related parties (2,351)
Distributions to owners (3,227)
--------
Net cash used in financing activities (3,326)
--------
NET DECREASE IN CASH AND CASH EQUIVALENTS (362)
CASH AND CASH EQUIVALENTS, beginning of period 7,996
--------
CASH AND CASH EQUIVALENTS, end of period $ 7,634
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,869
========
Cash paid for income taxes $ 496
========
</TABLE>
The accompanying notes are an integral part of this combined
financial statement.
F-117
<PAGE> 119
CHAMPION AUTOMOTIVE GROUP
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
1. BUSINESS, ORGANIZATION
AND BASIS OF PRESENTATION:
Champion Automotive Group (collectively, the Company) is engaged in the retail
and commercial sale of new and used motor vehicles, vehicle rental, finance and
insurance products, vehicle service and parts, after-market products and in the
sale of third-party financing contracts on used vehicle sales originated by its
subsidiary dealerships. The Company operates primarily in the Houston, Texas,
area.
The accompanying combined financial statements include the accounts of (a)
Champion Planning, Inc., and its wholly owned subsidiaries consisting of Texan
Ford, Inc. (a Texas corporation), Texan Lincoln-Mercury, Inc. (a Delaware
corporation), Champion Ford, Inc. (a Texas corporation), Financial Services,
Inc. (a Texas corporation), and (b) certain assets and related liabilities owned
by the Gracely Family Partnership, Ltd. (the Partnership), utilized in the
operation of the auto dealership businesses. The financial statements have been
presented on a combined basis due to their related operations, common ownership
and common management control. All significant intercompany balances and
transactions have been eliminated in combination.
Assets and liabilities of the auto dealerships are classified as current and
noncurrent, and those relating to auto finance are unclassified.
The Company purchases substantially all of its new vehicles from Ford Motor
Company and American Isuzu Motor, Inc., at the prevailing prices charged by the
manufacturer to all franchised dealers. The Company's sales volume could be
adversely impacted by the manufacturers' inability to supply the dealership with
an adequate supply of popular models or as result of an unfavorable allocation
of vehicles by the manufacturer.
The Company operates dealerships which hold franchise agreements with Ford Motor
Company and American Isuzu Motor, Inc. In accordance with the individual
franchise agreements, the Company is subject to certain rights and restrictions
typical of the industry, including limitations on changes in dealership
management and ownership and minimum net worth requirements. The ability of the
manufacturers to influence the operations of the Company or the loss of a
franchise agreement could have a negative impact on the operating results and
financial position of the Company.
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments that have an
original maturity of three months or less at the date of purchase. The Company
has invested funds in a cash management account (CMA) with the Company's floor
plan lender, Ford Motor Credit Corporation (FMCC). All funds invested in the CMA
are redeemable by the Company upon demand and accrue interest at a rate
equivalent to the Company's floor plan rate. The amount of such funds totaled
approximately $3,700,000 as of October 31, 1997, of which $1,766,000 was payable
to the principal owner of the Company.
F-118
<PAGE> 120
VEHICLE NOTES RECEIVABLE, NET AUTO FINANCE
The Company originates installment sales contracts from used vehicles from
individuals who purchase used vehicles from dealerships in the Champion
Automotive Group. Vehicle notes receivable consist of contractually scheduled
payments from installment sales contracts, accrued interest receivable and an
allowance for credit losses. An allowance for credit losses (allowance) is
established by charging the operations for anticipated credit losses. The
evaluation of the allowance considers such factors as the Company's historical
credit losses, the overall portfolio quality and delinquency rates, a review of
specific problem loans, the underlying collateral and current economic
conditions that may affect the borrower's ability to pay.
INVENTORIES
New and used vehicle inventories are stated at the lower of cost, determined
using the last-in, first-out (LIFO) method, or market on a specific-unit
identification basis. Rental vehicles include vehicles purchased from Ford Motor
Company under a floor plan agreement. Rental vehicles are placed in rental
service for periods not to exceed one year, at which time they are purchased and
placed into used vehicle inventory and held for sale. Rental vehicles are
depreciated utilizing a five-year life during the period they are used for
rental purposes. Parts inventories are determined on a first-in, first-out
(FIFO) basis and are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their estimated
useful lives, ranging from five to 31 years, using the straight-line method.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the term of the lease or their estimated useful lives. Useful lives for
purposes of computing depreciation are as follows:
Buildings and leasehold
improvements 15-31 years
Furniture and fixtures 5-7 years
Machinery and equipment 5 years
The cost of assets sold or retired and the related accumulated depreciation are
removed from the accounts at the time of sale or disposition, and any resulting
gain or loss is included in the combined statement of operations. Maintenance,
repairs and minor replacements are charged to operations as incurred; major
replacements and improvements which extend the useful life of an asset are
capitalized and depreciated over the remaining useful life of the asset.
REVENUE RECOGNITION, AUTO DEALERSHIPS
Sales include revenues from new and used vehicles, vehicle rentals, and parts
and services sales. Revenues from the sale of new and used vehicles are
recognized at the time the vehicle is delivered to the customer and the earlier
of the acceptance of the note by a financial institution, or payment or deposit
having been received. Revenues from the sale of parts and services are
recognized at the time the parts are delivered to the customer or service is
completed.
REVENUE RECOGNITION, OTHER OPERATING REVENUE
Other operating revenue includes finance, service contract and insurance income.
Finance income represents amounts earned for financing arranged by the Company
with financial institutions on behalf of customers in connection with vehicle
sales. Finance income, net of estimates for future charge-backs, is recognized
by the
F-119
<PAGE> 121
Company upon acceptance of the note by a financial institution. Service contract
income represents commissions earned on extended warranty service contracts sold
by the Company as agents for extended service warranty companies. Commissions
earned, net of estimates of future charge-backs, are recognized upon customer
acceptance of the service contract terms as evidenced by contract execution.
Insurance income represents commissions earned on credit life and accident and
disability insurance sold by the Company as agents for insurance carriers.
Insurance commissions, net of estimates for future charge-backs, are recognized
as income upon customer acceptance of the insurance terms as evidenced by
contract execution.
The agreements between the Company and the financial institutions, extended
service warranty companies and insurance companies provide that the Company will
receive a charge-back equal to a pro rata portion of the finance, service
contract or insurance income earned by the Company in the event the customer
prepays or defaults on the financing prior to its scheduled maturity or upon
early termination of the service contract or insurance policy by the customer.
Generally, the Company is contingently liable for charge-backs equal to a pro
rata portion of the premium collected pursuant to service and insurance
contracts during the period of time the service contract or the insurance policy
is in effect. The Company records an estimated allowance for these charge-backs
which is based upon the Company's historical experience for prepayments,
defaults and early terminations.
REVENUE RECOGNITION, AUTO FINANCE
Interest income from finance receivables is recognized over the term of the
contract using the effective interest method. The accrual of interest is
suspended if collection becomes doubtful and is resumed when the loan becomes
current.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and included in
selling, general and administrative expenses in the accompanying combined
statement of operations. Total advertising and promotional expenses, net of
approximately $603,000 in rebates, were approximately $1,410,000 for the 10
months ended October 31, 1997.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
recorded based upon differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the underlying assets are received or liabilities
are settled.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents, contracts in
transit and accounts and vehicle notes receivable. The Company invests a
substantial portion of their excess cash with financial institutions in excess
of FDIC-guaranteed limits. The Company has not incurred significant losses
related to these financial instruments in the past.
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<PAGE> 122
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments primarily consist of cash and cash
equivalents, accounts receivable, vehicle notes receivable, floor plan notes
payable, long-term debt, and amounts due to related parties. The carrying amount
of these financial instruments approximates fair value due either to length of
maturity or existence of interest rates that approximate prevailing market
rates.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents. Additionally, the net change in floor plan financing of
inventory, which is a customary financing technique in the industry, is
reflected as an operating activity in the accompanying combined statement of
cash flows and as a component of cost of sales in the accompanying combined
statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
ACCOUNTING DEVELOPMENTS
SFAS No. 130 requires the presentation of comprehensive income in an entity's
financial statements. Comprehensive income represents all changes in equity of
an entity during the reporting period, including net income and charges directly
to equity which are excluded from net income. This statement is not anticipated
to have any impact on the Company as the Company currently does not enter into
any transactions which result in charges (or credits) directly to equity (such
as additional minimum pension liability changes, currency translation
adjustments, unrealized gains and losses on available-for-sale securities, etc.)
3. ACCOUNTS RECEIVABLE:
Accounts receivable at October 31, 1997, are comprised of the following
(in thousands):
Contracts in transit $ 8,842
Manufacturers 521
Other 2,827
---------
12,190
Less- Allowance for doubtful accounts (135)
---------
$ 12,055
=========
Contracts in transit represent receivables from financial institutions which
provide funding for customer vehicle financing. These receivables are generally
collected within 30 days from the vehicle sale. Amounts due from manufacturers
represent receivables for parts and service work performed on vehicles pursuant
to the automotive manufacturer warranty coverage and manufacturer holdbacks and
incentives pursuant to the dealership agreements. Other receivables include
receivables for the sale of parts to commercial customers and commissions
receivable from financial institutions earned from arranging financing for the
Company's customers.
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<PAGE> 123
4. VEHICLE NOTES RECEIVABLE:
Vehicle notes receivable at October 31, 1997, are comprised of the following
(in thousands):
Vehicle notes receivable $ 8,001
Less- Allowance for credit losses (587)
-------
$ 7,414
=======
Vehicle notes receivable consist of contractually scheduled payments from
installment sales contracts, including accrued interest, from individuals who
purchase used vehicles from dealerships in the Champion Automotive Group and
finance their purchases through Financial Services, Inc. Terms typically include
down payments of approximately 15 percent, interest ranging from 18 percent to
26.75 percent and maturity terms ranging from 12 to 36 months.
5. INVENTORIES:
Inventories at October 31, 1997, are comprised of the following (in thousands):
New vehicles $ 45,116
Used vehicles 7,723
Rental vehicles, net 4,471
Parts and other 1,114
Cumulative LIFO reserve (6,299)
---------
$ 52,125
=========
Depreciation expense and accumulated depreciation in the accompanying combined
financial statements includes $865,000 of depreciation expense and $1,467,000 of
accumulated depreciation related to rental vehicles at October 31, 1997.
For the 10 months ended October 31, 1997, the effect of using the LIFO method as
compared to the FIFO method was a decrease in net income by approximately
$537,000. If the FIFO method of inventory accounting had been used by the
Company, inventories, net working capital and owners' equity would have been
higher than reported by $3,686,000, net of tax, as of October 31, 1997.
6. OTHER ASSETS:
Other assets consist of the following at October 31, 1997 (in thousands):
Goodwill $ 1,200
Other 121
--------
1,321
Less- Accumulated amortization (140)
--------
$ 1,181
========
Goodwill represents the excess of the consideration paid over the fair market
value of assets acquired and is being amortized on the straight-line method over
40 years. Management continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of other assets may
warrant revision or that remaining balances may not be recoverable.
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<PAGE> 124
7. PROPERTY AND EQUIPMENT:
Property and equipment at October 31, 1997, are comprised of the following
(in thousands):
Land $ 3,185
Building and leasehold improvements 6,352
Furniture and fixtures 1,061
Machinery and equipment 1,520
--------
12,118
Less- Accumulated depreciation and amortization (3,139)
--------
$ 8,979
========
8. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflect payables for the purchase of specific vehicle
inventory and are comprised of the following at October 31, 1997 (in thousands):
New vehicles $ 51,514
Rental and lease vehicles 4,367
---------
$ 55,881
=========
Floor plan notes payable for new vehicles reflect amounts due to FMCC for the
purchase of specific new vehicle inventory, and bear interest at prime (8.5
percent at October 31, 1997) plus 1 percent. Payments on the notes are due when
the related vehicles are sold and are collateralized by all new vehicles. The
approved lines of credit totaled $30,000,000 for new vehicles as of October 31,
1997. As of October 31, 1997, the Company's floor plan notes payable balance
exceeded its approved lines of credit; accordingly, FMCC could contractually
accelerate, and declare immediately due and payable, all or any part of the
unpaid balance of the floor plan notes payable. The Company believes any
acceleration of the floor plan notes payable could be repaid through the sale of
inventory in the ordinary course of business.
Floor plan notes payable for rental and lease vehicles bear interest at prime
(8.5 percent as of October 31, 1997) plus .75 percent and are payable in
installments of approximately 2 percent per month of the capitalized cost, with
the remaining balance due when the vehicle is transferred from the rental
vehicle fleet to used car inventory, which generally occurs within one year of
being placed in the rental fleet.
Interest under the floor plan notes is payable on a monthly basis. Interest
expense on new vehicle floor plan notes payable, which has been recorded as a
component of cost of sales in the accompanying combined statement of operations,
totaled approximately $3,641,000 for the year ended October 31, 1997, before
manufacturer assistance. Interest expense on new rental and lease floor plan
notes payable, which has also been recorded as a component of cost of sales in
the accompanying combined statement of operations, totaled approximately
$348,000 for the 10 months ended October 31, 1997. Manufacturer interest
assistance, which has been recorded as a reduction of cost of sales in the
accompanying combined statement of operations, totaled approximately $3,783,000
for the 10 months ended October 31, 1997.
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<PAGE> 125
9. ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities at October 31, 1997, are comprised of
the following (in thousands):
Accounts payable $ 1,084
Accrual for finance, insurance and service contract
charge-backs 1,470
Income taxes payable 2,441
Payroll-related accruals 694
Other 4,084
-------
Total auto dealerships $ 9,773
=======
Accounts payable 440
Payroll-related accruals 51
-------
Total auto finance $ 491
=======
10. NOTES PAYABLE:
Notes payable at October 31, 1997, are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Auto dealerships-
Note payable to FMCC dated December 1996, payable in monthly installments
including principal and interest due in December 2006. Interest at 9.5%,
collateralized by certain land and buildings and guaranteed by the
Company's principal owner $ 4,243
Note payable to FMCC dated September 1992, payable in monthly installments
including principal and interest due in December 2002. Interest at 9.75%,
collateralized by certain land and buildings and guaranteed by the
Company's principal owner 316
Other 178
--------
Total auto dealerships 4,737
Less - current maturities (4,737)
-------
$ -
=======
Auto finance-
Note payable to a bank dated October 1997, payable on July 31, 1998, plus all
accrued but unpaid interest. Interest is payable monthly. Interest at LIBOR
rounded upward to the nearest sixteenth plus 1.75% (7.75% as of October 31,
1997), collateralized by certain assets of the Company and guaranteed by
the Company's principal owner $ 4,700
-------
Total auto finance $ 4,700
=======
</TABLE>
The auto dealerships notes payable to FMCC collateralized by certain land and
buildings above provide for acceleration of the entire amount due upon the sale
of such land and buildings to third parties. In connection with the merger and
acquisition transaction discussed in Note 17, these notes payable have been
classified as current liabilities in the accompanying combined balance sheet.
F-124
<PAGE> 126
11. AMOUNTS DUE TO RELATED PARTIES:
Amounts due to related parties at October 31, 1997, are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Amounts payable to the Company's principal owner representing the sole
shareholder's invested funds pursuant to the CMA $ 1,766
Notes payable to the Company's principal owner resulting from short-term working
capital advances to the Company; noninterest-bearing 387
-------
Total auto dealerships $ 2,153
=======
Notes payable to the Company's principal owner, the owner's family and the
employees; due in November 1997. The notes provide for interest at 9.5% and
are payable monthly $ 1,226
-------
Total auto finance $ 1,226
=======
</TABLE>
12. LEASE COMMITMENTS:
OPERATING LEASES
The Company leases various facilities and equipment under operating lease
agreements. These leases are noncancelable and expire on various dates through
2007. The lease agreements are subject to renewal under essentially the same
terms and conditions as the original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
1998 $ 629
1999 620
2000 616
2001 616
2002 616
Thereafter 2,005
-------
Total $ 5,102
=======
Total rent expense under all operating leases amounted to $524,000 for the 10
months ended October 31, 1997.
13. INCOME TAXES:
The Company is subject to both a federal income tax and a Texas franchise tax,
which is primarily an income-based tax. The components of the federal and state
income tax provisions for the 10 months ended as of October 31, 1997, are as
follows (in thousands):
Federal-
Current $ 2,619
Deferred 123
State-
Current 318
Deferred 14
-------
$ 3,074
=======
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<PAGE> 127
Actual income tax expense for the 10 months ended October 31, 1997, differs from
income tax expense computed by applying the U.S. federal statutory tax rate of
34 percent to income before income taxes as follows (in thousands):
Provision at the statutory rate $ 2,584
State income taxes, net of benefit for federal deduction
219
Income attributed to partnership (1,463)
Nondeductible expenses and other 1,734
-------
$ 3,074
=======
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities consist of the following at October 31, 1997 (in
thousands):
Reserves and accruals not deductible until paid $ 907
Depreciation and other (2,598)
-------
Net deferred income tax liability $(1,691)
=======
14. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a defendant in various lawsuits arising from normal business
activities. Management has reviewed pending litigation with legal counsel and
believes that the ultimate liability, if any, resulting from such action will
not have a material adverse effect on the Company's financial position, results
of operations or cash flows.
15. RELATED-PARTY TRANSACTIONS:
The Company has a noninterest-bearing note receivable from the Company's
principal owner in the amount of $350,000 which is included in amounts due to
related parties, auto finance in the accompanying combined balance sheet at
October 31, 1997.
The Company periodically invests funds in the CMA on behalf of the Company's
principal owner. At October 31, 1997, $1,766,000 was invested in the CMA on
behalf of the Company's principal owner. Notes payable of an equal amount were
issued and outstanding at October 31, 1997. These amounts due to the Company's
principal owner bear interest at the Company's floor plan rate and are due on
demand.
The Company has issued various notes payable to the Company's principal owner,
parties related to the Company's principal owner and employees in an aggregate
amount of $1,226,000 due November 1997, which provide for interest at 9.5
percent and are payable monthly. The Company also has a noninterest-bearing note
payable in the amount of $387,000 due to the Company's principal owner resulting
from short-term working capital advances to the Company which is payable on
demand.
F-126
<PAGE> 128
16. EMPLOYEE BENEFIT PLANS:
The Company offers all employees the opportunity to participate in a 401(k) plan
(the Plan). The Company's matching policy is discretionary. Currently, the
Company provides for a 25 percent match on employee contributions up to a
maximum employee contribution of 8 percent of each participating employee's
annual compensation. Total contributions by the Company under the Plan for
matching contributions and Plan expenses were $492,000 for the 10 months ended
October 31, 1997. No amount was due to the Plan at October 31, 1997.
17. SUBSEQUENT EVENTS:
In November 1997, the owners of Champion Automotive Group entered into a merger
and acquisition agreement with Republic Industries, Inc. (Republic), whereby
Republic would acquire Champion Planning, Inc., and its wholly owned
subsidiaries and certain related assets and liabilities owned by the Gracely
Family Partnership, Ltd., which are utilized in the operation of the auto
dealership businesses for approximately $67 million in cash.
F-127
<PAGE> 129
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Southern California Automotive Group:
We have audited the accompanying combined balance sheet of SOUTHERN CALIFORNIA
AUTOMOTIVE GROUP (the combined entities listed in Note 1) as of October 31,
1997, and the related combined statements of operations, stockholders' equity
and cash flows for the ten-month period then ended. These combined financial
statements are the responsibility of Southern California Automotive Group's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Southern California
Automotive Group as of October 31, 1997, and the results of its operations and
its cash flows for the ten-month period then ended in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
December 19, 1997.
F-128
<PAGE> 130
SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
(See Note 1)
COMBINED BALANCE SHEET
AS OF OCTOBER 31, 1997
(Dollars in Thousands)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,500
Restricted cash 4,471
Accounts receivable, net 19,333
Inventories 71,333
Deferred income taxes 251
Prepaid expenses and other current assets 1,651
--------
Total current assets 103,539
--------
PROPERTY AND EQUIPMENT:
Land 2,780
Buildings 7,837
Machinery and equipment 4,624
Leasehold improvements 1,581
Company vehicles 1,382
--------
18,204
Less: Accumulated depreciation and amortization (6,974)
--------
Property and equipment, net 11,230
--------
DEFERRED INCOME TAXES AND OTHER ASSETS 772
--------
Total assets $115,541
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $ 68,216
Current maturities of long-term debt 967
Accounts payable 3,847
Amounts due stockholders 6,500
Accrued liabilities 6,409
Related party notes payable 2,964
Other current liabilities 951
Income taxes payable 891
--------
Total current liabilities 90,745
LONG-TERM DEBT, net of current portion 10,817
--------
Total liabilities 101,562
--------
COMMITMENTS AND CONTINGENCIES (Note 9)
REFUNDABLE MANUFACTURER CONTRIBUTIONS (Note 9) 450
--------
STOCKHOLDERS' EQUITY (Note 7):
Common stock 5,110
Additional paid-in capital 257
Retained earnings 8,162
--------
Total stockholders' equity 13,529
--------
Total liabilities and stockholders' equity $115,541
========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-129
<PAGE> 131
SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
(See Note 1)
COMBINED STATEMENT OF OPERATIONS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1997
(Dollars in Thousands)
<TABLE>
<S> <C>
OPERATING REVENUES:
Sales $452,317
Finance and insurance 3,217
--------
Total operating revenues 455,534
COST OF SALES, including net flooring interest expense of $2,524 400,275
--------
Gross profit 55,259
OPERATING EXPENSES 46,363
COMPENSATION AND BONUSES TO STOCKHOLDERS 2,661
--------
Operating income 6,235
OTHER INCOME (EXPENSE):
Interest expense, net (983)
Other, net 287
--------
Income before income taxes 5,539
PROVISION FOR INCOME TAXES (591)
--------
NET INCOME $ 4,948
========
</TABLE>
The accompanying notes are an integral part of this combined statement.
F-130
<PAGE> 132
SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
(See Note 1)
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 166,106 $4,460 $257 $ 4,617 $ 9,334
Issuance of common stock for cash 10,000 650 - - 650
Distributions - - - (1,403) (1,403)
Net income - - - 4,948 4,948
------- ------ ---- ------- -------
BALANCES, October 31, 1997 176,106 $5,110 $257 $ 8,162 $13,529
======= ====== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of this combined statement.
F-131
<PAGE> 133
SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
(See Note 1)
COMBINED STATEMENT OF CASH FLOWS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1997
(Dollars in Thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,948
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 749
Provision for bad debts 138
Provision for finance, insurance and extended
warranty contracts 115
Inventory valuation reserve 825
Deferred tax benefit (300)
Changes in operating assets and liabilities-
Increase in accounts receivable (4,488)
Increase in inventories (12,991)
Increase in prepaid expenses and other current assets (823)
Increase in other assets (194)
Borrowings on floor plan notes payable, net 18,898
Decrease in accounts payable (1,231)
Increase in accrued liabilities and other 4,438
--------
Net cash provided by operating activities 10,084
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,240)
--------
Net cash used in investing activities (2,240)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,719
Payments on long-term debt (3,594)
Principal payments on related party notes payable (2,181)
Principal payments on obligations under capital leases (14)
Issuance of common stock 650
Refundable manufacturer contributions 450
Distributions (1,403)
--------
Net cash used in financing activities (3,373)
--------
INCREASE IN CASH AND CASH EQUIVALENTS 4,471
CASH AND CASH EQUIVALENTS, beginning of period -
--------
CASH AND CASH EQUIVALENTS, end of period $ 4,471
========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 732
========
Interest $ 3,821
========
</TABLE>
The accompanying notes are an integral part of this combined statement.
F-132
<PAGE> 134
SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Dollars in Thousands Except Share Information)
(1) BUSINESS AND OPERATIONS
Southern California Automotive Group (the "Group") is comprised of fourteen car
dealerships, a finance and insurance company ("Prime Auto Resources, Inc.") and
various real estate parcels and buildings (the "Real Estate Acquisitions"),
which are under common ownership and management. The Group sells, exclusively in
California, new automobiles (obtained through exclusive dealer agreements with
manufacturers) and used automobiles, provides vehicle servicing and sells
vehicle replacement parts.
The accompanying combined financial statements include the following individual
entities and the Real Estate Acquisitions. The following entities are combined
due to the fact that they have common ownership and management and are subject
to a Merger and Acquisition Agreement dated October 7, 1997, with Republic
Industries, Inc. ("Republic"), as discussed below.
<TABLE>
<CAPTION>
Entity Location Legal Form
------ -------- ----------
<S> <C> <C>
Carwell Corporation Torrance, California California C Corporation
Manhattan Motors, Inc. Manhattan Beach, California California S Corporation
Costa Mesa Cars, Inc. Costa Mesa, California California S Corporation
Newport Beach Cars, Inc. Newport Beach, California California S Corporation
Torrance Nissan Torrance, California California C Corporation
Manhattan Beach Motors, Inc. Manhattan Beach, California California S Corporation
Orange County Automotive
Imports, Inc. Anaheim, California California S Corporation
SMI Motors, Inc. Santa Monica, California California S Corporation
G.B. Imports Sales and Service, Inc. Torrance, California California C Corporation
West Colton Cars, Inc. Redlands, California California S Corporation
BH Cars, Inc. Beverly Hills, California California S Corporation
Prime Auto Resources, Inc. Torrance, California California S Corporation
</TABLE>
Certain stockholders of the Group also have ownership interests in SBL Auto,
Inc., a dealership not being purchased by Republic, and certain real estate
owned or leased by stockholders and leased or subleased to various dealerships
included in these combined financial statements.
F-133
<PAGE> 135
BH Cars, Inc. was incorporated in June 1997 and includes the operations of its
two car dealerships, for the portion in the ten-month period ended October 31,
1997, for which it owned the dealerships. The cost of the two car dealerships
was approximately $320 and the acquisitions were accounted for under the
purchase method of accounting. The operating revenues and net income in the
accompanying combined statement of operations would not have been materially
different had the operating results of BH Cars, Inc. been included since the
beginning of the period.
On October 7, 1997, the Group entered into a Merger and Acquisition Agreement
with Republic, wherein Republic will acquire all of the issued and outstanding
shares of the Group and certain land and buildings upon closing in exchange for
shares of Republic common stock, subject to certain adjustments.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Group considers all investments purchased with an original maturity of three
months or less to be cash equivalents.
The Group was required to invest funds, provided by a stockholder, with Ford
Motor Credit Corporation in conjunction with flooring arrangements. The
investments earn interest at rates equivalent to those charged by the flooring
arrangements. Amounts on deposit at October 31, 1997 were $6,500 and are
included in restricted cash and as amounts due stockholders in the accompanying
combined balance sheet.
The fair value of cash and cash equivalents approximates the carrying value.
Principles of Combination
The combined financial statements include the accounts of the above entities.
All significant intercompany accounts and transactions have been eliminated in
the combination.
Concentration of Credit Risk
The Group is engaged in the sales and servicing of automobiles and parts and
accessories in the state of California. The Group grants credit to customers,
substantially all of whom are local residents and businesses. See Note 5 for
accounts receivable concentrations as of October 31, 1997.
Revenue Recognition
Revenues from vehicle and parts sales and from service operations are recognized
at the time the vehicle or part is delivered to the customer or when the service
is completed.
Recognition of Finance Fees, Insurance and
Extended Warranty Commissions
The Group arranges with independent parties to provide financing, credit life
insurance and extended warranty contracts for its customers' vehicle purchases.
The Group receives a fee from the financial institution for arranging the
financing and receives a commission for the sale of the credit life insurance
policy. The Group is charged back for a portion of these fees should the
customer terminate the contract
F-134
<PAGE> 136
before its scheduled term or before dates specified under arrangements with such
institutions. The amount of the reserves for charge backs is estimated and
accrued based upon historical rates (Note 9).
Advertising
The Group expenses production and other costs of advertising as incurred.
Advertising expense was approximately $5,100 for the ten-month period ended
October 31, 1997.
Inventories
New vehicles and demonstrators are stated at cost less manufacturers' rebates
and allowances on either a specific unit or last-in, first-out ("LIFO") basis.
The carrying values of new vehicles and demonstrators are not in excess of
market. The valuation of the LIFO inventory was based on the producer price
index as permitted for tax purposes.
Used vehicles are stated at the lower of cost or market, on a specific unit
basis.
Parts and accessories are stated at the lower of the current catalog cost, which
approximates first-in, first-out, or market.
Dealer Incentives
The Group predominantly purchases its new vehicles from manufacturers. The
manufacturers will offer incentives under various programs, which, if earned,
reduce the cost of the vehicles. These incentives are recognized when they are
earned. The incentives recognized for the ten-month period ended October 31,
1997, were approximately $2,560 and are included as a reduction of cost of sales
in the combined statement of operations.
Income Taxes
The Group accounts for income taxes according to the liability method for each C
Corporation. Deferred income taxes arise from temporary differences resulting
from income and expense items reported for financial accounting and income tax
purposes in different periods. Deferred taxes are classified as current or
noncurrent, depending on the classification of the assets and liabilities to
which they relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or noncurrent
depending on the periods in which the temporary differences are expected to
reverse.
The income tax results and activities of the S Corporations flow directly to the
stockholders and, therefore, the accompanying combined financial statements do
not reflect a provision for federal or state income taxes for the S
Corporations.
F-135
<PAGE> 137
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings 15-40 years
Machinery and equipment 5-7 years
Company vehicles 5 years
</TABLE>
Leasehold improvements are amortized over the applicable lease period or their
estimated useful lives, whichever is shorter.
Expenditures for maintenance and repairs are expensed as incurred, while
significant betterments are capitalized. When an asset is retired or otherwise
disposed of, the related cost and accumulated depreciation or amortization are
removed from the accounts, and any gain or loss is credited or charged to
income.
Asset Impairment
The Group continually evaluates whether events and circumstances have occurred
which may indicate that their long-lived assets may be impaired. The Group
evaluates impairment based upon estimated undiscounted cash flows over the
remaining life of the long-lived assets. Management believes the carrying value
of all long-lived assets at October 31, 1997, are recoverable through normal
operations or sale of the related dealerships.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
Specific
Unit LIFO
Dealerships Dealerships Total
----------- ----------- -----
<S> <C> <C> <C>
New vehicles $32,658 $10,905 $43,563
Used vehicles 20,645 4,938 25,583
Parts and accessories 3,841 1,705 5,546
------- ------- -------
57,144 17,548 74,692
Cumulative LIFO reserve - (2,534) (2,534)
Inventory valuation reserve (825) - (825)
------- ------- -------
$56,319 $15,014 $71,333
======= ======= =======
</TABLE>
F-136
<PAGE> 138
Due to the Group's inventory balance at October 31, 1997 being lower than the
inventory balance at December 31, 1996, the Group had a LIFO decrement which
resulted in approximately $601 of additional net income for the ten-month period
ended October 31, 1997. This decrement occurred due to the Group not receiving
its new car models as of October 31, 1997 and is expected to reverse by December
31, 1997.
(4) NOTES PAYABLE
Floor Plan Notes Payable
Floor plan notes payable reflect amounts for the purchase of specific new and
certain used vehicle inventory, are payable to various lenders, and bear
interest at variable rates that ranged from 7.6% to 9.5% for the period ended
October 31, 1997. The aggregate approved credit lines are $91,478 at October 31,
1997. Payments on the floor plan notes payable are due when the related vehicles
are sold. The floor plan notes payable are secured by the vehicle inventories of
the Group.
Interest under the floor plan notes is payable on a monthly basis. Interest
expense on floor plan notes payable totaled approximately $3,403 for the period
ended October 31, 1997, before manufacturer interest assistance. Manufacturer
interest assistance totaled approximately $879 for the ten-month period ended
October 31, 1997. Interest expense under the floor plan notes payable, net of
manufacturer interest assistance, has been recorded as a component of cost of
sales in the accompanying combined statement of operations.
Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt is comprised of the following:
<S> <C>
Mortgage note payable to Ford Motor Credit Corporation; payable in
monthly principal and interest installments of $10; balloon payment
for the remaining principal plus interest due June 2003; bearing
interest at the prime rate (8.5% at October 31, 1997); secured
by certain real estate of the Group. $ 808
Mortgage note payable to Ford Motor Credit Corporation; payable in
monthly principal and interest installments of $10; balloon payment
for the remaining principal plus interest due October 2004; bearing
interest at the commercial paper rate plus 3.5% (9% at October 31,
1997); secured by certain real estate of the Group. 882
Mortgage note payable to Comerica; payable in monthly principal and
interest installments of $34; balloon payment for the remaining
principal plus interest due October 1999; bearing interest at the
prime rate (8.5% at October 31, 1997); secured by certain real
estate of the Group. 3,857
</TABLE>
F-137
<PAGE> 139
<TABLE>
<S> <C>
Mortgage note payable to Bank of America; payable in monthly principal
and interest installments of $14; balloon payment for the remaining
principal plus interest due November 2007; bearing interest at the
average 6-month certificate of deposit rate plus 2.09% (7.84% at
October 31, 1997); secured by certain
real estate of the Group. $ 1,884
Mortgage note payable to Comerica; payable in monthly principal and
interest payments of $13; balloon payment for the remaining
principal plus interest due October 2005; bearing interest at a
fixed rate of 8.45%; secured by certain real estate
of the Group. 1,556
Note payable to Comerica; payable in monthly principal payments of $17
plus interest through April 2000; bearing interest at the prime
rate (8.5% at October 31, 1997); secured
by all assets of Newport Beach Cars, Inc. 467
Note payable to Bank of America; payable in monthly principal payments
of $6 plus interest through December 2001; balloon payment for the
remaining principal plus interest due December 2001; bearing
interest at the bank's reference rate; secured by all assets of
Orange County Automotive
Imports, Inc. 917
Note payable to Ford Motor Credit Company; payable in monthly principal
payments of $11 plus interest through July 2001; balloon payment
for the remaining principal plus interest due July 2001; bearing
interest at the prime rate (8.5% at October 31, 1997). 488
Note payable to Comerica; payable in monthly principal payments of $8
plus interest through September 2000; bearing interest at the prime
rate (8.5% at October 31, 1997); secured
by accounts receivable and inventory of SMI Motors, Inc. 583
Various third-party notes payable; payable in monthly principal and
interest payments from $1 to $8 through October 1999; bearing
interest at rates varying from 7% to 9%; secured by
various assets of the Group. 342
-------
11,784
Less- Current maturities (967)
-------
$10,817
=======
</TABLE>
F-138
<PAGE> 140
Notes Payable - Related Party
The Group is obligated under various notes payable to stockholders which total
$2,964. The notes require monthly interest payments calculated at various rates
ranging from prime (8.5% at October 31, 1997) to prime plus 1% (9.5% at October
31, 1997). Principal amounts are due on demand. Interest expense on these notes
for the year ended October 31, 1997, was approximately $222 and is included in
interest expense in the accompanying combined statement of operations.
Pursuant to the Merger and Acquisition Agreement, the notes payable to related
parties are to be contributed to capital upon closing.
Subsequent to yearend, $450 of principal payments, related to the related party
notes payable, were remitted to the owners.
Debt Maturity
Maturities of long-term debt and notes payable to related parties are as
follows:
<TABLE>
<CAPTION>
Year ending October 31-
<S> <C>
1998 $ 3,931
1999 4,467
2000 533
2001 448
2002 366
Thereafter 5,003
-------
$14,748
=======
</TABLE>
Fair Value of Borrowings
The fair value of the Group's borrowings approximate their carrying amounts due
primarily to their variable interest rates and current maturities.
(5) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following at October 31, 1997:
<TABLE>
<S> <C>
Contracts in transit $11,052
Dealers and others 4,209
Parts and service 1,349
Manufacturer and others 1,584
Finance company 560
Other 801
Allowance for doubtful accounts (222)
-------
Total accounts receivable, net $19,333
=======
</TABLE>
F-139
<PAGE> 141
Fair Value of Receivables
The fair value of accounts receivable approximates the carrying value, net of
related reserves.
(6) DEFERRED INCOME TAXES
The income tax benefit (provision) for the ten-month period ended October 31,
1997, is as follows:
<TABLE>
<S> <C>
Current:
Federal $(681)
State (210)
-----
(891)
-----
Deferred:
Federal 254
State 46
-----
300
-----
$(591)
=====
</TABLE>
Deferred tax assets consist of the following as of October 31, 1997:
<TABLE>
<S> <C>
Current deferred taxes:
Assets:
Prepaid extended warranty contracts $157
Vacation accruals 1
Inventory capitalization 32
Accrued bonuses 144
----
Total current deferred tax assets 334
Liability:
LIFO to FIFO conversion (83)
----
Net current deferred tax assets 251
Noncurrent deferred tax assets:
Leasehold improvements 68
----
Total deferred tax assets $319
====
</TABLE>
A valuation allowance for deferred tax assets is required if it is more likely
than not that a tax benefit will not be realized. No valuation allowance has
been recorded by the Group, however, future changes in operations may affect
management's evaluation of the realizability of deferred tax assets.
F-140
<PAGE> 142
The differences in income taxes provided and the amounts determined by applying
the federal statutory rate to income before income taxes result from the
following:
<TABLE>
<S> <C>
Income tax provision using federal statutory rate $ 1,883
Amounts taxed directly to stockholders (1,391)
-------
Income tax provision for C Corporations 492
State income taxes, net of federal benefit 92
Meals and entertainment 20
Other (13)
-------
Provision for income taxes $ 591
=======
</TABLE>
As of October 31, 1997, the Group has no net operating loss carryforwards for
income tax purposes.
(7) STOCKHOLDERS' EQUITY
The capital structure of the corporations included in the combined balance sheet
as of October 31, 1997, net of eliminations, is as follows:
<TABLE>
<CAPTION>
Common Other Par Shares
Stockholder Stockholders' Value per Shares Issued and Retained
Entity Percentage Percentage Share Authorized Outstanding Capital Earnings
------ ----------- ------------- --------- ---------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Carwell Corporation 55% 45% $1,000 10 10 $ 10 $ 5,409
Manhattan Motors, Inc. 100% - $ 30 10,000 10,000 300 501
Costa Mesa Cars, Inc. 75% 25% No Par 100,000 60,000 1,287 563
Newport Beach Cars, Inc. 80% 20% No Par 100,000 60,000 600 707
Torrance Nissan 39.5% 60.5% $ 100 750 396 40 1,542
Manhattan Beach Motors, Inc. 100% - No Par 10,000 2,000 470 (391)
Orange County Automotive
Imports, Inc. 85% 15% No Par 1,000,000 10,000 400 (767)
SMI Motors, Inc. 80% 20% No Par 10,000 1,000 400 452
G.B. Imports Sales and
Service, Inc. 50% 50% No Par 1,000 700 - 1,870
West Colton Cars, Inc. 60% 40% No Par 100,000 12,000 1,200 (434)
BH Cars, Inc. 60% 40% No Par 100,000 10,000 650 29
Prime Auto Resources, Inc. 70% 30% No Par 1,000,000 10,000 10 90
Real Estate Acquisitions - - - - - - (1,409)
--------- ------- ------ -------
Total 2,431,760 176,106 $5,367 $ 8,162
========= ======= ====== =======
</TABLE>
(8) COMPENSATION PROGRAMS
The Group currently pays a salary and/or bonus to its owners. The bonus is
determined based upon the operating performance of the individual dealerships.
The amount of salary and bonuses paid during the ten-month period ended October
31, 1997 was $258 and $2,403, respectively.
F-141
<PAGE> 143
(9) COMMITMENTS, CONTINGENCIES, RISKS AND UNCERTAINTIES
Major Supplier and Dealer Agreement
The Group purchases substantially all of its new vehicle, spare parts and
accessories inventories from manufacturers at the prevailing prices charged by
the manufacturers to all franchised dealers. The Group's overall sales could be
impacted by the manufacturers' inability or unwillingness to supply the
dealership with an adequate supply of popular models.
The Group enters into agreements ("Dealer Agreements") with the various
manufacturers. The Dealer Agreements generally limit the location of the
dealership and requires automaker approval for changes in dealership management
and ownership. The automakers are also entitled to terminate the respective
agreement if the dealership violates the terms of the Dealer Agreements.
The Group's ability to expand operations and consummation of the Merger and
Acquisition Agreement depends, in part, on obtaining consents of the
manufacturers.
Customer Financing Arrangements
The Group is contingently liable to various financial institutions and insurance
companies to refund fees received for arranging the financing of its vehicle
sales and for sales of extended warranty contracts. The contingent liability,
which represents the Group's maximum obligation if its customers would fail to
honor their obligations under these financing, insurance and warranty
arrangements, was approximately $415 at October 31, 1997.
Operating Leases
The Group leases certain dealership facilities and various equipment. Certain
facilities leased are owned by stockholders. Under the terms of the lease
agreements, the Group is required to make monthly lease payments ranging from $1
to $50 through the year 2011.
Future minimum lease payments at October 31, 1997, are as follows:
<TABLE>
<CAPTION>
Related Third
Parties Parties Total
------- ------- -----
<S> <C> <C> <C>
Year ending October 31-
1998 $ 805 $ 3,146 $ 3,951
1999 821 2,935 3,756
2000 838 2,858 3,696
2001 854 2,657 3,511
2002 872 2,160 3,032
Thereafter 3,822 7,485 11,307
------ ------- -------
$8,012 $21,241 $29,253
====== ======= =======
</TABLE>
F-142
<PAGE> 144
Rental expense for the ten-month period ended October 31, 1997, was
approximately $3,261, of which approximately $667 was paid to related parties.
Government Regulations
Substantially all of the Group's facilities are subject to federal, state and
local provisions regulating the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Group expect such
compliance to have, a material effect upon the capital expenditures, operating
results, financial position or competitive position of the Group. Management
believes that its current practices and procedures for the control and
disposition of wastes comply with applicable federal, state and local
requirements.
Litigation
The Group is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Group's financial position, results of operations or liquidity.
Manufacturer Contribution
In connection with the June 1997 acquisition of Infiniti of Beverly Hills, by BH
Cars, Inc., Nissan Motor Corporation USA contributed $450 which was contingent
on the continued employment of a stockholder. Pursuant to the Merger and
Acquisition Agreement (Note 1), this stockholder has agreed to repay the entire
amount in the event of voluntary termination or termination with cause.
(10) BENEFIT PLAN
The Group sponsors a 401(k) savings plan that is available to all full-time
employees at least 21 years of age. Employees may contribute not less than 1%
and no more than 20% of compensation in each year, subject to the limitations
prescribed by law. Each dealership in the group determines what amount, if any,
will be contributed to the plan each year. The Group made no contributions for
the ten-month period ended October 31, 1997.
F-143
<PAGE> 145
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC.,
GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP, AAA DISPOSAL SERVICE, INC.,
YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY,
BANKSTON AUTOMOTIVE GROUP, JOHN LANCE COMPANY,
VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP, SNAPPY CAR RENTAL, INC.,
DESERT AUTOMOTIVE GROUP, EURODOLLAR (HOLDINGS) PLC, QUINLAN AUTOMOTIVE GROUP,
EMICH OLDSMOBILE, INC. AND AFFILIATES, ANDERSON DEALERSHIP GROUP AND AFFILIATES,
DOBBS AUTOMOTIVE GROUP, ABRAHAM AUTOMOTIVE GROUP,
CHAMPION AUTOMOTIVE GROUP AND SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
The following Unaudited Condensed Consolidated Pro Forma Financial
Statements include the consolidated financial statements of Republic Industries,
Inc. and subsidiaries (the "Company") which include the results of operations of
Silver State Disposal Service, Inc. ("Silver State") which the Company acquired
in August 1997; De La Cruz Auto Group ("De La Cruz") which the Company acquired
in July 1997; The Pierce Corporation ("Pierce") which the Company acquired in
June 1997; Flemington Car and Truck Country and certain related dealerships
("Flemington"), Spirit Rent-A-Car, Inc. ("Spirit"), Chesrown Automotive Group
("Chesrown") and Bledsoe Dodge, Inc. ("Bledsoe") which the Company acquired in
May 1997; National Car Rental System, Inc. ("National"), Maroone Automotive
Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina Industries,
Inc. ("Taormina") which the Company acquired in February 1997 and Carlisle
Motors, Inc. ("Carlisle") which the Company acquired in January 1997. These
transactions have been accounted for under the pooling of interests method of
accounting and, accordingly, the Company's historical consolidated financial
statements have previously been restated as if the Company, Silver State, De La
Cruz, Pierce, Flemington, Spirit, Chesrown, Blesdoe, National, Maroone, Wallace,
Taormina and Carlisle had operated as one entity since inception. In October
1997, the Company sold its electronic security services division resulting in an
after tax gain of approximately $230.0 million recorded in the fourth quarter of
1997. Accordingly, the Company's consolidated financial statements have been
restated to report separately the operating results of the electronic security
services division as discontinued operations.
The following Unaudited Condensed Consolidated Pro Forma Balance Sheet
presents the pro forma financial position of the Company as of September 30,
1997 as if the acquisitions of EuroDollar (Holdings) PLC ("EuroDollar"), Quinlan
Automotive Group ("Quinlan") and Emich Oldsmobile, Inc. and Affiliates
("Emich"), which the Company acquired in October 1997; Anderson Dealership Group
and Affiliates ("Anderson"), Dobbs Automotive Group ("Dobbs"), Abraham
Automotive Group ("Abraham") and Champion Automotive Group ("Champion"), which
the Company acquired in January 1998; and the pending acquisition of Southern
California Automotive Group, ("Southern"), had been consummated as of September
30, 1997.
The following Unaudited Condensed Consolidated Pro Forma Statements of
Operations for the nine months ended September 30, 1997 and for the year ended
December 31, 1996 present the pro forma results of operations of the Company as
if the acquisitions of EuroDollar, Quinlan, Emich, Anderson, Dobbs, Abraham,
Southern and Champion as well as the acquisitions of AutoNation Incorporated
("AutoNation"), Ed Mullinax, Inc. and subsidiaries ("Mullinax") and Grubb
Automotive ("Grubb"), which were acquired in January 1997; Kendall Automotive
Group ("Kendall"), AAA Disposal Service, Inc. ("AAA"), York Waste Disposal, Inc.
("York"), which were acquired in February 1997; Shad Management Company ("Shad")
and Bankston Automotive Group ("Bankston") which were acquired in May 1997; the
John Lance Company ("Lance") which was acquired in June 1997; Value Rent-A-Car,
Inc. ("Value") and Courtesy Auto Group ("Courtesy") which the Company acquired
in July 1997; Snappy Car Rental, Inc. ("Snappy") which the Company acquired in
August 1997; and Desert Automotive Group ("Desert"), which the Company acquired
in September 1997 had been consummated as of January 1, 1996. The pro forma
statement of operations for the year ended December 31, 1996 also contains pro
forma adjustments related to certain equity transactions in 1996 and 1997 which
resulted in net proceeds to the Company of approximately $1.1 billion (the
"Equity Transactions").
The unaudited pro forma earnings per common and common equivalent share is
based on the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
or conversion of warrants and options. In computing the unaudited pro forma
earnings per common and common equivalent share, the Company utilizes the
treasury stock method.
These Unaudited Condensed Consolidated Pro Forma Financial Statements
should be read in conjunction with the respective historical consolidated or
combined financial statements and notes thereto of the Company, AutoNation,
Mullinax, Grubb, Kendall, AAA, York, Shad, Bankston, Lance, Value, Courtesy,
Snappy, Desert, EuroDollar, Quinlan, Emich, Anderson, Dobbs, Abraham, Champion
and Southern. These Unaudited Condensed Consolidated Pro Forma Financial
Statements were prepared utilizing the accounting policies of the respective
entities as outlined in their historical financial statements except as
described in the accompanying notes. The acquisitions of AutoNation, Mullinax,
Grubb, Kendall, York, Shad, Bankston, Lance, Value, Courtesy, Snappy,
EuroDollar, Quinlan, Emich, Anderson, Dobbs, Abraham and Champion and the
pending acquisition of Southern have been or will be accounted for under the
purchase method of accounting. Accordingly, the Unaudited Condensed Consolidated
Pro Forma Financial Statements reflect the Company's preliminary allocations of
the purchase prices of such acquisitions which will be subject to further
adjustments as the Company finalizes the allocations of the purchase prices in
accordance with generally accepted accounting principles. The acquisitions of
AAA and Desert have been accounted for under the pooling of interests method of
accounting and, accordingly, have been included in the Company's historical
results of operations for the nine months ended September 30, 1997. Such
acquisitions were not material and consequently prior period financial
statements have not been restated and pro forma statements of operations for
1995 and 1994 have not been included herein. The unaudited condensed
consolidated pro forma results of operations do not necessarily reflect actual
results which would have occurred if the acquisitions or the Equity Transactions
had taken place on the assumed dates, nor are they necessarily indicative of the
results of future combined operations.
F-144
<PAGE> 146
REPUBLIC INDUSTRIES, INC.
EURODOLLAR (HOLDINGS) PLC, QUINLAN AUTOMOTIVE GROUP, EMICH OLDSMOBILE, INC.
AND AFFILIATES, ANDERSON DEALERSHIP GROUP AND AFFILIATES, DOBBS AUTOMOTIVE
GROUP, ABRAHAM AUTOMOTIVE GROUP, CHAMPION AUTOMOTIVE GROUP AND
SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(In millions)
<TABLE>
<CAPTION>
REPUBLIC EURODOLLAR QUINLAN EMICH ANDERSON DOBBS ABRAHAM
-------- ---------- -------- ----- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $206.2 $4.4 $ -- $12.2 $1.8 $29.4 $5.7
Accounts receivable, net 819.2 48.4 8.1 11.8 7.3 20.4 8.8
Prepaid expenses and other current
assets 245.6 18.2 .6 .4 .4 11.8 .3
Inventory 931.2 1.8 21.7 32.1 30.4 48.2 26.2
Revenue earning vehicles, net 4,317.6 249.1 -- -- -- -- --
---------- -------- ------- ------- ------- -------- -------
Total current assets 6,519.8 321.9 30.4 56.5 39.9 109.8 41.0
Property and equipment, net 1,934.0 23.1 4.7 2.2 3.4 6.3 12.3
Intangible assets, net of
accumulated amortization 1,211.4 -- 1.8 .2 .6 .6 --
Other assets 72.4 .2 .3 .5 1.7 .4 1.4
---------- -------- ------- ------- ------- -------- -------
Total assets $ 9,737.6 $ 345.2 $ 37.2 $ 59.4 $ 45.6 $ 117.1 $ 54.7
========== ======== ======= ======= ======= ======== =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses 831.9 35.9 5.7 9.8 6.7 17.1 7.7
Current portion of long-term
debt and notes payable 3,772.2 232.7 20.0 30.6 30.4 71.1 14.2
Deferred revenue and other
current liabilities 413.2 2.9 1.9 -- -- 2.6 8.7
---------- -------- ------- ------- ------- -------- -------
Total current liabilities 5,017.3 271.5 27.6 40.4 37.1 90.8 30.6
Long-term debt, net of current
maturities 1,270.6 -- 1.8 -- 2.3 -- --
Deferred income taxes and
other liabilities 387.1 16.2 .4 .5 1.1 6.4 --
---------- -------- ------- ------- ------- -------- -------
Total liabilities 6,675.0 287.7 29.8 40.9 40.5 97.2 30.6
---------- -------- ------- ------- ------- -------- -------
Shareholders' equity:
Common stock 4.2 4.0 .1 .8 -- 2.5 --
Additional paid-in capital 2,827.3 54.4 1.4 .2 -- 7.7 --
Retained earnings 231.1 (.9) 5.9 17.5 5.1 9.7 24.1
---------- -------- ------- ------- ------- -------- -------
Total shareholders' equity 3,062.6 57.5 7.4 18.5 5.1 19.9 24.1
---------- -------- ------- ------- ------- -------- -------
Total liabilities and
shareholders' equity $9,737.6 $345.2 $37.2 $59.4 $45.6 $117.1 $54.7
========== ======== ======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
----------------------
CHAMPION(1) SOUTHERN(1) COMBINED DR. CR. PRO FORMA
----------- ----------- ------------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7.6 $11.0 $ 278.3 $124.4(f) $402.7(e) $ --
Accounts receivable, net 19.5 19.3 962.8 962.8
Prepaid expenses and other current
assets 1.4 1.9 280.6 280.6
Inventory 52.1 71.3 1,215.0 45.2(a) 1,260.2
Revenue earning vehicles, net -- -- 4,566.7 4,566.7
---------- ------- ------------ ------ ------ ---------
Total current assets 80.6 103.5 7,303.4 169.6 402.7 7,070.3
Property and equipment, net 9.0 11.2 2,006.2 2,006.2
Intangible assets, net of
accumulated amortization -- -- 1,214.6 427.2(b) 1,641.8
Other assets 1.2 .8 78.9 78.9
---------- ------- ------------ ------ ------ ---------
Total assets $ 90.8 $ 115.5 $ 10,603.1 $596.8 $402.7 $10,797.2
========== ======= ============ ====== ====== =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses 10.3 10.2 935.3 935.3
Current portion of long-term
debt and notes payable 65.3 72.2 4,308.7 4,308.7
Deferred revenue and other
current liabilities 3.4 8.4 441.1 441.1
---------- ------- ------------ ------ ------ ---------
Total current liabilities 79.0 90.8 5,685.1 5,685.1
Long-term debt, net of current
maturities -- 10.8 1,285.5 124.4(f)
31.7(e) 1,441.6
Deferred income taxes and
other liabilities 2.6 .4 414.7 414.7
---------- ------- ------------ ------ ------ ---------
Total liabilities 81.6 102.0 7,385.3 156.1 7,541.4
---------- ------- ------------ ------ ------ ---------
Shareholders' equity:
Common stock -- 5.1 16.7 12.5(c) .1(d) 4.3
Additional paid-in capital -- .2 2,891.2 63.9(c) 193.1(d) 3,020.4
Retained earnings 9.2 8.2 309.9 78.8(c) 231.1
---------- ------- ------------ ------ ------ ---------
Total shareholders' equity 9.2 13.5 3,217.8 155.2 193.2 3,255.8
---------- ------- ------------ ------ ------ ---------
Total liabilities and
shareholders' equity $ 90.8 $115.5 $10,603.1 $155.2 $349.3 $10,797.2
========== ======= ============ ====== ====== =========
</TABLE>
- -------------------------
(1) Balances as of October 31, 1997.
The accompanying notes are an integral part of these statements.
F-145
<PAGE> 147
REPUBLIC INDUSTRIES, INC.,
AUTONATION INCORPORATED, GRUBB AUTOMOTIVE,
KENDALL AUTOMOTIVE GROUP, YORK WASTE DISPOSAL, INC.,
SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP,
JOHN LANCE COMPANY, VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP,
SNAPPY CAR RENTAL, INC., EURODOLLAR (HOLDINGS) PLC, QUINLAN AUTOMOTIVE GROUP,
EMICH OLDSMOBILE, INC. AND AFFILIATES, ANDERSON DEALERSHIP GROUP AND AFFILIATES,
DOBBS AUTOMOTIVE GROUP, ABRAHAM AUTOMOTIVE GROUP, CHAMPION AUTOMOTIVE GROUP
AND SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In millions, except per share data)
<TABLE>
<CAPTION>
REPUBLIC AUTONATION(1) GRUBB(1) KENDALL(2) YORK(2) SHAD(3) BANKSTON(3) LANCE(4) VALUE(5)
--------- ------------- -------- --------- ------ ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $7,377.4 $ 14.2 $42.0 $69.6 $ 6.9 $45.6 $87.0 $31.0 $ 97.0
Expenses:
Cost of operations 6,139.2 15.1 37.8 63.1 5.2 40.3 75.7 26.6 80.8
Selling, general and
administrative 891.8 8.9 3.8 5.4 .9 4.9 10.4 3.0 24.8
Restructuring and
merger expenses 94.1 -- -- -- -- -- -- -- --
Other (income) expense:
Interest and other income (121.5) -- (.2) (.2) (.1) (.1) (.5) (.1) (.1)
Interest expense 13.7 1.1 -- .3 .1 -- .2 -- 3.7
-------- ------ ----- ----- ----- ----- ----- ----- ------
7,017.3 25.1 41.4 68.6 6.1 45.1 85.8 29.5 109.2
-------- ------ ----- ----- ----- ----- ----- ----- ------
Income (loss) before
income taxes 360.1 (10.9) .6 1.0 .8 .5 1.2 1.5 (12.2)
Provision for income taxes 131.1 -- -- -- -- -- -- -- --
-------- ------ ----- ----- ----- ----- ----- ----- ------
Income (loss) from
continuing operations $ 229.0 $(10.9) $ .6 $ 1.0 $ .8 $ .5 $ 1.2 $ 1.5 $(12.2)
======== ====== ===== ===== ===== ===== ===== ===== ======
Earnings from
continuing operations per
share $ .54
========
Weighted average shares
outstanding 426.8 17.5 4.0 1.2 1.1 .5 1.4 .8 3.4
======== ====== ===== ===== ===== ===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
COURTESY(5) SNAPPY(6) EURODOLLAR(7) QUINLAN(7)
---------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue $86.2 $49.6 $ 142.9 $ 163.1
Expenses:
Cost of operations 74.4 41.8 62.6 143.3
Selling, general and
administrative 11.4 7.7 57.2 15.7
Restructuring and
merger expenses -- -- -- --
Other (income) expense:
Interest and other income -- (.8) (.2) --
Interest expense -- .9 12.5 --
----- ----- -------- --------
85.8 49.6 132.1 159.0
----- ----- -------- --------
Income (loss) before
income taxes .4 -- 10.8 4.1
Provision for income taxes -- -- -- --
----- ----- -------- --------
Income (loss) from
continuing operations $ .4 $ -- $ 10.8 $ 4.1
===== ===== ======== ========
Earnings per share
from continuing operations
Weighted average shares
outstanding 1.4 1.0 -- --
===== ===== ======== ========
</TABLE>
F-146
<PAGE> 148
<TABLE>
<CAPTION>
EMICH(7) ANDERSON(7) DOBBS(7) ABRAHAM(7) CHAMPION(7) SOUTHERN(7)
----------- ---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 239.4 $222.0 $694.8 $ 169.3 $ 271.1 $402.4
Expenses:
Cost of operations 208.6 194.8 615.9 144.9 248.6 356.0
Selling, general and
administrative 23.3 23.0 61.3 18.5 16.2 40.6
Restructuring and
merger expenses -- -- -- -- -- --
Other (income) expense:
Interest and other income -- (.6) (2.2) (.5) (1.1) --
Interest expense -- 2.6 2.8 .1 .5 1.0
-------- ------ ------ -------- --------- ------
231.9 219.8 677.8 163.0 264.2 397.6
-------- ------ ------ -------- --------- ------
Income (loss) before
income taxes 7.5 2.2 17.0 6.3 6.9 4.8
Provision for income taxes -- -- .9 .4 3.1 .5
-------- ------ ------ -------- --------- ------
Income (loss) from
continuing operations $ 7.5 $ 2.2 $ 16.1 $ 5.9 $ 3.8 $ 4.3
======== ====== ====== ======== ========= ======
Earnings per share
from continuing operations
Weighted average shares
outstanding 1.7 1.7 1.6 .5 -- 4.8
======== ====== ====== ======== ========= =====
PRO FORMA
ADJUSTMENTS
---------------------------- PRO FORMA
COMBINED DR. CR. COMBINED
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Revenue $10,211.5 $10,211.5
Expenses:
Cost of operations 8,574.7 12.1(h) 8,586.8
Selling, general and
administrative 1,228.8 1,228.8
Restructuring and
merger expenses 94.1 94.1
Other (income) expense:
Interest and other income (128.2) (128.2)
Interest expense 39.5 39.5
-------- ------ ------ --------
9,808.9 12.1 9,821.0
-------- ------ ------ --------
Income (loss) before
income taxes 402.6 12.1 390.5
Provision for income taxes 136.0 6.4(j) 142.4
-------- ------ ------ --------
Income (loss) from
continuing operations $ 266.6 $ 18.5 $ 248.1
======== ====== ====== ========
Earnings per share
from continuing operations $ .56
========
Weighted average shares
outstanding 469.4 (26.0)(k) 443.4
======== ====== ========
- ---------------------
(1) Represents the pre-acquisition results of operations for the month of January 1997.
(2) Represents the pre-acquisition results of operations for the months of January and
February 1997.
(3) Represents the pre-acquisition results of operations for the months
January through April 1997.
(4) Represents the pre-acquisition results of operations for the months
January through May 1997.
(5) Represents the pre-acquisition results of operations for the months of
January through June 1997.
(6) Represents the pre-acquisition results of operations for the months of
January through July 1997.
(7) Represents the pre-acquisition results of operations for the months of
January through September 1997.
</TABLE>
The accompanying notes are an integral part of these statements.
F-147
<PAGE> 149
REPUBLIC INDUSTRIES, INC.,
AUTONATION INCORPORATED, ED MULLINAX, INC.,
GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP,
AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC.,
SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP,
JOHN LANCE COMPANY, VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP,
SNAPPY CAR RENTAL, INC., DESERT AUTOMOTIVE GROUP, EURODOLLAR (HOLDINGS) PLC,
QUINLAN AUTOMOTIVE GROUP, EMICH OLDSMOBILE, INC. AND AFFILIATES,
ANDERSON DEALERSHIP GROUP AND AFFILIATES,
DOBBS AUTOMOTIVE GROUP, ABRAHAM AUTOMOTIVE GROUP, CHAMPION AUTOMOTIVE GROUP
AND SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In millions, except per share data)
<TABLE>
<CAPTION>
REPUBLIC AUTONATION MULLINAX GRUBB KENDALL AAA YORK SHAD BANKSTON(1) LANCE VALUE
--------- ---------- -------- ------ ------- ----- ----- ----- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $6,094.6 $ 31.5 $659.0 $440.0 $405.8 $32.4 $39.3 $92.4 $ 285.7 $65.7 $ 173.8
Expenses:
Cost of operations 5,066.0 42.8 589.8 384.8 367.1 23.7 31.8 82.8 247.2 56.0 142.4
Selling, general and
administrative 915.8 38.5 54.5 46.9 34.3 5.1 4.6 9.4 32.7 7.8 44.2
Restructuring and merger
expenses 38.3 -- -- -- -- -- -- -- -- -- --
Other (income) expense:
Interest and other income (35.3) -- -- (2.0) (.7) (.2) (.3) (.2) -- (.1) 1.8
Interest expense 45.4 5.6 .9 4.3 1.3 .5 .7 -- 2.5 -- 6.6
-------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------
6,030.2 86.9 645.2 434.0 402.0 29.1 36.8 92.0 282.4 63.7 195.0
-------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------
Income (loss) before
income taxes and
extraordinary charge 64.4 (55.4) 13.8 6.0 3.8 3.3 2.5 .4 3.3 2.0 (21.2)
Provision (benefit) for
income taxes 57.0 -- -- -- -- -- -- .4 .1 -- --
-------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------
Income (loss) from
continuing operations
before extraordinary
charge $ 7.4 $(55.4) $ 13.8 $ 6.0 $ 3.8 $ 3.3 $ 2.5 $ -- $ 3.2 $ 2.0 $ (21.2)
======== ====== ====== ====== ====== ===== ===== ===== ======= ===== =======
Earnings from
continuing operations
per share before
extraordinary charge $ .02
========
Weighted average shares
outstanding 344.1 17.5 3.6 4.0 1.2 2.9 1.1 .5 1.4 .8 3.4
======== ====== ====== ====== ====== ===== ===== ===== ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
COURTESY SNAPPY DESERT EURODOLLAR(1) QUINLAN EMICH
---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 186.2 $ 91.4 $ 105.5 $ 176.1 $ 175.3 $ 309.9
Expenses:
Cost of operations 165.3 80.5 87.6 75.6 151.8 269.7
Selling, general and
administrative 20.3 15.8 12.7 72.6 20.0 36.7
Restructuring and merger
expenses -- -- -- -- -- --
Other (income) expense:
Interest and other income (2.1) (1.4) (1.2) (.3) -- --
Interest expense .4 1.3 .4 14.7 -- --
-------- -------- -------- ------- ------- --------
183.9 96.2 99.5 162.6 171.8 306.4
-------- -------- -------- ------- ------- --------
Income (loss) before
income taxes and
extraordinary charge 2.3 (4.8) 6.0 13.5 3.5 3.5
Provision (benefit) for
income taxes -- (2.4) -- 3.3 -- --
-------- -------- -------- ------- ------- --------
Income (loss) from
continuing operations
before extraordinary
charge $ 2.3 $ (2.4) $ 6.0 $ 10.2 $ 3.5 $ 3.5
======== ======== ======== ======= ======= ========
Earnings from
continuing operations per
share before extraordinary
charge
Weighted average shares
outstanding 1.4 1.0 1.4 -- -- 1.7
======== ======== ======== ======= ======= ========
</TABLE>
F-148
<PAGE> 150
<TABLE>
<CAPTION>
ANDERSON DOBBS ABRAHAM CHAMPION SOUTHERN
---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenue $ 210.0 $ 861.2 $ 230.1 $258.0 $ 443.8
Expenses:
Cost of operations 184.2 759.5 196.6 235.8 393.4
Selling, general and
administrative 22.1 79.7 27.0 21.9 46.6
Restructuring and merger
expenses
Other (income) expense:
Interest and other income (.2) (3.2) (.5) (1.9) (1.5)
Interest expense 2.7 5.6 .2 -- .3
-------- -------- -------- ------- -------
208.8 841.6 223.3 255.8 438.8
-------- -------- -------- ------- -------
Income (loss) before
income taxes and
extraordinary charge 1.2 19.6 6.8 2.2 5.0
Provision (benefit) for
income taxes -- .7 .8 -- .6
-------- -------- -------- ------- -------
Income (loss) from
continuing operations
before extraordinary
charge $ 1.2 $ 18.9 $ 6.0 $ 2.2 $ 4.4
======== ======== ======== ======= =======
Earnings from
continuing operations
per share before
extraordinary charge
Weighted average shares
outstanding 1.7 1.6 .5 -- 4.8
======== ======== ======== ======= =======
PRO FORMA
ADJUSTMENTS
-------------------------
PRO FORMA
COMBINED DR. CR. COMBINED
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue $11,367.7 $11,367.7
Expenses:
Cost of operations 9,634.4 30.5(h) 42.6(i) 9,617.9
Selling, general and 4.4(a)
administrative 1,569.2 1,569.2
Restructuring and merger
expenses 38.3 38.3
Other (income) expense:
Interest and other income (49.3) 5.6(g) (43.7)
Interest expense 93.4 87.8(i) --
5.6(g)
--------- -------- -------- ---------
11,286.0 36.1 140.4 11,181.7
--------- -------- -------- ---------
Income (loss) before
income taxes and
extraordinary charge 81.7 36.1 140.4 186.0
Provision (benefit) for
income taxes 60.5 41.5(j) 102.0
--------- -------- -------- ---------
Income (loss) from
continuing operations
before extraordinary
charge $ 21.2 $ 77.6 $ 140.4 $ 84.0
========= ======== ======== =======
Earnings from
continuing operations
per share before
extraordinary charge $ .20
=========
Weighted average shares
outstanding 394.6 29.8(k) 424.4
======== ======== =========
- ------------------
(1) Represents the fiscal year ended March 31, 1997.
</TABLE>
The accompanying notes are an integral part of these statements.
F-149
<PAGE> 151
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
ED MULLINAX, INC., GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP,
AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY,
BANKSTON AUTOMOTIVE GROUP, JOHN LANCE COMPANY,
VALUE RENT-A-CAR, INC., COURTESY AUTO GROUP, SNAPPY CAR RENTAL, INC.,
DESERT AUTOMOTIVE GROUP, EURODOLLAR (HOLDINGS) PLC,
QUINLAN AUTOMOTIVE GROUP, EMICH OLDSMOBILE, INC. AND AFFILIATES,
ANDERSON DEALERSHIP GROUP AND AFFILIATES,
DOBBS AUTOMOTIVE GROUP, ABRAHAM AUTOMOTIVE GROUP, CHAMPION AUTOMOTIVE GROUP
AND SOUTHERN CALIFORNIA AUTOMOTIVE GROUP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(a) Represents an entry to conform the inventory accounting policies of
acquired companies from LIFO to the specific identification method.
(b) Represents an entry to record intangible assets resulting from the
preliminary allocations of the purchase prices for the acquisitions of
EuroDollar, Quinlan, Emich, Anderson, Dobbs, Abraham and Champion and
the pending acquisition of Southern as follows (in millions):
<TABLE>
<S> <C>
Shares of Republic Common Stock to be issued................ 10.3
Value of Republic Common Stock, cash consideration
and notes issued.......................................... $627.6
Historical net assets....................................... (155.2)
Write-up of inventory to fair value......................... (45.2)
------
Allocation to intangible assets............................. $427.2
======
</TABLE>
(c) Represents an entry to eliminate the historical equity balances of
EuroDollar, Quinlan, Emich, Anderson, Dobbs, Abraham,
Champion and Southern.
(d) Represents the recording of equity resulting from the Company's issuance
of Common Stock to effect the acquisitions of Emich, Anderson, Dobbs,
Abraham and Southern.
(e) Represents an entry to record the cash paid and notes issued for the
acquisitions of EuroDollar, Quinlan, Anderson, Dobbs, Abraham and Champion.
(f) Represents an entry to record borrowings to fund cash paid for
acquisitions.
(g) Represents an entry to eliminate interest on advances from the Company to
AutoNation.
(h) Represents an adjustment to record amortization, on a straight-line basis,
of the intangible assets resulting from the preliminary purchase price
allocations of AutoNation, Mullinax (1996 only), Grubb, Kendall, York,
Shad, Bankston, Lance, Value, Courtesy, Snappy, EuroDollar, Quinlan, Emich,
Anderson, Dobbs, Abraham, Champion and Southern. Intangible assets
resulting from these purchases are being amortized over a 40 year life
which approximates the estimated useful life.
(i) Represents the assumed interest savings on the payoff of a portion of the
existing indebtedness outstanding as of January 1, 1996 of the combined
entity with the proceeds from the 1996 and 1997 Equity Transactions which
are also assumed to have occurred as of January 1, 1996.
(j) Represents the incremental change in the combined entity's provision for
income taxes as a result of the pre-tax income (loss) of AutoNation,
Mullinax, Grubb, Kendall, York, AAA, Shad, Bankston, Lance, Value,
Courtesy, Snappy, Desert, EuroDollar, Quinlan, Emich, Anderson, Dobbs,
Abraham, Champion and Southern and all pro forma adjustments as described
above.
(k) Includes the weighted average effect of shares issued in the acquisitions
and/or the 1996 and 1997 Equity Transactions.
F-150
