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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 1-13107
REPUBLIC INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 73-1105145
(State of Incorporation) (I.R.S. Employer
Identification No.)
110 S.E. 6TH STREET
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (954) 769-6000
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, Par Value $.01 Per Share The New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 24, 1999, the registrant had 453,764,032 shares of Common Stock
outstanding and, at such date, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was approximately
$4,983,642,485.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant's Proxy Statement relative to the 1999
Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration statements.
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INDEX
TO FORM 10-K
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PAGE NUMBER
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal and Administrative Proceedings........................ 24
Item 4. Submission of Matters to a Vote of Security Holders......... 24
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 25
Item 6. Selected Financial Data..................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 27
Item 8. Financial Statements and Supplementary Data................. 41
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 70
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 71
Item 11. Executive Compensation...................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 71
Item 13. Certain Relationships and Related Transactions.............. 71
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 72
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Republic Industries, Inc. (the "Company") is the largest automotive
retailer in the United States and one of the country's leading providers of
vehicle rental services. The Company owns approximately 380 franchised
automotive dealerships in 20 states. The Company also owns 37 and franchises 8
AutoNation USA used vehicle megastores in 13 states. In addition, the Company
owns National Car Rental System, Inc. ("National"), Alamo Rent-A-Car, Inc.
("Alamo") and CarTemps USA.
The Company's automotive retail business consists of the sale, lease and
financing of new and used vehicles and related automotive services and products.
The Company's retail operations are organized into 10 regional districts which
cover 28 major domestic markets. The Company owns and operates franchises
granted by the manufacturers of 39 different brands of cars and light trucks.
The Company's automotive rental business rents vehicles on a daily or
weekly basis to leisure and business travelers principally from on-airport or
near airport locations through National and Alamo and to local customers who
need replacement vehicles from locations in suburban areas through CarTemps USA.
The Company's automotive rental business operates in all 50 states in the United
States, and in Canada, the Caribbean, Latin America, the Pacific, Australia,
Europe, Africa and the Middle East.
The Company was incorporated in Oklahoma in 1980 and reincorporated in
Delaware in 1991. The Company's common stock, par value $.01 per share ("Common
Stock"), is listed on the New York Stock Exchange ("NYSE") under the symbol
"RII". For information concerning financial condition, results of operations,
related financial data and business segment information, and regarding business
combinations, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." For certain risk factors related to the
Company's business, operations and financial performance, see "-- Risk Factors."
RECENT EVENTS
In May 1998, the Company announced its intention to separate its solid
waste services business, Republic Services, Inc. ("RSG"), from the Company. The
Company and RSG have entered into certain agreements providing for the
separation and governing various interim and ongoing relationships between the
companies. The Company also announced its intention to distribute its remaining
shares of RSG's common stock as of the distribution date to the Company's
stockholders in 1999, subject to conditions and consents. The distribution was
contingent on the Company obtaining a private letter ruling from the Internal
Revenue Service ("IRS") to the effect that, among other things, the distribution
would qualify as a tax free distribution for federal income tax purposes under
Section 355 of the Internal Revenue Code of 1986, as amended, in form and
substance satisfactory to the Company.
In July 1998, the Company filed its request for the private letter ruling
with the IRS, and continued to process the request through February 1999 with
the expectation of completing the distribution in mid-1999. In March 1999, the
IRS advised the Company in writing that the IRS would not rule as requested. In
light of the IRS action, the Company's Board of Directors decided in March 1999
not to make the distribution but to sell its remaining stock in RSG.
Accordingly, the Company's solid waste services segment has been accounted for
as discontinued operations.
The operations of RSG primarily consist of the collection and disposal of
non-hazardous solid waste. RSG is 63.9% owned by the Company and is a public
company traded on the New York Stock Exchange. Information about RSG's business,
including its business strategy and operations, is incorporated by reference to
Item 1 of RSG's Annual Report on Form 10-K for the year ended December 31, 1998
as filed with the Securities and Exchange Commission (Commission File No.
1-14267).
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BUSINESS STRATEGY
The Company's business strategy is to improve stockholder value by
enhancing its market share and earnings by (1) improving customer satisfaction,
(2) building strong national brands, (3) broadening the Company's operations by
making selective acquisitions of businesses and (4) continuing to integrate and
consolidate operations in the Company's existing lines of business to maximize
revenue and minimize costs. Although management believes that the Company can
compete effectively in the automotive retail and rental businesses by obtaining
business efficiencies, economies of scale and related costs savings, there can
be no assurance that future results will improve as a result of any cost savings
and efficiencies. For certain risks involved in the Company's business strategy,
see "-- Risk Factors."
AUTOMOTIVE RETAIL STRATEGY
Even though the Company is the largest automotive retailer in the United
States, its share of the total automotive retail industry is small. Accordingly,
the Company's management believes that growth opportunities remain in the
fragmented automotive retail markets, and expects that the Company's significant
growth will continue for the foreseeable future.
Three-Step Growth Model
The Company's strategic model for building its automotive retail business
follows a three-step plan:
- Acquire the best franchised automotive dealerships in the nation.
- Build these franchised dealerships into a national retail network.
- Re-define the customer experience by changing the sales and service
processes to better serve customers needs.
Acquire the Best Franchised Dealerships. The Company has acquired many of
the finest franchised automotive dealerships in some of the fastest-growing
markets in the United States. The Company has sought out dealerships with well
established reputations for quality service, competitive pricing and programs
designed to improve customer convenience and satisfaction. The objective of the
Company's acquisition strategy is to be the leading automotive retailer in every
market in which it operates. Currently, the Company owns dealerships in 28
markets. The Company will continue making acquisitions in 1999, especially to
build its presence in existing markets.
Build a Retail Network. In 1998 the Company progressed to the second level
of its strategic model, building a strong retail network. The Company has
organized its franchised automotive dealerships and AutoNation USA megastores
into districts, and market clusters within these districts. The Company's 10
automotive retail districts are organized to leverage the strengths of the
franchised dealerships and AutoNation USA megastores. The Company is now
managing the combined resources of each district to reduce costs, become the
low-price provider and build market share. The district structure leverages
economies of scale in advertising, inventory sharing, cross-selling and other
retail functions. The district structure also supports the dealerships and
places the day-to-day decision-making in the local market, closer to the
customer.
The district structure also provides opportunities for the Company's
dealerships to share best practices. The Company's automotive dealerships are
sharing people, vehicle and parts inventories, service and collision
assignments, and administrative operations. In this highly competitive business,
the Company intends to be the low-price provider -- delivering every product and
service our customers require at the lowest possible price. The Company is also
finding new ways to attract and retain customers as the Company's network
expands.
During 1998, the Company opened nine AutoNation USA megastores and acquired
Driver's Mart Worldwide, Inc., the franchisor of eight Driver's Mart used
vehicle locations which were subsequently re-branded AutoNation USA. The total
number of megastores at the end of 1998 was 42. Three more megastores were
opened in 1999, bringing the total to 45 locations in 13 states. The Company
does not plan to open any
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additional AutoNation USA megastores in 1999. During 1999 a number of the
megastore sites will be re-configured to add franchised automotive dealerships.
These franchises will create new profit centers and should drive more traffic to
the megastores.
Re-Define the Customer Experience. Each of the Company's districts is
focused on building a retail network of new and used vehicle stores, increasing
market share, revenue and earnings and delivering superior customer
satisfaction. In the Denver district, the Company is also focused on the third
part of the strategy -- redefining the customer experience. In December 1998,
the Company launched the "Mile High Project" and converted all of its franchised
automotive dealerships in Denver into a single network co-branded "AutoNation
USA." The Denver stores feature common sales, service and operating practices
including, a one-price, no-haggle policy which emphasizes customer service and
owner retention initiatives. The Company's stores also offer a guarantee on
certain repair work for twelve months or 12,000 miles. Other innovations include
touch-screen kiosks that allow customers to browse Denver-wide inventories,
appraisals for trade-ins that are valid at all Denver locations, a menu finance
and insurance selling system and a three-day, 150-mile refund policy on all
vehicles. Customer reaction to date has been positive.
The Company anticipates that its unique and extensive network of franchised
automotive dealerships and AutoNation USA megastores will provide consumers with
access to benefits not available elsewhere. The ownership and operation of
numerous franchised automotive dealerships and AutoNation USA megastores within
each district permit the Company to sell to customers many brands and models of
vehicles from the vast inventory within the district. The large number of stores
within each district also permit the Company to capture the warranty, service
and parts needs of consumers who purchase many brands and models of vehicles,
and to offer local/replacement vehicle rental service to customers through
CarTemps USA at many of the Company's larger dealerships and AutoNation USA
megastores when vehicles are being serviced or repaired.
The Company's goal is to establish AutoNation as a brand which consumers
identify with trust, innovation, value and service. The Company also believes
that its programs and benefits will result in higher customer satisfaction
ratings. These programs and benefits will continue to improve as the Company
implements the best dealer practices in its retail network. Finally, the Company
will be able to accumulate a unique customer database to further identify and
meet consumer needs.
E-Commerce Strategy
In 1998 the Company established websites for each of the Company's
franchised automotive dealerships and AutoNation USA megastores. The Company
began selling vehicles on-line via the internet in the fourth quarter of 1998.
The Company has developed an e-commerce sales force of specially trained
internet sales consultants based at the Company's franchised automotive
dealerships and AutoNation USA megastores. These consultants use "Compass," a
proprietary software program to track and service internet sales leads. Compass,
which can alert an internet sales consultant as soon as an inquiry is received,
can be accessed wherever internet service is available -- 24 hours a day, seven
days a week. That allows rapid response times to e-commerce inquiries. Unlike
internet lead generators, however, the Company owns the lead from the moment the
prospective buyer clicks onto one of its sites until the moment they purchase
the vehicle. The Company has also developed relationships with most third party
lead generators.
AUTOMOTIVE RENTAL STRATEGY
In its automotive rental business, the Company's goal is to become a fully
integrated and leading provider of services to consumers in the business and
leisure travel markets and to continue to expand its presence in the
local/replacement vehicle rental market. The Company intends to maximize the
benefits of the brand equity that both National and Alamo enjoy while realizing
significant economies of scale through the consolidation of overlapping
administrative functions. A "two brands, supported by a common organization"
business strategy will be used to leverage the strengths of each company.
The Company formed the North American Rental Group in 1998 to manage
National and Alamo and reduce operating costs, share fleet and build a
state-of-the-art operating and revenue management system. In 1998, the Company
installed this system, called Global Odyssey, at each National Car Rental
location. This
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system will be installed at each Alamo location and once the installation is
completed, the two companies will share a common information technology platform
facilitating more sophisticated inventory management and fleet sharing.
The Company's local/replacement vehicle rental business was rebranded under
the CarTemps USA brand name in 1998. The Company expects to have a total of 500
CarTemps USA locations in the United States by the end of 1999. The Company also
expects to have CarTemps USA locations at most of the Company's larger
franchised automotive dealerships and AutoNation USA megastores.
OPERATIONS
The Company's operations are organized primarily into two general industry
segments, automotive retail and automotive rental. The Company has classified
its solid waste services segment as discontinued operations. See
"Business-Recent Events."
AUTOMOTIVE RETAIL
The Company owns approximately 380 franchised automotive dealerships in 20
states. The Company also owns 37 and franchises 8 AutoNation USA megastores in
13 states. The new vehicle franchises include practically all brands of cars and
light trucks.
The Company has established 10 automotive retail districts to operate its
automotive retail businesses, including its franchised automotive dealerships
and its AutoNation USA megastores. Each automotive retail district is designed
to serve local retail consumers in a defined geographic area and function as a
distinct business unit under one local management team. The number of stores in
each district vary.
Each of the Company's franchised automotive dealerships offers brand name
new and used vehicles. Customers generally have a choice of purchasing or
leasing any vehicle. In recent years the number of leasing transactions has
increased due to the rising prices of new vehicles and the support of vehicle
manufacturers. Through the use of captive leasing companies, manufacturers have
supported the residual values of leased vehicles which has lowered the monthly
payments on leased vehicles relative to purchased vehicles that are financed.
Each of the Company's franchised automotive dealerships also offers aftermarket
products such as cellular phones, upgraded sound systems, alarms, extended
service contracts and other finance and insurance products. Almost all of the
Company's franchised automotive dealerships have service facilities which
provide a wide range of vehicle maintenance and repair services.
The Company provides financial products and services to the Company's
customers through its automotive finance subsidiary, AutoNation Financial
Services, and through third parties, including the vehicle manufacturers'
finance companies. Having its own in-house finance company allows the Company to
maintain the quality and consistency of financial products offered throughout
its network of automotive retailers. The range of AutoNation Financial Services
products includes retail and lease financing, secondary customer referral
programs, vehicle protection and maintenance programs and insurance products.
New vehicles are acquired directly from the manufacturers and the mix of
vehicles is generally determined by the manufacturers based on several factors
including the size and location of the dealership and the dealer's sales record
and customer satisfaction rating. Used vehicles are generally acquired from
customer trade-ins and off-lease vehicles. The Company has several other sources
of supply for used vehicles, including purchasing from automotive dealerships
and, to a lesser extent, auctions and other sources. At the auctions, the
Company purchases used vehicles through competitive bidding. Generally, used
vehicles acquired for retail sale at its franchised automotive dealerships and
AutoNation USA megastores are reconditioned by the Company. The Company uses the
service facilities at its AutoNation USA megastores and franchised automotive
dealerships to recondition used vehicles.
Each of the Company's automotive dealerships operates under a franchise
agreement with a vehicle manufacturer. The franchise agreements generally grant
the franchised automotive dealership a non-exclusive right to sell the
manufacturer's brand of vehicles and offer related parts and service within a
specified market area. Generally, a manufacturer will retain the discretion to
allocate the mix of vehicles distributed to its
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franchised dealerships within a given market area. The franchise agreements also
grant the dealerships the right to use the manufacturer's trade names in
connection with the sale of its vehicles. The franchise agreements generally
impose operational requirements and restrictions on the automotive dealerships
relating to inventory levels, working capital requirements, showroom, service
facilities and signage, personnel and monthly financial reporting, among other
things. The franchise agreements generally provide for termination of the
agreement by the manufacturer or non-renewal for a variety of causes including
changes of ownership without prior approval, certain bankruptcy related events,
the death, disability or conviction of the dealer principal, the failure to
maintain certain customer satisfaction ratings, or any material breach of the
franchise agreement.
The Company has entered into framework agreements with most major vehicle
manufacturers. These agreements generally contain provisions relating to the
Company's acquisition, ownership structure, management and operation of
automotive dealerships franchised by such manufacturers. Such agreements also
set limits on the number of dealerships which the Company may acquire of the
particular manufacturer, based upon either retail sales or a fixed number of
dealerships. From time to time, the Company will approach these limits with
respect to a few manufacturers as it continues to expand and acquire franchised
automotive dealership groups. In addition, certain of the agreements provide
that the manufacturer will have the right to acquire, for fair market value, any
of a manufacturer's franchised automotive dealerships operated by the Company
under certain circumstances, in the event of a change in control of the Company,
the acquisition of 20% or more of the voting stock of the Company by another
manufacturer or certain other extraordinary corporate transactions such as a
merger or sale of all of the Company's assets.
There are also various federal and state laws that govern the relationships
between franchised automotive dealerships and vehicle manufacturers. These
include statutes that prohibit manufacturers from terminating or failing to
renew a franchise without good cause and that prohibit manufacturers from
unreasonably withholding approval of a proposed change in ownership. Under such
statutes, a vehicle manufacturer may disapprove of a proposed change in
ownership only for certain enumerated reasons involving such matters as the
moral character, financial capability and/or business experience of the proposed
transferee.
AUTOMOTIVE RENTAL
The automotive rental industry is composed of three principal markets: the
market for business travelers, the market for leisure travelers and the market
for local replacement vehicles. In the business and leisure markets, the Company
rents vehicles principally from on-airport or near-airport locations. In the
local/replacement market, the Company rents vehicles primarily to individuals
who have temporarily lost the use of their vehicles through accident, theft,
breakdown or other occurrences. The local/replacement market rents principally
from locations in suburban areas.
National principally targets the general use market for business travelers.
National's vehicle rental business operates in all 50 states in the United
States and in Canada, the Caribbean, Latin America, the Pacific, Australia,
Europe, Africa and the Middle East. National serves its customers in Japan and
other parts of the Pacific through a marketing affiliation with Nippon
Rent-A-Car. Prior to February 1, 1998, National served its customers in Europe,
Africa and the Middle East through a marketing affiliation with
Europcar/Interrent. Beginning February 1, 1998, as a result of the Company's
acquisition of EuroDollar plc in the fourth quarter of 1997, National began to
operate, and in some cases license, locations in Europe, Africa and the Middle
East. EuroDollar operations in Europe were rebranded as National operations in
1998.
Alamo principally targets the general use market for leisure travelers.
Alamo's vehicle rental business operates in 35 states in the United States and
in Canada, Mexico and Europe. As a result of the Company's acquisition of
EuroDollar plc, Alamo is being co-branded with National at numerous locations
through Europe, Africa and the Middle East.
In the United States, all of Alamo's rental locations and most of
National's rental locations in large markets are corporate-owned. National
licenses a number of its locations to third party operators, generally in
smaller domestic markets and in many foreign markets. Alamo licenses a number of
its international locations to third party operators. All of the CarTemps USA
locations are corporate-owned.
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General Motors has been the principal supplier of rental vehicles to
National and Alamo for many years. In the 1998 model year, vehicles manufactured
by General Motors made up approximately 70% of National and Alamo's domestic
rental fleet purchases.
A large percentage of the Company's fleet purchases are subject to
manufacturer repurchase programs. National and Alamo purchased approximately 94%
of their combined U.S. rental fleet during model year 1997 and 91% during 1998
under repurchase programs pursuant to which either the manufacturer is obligated
to repurchase vehicles within designated periods of time or the manufacturer has
guaranteed that the vehicles will not depreciate more than a specified amount
compared to actual auction prices. Approximately 80% of the Company's combined
vehicle rental fleet in 1999 will be acquired under repurchase programs. The
Company may, at its option, require the manufacturers to repurchase vehicles
under the repurchase programs at any time during allowable periods. If vehicles
subject to repurchase programs are returned earlier than originally anticipated,
the depreciation expense is usually increased for the period such vehicles were
in service. Vehicle depreciation is the single largest cost component of the
Company's automotive rental operations, and it is materially affected by vehicle
manufacturers' repurchase programs.
Under the repurchase programs with General Motors, the rental fleets of
National and Alamo must consist of specified minimum percentages of General
Motors vehicles. Through model year 2000, National and Alamo must maintain at
least 51% of General Motors vehicles in order to be eligible for certain
incentives under the repurchase programs. In return, General Motors has agreed
to make available a specified minimum number of vehicles each model year.
Purchases made outside of repurchase programs are made from a number of
sources, including private and public auctions, wholesalers, automotive
dealerships and vehicle manufacturers. Vehicles that are not subject to
repurchase programs are disposed of through private and public auctions and
resales to wholesalers and automotive dealerships, among other methods.
Concession fees for airport locations are generally based on a percentage
of total revenue (as determined by each airport), subject to a minimum
guaranteed amount. Concessions are typically awarded by airport authorities
every three to five years based upon competitive bids. At near-airport
locations, airport authorities generally charge permit fees for the privilege of
customer pick-up and drop-off at terminals by courtesy vans or buses. At almost
all airports at which they operate, National and Alamo are two of several
vehicle rental concessionaires.
The Company operates five reservations centers used primarily for bookings
by business and leisure travelers. The systems reroute calls to less utilized
centers so that customers get the best and quickest service. In addition, the
National and Alamo systems are linked so that if one is sold out the customer
will be rerouted to the other for service. A large percentage of National's and
Alamo's bookings are also made through an automated global distribution system
as commercial renters typically book reservations through travel agencies.
In addition to basic vehicle rental charges, the sale of rental related
products generates a significant, but declining, percentage of revenue. Such
rental related products include collision damage waivers, additional liability
protection, personal accident and personal effects protection, other travel
related insurance coverages and travel related products such as vehicle
upgrades, gasoline services, inter-city drop-off charges, and miscellaneous
items such as child restraint seats, ski racks, cellular phones and additional
driver fees.
SALES AND MARKETING
The Company believes in providing quality services which will enable it to
maintain high levels of satisfaction from its customers in all business
segments. The Company derives its business from a broad customer base which the
Company believes will enable it to experience stable growth. Marketing efforts
focus on continuing and increasing business with existing customers as well as
attracting new customers.
Automotive Retail. With respect to the Company's automotive retail
operations, the Company engages in mass marketing and advertising in various
media to attract a broad retail customer base in the markets in which it
operates and to make AutoNation USA a nationally-recognized brand.
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The Company's marketing and advertising activities may vary among its
automotive retail districts and advertising purchases are determined at the
local level in each district. The Company advertises primarily through
newspapers, radio and television in each district's local market. The Company
expects to continue to realize cost savings and efficiencies with respect to
advertising expenses, due to volume discounts and other concessions as it
clusters multiple franchised automotive dealerships and AutoNation USA
megastores within particular markets.
Automotive Rental. The Company's sales and marketing strategy for National
and Alamo is to continue to promote their distinctive brands through a variety
of media, relationships with airlines, hotels and others in the travel industry.
National principally targets business travelers who are typically covered under
corporate travel contracts. National's objective is to be the global vehicle
rental service of choice by developing time-saving options which enhance
customer loyalty and satisfaction and to be the value leader in its market
segment. Alamo principally targets leisure and other cost-conscious travelers.
Alamo's objective is to be the low-price provider of vehicle rental service and
to increase customer satisfaction and retention by developing innovative
products and services which fit its customers' unique needs. CarTemps USA, the
Company's local/replacement vehicle rental brand, generates the majority of its
revenue from insurance replacement customers, with the remainder coming from
dealership referrals and local body shops.
CUSTOMERS
As of December 31, 1998, no one customer individually comprised more than
10% of the total revenue of any business segment of the Company.
REGULATIONS
Automotive Regulations
The Company's automotive retail operations are subject to various federal,
state and local laws and regulations including those relating to taxing and
licensing of vehicles, consumer protection, finance, insurance, advertising,
currency controls, used vehicle sales, zoning and land use, environmental and
labor matters.
The Company's automotive rental operations generally are subject to similar
laws and regulations. In addition, approximately 40 states have considered
legislation affecting the sale of collision damage waiver products. To date, 18
of those states have enacted legislation requiring the disclosure to each
customer at the time of rental that damage to the rental vehicle may be covered
by the customer's personal automobile insurance and that purchase of a collision
damage waiver may not be necessary. In addition, adoption of national or state
legislation limiting the sale, or capping the rates, of collision damage waiver
products could further restrict sales of this product and additional limitations
of potential customer liability would increase the cost of the Company's vehicle
rental operations. During the past two years, however, one state enacted
legislation to rescind the price control of collision damage waiver (also known
as loss damage waiver) and another state enacted legislation to partially
rescind renter immunity from liability and permitted the sale of collision
damage waivers/loss damage waivers.
As a result of private and past governmental regulatory legal proceedings
in certain states regarding the sale of optional service items at the rental
counter, including liability insurance, personal accident coverage, personal
effects coverage and other travel related coverages, the vehicle rental industry
has requested regulatory agencies and legislative bodies to provide affirmative
authorization for the sale of these services and products. To date, several
states have adopted clarifying legislation to either fully exempt the industry
from licensing requirements or have enacted special or limited licenses to
specifically cover the sale of insurance products incidental to the vehicle
rental. However, the outcome of the legal proceedings and the initiation of any
future governmental regulatory proceeding could negatively impact the revenue
generated from the sale of these services and products.
The Company's automotive rental operations are also subject to various
federal, state and local consumer protection laws and regulations including
those relating to advertising and disclosure of charges to customers.
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The National Association of Attorneys General has promulgated suggested
guidelines for vehicle rental advertisements. Alamo and two other industry
participants are subject to substantially similar consent decrees resulting from
Federal Trade Commission inquiries initiated in 1989, which consent decrees
require certain disclosures to customers at each stage of the rental
transaction, including in advertisements, of charges that are mandatory and not
otherwise reasonably avoidable. The rental car industry has sought and obtained
legislation in numerous states which expressly permits the separate itemization
of vehicle registration fees, airport facility charges and transportation
surcharges.
The Company's automotive retail and rental operations are also subject to
the National Traffic and Motor Vehicle Safety Act, Federal Motor Vehicle Safety
Standards promulgated by the United States Department of Transportation and
various state motor vehicle regulatory agencies.
Environmental Regulations
The operation of the Company's businesses is subject to a variety of
federal, state and local requirements which regulate health, safety, the
environment, zoning and land use. Each state in which the Company operates has
its own laws and regulations governing the management of hazardous materials,
water and air emissions, solid waste disposal, and, in most cases, the release
and cleanup of regulated substances, and liability for such matters. In
addition, permits may be required for certain activities at the Company's
facilities, and these permits are subject to renewal, modification, and
revocation. Governmental authorities can enforce compliance with these
regulatory requirements, and may seek to obtain injunctions or impose fines and
other sanctions, including criminal penalties, for alleged violations. These
regulatory and enforcement programs are administered by the United States
Environmental Protection Agency ("EPA") and various other federal, state and
local environmental, health and safety agencies and authorities.
The Company strives to conduct its operations in compliance with applicable
laws and regulations. The Company's automotive businesses involve the use,
handling, storage, and/or contracting for recycling or disposal of materials
such as used motor oil and filters, transmission fluids, antifreeze,
refrigerants, paints, thinners, batteries, cleaning solvents, lubricants,
degreasing agents and fuel. In response to the trend in many states toward waste
reduction and recycling programs, the Company is reviewing additional
opportunities to implement different applications (for example, air brush
painting), and to use alternative products, thereby reducing waste generation
and related disposal or recycling costs.
Water quality protection programs under the Federal Water Pollution Control
Act of 1972, as amended (the "Clean Water Act") and other federal laws such as
the Safe Drinking Water Act (as amended) affect certain Company operations.
Similarly, certain operations of the Company are subject to the federal Clean
Air Act, and related state and local laws regarding air emissions. The
Occupational Safety and Health Act of 1970, as amended ("OSHA"), authorizes the
Occupational Safety and Health Administration of the U.S. Department of Labor to
promulgate occupational safety and health standards. Various standards,
including those providing employees information and training to manage hazardous
materials, apply to the Company's business operations. The costs of complying
with applicable water and air quality programs, and OSHA regulations are not
expected to have a material adverse effect on the Company.
The Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, as amended (collectively, "RCRA"), and the related
regulations establish a frame-work for regulating the handling, transportation,
treatment and disposal of hazardous and non-hazardous solid wastes. In addition,
a subchapter of RCRA regulates underground storage tanks ("USTs"). Many of the
Company's businesses operate USTs, which are used primarily to store
petroleum-based products. RCRA and various federal, state and local laws and
regulations mandate periodic testing, upgrading, closure and/or removal of USTs
and, in the event of leaks from USTs, require clean-up of the affected
groundwater and soils. The Company has a number of USTs which have been, or are
being upgraded, removed or closed in place. If USTs owned or operated by the
Company leak, and such leakage migrates onto the property of others, the Company
could be subject to liability for response costs, and other damages to third
parties. Compliance with regulations related to USTs has not had, and is not
expected to have, a material adverse effect on the Company.
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<PAGE> 11
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA"), provides, among other things, for the cleanup of
sites from which there is a release or threatened release of a hazardous
substance into the environment. CERCLA imposes strict, retroactive, joint and
several liability for the costs of cleanup and for damages to natural resources
upon past and current owners and operators of the site, as well as parties who
transported or arranged for disposal. Under CERCLA, EPA may clean up sites where
hazardous substances were deposited. Alternatively, the agency may order persons
potentially responsible for the cleanup of the hazardous substances to perform
the clean-up, or offer them an opportunity to do so voluntarily. The Company
could be liable under CERCLA for the cost of cleaning up regulated substances
deposited at certain sites and for damages to nearby natural resources. Certain
entities acquired by the Company were, or have been, designated as potentially
responsible parties at CERCLA sites, typically as a result of disposal or
recycling activities. The Company generally has indemnification rights against
the former entity owners, and certain former owners have been paying remedial
costs for CERCLA cleanups.
COMPETITION
The Company operates in highly competitive industries. Entry into either of
the Company's lines of business and the ability to operate profitably in such
industries requires substantial amounts of capital and managerial experience.
Competition in the Automotive Retail Industry. According to the National
Automotive Dealers Association, Automotive News and reports of various financial
analysts, the automotive retail industry is served by approximately 22,000
franchised automotive dealerships, approximately 56,000 independent used vehicle
dealers, and individual consumers who sell used vehicles in casual private
transactions primarily through classified ads and by word of mouth. In addition
to the Company, several other companies attempting to establish national
automotive retail chains with significant used vehicle operations have conducted
initial public offerings of their securities, with proceeds generally targeted
to be used for acquisitions of automotive dealerships. The Company believes that
the principal competitive factors in the automotive retail business are price,
service, location, availability of vehicles and warranties.
Competition in the Automotive Rental Industry. The automotive rental
industry is characterized by intense price and service competition. In any given
location, the Company's vehicle rental business may encounter competition from
national, regional and local vehicle rental companies. The Company's main
domestic competitors in the business and leisure travel markets are Avis, Inc.,
Budget Rent A Car Corporation, The Hertz Corporation, and, in certain locations,
Dollar-Thrifty Rent A Car and, in the local/replacement vehicle rental market,
those companies and Enterprise Rent-A-Car Company. In Europe and other foreign
markets, the Company's vehicle rental business competes with the companies
listed above, as well as with their international affiliates and licensees and
other national and local vehicle rental companies. At times, the major vehicle
rental companies have been adversely affected by industry-wide price pressures,
and the Company's vehicle rental business has, on such occasions, priced its
product in response to such pressures. Moreover, at times when the vehicle
rental industry has experienced vehicle oversupply, there has been intensified
competitive pressure. This oversupply has had a negative impact on the
industry's rental rates. The Company's vehicle rental business has taken steps
to address its fixed cost structure to improve its overall competitive position;
however, future oversupply or other factors affecting competition could still
adversely affect the Company's business, financial condition and future
prospects.
LIABILITY INSURANCE AND BONDING
General
The nature of the Company's automotive businesses exposes it to the risk of
liabilities arising out of its operations. Such potential liabilities could
involve, for example, claims of employees, customers or third parties for
personal injury or property damage occurring in the course of the Company's
operations; claims for remediation costs, personal injury, property damage, and
damage to the environment in cases where the Company may be held responsible for
the escape of harmful materials; or claims alleging negligence or
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<PAGE> 12
professional errors and omissions in the planning or performance of work. The
Company could also be subject to fines and civil and criminal penalties in
connection with alleged violations of regulatory requirements.
The nature of the Company's automotive retail business exposes it to the
risk of liability for damages arising out of its operations. Additionally, this
industry segment has substantial risk of property loss due to the significant
concentration of property values at the Company's automotive retail locations.
Accordingly, the Company has purchased liability and property insurance as
discussed below.
The nature of the Company's automobile rental business exposes it to
significant risk of liability for damages arising primarily out of accidents
involving automobiles rented from the Company's vehicle rental fleet. Some
states impose vicarious liability on the Company which increases the Company's
risk. The Company manages its exposure through a combination of qualified self
insurance and risk transfer to insurance companies, subject to the risk levels
discussed below, which are rated as financially sound by insurance rating
agencies. The Company carries substantial limits of liability coverage, but
there is no assurance that catastrophic losses might not exceed such limits.
The Company either purchases commercial insurance or is a qualified self
insurer for automobile liability, general liability, workers compensation and
employer's liability claims. The Company retains up to $1 million of risk per
claim, plus claims handling expense under its various liability insurance
programs, primarily relating to claims arising from the Company's automotive
rental operations. Umbrella liability insurance is purchased to provide
insurance in excess of the primary insurance policy and/or retained losses.
Additionally, the Company purchases property insurance subject to a $100,000
loss retention. The level of risk retained by the Company may change in the
future as insurance market conditions or other factors affecting the economics
of the Company's insurance purchasing change. Although the Company strives to
operate safely and prudently and has, subject to certain limitations and
exclusions, substantial liability insurance, no assurance can be given that the
Company will not be exposed to uninsured or underinsured liabilities which could
have a material adverse effect on its financial condition.
Provisions for retained or self insured claims are made by charges to
expense based upon periodic evaluations of the estimated ultimate liabilities on
reported and unreported claims. The Company's collateral requirements are set by
insurance companies which underwrite the Company's insurance programs. The
Company's collateral requirements may change from time to time, based on, among
other things, the Company's claims experience.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 42,000 full
time employees, approximately 2,400 of whom were covered by collective
bargaining agreements. The Company believes that it has good relations with its
employees.
SEASONALITY
The Company's automotive retail operations generally experience higher
volumes of vehicle sales in the second and third quarters of each year due in
part to consumer buying trends and the introduction of new vehicle models.
The Company's automotive rental operations and particularly the leisure
travel segment is highly seasonal. In these operations, the third quarter, which
includes the peak summer travel months, has historically been the strongest
quarter of the year. During the peak season, the Company increases its vehicle
rental fleet and workforce to accommodate increased rental activity. As a
result, any occurrence that disrupts travel patterns during the summer period
could have a material adverse effect. The first and fourth quarters for the
Company's automotive rental operations are generally the weakest, when there is
limited leisure travel and a greater potential for adverse weather conditions.
Many of the operating expenses such as rent, general insurance and
administrative personnel are fixed and cannot be reduced during periods of
decreased vehicle rental demand.
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<PAGE> 13
TRADEMARKS
The Company, through its automotive retail operations, owns a number of
registered service marks and trademarks and also has a number of applications
pending to register, among other marks,
AUTONATION(SM), AUTONATION USA(SM), IT'S ABOUT LOWER PRICES, IT'S ABOUT HIGHER
STANDARDS, IT'S ABOUT TIME(SM) and THE BETTER WAY TO BUY A CAR(SM).
Pursuant to agreements with vehicle manufacturers, the Company has the
right to use and display manufacturers' trademarks, logos and designs at its
automotive dealerships and in its advertising and promotional materials, subject
to certain restrictions.
The Company, through its automotive rental operations, owns a number of
registered trademarks and service marks, including ALAMO(R), ALAMO RENT A
CAR(R), NATIONAL CAR RENTAL(R), EMERALD CLUB(R) and CARTEMPS USA(SM), and also
has a number of applications pending to register, among other marks, JUST ASK
ALAMO(SM), DRIVE HAPPY(SM) and TRAVEL SMART(SM).
The current registrations of the Company's service marks and trademarks in
the United States and foreign countries are effective for varying periods of
time, and may be renewed periodically provided that the registered owner
complies with all applicable laws. For a description of certain challenges to
the Company's marks, See "ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS."
RISK FACTORS
The businesses, financial condition, results of operations and future
prospects of the Company, and the prevailing market price and performance of the
Company's Common Stock, may be adversely affected by a number of factors,
including the matters discussed below. Certain statements and information
contained throughout this report on Form 10-K constitute "forward-looking
statements" within the meaning of the Federal Private Securities Litigation
Reform Act of 1995. Such forward-looking statements generally can be identified
by the use of terms such as "may," "will," "should," "expect," "anticipate,"
"believe," "estimate" or "continue" or variations thereof, or the use of such
terms in the negative, or words of similar import in the context presented. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance, or achievements
of the Company to be materially different from any future results, performance,
or achievements, expressed or implied, by such forward-looking statements. Such
risks, uncertainties and other factors include, among other things:
Risks of Rapid Expansion in Automotive Retail Business. The Company has
rapidly expanded and anticipates that it will continue to expand its operations
in automotive retail and related businesses through acquisitions of franchised
automotive dealerships. The success of the Company's expansion plans in the
automotive retail industry is dependent on a number of factors including, but
not limited to, economic conditions, competitive environment, adequate capital,
supply of new and used vehicles, consumer acceptance of the Company's one-price,
no-haggle automotive retail process, vehicle manufacturers' approval and control
over dealership franchises, and the building of brand recognition. There can be
no assurance that the Company will be successful in the automotive retail
business.
Competition in the Automotive Retail Industry. The Company's automotive
retail business operates in a highly competitive environment. The Company's
competition includes franchised automotive dealerships selling the same or
similar makes of new and used vehicles offered by the Company in the same
markets as the Company and sometimes at lower prices than those of the Company.
In particular markets, these dealer competitors may be larger and more
established than the Company. Other competitors include franchised automotive
dealerships selling other brands of vehicles, private market buyers and sellers
of used vehicles, used vehicle dealers, service center chains and independent
service and repair shops. The Company faces increasing competition from
non-traditional outlets such as used-car superstores, internet lead generators
and others. Some of these competitors use sales techniques similar to the
Company's, including one price shopping and generating sales leads through the
internet. One-price, no-haggle sales methods are also being promoted for new
vehicles by various dealerships. In addition, Ford Motor Company has directly
entered several retail markets by acquiring several of its franchisees and other
manufacturers may directly enter the retail market in
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the future, which could have a material adverse effect on the Company. The
increased popularity of short-term vehicle leasing also has resulted, as these
leases expire, in a large increase in the number of late model vehicles
available in the market, which puts added pressure on margins. Also, incentives,
such as discounts and rebates, offered by several manufacturers have effectively
lowered the price of new vehicles relative to used vehicles in recent months,
which has led to slower than expected used vehicle sales and downward pressure
on used vehicle margins. As the Company seeks to acquire dealerships in new
markets, it may face increasingly significant competition (including from other
large dealer groups and dealer groups that have publicly-traded equity) as it
strives to gain market share through acquisitions or otherwise.
The Company's franchise agreements generally do not give the Company the
exclusive right to sell a manufacturer's product within a given geographic area.
The Company could be materially adversely affected if any of its manufacturers
award franchises to others in the same markets where the Company is operating. A
similar adverse effect could occur if existing competing franchised dealers
increase their market share in the Company's markets. The Company's gross margin
may decline over time as it expands into markets where it does not have a
leading position. These and other competitive pressures could materially
adversely affect the Company's results of operations.
Dependence On and Restrictions Imposed by Vehicle Manufacturers. In
connection with the Company's acquisition of franchised automotive dealerships,
prior approval of the applicable vehicle manufacturer may be required under the
franchise agreement of each franchised automotive dealership to be acquired,
subject to state laws protecting a franchisee's right to transfer such
franchise. Although the Company has established framework agreements with most
major manufacturers to facilitate the acquisition of dealerships operating their
franchises, no assurance can be given that these manufacturers or any other
manufacturers will approve any particular franchised automotive dealership
acquisition by the Company or will not otherwise seek to impose restrictions on
the Company's future acquisitions, operations or capital structure as a
condition to granting such approval. Moreover, with respect to several leading
brands of vehicles, the Company and the manufacturers have negotiated limits on
the number of dealerships which the Company may acquire based upon either retail
sales or a fixed number of dealerships. The Company will approach these limits
as it continues to expand and may divest some dealerships from time to time to
provide more options under these limits. No assurance can be given that the
Company's growth strategy will be unaffected by these limits. In addition, once
the Company has acquired a franchised automotive dealership, the Company must
operate the dealership in accordance with the applicable franchise agreement and
in some cases, a framework agreement. Such agreements generally provide the
manufacturers with considerable influence over the operations of the dealership
and generally provide for termination of the franchise agreement for a variety
of causes. Manufacturers may attempt to impose restrictions which could limit
the Company's ability to implement some of its strategic initiatives relating to
the operation and marketing of its franchised automotive dealerships. Finally,
the success of any franchised automotive dealership is dependent, to a large
extent, on the success of the vehicle manufacturer. Therefore, the success of
the Company's franchised automotive dealerships is dependent on the financial
condition, management, marketing, production and distribution capabilities of
the vehicle manufacturers of which the Company holds franchises. Any event that
may have a material adverse effect on a vehicle manufacturer, such as labor
strikes or adverse publicity, may have a material adverse effect on the
Company's business, financial condition and future prospects.
Risks of Unfavorable Economic Conditions. The Company's revenue and
results from operations may be adversely affected by periods of adverse economic
conditions. The Company's new and used vehicle sales and the Company's
automotive rental business, particularly in the leisure market, could be
significantly affected by unfavorable economic conditions.
Risks of Acquisition Strategy and Uncertainties In Integrating Operations
and Achieving Cost Savings. The Company has had an aggressive acquisition
strategy that has involved, and may continue to involve, the acquisition of a
significant number of companies. There can be no assurance, however, that
acquisitions will continue to occur at the same pace or be available to the
Company on favorable terms, if at all. Many of the companies that the Company
recently has acquired and companies that the Company may acquire, are large
enterprises with operations in different markets. The success of any business
combination is in part dependent
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on management's ability following the transaction to consolidate operations,
integrate departments, systems and procedures and thereby obtain business
efficiencies, economies of scale and related cost savings. The challenges posed
to the Company's management may be particularly significant because integrating
the recently acquired companies must be addressed contemporaneously. There can
be no assurance that future consolidated results will improve as a result of
cost savings and efficiencies from any such acquisitions or proposed
acquisitions, or as to the timing or extent to which cost savings and
efficiencies will be achieved.
Need for Substantial Additional Capital. Additional capital will be
necessary to continue the Company's expansion in its capital intensive lines of
business and to fully capitalize on acquisition and expansion opportunities that
may become available to the Company. There can be no assurance that sufficient
financing will be available on a timely basis, if at all, or on terms acceptable
to the Company. In the event that financing is not available or is not available
in the amounts or on terms acceptable to the Company, the implementation of the
Company's business strategy could be impeded and the Company's ability to react
to changes in the industries in which it does business could be limited. This
could have a material adverse effect on the Company's business, financial
condition and future prospects.
Interest Rates and Restrictive Covenants. A substantial portion of the
Company's outstanding indebtedness is at floating interest rates. At times, the
Company uses interest rate swaps to manage the risk of interest rate
fluctuations. However, a substantial increase in interest rates could adversely
affect the Company's cost of indebtedness for borrowed money. In addition, most
of the Company's debt instruments contain covenants establishing certain
financial and operating restrictions. A failure to comply with any covenant or
any obligation contained in any credit agreement could result in an event of
default which could accelerate debt under certain other credit agreements.
Competition in the Automotive Rental Industry. The Company's automotive
rental businesses operate in a highly competitive environment. Most of the major
domestic automotive rental companies were formerly owned and/or operated by
domestic vehicle manufacturers, and within the past year or two, all have become
independent, in whole or in part, and have publicly owned securities. The recent
changes in the ownership of the major competitors in the domestic industry is
further intensifying competition, as the companies are being operated with a
view toward maximizing market share, revenue and net income, as opposed to
providing the manufacturers with a means to absorb excess production capacity.
The Company believes that price is one of the primary competitive factors in the
automotive rental industry, particularly in the leisure market. From time to
time, the Company's competitors, some of which have access to substantial
capital, may attempt to compete aggressively by lowering rental prices. To the
extent the Company matches competitors' price reductions to retain market share,
the Company's results of operations could be adversely effected. To the extent
that the Company does not match competitors' price reductions, the Company may
lose market share and corporate accounts, which also could adversely affect the
Company's results of operations.
Cost of Vehicle Rental Fleet. If vehicle manufacturers reduce the number
of vehicles available to vehicle rental companies through repurchase programs,
eliminate repurchase programs or increase vehicle costs, there can be no
assurance that the Company will be able to control its rental fleet costs or
selection, or to pass on any increases in vehicle cost to rental customers. This
could have a material adverse effect on the Company's business, financial
condition and future prospects.
Dependence on Vehicle Manufacturer's Credit. The Company's automotive
rental business depends upon debt financing for the purchase of revenue earning
vehicles for the Company's vehicle rental fleet. Since a substantial portion of
such financing is incurred in connection with major vehicle manufacturers'
repurchase programs, a significant change in the financial conditions of the
vehicle manufacturers, particularly General Motors, impairing their ability to
repurchase vehicles or their investment grade rating could significantly affect
the Company's ability to obtain such financing on as favorable terms. This could
have a material adverse effect on the Company's business, financial condition
and future prospects.
Dependence on Principal Vehicle Rental Fleet Supplier. Given the volume of
vehicles purchased from General Motors, shifting significant portions of the
fleet purchases to other manufacturers would require significant lead time. As a
result, if General Motors were unable to supply the Company with the planned
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number and type of rental vehicles, it could have a material adverse effect on
the Company's business, financial condition and future prospects.
Regulation of Collision Damage Waivers and Other Vehicle Rental Related
Products. Adoption of national or additional state legislation limiting or
eliminating the sale or capping the rates of collision damage waivers could
further restrict sales of this product. Also, legislation imposing additional
limitations on potential customer liability or regulatory action involving the
sale of other rental related products could increase the Company's costs or
decrease the Company's revenue in its vehicle rental business.
Loss of Airport Concessions. Certain vehicle rental competitors have on
occasion made objections to various airport authorities that, because National
and Alamo are commonly owned and share a number of back office functions, they
should not both be allowed to bid for or maintain airport concession agreements
in the same airport. No United States airport has accepted this position. Should
an airport take this position, it could prevent either National or Alamo from
doing business at that airport. This would most likely result in a decrease in
the Company's revenue from its automotive rental operations.
Seasonality; Dependence on Travel Industry and Fuel Supply. Any occurrence
that disrupts travel patterns during the summer period could have a material
adverse effect on the annual performance of the automotive rental segment. There
can be no assurance that protracted periods of inclement weather, decrease in
air travel or any other occurrences that disrupt travel patterns, disruption of
fuel supplies or increases in fuel prices will not have a material adverse
effect on the Company's businesses and financial condition.
Environmental Regulation. It may be necessary to expend considerable time,
effort and money to keep the Company's existing or acquired facilities in
compliance with applicable federal, state and local requirements which regulate
health, safety, environment, zoning and land use, and as to which there may not
be adequate insurance coverages or reserves. If environmental laws become more
stringent, the Company's environmental capital expenditures and costs for
environmental compliance may increase in the future. In addition, due to the
possibility of unanticipated occurrences or regulatory developments, the amounts
and timing of future environmental expenditures could vary substantially from
those currently anticipated.
Risks of Legal Proceedings. The Company generally will continue to be
involved in legal proceedings in the ordinary course of business. A significant
judgment against the Company, the loss of a significant permit or license or the
imposition of a significant fine could have a material adverse effect on the
Company's business, financial condition and future prospects. The Company has
been engaged in legal and administrative proceedings in several states arising
out of certain vehicle manufacturers' attempts to limit the number and timing of
the Company's acquisitions of franchised automotive dealerships. The Company is
also currently a party to various other administrative and legal proceedings,
particularly in its automotive rental business, which have arisen in the
ordinary course of its business. See also "ITEM 3. LEGAL AND ADMINISTRATIVE
PROCEEDINGS." No assurance can be given with respect to the outcome of these
administrative and legal proceedings and the effect such outcomes may have on
the Company.
Risks Relating to the Year 2000. The Company uses computer software and
related technologies throughout our business that are likely to be affected by
the date change in the year 2000. The Company may not discover and remediate all
potential problems with its systems in a timely manner. In addition, computer
software and related technologies used by the Company's customers, service
providers, vendors and suppliers are also likely to be affected by the year 2000
date change. Failure of any of these parties to properly process dates for the
year 2000 and thereafter could result in customers for services provided and
delays in our ability to conduct normal banking operations. See "ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
Possible Depressing Effect of Future Sales of Common Stock. As of the date
hereof, the Company has registered for sale, from time to time on a continuous
basis under several shelf registration statements, by certain selling
stockholders, an aggregate of approximately 345.2 million shares of Common
Stock. Although many of these shares have been sold, future sales of such shares
not yet sold, or the perception that such sales could occur, could adversely
affect the market price of Common Stock. There can be no assurance as to when,
and how many of, such shares will be sold and the effect such sales may have on
the market price of Common Stock. In addition, the Company may continue to issue
Common Stock in connection with certain of its acquisitions and in other
transactions. Such securities may be subject to resale restrictions in
accordance with
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the Securities Act and the regulations promulgated thereunder. As such
restrictions lapse or if such shares are registered for sale to the public, such
securities may be sold to the public. To facilitate the issuance of shares of
Common Stock in connection with acquisitions, since December 1996 the Company
registered an additional 91 million shares of Common Stock pursuant to two
acquisition shelf registration statements, under which an aggregate of
approximately 54.7 million shares have been issued as of March 1999. In the
event of the issuance and subsequent resale of a substantial number of shares of
Common Stock, or a perception that such sales could occur, there could be a
material adverse effect on the prevailing market price of Common Stock.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Fort Lauderdale,
Florida. The Company believes that its facilities are sufficient for its needs.
AUTOMOTIVE RETAIL
The Company's automotive retail operations own or lease numerous sites in
23 states, including franchised automotive dealerships and AutoNation USA
megastores.
The following table lists by state the automotive retail properties owned
or operated by the Company or its franchisees as of February 26, 1999. The
AutoNation USA megastores which are franchised by the Company to third party
franchisees are marked with an asterisk.
<TABLE>
<S> <C>
ALABAMA
DEALERSHIPS
Hoover Toyota................................ Birmingham, AL
Treadwell Ford............................... Mobile, AL
Treadwell Honda.............................. Mobile, AL
Miller -- Sutherlin Automotive, Chevy,
Chry-Ply Pontiac, Jeep, Dodge...... Pell City, AL
ARIZONA
DEALERSHIPS
Brown & Brown Chevrolet...................... Mesa, AZ
Brown & Brown Nissan -- Mesa................. Mesa, AZ
Bell Dodge................................... Phoenix, AZ
Lou Grubb Chevrolet.......................... Phoenix, AZ
Pitre Chrysler Plymouth Jeep on Bell......... Phoenix, AZ
Pitre Isuzu/Subaru on Bell................... Phoenix, AZ
Lou Grubb Ford............................... Scottsdale, AZ
Pitre Buick/Pontiac/GMC of Scottsdale........ Scottsdale, AZ
Pitre Chrysler-Plymouth Jeep of Scottsdale... Scottsdale, AZ
Pitre Isuzu/Subaru/Hyundai of Scottsdale..... Scottsdale, AZ
Brown & Brown Nissan......................... Tempe, AZ
Tempe Toyota................................. Tempe, AZ
Dobbs Honda.................................. Tucson, AZ
AUTONATION MEGASTORES
AutoNation USA............................... Chandler, AZ
AutoNation USA............................... North Phoenix, AZ
AutoNation USA*.............................. Tucson, AZ
CALIFORNIA
DEALERSHIPS
Anaheim Mazda/Pontiac/Buick.................. Anaheim, CA
Don-A-Vee Jeep Eagle/Kia..................... Bellflower, CA
</TABLE>
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<TABLE>
<S> <C>
Beverly Hills Ford........................... Beverly Hills, CA
Infiniti of Beverly Hills.................... Beverly Hills, CA
House of Imports, Inc. (Mercedes-Benz)....... Buena Park, CA
Lew Webb's Toyota of Buena Park.............. Buena Park, CA
Buick Mart................................... Cerritos, CA
Toyota of Cerritos........................... Cerritos, CA
Corona Chevrolet/Olds........................ Corona, CA
Corona VW/Subaru/Isuzu....................... Corona, CA
Costa Mesa Honda............................. Costa Mesa, CA
Costa Mesa Infiniti.......................... Costa Mesa, CA
Anderson Chevrolet, Chry-Ply Cupertino....... Cupertino, CA
Gunderson Chevrolet.......................... El Monte, CA
Autowest Dodge, Chry-Ply, Isuzu.............. Fremont, CA
Autowest Honda Fremont....................... Fremont, CA
Ford of Garden Grove......................... Garden Grove, CA
Hayward Dodge, Hyundai....................... Hayward, CA
Hayward Nissan............................... Hayward, CA
Hayward Toyota............................... Hayward, CA
Joe MacPherson Chevrolet..................... Irvine, CA
Lew Webb Irvine Toyota....................... Irvine, CA
Lew Webb's Irvine Nissan..................... Irvine, CA
Volvo Irvine................................. Irvine, CA
Beach City Chevrolet......................... Long Beach, CA
Anderson Chevrolet -- Los Gatos.............. Los Gatos, CA
Champion Chevrolet, Oldsmobile............... Manhattan Beach, CA
Manhattan Ford............................... Manhattan Beach, CA
Manhattan Toyota............................. Manhattan Beach, CA
Anderson Cadillac-Oldsmobile................. Menlo Park, CA
Anderson Chevrolet -- Menlo Park............. Menlo Park, CA
Newport Auto Center -- RR, Porsche, Audi,
Chevrolet.................................. Newport Beach, CA
Anderson Honda-Isuzu......................... Palo Alto, CA
Don-A-Vee of Placentia, Jeep/Kia/Chry-Ply.... Placentia, CA
Redlands Ford................................ Redlands, CA
Land Rover South Bay......................... Redondo Beach, CA
Autowest Dodge, Chry-Ply, Jeep............... Roseville, CA
Autowest Honda Roseville..................... Roseville, CA
Smythe European Mercedes Benz, Volvo......... San Jose, CA
Stevens Creek Acura.......................... Santa Clara, CA
Infiniti of Santa Monica..................... Santa Monica, CA
Peyton Cramer Ford........................... Torrance, CA
Peyton Cramer Infiniti....................... Torrance, CA
Peyton Cramer L/M, VW........................ Torrance, CA
South Bay Autohaus -- Mercedes Benz.......... Torrance, CA
South Bay Volvo.............................. Torrance, CA
Torrance Nissan.............................. Torrance, CA
Joe MacPherson Ford.......................... Tustin, CA
Joe MacPherson Infiniti...................... Tustin, CA
Joe MacPherson Mazda......................... Tustin, CA
Magic Ford................................... Valencia, CA
Magic Lincoln Mercury........................ Valencia, CA
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C>
AUTONATION USA MEGASTORES
AutoNation USA............................... Dublin, CA
AutoNation USA............................... Irvine, CA
AutoNation USA............................... Long Beach, CA
AutoNation USA............................... Los Angeles, CA
AutoNation USA............................... Oxnard, CA
AutoNation USA............................... Rancho Cucamonga, CA
COLORADO
DEALERSHIPS
John Elway Lincoln-Mercury in Aurora......... Aurora, CO
John Elway Ford Boulder...................... Boulder, CO
John Elway Chevrolet......................... Denver, CO
John Elway Collision Center.................. Denver, CO
John Elway Dodge Southwest................... Denver, CO
John Elway Ford Downtown..................... Denver, CO
John Elway Chrysler-Plymouth on Broadway..... Englewood, CO
John Elway Nissan Arapahoe................... Englewood, CO
John Elway Subaru South...................... Englewood, CO
John Elway Toyota............................ Englewood, CO
John Elway Nissan 104th...................... Federal Heights, CO
John Elway Chrysler-Plymouth Jeep West....... Golden, CO
John Elway Lamborghini....................... Golden, CO
John Elway Pontiac Buick GMC West............ Golden, CO
John Elway Subaru West....................... Golden, CO
John Elway Dodge on Broadway................. Littleton, CO
John Elway Pontiac Buick GMC South........... Lone Tree, CO
John Elway Honda............................. Westminster, CO
John Elway Olds Mazda Hyundai North.......... Westminster, CO
John Elway Ford West......................... Wheatridge, CO
FLORIDA
DEALERSHIPS
Steve Moore Chev/Cadillac/Buick/Olds/Pont.... Belle Glade, FL
Bill Graham Ford............................. Bradenton, FL
Jim Quinlan Ford/Lincoln-Mercury............. Brooksville, FL
Royal Jeep Eagle Chrysler-Plymouth........... Cassleberry, FL
Carlisle Dodge............................... Clearwater, FL
Carlisle Lincoln Mercury..................... Clearwater, FL
Jim Quinlan Chevrolet........................ Clearwater, FL
Jim Quinlan Nissan........................... Clearwater, FL
Lexus of Clearwater.......................... Clearwater, FL
Lokey Honda/Isuzu............................ Clearwater, FL
Sunset Pontiac-GMC Truck South............... Clearwater, FL
Maroone Chrysler-Plymouth Jeep Eagle......... Coconut Creek, FL
Steve Moore Chevrolet Delray................. Delray Beach, FL
Wallace Dodge................................ Delray Beach, FL
Wallace Ford................................. Delray Beach, FL
Wallace Nissan............................... Delray Beach, FL
Ft. Lauderdale Nissan, Inc................... Ft. Lauderdale, FL
Maroone Chevrolet-Ft. Lauderdale............. Ft. Lauderdale, FL
Maroone Ford................................. Ft. Lauderdale, FL
Star Motors (Mercedes)....................... Ft. Lauderdale, FL
</TABLE>
17
<PAGE> 20
<TABLE>
<S> <C>
Steve Moore Chevrolet........................ Greenacres, FL
Hollywood Honda.............................. Hollywood, FL
Hollywood Kia................................ Hollywood, FL
Maroone Nissan............................... Hollywood, FL
King's Crown Ford............................ Jacksonville, FL
Mike Shad Chr-Ply/Jeep....................... Jacksonville, FL
Mike Shad Ford............................... Jacksonville, FL
Orange Park Toyota........................... Jacksonville, FL
Sunrise Nissan of Jacksonville............... Jacksonville, FL
Wallace Lincoln-Mercury...................... Lake Park, FL
Courtesy Buick............................... Longwood, FL
Courtesy Pontiac/GMC......................... Longwood, FL
Courtesy's Magic Suzuki, Isuzu............... Longwood, FL
Don Mealey Acura............................. Longwood, FL
Contemporary Cars -- Mercedes & Porsche...... Maitland, FL
Mullinax Ford South.......................... Margate, FL
Anthony Abraham Chevrolet -- Miami, Inc...... Miami, FL
Central Hyundai/ Kia......................... Miami, FL
Kendall Kia.................................. Miami, FL
Kendall Toyota............................... Miami, FL
L.P. Evans Mercedes-Benz..................... Miami, FL
L.P. Evans Motors, Nissan.................... Miami, FL
Lexus of Kendall............................. Miami, FL
Maroone Dodge, Oldsmobile.................... Miami, FL
Miami Honda.................................. Miami, FL
Sunshine Ford................................ Miami, FL
Sunrise Nissan of Orange Park................ Orange Park, FL
Courtesy Acura, Suzuki/South................. Orlando, FL
Don Mealey Chevrolet/Oldsmobile.............. Orlando, FL
Don Mealey Infiniti.......................... Orlando, FL
Don Mealey Mitsubishi........................ Orlando, FL
World Chevrolet.............................. Orlando, FL
Cook-Whitehead Ford.......................... Panama City, FL
Maroone Chevrolet............................ Pembroke Pines, FL
Maroone Oldsmobile/Isuzu..................... Pembroke Pines, FL
Sutherlin Toyota............................. Pinellas Park, FL
Maroone Dodge Pompano........................ Pompano, FL
Coastal Cadillac............................. Port Richey, FL
Sunset Pontiac-GMC Truck North............... Port Richey, FL
Carlisle Ford................................ St. Petersburg, FL
Don Mealey Cadillac-Oldsmobile, Saab......... Sanford, FL
Don Mealey's Seminole Ford................... Sanford, FL
Wallace Stuart Lincoln Mercury/Mitsubishi.... Stuart, FL
Tallahassee Mitsubishi....................... Tallahassee, FL
Tallahassee Motors (Ford).................... Tallahassee, FL
Abraham Chevrolet............................ Tampa, FL
Lexus of Tampa Bay........................... Tampa, FL
</TABLE>
18
<PAGE> 21
<TABLE>
<S> <C>
AUTONATION USA MEGASTORES
AutoNation USA............................... Clearwater, FL
AutoNation USA............................... Coconut Creek, FL
AutoNation USA............................... Jacksonville, FL
AutoNation USA............................... Pembroke Pines, FL
AutoNation USA............................... Perrine, FL
AutoNation USA............................... Sanford, FL
AutoNation USA............................... Tampa, FL
AutoNation USA............................... West Palm Beach, FL
GEORGIA
DEALERSHIPS
Sutherlin Chrysler-Ply, Jeep................. Lithia Springs, GA
Sutherlin Honda.............................. Lithia Springs, GA
Sutherlin Nissan of Lithia Springs........... Lithia Springs, GA
Marietta Ford................................ Marietta, GA
Sutherlin Nissan of Marietta................. Marietta, GA
Northpoint Chevrolet......................... Roswell, GA
Northpoint Mitsubishi........................ Roswell, GA
Hub Ford..................................... Tucker, GA
Gene Evans Ford.............................. Union City, GA
Steve Rayman Pontiac -- Buick GMC............ Union City, GA
AUTONATION USA MEGASTORES
AutoNation USA............................... Alpharetta, GA
AutoNation USA............................... Lithia Springs, GA
AutoNation USA............................... Morrow, GA
AutoNation USA............................... Stone Mountain, GA
ILLINOIS
DEALERSHIPS
Dodge World of Des Plaines................... Des Plaines, IL
Elmhurst Dodge............................... Elmhurst, IL
Elmhurst Kia................................. Elmhurst, IL
Libertyville Toyota.......................... Libertyville, IL
Woodfield Ford............................... Schaumburg, IL
AUTONATION USA MEGASTORES
AutoNation USA............................... Downers Grove, IL
INDIANA
AUTONATION USA MEGASTORES
AutoNation USA............................... Fishers, IN
AutoNation USA*.............................. Indianapolis, IN
IOWA
AUTONATION USA MEGASTORES
AutoNation USA*.............................. Davenport, IA
</TABLE>
19
<PAGE> 22
<TABLE>
<S> <C>
MARYLAND
DEALERSHIPS
Fox Chevrolet................................ Baltimore, MD
Fox Hyundai, Lincoln-Mercury, Kia............ Baltimore, MD
Fox Mitsubishi............................... Baltimore, MD
Fox Buick, Pontiac, GMC, Isuzu............... Laurel, MD
Fox Chevrolet of Laurel...................... Laurel, MD
Fox Chevrolet of Timonium.................... Timonium, MD
MICHIGAN
DEALERSHIPS
Taylor Jeep Eagle............................ Taylor, MI
AUTONATION USA MEGASTORES
AutoNation USA............................... Canton, MI
AutoNation USA*.............................. Flint, MI
AutoNation USA............................... Sterling Height, MI
MINNESOTA
DEALERSHIPS
Tousley Ford................................. White Bear Lake, MN
NEVADA
DEALERSHIPS
Chaisson BMW................................. Henderson, NV
Desert Valley GMC, Pontiac, Buick............ Henderson, NV
Chaisson Motor Cars/BMW, RR, VW, Audi, LR.... Las Vegas, NV
Desert Buick GMC............................. Las Vegas, NV
Desert Dodge (Wilden's Pride)................ Las Vegas, NV
Desert GMC East.............................. Las Vegas, NV
Desert Lincoln-Mercury....................... Las Vegas, NV
Las Vegas Honda.............................. Las Vegas, NV
Nissan West.................................. Las Vegas, NV
Toyota West.................................. Las Vegas, NV
AUTONATION USA MEGASTORES
AutoNation USA............................... Henderson, NV
NEW JERSEY
DEALERSHIPS
Flemington Chr./Ply./Dodge/Jeep /Mazda....... Flemington, NJ
Flemington Circle Buick/GMC/Chevy/Pontiac.... Flemington, NJ
Flemington (Ditschman) Ford, Linc Merc,
Niss....................................... Flemington, NJ
Flemington Infiniti.......................... Flemington, NJ
Flemington Isuzu/Subaru...................... Flemington, NJ
Flemington Mitsubishi........................ Flemington, NJ
Flemington Porsche-Audi-VW-BMW............... Flemington, NJ
Land Rover Princeton......................... Princeton, NJ
Princeton Nassau Ford-Lincoln Mercury-Audi... Princeton, NJ
</TABLE>
20
<PAGE> 23
<TABLE>
<S> <C>
NEW YORK
DEALERSHIPS
Avon Ford.................................... Avon, NY
Churchville Ford............................. Churchville, NY
Bob Hastings Ford............................ East Rochester, NY
Cristo Ford.................................. East Rochester, NY
Koerner Ford................................. Rochester, NY
Vanderstyne Ford............................. Rochester, NY
RAC Ford..................................... Victor, NY
Baytowne Lincoln Mercury..................... Webster, NY
Empire Ford.................................. Webster, NY
Al Maroone Ford.............................. Williamsville, NY
NORTH CAROLINA
DEALERSHIPS
Superior Nissan.............................. Charlotte, NC
AUTONATION USA MEGASTORES
AutoNation USA*.............................. Fayetteville, NC
AutoNation USA*.............................. Greensboro, NC
OHIO
DEALERSHIPS
Ed Mullinax Ford............................. Amherst, OH
Mullinax Lincoln Mercury..................... Brunswick, OH
Bob Townsend Ford............................ Cincinnati, OH
Eastgate Ford................................ Dayton, OH
Mullinax Lincoln-Mercury/Jeep of Mayfield.... Mayfield, OH
Mullinax Ford North Canton................... North Canton, OH
John Lance Ford.............................. Westlake, OH
Mullinax Ford East........................... Wickliffe, OH
AUTONATION USA MEGASTORES
AutoNation USA............................... Beaver Creek, OH
AutoNation USA*.............................. Cincinatti, OH
AutoNation USA............................... Forest Park, OH
OKLAHOMA
DEALERSHIPS
Lynn Hickey Dodge............................ Oklahoma City, OK
SOUTH CAROLINA
DEALERSHIPS
Northside Nissan............................. Charleston, SC
West Ashley Toyota........................... Charleston, SC
TENNESSEE
DEALERSHIPS
West Side Honda.............................. Knoxville, TN
Courtesy Honda............................... Memphis, TN
Covington Pike Honda......................... Memphis, TN
Dobbs Bros. Mazda/Mitsubishi................. Memphis, TN
Dobbs Bros. Pontiac-GMC...................... Memphis, TN
Dobbs Ford................................... Memphis, TN
</TABLE>
21
<PAGE> 24
<TABLE>
<S> <C>
TEXAS
DEALERSHIPS
Midway Chevrolet............................. Amarillo, TX
Plains Chevrolet............................. Amarillo, TX
Quality Nissan............................... Amarillo, TX
Westgate Chevrolet........................... Amarillo. TX
Bledsoe Dodge................................ Arlington, TX
Hendrix GMC Truck............................ Austin, TX
Red McCombs Chevrolet........................ Austin, TX
Red McCombs Pontiac/GMC/Hyundai/JE........... Austin, TX
Red McCombs Toyota........................... Austin, TX
Padre Ford, Mazda............................ Corpus Christi, TX
Port City Imports............................ Corpus Christi, TX
Port City Pontiac GMC........................ Corpus Christi, TX
Bankston Lincoln Mercury/Saab................ Dallas, TX
Bankston Nissan of Dallas.................... Dallas, TX
Bledsoe Dodge................................ Dallas, TX
Bledsoe Dodge -- Duncanville................. Dallas, TX
Charlie Hillard Ford/Buick/Mazda............. Ft. Worth, TX
Bankston Ford of Frisco...................... Frisco, TX
Barney Garver Motors, VW, Mazda, Land Rvr.... Houston, TX
Champion Ford, Inc........................... Houston, TX
Charlie Thomas Acura......................... Houston, TX
Charlie Thomas Chevrolet, Mitsubishi......... Houston, TX
Charlie Thomas Chry-Ply, Jeep, Isuzu,
Hyundai.................................... Houston, TX
Charlie Thomas Ford.......................... Houston, TX
Charlie Thomas' Intercontinental BMW......... Houston, TX
Mike Hall Chevrolet.......................... Houston, TX
Texan Lincoln-Mercury, Inc................... Houston, TX
Charlie Thomas Mazda......................... Humble, TX
Bankston Nissan of Irving.................... Irving, TX
Texan Ford................................... Katy, TX
Bankston Nissan of Lewisville................ Lewisville, TX
Jack Sherman Chevrolet/Mazda................. Midland, TX
AUTONATION USA MEGASTORES
AutoNation USA............................... Almeda, TX
AutoNation USA............................... Dallas, TX
AutoNation USA............................... Grand Prarie, TX
AutoNation USA (2 locations)................. Houston, TX
AutoNation USA............................... Irving, TX
AutoNation USA............................... Lewisville, TX
AutoNation USA............................... Mesquite, TX
AutoNation USA............................... San Antonio, TX
AutoNation USA............................... Stafford, TX
VIRGINIA
AUTONATION USA MEGASTORES
AutoNation USA*.............................. Virginia Beach, VA
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
WASHINGTON
DEALERSHIPS
BMW of Bellevue.............................. Bellevue, WA
Appleway Chevrolet........................... Spokane, WA
Appleway Mazda............................... Spokane, WA
Appleway Mitsubishi.......................... Spokane, WA
Appleway Subaru-VW-Audi...................... Spokane, WA
Appleway Toyota.............................. Spokane, WA
</TABLE>
AUTOMOTIVE RENTAL
The Company owns or leases its vehicle rental facilities. The facilities
serving airport locations are located on airport property or near the airport in
locations convenient for bus transport of customers to the airport. Almost all
of the airport locations are leased from governmental authorities charged with
the operation of such airports under arrangements generally providing for either
the payment of a fixed rent or the payment of rent based on a percentage of
revenues at a location with a guaranteed annual minimum, while most of the
Company's other facility leases provide for fixed rental payments. The Company's
airport facility in each metropolitan area includes, in addition to concession
space, vehicle storage and maintenance areas, as well as rental and return
facilities. The typical airport facility leases may not necessarily have the
same duration as the Company's local airport concession agreement. Most of the
Company's airport facility leases expire at varying times over the next ten
years. Certain of such leases also have purchase options at the end of their
terms.
National has approximately 800 corporate owned and licensed rental
locations in the United States and Canada. National also has approximately 160
locations in the Caribbean, Latin America and the Pacific. Alamo has
approximately 103 rental locations in the United States and Canada and operates
or licenses approximately 275 locations in Europe in addition to locations in
Africa and the Middle East. CarTemps USA has approximately 400 leased locations
in the United States.
National owns its corporate headquarters facility in Minneapolis,
Minnesota, and a reservations center in Charleston, SC. Alamo's corporate
headquarters is located in and occupies a substantial portion of the Company's
headquarters in Fort Lauderdale, Florida. Alamo also currently owns its car
rental reservation and data center in Fort Lauderdale, Florida and leases its
reservation centers in Charlotte, North Carolina, Boca Raton, Florida and Salt
Lake City, Utah. CarTemps USA leases its headquarters facility in Solon, Ohio.
DISCONTINUED OPERATIONS
Information about RSG's properties is incorporated by reference to Item 2
of RSG's Annual Report on Form 10-K for the year ended December 31, 1998 as
filed with the Securities and Exchange Commission.
23
<PAGE> 26
ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS
By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The
Auto Superstore, ("CarMax") accused the Company's wholly-owned subsidiary,
AutoNation USA of infringing CarMax's trademark rights by using the marks
AutoNation USA and "The Better Way to Buy a Car." AutoNation denied such
allegations and on February 5, 1996, filed suit in the U.S. District Court for
the Southern District of Florida seeking a declaratory judgment that its use and
registration of such marks do not violate any of the rights of CarMax. On or
about October 11, 1996, CarMax filed a counterclaim against AutoNation seeking
damages and an order enjoining AutoNation from using certain marks, including
the marks AutoNation USA and "The Better Way to Buy a Car." On November 5, 1998,
following a jury trial, the court entered a judgement in favor of AutoNation USA
and against CarMax with respect to the marks in question. On December 2, 1998,
CarMax filed a notice of appeal of the trial court's decision with the U.S.
Court of Appeals for the Eleventh Circuit. The Company is confident the
Appellate Court will affirm the lower court's decision.
The Company is also a party to various other general corporate legal
proceedings which have arisen in the ordinary course of its business. While the
results of these matters, as well as the matter described above, cannot be
predicted with certainty, the Company believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, cash flows or
financial position. However, unfavorable resolution of each matter individually
or in the aggregate could affect the consolidated results of operations or cash
flows for the quarterly periods in which they are resolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1998.
24
<PAGE> 27
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION, HOLDERS AND DIVIDENDS
Since June 20, 1997, the Company's Common Stock has been traded on the NYSE
under the symbol "RII." Prior to that date, the Common Stock was listed on the
Nasdaq Stock Market -- National Market ("NASDAQ") and traded under the symbol
"RWIN." The following table sets forth, for the periods indicated, the high and
low prices per share of the Common Stock as reported by the NYSE or by NASDAQ,
whichever is applicable.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter............................................... $44 3/8 $25 5/8
Second Quarter.............................................. $34 $19 7/8
Third Quarter............................................... $33 1/8 $21 7/8
Fourth Quarter.............................................. $36 $19
1998
First Quarter............................................... $29 $19 3/16
Second Quarter.............................................. $30 $22 15/16
Third Quarter............................................... $27 $13 3/4
Fourth Quarter.............................................. $18 3/8 $10
</TABLE>
On March 24, 1999, the closing price of the Common Stock was $12.938 per
share as reported by the NYSE. On March 24, 1999, there were approximately 5,300
holders of record of the Common Stock.
Since December 1989, the Company has not declared or paid any cash
dividends on the Common Stock. The Company currently intends to retain its
earnings for future growth and, therefore, does not anticipate paying cash
dividends in the foreseeable future.
SALES OF UNREGISTERED SECURITIES DURING THE FOURTH QUARTER OF 1998
From time to time throughout the fourth quarter of 1998, the Company
issued, in reliance upon Section 4(2) of the Securities Act of 1933, as amended,
an aggregate of 135,000 shares of Common Stock to certain warrant holders in
connection with the exercise of warrants to purchase shares of Common Stock at
an exercise price of $3.50 per share.
25
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS," the Company's Consolidated Financial Statements and Notes
thereto and other financial information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue...................................... $16,118.2 $ 9,177.9 $5,633.1 $4,354.5 $3,312.9
Income (loss) from continuing operations
before extraordinary charge................ 334.6 64.6 (51.0) .9 29.4
Net income (loss)............................ 499.5 439.7 (6.7) 34.6 57.6
Basic earnings (loss) per share:
Continuing operations...................... $ .74 $ .16 $ (.16) $ -- $ .14
Discontinued operations.................... .36 .93 .24 .13 .13
Extraordinary charge....................... -- -- (.10) -- --
--------- --------- -------- -------- --------
Net income (loss).......................... $ 1.10 $ 1.09 $ (.02) $ .13 $ .27
========= ========= ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations...................... $ .71 $ .15 $ (.16) $ -- $ .14
Discontinued operations.................... .35 .87 .24 .13 .13
Extraordinary charge....................... -- -- (.10) -- --
--------- --------- -------- -------- --------
Net income (loss).......................... $ 1.06 $ 1.02 $ (.02) $ .13 $ .27
========= ========= ======== ======== ========
Total assets................................. $13,925.8 $10,196.2 $6,567.6 $5,208.1 $3,212.6
Revenue earning vehicle debt................. 4,377.9 4,172.1 3,380.4 2,961.2 1,829.2
Long-term debt, net of current maturities.... 555.9 306.6 325.3 251.1 165.1
Shareholders' equity......................... 5,424.2 3,484.3 1,419.9 789.0 427.4
</TABLE>
See Notes 2, 4, 7, 11 and 12 of Notes to Consolidated Financial Statements
for discussion of business combinations, notes payable and long-term debt,
shareholders' equity, restructuring and other charges and discontinued
operations and their effect on comparability of year-to-year data. See "ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS" for a
discussion of the Company's dividend policy.
26
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of Republic Industries, Inc.
(the "Company") which are included elsewhere herein. All references to
historical share and per share data of the Company's common stock, par value
$.01 per share ("Common Stock"), have been retroactively adjusted to reflect the
two-for-one stock split that occurred in June 1996, which is more fully
described in Note 7, Shareholders' Equity, of Notes to Consolidated Financial
Statements.
In May 1998, the Company announced its intention to separate the Company's
solid waste subsidiary, Republic Services, Inc. ("RSG"), from the Company. The
Company and RSG have entered into certain agreements providing for the
separation and governing various interim and ongoing relationships between the
companies. The Company also announced its intention to distribute its remaining
shares of common stock in RSG as of the distribution date to the Company's
stockholders in 1999, subject to certain conditions and consents (the
"Distribution"). The Distribution was conditioned, in part, on the Company
obtaining a private letter ruling from the Internal Revenue Service ("IRS") to
the effect that, among other things, the Distribution would qualify as a tax
free distribution for federal income tax purposes under Section 355 of the
Internal Revenue Code of 1986, as amended, in form and substance satisfactory to
the Company.
In July 1998, the Company filed its request for the private letter ruling
with the IRS, and continued to process the request through February 1999 with
the expectation of completing the Distribution in mid-1999. In March 1999, the
IRS advised the Company in writing that the IRS would not rule as requested. In
light of the IRS action, the Company's Board of Directors decided not to
complete the Distribution. Alternatively, the Company has decided to sell its
remaining interest in RSG. Accordingly, as discussed in Note 12, Discontinued
Operations, of Notes to Consolidated Financial Statements, the Company's solid
waste services segment has been accounted for as discontinued operations and the
accompanying Consolidated Financial Statements presented herein have been
restated to report separately the net assets and operating results of these
discontinued operations.
In October 1997, the Company sold its electronic security services
division. Accordingly, the operating results and gain on disposition of the
electronic security services segment have been classified as discontinued
operations for all periods presented in the accompanying Consolidated Financial
Statements.
BUSINESS COMBINATIONS
The Company makes its decisions to acquire or invest in businesses based on
financial and strategic considerations.
Businesses acquired through December 31, 1998 and accounted for under the
purchase method of accounting are included in the Consolidated Financial
Statements from the date of acquisition. Businesses acquired and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception.
During the year ended December 31, 1998, the Company acquired various
businesses primarily in the automotive retail and solid waste services
industries. The Company issued an aggregate of approximately 21.9 million shares
of Common Stock and paid approximately $736.1 million of cash for primarily
automotive retail acquisitions accounted for under the purchase method of
accounting. The Company issued an aggregate of approximately 3.4 million shares
of Common Stock and paid approximately $485.3 million of cash and certain
properties for solid waste acquisitions accounted for under the purchase method
of accounting.
During the year ended December 31, 1997, the Company acquired various
businesses in the automotive retail, automotive rental and solid waste services
industries. The Company issued an aggregate of approximately 53.7 million shares
of Common Stock and paid approximately $248.6 million of cash or notes in such
transactions which have been accounted for under the purchase method of
accounting, and issued an
27
<PAGE> 30
aggregate of approximately 83.5 million shares of Common Stock in such
transactions which have been accounted for under the pooling of interests method
of accounting.
During the year ended December 31, 1996, the Company acquired various
businesses in the automotive retail, automotive rental, solid waste services and
electronic security services industries. The Company issued an aggregate of
approximately 9.1 million shares of Common Stock and paid approximately $51.5
million of cash in such transactions which have been accounted for under the
purchase method of accounting, and issued an aggregate of approximately 71.4
million shares of Common Stock in such transactions which have been accounted
for under the pooling of interests method of accounting.
As discussed in Note 12, Discontinued Operations, of Notes to Consolidated
Financial Statements, the Company has decided to sell its remaining interest in
RSG. In addition, the Company sold its electronic security services division in
October 1997. Accordingly, the financial position and results of operations of
businesses acquired in the solid waste services and electronic security services
segments have been accounted for as discontinued operations in the accompanying
Consolidated Financial Statements.
See Note 2, Business Combinations, of Notes to Consolidated Financial
Statements, for further discussion of business combinations.
CONSOLIDATED RESULTS OF OPERATIONS
The following is a summary of the Company's consolidated results of
operations both in gross dollars and on a diluted per share basis for the years
ended December 31 (in millions, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
DILUTED DILUTED DILUTED
PER PER PER
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations............................ $334.6 $ .71 $ 64.6 $ .15 $(51.0) $(.16)
Income from discontinued operations:
Solid waste services.................. 153.3 .33 135.6 .31 67.5 .21
Electronic security services.......... -- -- 9.5 .02 8.4 .03
Gain on sale of electronic security
services division.................. 11.6 .02 230.0 .54 -- --
------ ----- ------ ----- ------ -----
164.9 .35 375.1 .87 75.9 .24
Extraordinary charge.................... -- -- -- -- (31.6) (.10)
------ ----- ------ ----- ------ -----
Net income (loss)....................... $499.5 $1.06 $439.7 $1.02 $ (6.7) $(.02)
====== ===== ====== ===== ====== =====
</TABLE>
The 1997 and 1996 results from continuing operations include restructuring
and other pre-tax charges. In addition, the 1997 results from continuing
operations include a non-recurring gain from the sale of the ADT Limited common
stock further described below. The diluted earnings per share effect of
restructuring and other pre-tax charges and the 1997 non-recurring gain was to
decrease diluted earnings per share from continuing operations by $.21 from $.36
to $.15 in 1997 and by $.23 from $.07 to a loss of $(.16) in 1996.
28
<PAGE> 31
BUSINESS SEGMENT INFORMATION
The following table sets forth revenue with percentages of total revenue,
and sets forth cost of operations, selling, general and administrative expenses,
restructuring and other charges and operating income (loss) with percentages of
the applicable segment revenue, for the Company's business segments for the
years ended December 31 (in millions):
<TABLE>
<CAPTION>
1998 % 1997 % 1996 %
--------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Automotive retail................. $12,664.6 78.6 $6,122.8 66.7 $2,933.7 52.1
Automotive rental................. 3,453.6 21.4 3,055.1 33.3 2,699.4 47.9
--------- ----- -------- ----- -------- -----
16,118.2 100.0 9,177.9 100.0 5,633.1 100.0
--------- -------- --------
Cost of Operations:
Automotive retail................. 10,909.6 86.2 5,459.0 89.1 2,611.3 89.0
Automotive rental................. 2,622.9 76.0 2,337.5 76.5 2,167.2 80.3
--------- -------- --------
13,532.5 7,796.5 4,778.5
--------- -------- --------
Selling, General and Administrative:
Automotive retail................. 1,359.2 10.7 647.2 10.6 289.1 9.9
Automotive rental................. 637.0 18.4 536.9 17.6 537.1 19.9
Corporate......................... 54.3 -- 30.1 -- 21.7 --
--------- -------- --------
2,050.5 1,214.2 847.9
--------- -------- --------
Restructuring and Other Charges:
Automotive retail................. -- -- 85.0 1.4 -- --
Automotive rental................. -- -- 94.1 3.1 23.5 .9
Corporate......................... -- -- -- -- 6.0 --
--------- -------- --------
-- 179.1 29.5
--------- -------- --------
Operating Income (Loss):
Automotive retail................. 395.8 3.1 (68.4) (1.1) 33.3 1.1
Automotive rental................. 193.7 5.6 86.6 2.8 (28.4) (1.1)
Corporate......................... (54.3) -- (30.1) -- (27.7) --
--------- -------- --------
$ 535.2 $ (11.9) $ (22.8)
========= ======== ========
</TABLE>
AUTOMOTIVE RETAIL
The Company's automotive retail business consists primarily of the sale of
new and used vehicles and related automotive services and products. The Company
owns and operates franchised automotive dealerships and used vehicle megastores
under the name AutoNation USA(SM). The Company has aggressively expanded its
automotive retail operations through the acquisition of franchised automotive
dealerships and currently plans to continue this expansion. The Company has
established framework agreements with various manufacturers which allow the
Company to acquire franchised automotive dealerships nationwide.
Automotive retail revenue was $12.66 billion, $6.12 billion and $2.93
billion for the years ended December 31, 1998, 1997 and 1996, respectively. The
increase in 1998 over 1997 of $6.54 billion, or 106.8%, is a result of
acquisitions which accounted for 97.5%, new AutoNation USA megastores which
accounted for 10.4% and volume declines offset by price increases which
accounted for (1.1)%. The increase in 1997 over 1996 of $3.19 billion, or
108.7%, is a result of acquisitions which accounted for 85.4%, new AutoNation
USA megastores which accounted for 19.5% and price increases offset by volume
declines which accounted for 3.8%.
Cost of automotive retail operations was $10.91 billion, $5.46 billion and
$2.61 billion or, as percentages of automotive retail revenue, 86.2%, 89.1% and
89.0% for the years ended December 31, 1998, 1997 and 1996,
29
<PAGE> 32
respectively. The increases in aggregate dollars are primarily attributed to
acquisitions. The 1998 decrease in cost of operations as a percentage of revenue
is primarily due to reduced inventory costs and product mix.
Selling, general and administrative expenses related to the Company's
automotive retail operations were $1.36 billion, $647.2 million and $289.1
million or, as percentages of automotive retail revenue, 10.7%, 10.6% and 9.9%
for the years ended December 31, 1998, 1997 and 1996, respectively. The
increases in aggregate dollars primarily reflect the expansion of the Company's
automotive retail operations.
During the year ended December 31, 1997, the Company recorded approximately
$150.0 million of pre-tax charges associated with combining the Company's
franchised automotive dealerships and used vehicle megastore operations into one
automotive retail division. Approximately $85.0 million of these charges appear
as restructuring and other charges in the Company's 1997 Consolidated Statement
of Operations and consists of: $42.5 million for consolidation of information
systems; $25.3 million related primarily to relocating certain operations; and
$17.2 million of severance and other costs. The remaining $65.0 million of these
charges relates to inventory consolidation and is included in cost of automotive
retail sales in the Company's 1997 Consolidated Statement of Operations. During
the year ended December 31, 1998, the Company reduced its estimated
restructuring reserves for information systems and increased its estimated
reserves for the relocation of certain operations by approximately $21.0
million. The decrease in the information systems reserve is a result of the
Company's decision to eliminate or delay the conversion of certain systems. The
increase in the relocation reserve is due to the Company's decision to close its
reconditioning centers and relocate the reconditioning operations to the
Company's AutoNation USA megastores.
Through December 31, 1998, the Company has spent approximately $30.3
million related to restructuring activities and has recorded $30.6 million of
these restructuring charges against certain assets. As of December 31, 1998,
approximately $24.1 million remained in accrued liabilities related to these
charges. The Company believes the activities associated with these charges will
be substantially completed during 1999.
Operating income (loss) from the Company's automotive retail operations was
$395.8 million, $(68.4) million and $33.3 million for the years ended December
31, 1998, 1997 and 1996, respectively. Excluding restructuring and other pre-tax
charges in 1997 as previously discussed, operating income from the Company's
automotive retail operations would have been $81.6 million or 1.3% of automotive
retail revenue.
AUTOMOTIVE RENTAL
The Company's automotive rental business primarily rents vehicles on a
daily or weekly basis through National Car Rental System, Inc. ("National"),
Alamo Rent-A-Car, Inc. ("Alamo") and CarTemps USA ("CarTemps").
Automotive rental revenue was $3.45 billion, $3.06 billion and $2.7 billion
for the years ended December 31, 1998, 1997 and 1996, respectively. The increase
in 1998 over 1997 of $398.5 million, or 13.0%, is a result of acquisitions which
accounted for 10.3% and volume and primarily price which accounted for 2.7%. The
increase in 1997 over 1996 of $355.7 million, or 13.2%, is a result of volume
which accounted for 4.6%, price which accounted for 4.4% and acquisitions which
accounted for 4.2%.
Cost of automotive rental operations was $2.62 billion, $2.34 billion and
$2.17 billion or, as a percentage of automotive rental revenue, 76.0%, 76.5% and
80.3% for the years ended December 31, 1998, 1997 and 1996, respectively. The
increases in aggregate dollars for 1998 and 1997 are primarily attributed to
acquisitions, maintaining a larger fleet and, in 1997, higher rental volume. The
decreases in such expenses as percentages of revenue are primarily a result of
revenue improvement from rental rate increases.
Selling, general and administrative expenses related to the Company's
automotive rental operations were $637.0 million, $536.9 million and $537.1
million or, as percentages of automotive rental revenue, 18.4%, 17.6% and 19.9%
for the years ended December 31, 1998, 1997 and 1996, respectively. The 1998
increase in aggregate dollars over 1997 is primarily due to acquisitions and
costs associated with implementing the Company's Global Odyssey operating system
("Global Odyssey"). The 1998 increase in selling, general and administrative
expenses as a percentage of revenue versus 1997 is primarily due to costs
associated with implementing Global Odyssey and higher selling costs. The 1997
decrease as a percentage of automotive
30
<PAGE> 33
rental revenue versus 1996 is primarily due to the reduction of selling and
administrative expenses of acquired businesses.
During the year ended December 31, 1997, the Company recorded approximately
$94.1 million of restructuring and other charges associated with integrating the
Company's automotive rental operations. The primary components of this charge
were as follows: $32.0 million related to elimination of redundant information
systems; $18.0 million related to fleet consolidation; and $44.1 million related
to closure or sale of duplicate rental facilities and merger and other
non-recurring expenses. Through December 31, 1998, the Company has spent
approximately $45.5 million related to restructuring activities and has recorded
$26.6 million of these restructuring charges against certain assets. As of
December 31, 1998, approximately $22.0 million remained in accrued liabilities
related to these charges. The Company believes the activities associated with
these charges will be substantially completed during 1999.
During the year ended December 31, 1996, the Company recorded pre-tax
charges of approximately $75.7 million related to the integration of the
operations of Alamo into those of the Company. Approximately $23.5 million of
such expenses appear as restructuring and other charges in the Company's
Consolidated Statement of Operations for the year ended December 31, 1996 with
the remainder of approximately $52.2 million included in cost of automotive
rental operations and selling, general and administrative expenses. These costs
primarily include asset write-offs, severance benefits, accounting and legal
merger costs and changes in various estimated reserve requirements. The
activities associated with these charges were substantially completed during
1997.
Operating income (loss) from the Company's automotive rental operations was
$193.7 million, $86.6 million and $(28.4) million for the years ended December
31, 1998, 1997 and 1996, respectively. Excluding restructuring and other pre-tax
charges as previously discussed, operating income from the Company's automotive
rental operations would have been $180.7 million and $47.3 million in 1997 and
1996, respectively.
CORPORATE
Corporate expenses were $54.3 million, $30.1 million and $27.7 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Such increases
are a result of the overall growth experienced by the Company.
INTEREST INCOME
Interest income was $10.2 million, $13.3 million and $19.8 million for the
years ended December 31, 1998, 1997 and 1996, respectively. The decreases are
primarily a result of lower average cash balances on hand during 1998 and 1997.
INTEREST EXPENSE
Interest expense was incurred primarily on borrowings under the Company's
revolving credit facility for acquisitions and debt assumed in acquisitions.
Interest expense was $22.0 million, $11.1 million and $37.5 million for the
years ended December 31, 1998, 1997 and 1996, respectively. The increase in 1998
over 1997 is primarily due to borrowings for acquisitions. The decrease in 1997
versus 1996 is primarily due to the repayment of debt. Interest expense related
to vehicle inventory financing and revenue earning vehicle financing is included
in cost of automotive retail sales and cost of automotive rental operations,
respectively, in the accompanying Consolidated Statements of Operations.
OTHER INCOME (EXPENSE)
Other income for the year ended December 31, 1997 consists primarily of a
$102.3 million pre-tax gain from the May 1997 sale of the Company's 15.0 million
shares of ADT Limited common stock, net of fees and expenses. Such shares of ADT
Limited common stock were received in March 1997 upon the Company's exercise of
a warrant which became exercisable upon termination of the Company's agreement
to acquire ADT Limited by mutual agreement of the parties in September 1996.
31
<PAGE> 34
INCOME TAXES
The provision for income taxes from continuing operations was $188.1
million, $38.3 million and $15.3 million for the years ended December 31, 1998,
1997 and 1996, respectively. The effective income tax rate was 36.0%, 37.2% and
42.9% for the years ended December 31, 1998, 1997 and 1996, respectively. The
1996 income tax provision is primarily due to the Company providing valuation
allowances on certain deferred tax assets and varying higher historical
effective income tax rates of acquired businesses.
Effective with RSG's initial public offering on July 1, 1998, RSG is no
longer included in the Company's consolidated federal income tax return.
DISCONTINUED OPERATIONS
Solid Waste Services
As a result of the Company's decision to sell its remaining interest in
RSG, the net assets and operating results of the Company's solid waste services
segment have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements.
A summary of the Company's solid waste services operations is as follows
for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Revenue................................................... $1,369.1 $1,127.7 $953.3
Expenses:
Cost of operations...................................... 949.0 809.1 703.6
Selling, general and administrative..................... 120.8 107.1 126.9
Restructuring and other charges......................... -- -- 8.8
-------- -------- ------
Operating income.......................................... 299.3 211.5 114.0
Interest expense.......................................... (7.4) (5.7) (10.9)
Interest and other income................................. .6 6.7 13.9
-------- -------- ------
Income before income taxes................................ 292.5 212.5 117.0
Provision for income taxes................................ 105.3 76.9 49.5
-------- -------- ------
Net income before minority interest....................... 187.2 135.6 67.5
Minority interest......................................... 33.9 -- --
-------- -------- ------
Net income................................................ $ 153.3 $ 135.6 $ 67.5
======== ======== ======
</TABLE>
Revenue from the Company's solid waste services operations was $1.37
billion, $1.13 billion and $953.3 million for the years ended December 31, 1998,
1997 and 1996, respectively. The increase in 1998 over 1997 of $241.4 million,
or 21.4%, is a result of internal growth which accounted for 12.8% of the
increase and acquisitions which accounted for 8.6% of the increase. Price and
primarily volume contributed 7.0% of the internal growth increase and "tuck-in"
acquisitions contributed 5.8% of the increase. The increase in 1997 over 1996 of
$174.4 million, or 18.3%, is a result of internal growth which accounted for
10.8% of the increase and acquisitions which accounted for 7.5% of the increase.
Price and primarily volume contributed 7.4% of the internal growth increase and
"tuck-in" acquisitions contributed 3.4%.
Cost of solid waste services operations was $949.0 million, $809.1 million
and $703.6 million or, as a percentage of solid waste revenue, 69.3%, 71.7% and
73.8% for the years ended December 31, 1998, 1997 and 1996, respectively. The
increases in aggregate dollars are a result of the expansion of the Company's
solid waste services operations through acquisitions and internal growth. The
decreases in cost of solid waste services operations as a percentage of revenue
are primarily a result of improved operating efficiencies.
Selling, general and administrative expenses related to the Company's solid
waste services operations were $120.8 million, $107.1 million and $126.9 million
or, as percentages of solid waste revenue, 8.8%, 9.5% and 13.3% for the years
ended December 31, 1998, 1997 and 1996, respectively. The decreases in selling,
32
<PAGE> 35
general and administrative expenses as percentages of revenue in each of the
years are primarily due to leveraging the existing overhead structure over an
expanding revenue base.
During the year ended December 31, 1996, the Company recorded restructuring
and other charges totaling $8.8 million. These charges consist primarily of the
cost of closing certain landfills, asset write-offs and merger expenses. The
activities associated with these charges were completed during 1997.
Operating income from the Company's solid waste services operations was
$299.3 million, $211.5 million and $114.0 million for the years ended December
31, 1998, 1997 and 1996, respectively. Excluding restructuring and other charges
as previously discussed, operating income from the Company's solid waste
services operations would have been $122.8 million in 1996.
Minority interest during the year ended December 31, 1998 represents 36.1%
(the percentage of RSG common stock issued in the initial public offering
described below under "Financial Condition") of RSG's net income during the
period subsequent to the initial public offering. Such amount has been reflected
as a reduction of income from discontinued operations in the accompanying
Consolidated Statements of Operations.
Effective with RSG's initial public offering in July 1998 as further
described below, RSG is financed autonomously. Accordingly, RSG's operating cash
flow is retained by RSG and is no longer commingled with the Company's cash flow
from its automotive operations. In addition, borrowings under the Company's $1.0
billion revolving credit facility are no longer used to finance RSG's working
capital requirements or acquisitions. In July 1998, RSG entered into a $1.0
billion unsecured revolving credit facility (the "RSG Credit Facility") with a
group of banks to finance its working capital requirements and future
acquisitions. The RSG Credit Facility is comprised of a $500.0 million facility
with a term of 364 days and a $500.0 million facility with a term of 5 years.
Borrowings under the RSG Credit Facility bear interest at LIBOR based interest
rates.
Electronic Security Services
In October 1997, the Company sold its electronic security services division
for approximately $610.0 million resulting in an after tax gain of approximately
$230.0 million. In 1998, the Company finalized the sale resulting in an
additional after tax gain of approximately $11.6 million. The operating results
and gain on disposition of the electronic security services segment have been
classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements. Revenue and net income from the
electronic security services segment was $83.8 million and $9.5 million in 1997
for the period prior to disposition, respectively, and $85.3 million and $8.4
million for 1996, respectively.
See Note 12, Discontinued Operations, of Notes to Consolidated Financial
Statements, for further discussion of these discontinued operations.
EXTRAORDINARY CHARGE
During the year ended December 31, 1996, in connection with refinancing
Alamo's debt at substantially lower interest rates, the Company recorded an
extraordinary charge of approximately $31.6 million, net of income taxes.
Included in this charge are bond redemption premiums, the write-off of debt
issue costs, prepayment penalties and other related fees. See Note 4, Notes
Payable and Long-Term Debt, of Notes to Consolidated Financial Statements for
further discussion of this charge.
FINANCIAL CONDITION
At December 31, 1998, the Company had $217.3 million in cash and
approximately $426.2 million of availability under its $1.0 billion unsecured
revolving credit facility which may be used for general corporate purposes. In
March 1999, the Company entered into a $500.0 million 364-day unsecured bank
revolving credit facility. This facility will be used for general corporate
purposes and complements the $1.0 billion bank revolving credit facility
maturing in April 2002.
33
<PAGE> 36
On July 1, 1998, the Company's solid waste subsidiary, RSG, completed an
initial public offering resulting in net proceeds of approximately $1.43
billion. Proceeds from the offering were used to finance the growth of the
Company's automotive operations. The Company intends to sell its remaining
interest in RSG. Proceeds from the sale will be used to finance the growth of
the Company's automotive operations.
The Company finances vehicle purchases for its domestic automotive rental
operations primarily through a $3.55 billion program comprised of a $2.3 billion
single-seller commercial paper program and three bank-sponsored multi-seller
commercial paper conduit facilities totaling $1.25 billion. Borrowings under
these programs are secured by eligible vehicle collateral and bear interest at
market-based commercial paper rates. As of December 31, 1998, the Company had
approximately $202.6 million of availability under these programs. In January
1999, the Company increased the commercial paper program to $3.9 billion through
an increase in the conduit facilities from $1.25 billion to $1.6 billion. On
February 26, 1999, the Company issued $1.8 billion of rental vehicle
asset-backed notes consisting of $550.0 million floating rate notes; $750.0
million 5.88% fixed rate notes; and $500.0 million 6.02% fixed rate notes
(collectively, the "Notes"). The Company fixed the effective interest rate on
the $550.0 million floating rate notes at 5.73% through the use of certain
derivative transactions. Letters of credit totaling $150.0 million provide
credit enhancement for the Notes. Proceeds from the Notes were used to refinance
amounts outstanding under the Company's commercial paper programs. As a result
of the refinancing, the Company has reduced its commercial paper program from
$3.9 billion to $3.24 billion, comprised of a $1.99 billion single-seller
program and three bank-sponsored multi-seller commercial paper conduit
facilities totaling $1.25 billion. As of December 31, 1998, approximately 90% of
the revenue earning vehicles financed under these programs were acquired under
programs that allow the Company to require counterparties to repurchase vehicles
held for periods up to 24 months. The Company expects to continue to fund its
revenue earning vehicle purchases with secured vehicle financings.
The Company has vehicle inventory financing and other credit facilities to
fund its automotive retail operations. In November 1998, the Company entered
into a $500.0 million bank-sponsored multi-seller commercial paper conduit
facility to finance new and used vehicle inventory for the Company's automotive
retail operations. This facility supplements the new and used vehicle inventory
finance facilities provided by vehicle manufacturer captive finance companies.
As of December 31, 1998, approximately $7.5 million was financed under this
facility. In connection with the development of the AutoNation USA megastores,
the Company is the lessee under a $500.0 million operating lease facility
established to acquire and develop properties used in its business. The Company
has guaranteed the residual value of the properties under this facility which
guarantee totaled approximately $418.6 million at December 31, 1998.
In September 1998, the Company entered into a $1.0 billion commercial paper
warehouse facility with unrelated financial institutions for the securitization
of installment loan receivables generated by the Company's automotive finance
subsidiary. Through December 31, 1998, the Company has securitized approximately
$698.8 million of loan receivables under this program, net of retained
interests. Installment loans sold under this program are nonrecourse beyond the
Company's retained interests. Proceeds from the securitization were primarily
used to repay borrowings under the Company's revolving credit facility. The
Company expects to continue to securitize receivables under this facility and/or
other programs. The Company has entered into certain interest rate derivative
transactions with certain financial institutions to manage the impact of
interest rate changes on securitized installment loan receivables. These
derivative transactions consist of a series of interest rate caps and floors
which effectuate a variable to fixed rate swap at a weighted average rate of
5.18% at December 31, 1998. Variable rates on the underlying portfolio are
indexed to the Commercial Paper Nonfinancial Rate.
The Company uses interest rate swap agreements to manage the impact of
interest rate changes on the Company's variable rate debt. The amounts exchanged
by the counterparties to interest rate swap agreements are based upon the
notional amounts and other terms, generally related to interest rates, of the
derivatives. While notional amounts of interest rate swaps form part of the
basis for the amounts exchanged by the counterparties, the notional amounts are
not themselves exchanged, and therefore, do not represent a measure of the
Company's exposure as an end user of derivative financial instruments. At
December 31, 1998, notional principal amounts related to interest rate swaps
(variable to fixed rate) were $2.55 billion. As of December 31, 1998, the
weighted average fixed rate payment on variable to fixed rate swaps was 5.87%.
Variable rates
34
<PAGE> 37
received are indexed to the Commercial Paper Nonfinancial Rate ($2.45 billion
notional principal amount) and LIBOR ($.10 billion notional principal amount).
Including the Company's variable to fixed interest rate swaps, the Company's
ratio of fixed interest rate debt to total debt outstanding was 50% as of
December 31, 1998.
In August 1998, the Company's Board of Directors authorized the repurchase
of up to $500.0 million of Common Stock over the following 12 months.
Repurchases are made either pursuant to Rule 10b-18 of the Securities Exchange
Act of 1934, as amended, or in privately negotiated transactions. As of December
31, 1998, the Company had repurchased 9.1 million shares of Common Stock for an
aggregate price of approximately $136.0 million.
The Company believes that it has sufficient operating cash flow and other
financial resources necessary to meet its anticipated capital requirements and
obligations as they come due.
CASH FLOWS
Cash and cash equivalents increased $644.7 million and decreased by $191.3
million and $13.1 million during the years ended December 31, 1998, 1997 and
1996, respectively. The major components of these changes are discussed below.
Cash Flows from Operating Activities
Cash used in operating activities of continuing operations was $368.8
million, $847.5 million and $459.6 million for the years ended December 31,
1998, 1997 and 1996, respectively. As previously discussed, the Company finances
its revenue earning vehicle purchases with secured vehicle financings. Cash
(used in) provided by operating activities of continuing operations was $(79.9)
million, $(344.4) million and $131.4 million for the years ended December 31,
1998, 1997 and 1996, respectively, excluding revenue earning vehicle
depreciation and purchases of revenue earning vehicles (net of sales) totaling
$288.9 million, $503.1 million and $591.0 million for the years ended December
31, 1998, 1997 and 1996, respectively.
Cash provided by operating activities of discontinued operations was $297.1
million, $275.0 million and $154.0 million for the years ended December 31,
1998, 1997 and 1996, respectively. The increases are primarily a result of the
expansion of the Company's solid waste operations during the periods.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of cash used for
business acquisitions and capital additions and other transactions as further
described below.
Cash used in business acquisitions was $1.22 billion, $216.6 million and
$51.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively. See "Business Combinations" of Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 2, Business
Combinations, of Notes to Consolidated Financial Statements for a further
discussion of business combinations.
Capital additions were $437.9 million, $294.5 million and $105.9 million
during the years ended December 31, 1998, 1997 and 1996, respectively. The
increases are primarily a result of expansion of the Company's automotive retail
and rental businesses.
In July 1998, the Company's solid waste subsidiary, RSG, completed an
initial public offering resulting in net proceeds of approximately $1.43
billion.
In October 1997, the Company sold its electronic security services division
for approximately $610.0 million.
In March 1997, the Company exercised its warrant to acquire 15.0 million
common shares of ADT Limited for $20 per share. In May 1997, the Company sold
the 15.0 million ADT Limited common shares for $27.50 per share to certain
institutional investors.
35
<PAGE> 38
Cash used in investing activities of discontinued operations was $182.2
million, $170.8 million and $176.9 million during the years ended December 31,
1998, 1997 and 1996, respectively, and consists primarily of capital additions.
The Company intends to finance capital expenditures and cash used in
business acquisitions through cash on hand, the Company's revolving credit
facility and other financings.
Cash Flows from Financing Activities
Cash flows from financing activities during the years ended December 31,
1998, 1997 and 1996 included revenue earning vehicle financing, commercial bank
borrowings, repayments of debt, and other transactions as further described
below.
During the year ended December 31, 1998, the Company repurchased
approximately 9.1 million shares of Common Stock for an aggregate price of
approximately $136.0 million under its $500.0 million share repurchase program.
During the year ended December 31, 1997, the Company sold 15.8 million
shares of Common Stock in a private placement transaction resulting in net
proceeds of approximately $552.7 million.
During the year ended December 31, 1996, the Company sold an aggregate of
22.0 million shares of Common Stock in private placement transactions resulting
in net proceeds of approximately $550.9 million.
Cash provided by (used in) financing activities of discontinued operations
was $928.8 million, $(88.2) million and $(146.6) million during the years ended
December 31, 1998, 1997 and 1996, respectively, and consists primarily of bank
borrowings and/or repayments.
These financing activities were used to fund revenue earning vehicle
purchases, capital additions and acquisitions as well as to repay debt assumed
in acquisitions and expand the Company's business during these years.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The tables below provide information about the Company's market sensitive
financial instruments and constitute "forward-looking statements". All items
described are non-trading.
The Company's major market risk exposure is changing interest rates,
primarily in the United States. Due to its limited foreign operations, the
Company does not have material market risk exposures relative to changes in
foreign exchange rates. The Company's policy is to manage interest rates through
the use of a combination of fixed and floating rate debt. Interest rate
derivatives may be used to adjust interest rate exposures when appropriate,
based upon market conditions. These derivatives consist of interest rate swaps,
caps and floors which are entered into with a group of financial institutions
with investment grade credit ratings, thereby minimizing the risk of credit
loss. The Company uses variable to fixed interest rate swap agreements to manage
the impact of interest rate changes on the Company's variable rate debt.
Expected maturity dates for variable rate debt and interest rate swaps are based
upon contractual maturity dates. Average pay rates under interest rate swaps are
based upon contractual fixed rates. Average variable receive rates under
interest rate swaps are based on implied forward rates in the yield curve at the
reporting date.
The Company has entered into a series of interest rate caps and floors
contractually maturing in 2004 to manage the impact of interest rate changes on
securitized installment loan receivables. Expected maturity dates are based upon
the estimated repayment of the underlying receivables after considering
estimated prepayments and credit losses. Average rates on interest rate caps and
floors are based upon contractual rates.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement. The fair value of variable rate debt approximates the carrying value
since interest rates are variable and, thus, approximate current market rates.
The fair value of interest rate swaps, caps and floors is determined from dealer
quotations and represents the discounted future cash flows through maturity or
36
<PAGE> 39
expiration using current rates, and is effectively the amount the Company would
pay or receive to terminate the agreements.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------------------------------------ FAIR VALUE
DECEMBER 31, 1998 1999 2000 2001 2002 2003 THEREAFTER TOTAL DECEMBER 31, 1998
- ----------------- -------- -------- -------- ------ ------ ---------- -------- -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Asset)/Liability
CONTINUING OPERATIONS:
Variable rate debt................. $3,887.8 $1,259.9 $ -- $535.0 $ -- $ -- $5,682.7 $5,682.7
Average interest rates........... 5.68% 5.55% -- 6.52% -- --
Interest rate swaps................ 650.0 1,000.0 250.0 150.0 500.0 -- 2,550.0 47.0
Average pay rate................. 5.83% 5.94% 6.15% 5.88% 5.63% --
Average receive rate............. 5.19% 5.41% 5.53% 5.53% 5.53% --
Interest rate caps................. 287.2 192.6 146.1 90.3 20.9 -- 737.1 (8.9)
Average rate..................... 5.47% 5.47% 5.47% 5.47% 5.47% --
Interest rate floors............... 287.2 192.6 146.1 90.3 20.9 -- 737.1 7.1
Average rate..................... 4.61% 4.61% 4.61% 4.61% 4.61% --
DISCONTINUED OPERATIONS:
Variable rate debt................. $ 495.2 $ 3.4 $ 3.2 $ 3.0 $503.1 $35.9 $1,043.8 $1,043.8
Average interest rates........... 6.40% 5.06% 5.31% 5.19% 6.42% 5.21%
</TABLE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------------------------------------ FAIR VALUE
DECEMBER 31, 1997 1998 1999 2000 2001 2002 THEREAFTER TOTAL DECEMBER 31, 1997
- ----------------- -------- -------- -------- ------ ------ ---------- -------- -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Asset)/Liability
CONTINUING OPERATIONS:
Variable rate debt................. $2,713.9 $ 153.7 $1,072.7 $ -- $285.0 $ -- $4,225.3 $4,225.3
Average interest rates........... 6.17% 6.20% 5.86% -- 5.97% --
Interest rate swaps................ 300.0 650.0 1,000.0 150.0 150.0 -- 2,250.0 8.0
Average pay rate................. 5.85% 5.81% 5.95% 6.50% 5.88% --
Average receive rate............. 5.50% 5.50% 5.50% 5.50% 5.50% --
DISCONTINUED OPERATIONS:
Variable rate debt................. $ 1.1 $ 1.5 $ 1.7 $ 1.8 $ 1.9 $35.1 $ 43.1 $ 43.1
Average interest rates........... 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%
</TABLE>
SEASONALITY
The Company's automotive retail operations generally experience higher
volumes of vehicle sales in the second and third quarters of each year in part
due to consumer buying trends and the introduction of new vehicle models.
The Company's automotive rental operations and particularly the leisure
travel segment is highly seasonal. In these operations, the third quarter, which
includes the peak summer travel months, has historically been the strongest
quarter of the year. During the peak season, the Company increases its rental
fleet and workforce to accommodate increased rental activity. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect. The first and fourth quarters for the Company's
automotive rental operations are generally the weakest, when there is limited
leisure travel and a greater potential for adverse weather conditions. Many of
the operating expenses such as rent, general insurance and administrative
personnel are fixed and cannot be reduced during periods of decreased rental
demand.
YEAR 2000
The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000 ("Y2K").
The Company is addressing the issue of computer programs, embedded chips and
third party suppliers that may be impacted by Y2K. The Company has developed a
dedicated Y2K Project Office to coordinate compliance efforts and ensure that
the project status is monitored and reported throughout the organization.
37
<PAGE> 40
The Company has identified four core phases in preparing for Y2K:
Assessment -- In the assessment phase, an inventory is performed of
software, hardware, telecommunications equipment and embedded chip
technology. Also, critical systems and vendors are identified and
prioritized.
Analysis -- In the analysis phase, each system or item assessed as
critical is reviewed to determine Y2K compliance. Key vendors are also
evaluated at this time to determine their compliance status.
Remediation -- In the remediation phase, modifications or replacements
are made to critical systems and equipment to make them Y2K-compliant or
the systems and/or vendors are replaced with compliant systems or vendors.
Decisions are also made as to whether changes are necessary or feasible for
key third-party suppliers.
Testing and Validation -- In this phase, the Company prepares,
executes and verifies the testing of critical systems.
Each division of the Company has developed plans to correct Y2K issues
and, to date, has made progress as follows:
Automotive Retail Division:
The Company's franchised automotive dealerships and AutoNation USA
megastores use one of six Dealer Management Systems ("DMS"), which perform
the core functions of a dealership's operations. The Company has
determined, subject to verification and testing, that the DMS systems
provided by these vendors are Y2K compliant or will be Y2K compliant with
an upgrade. Approximately 60% of the Company's franchised automotive
dealerships using these DMS systems have been upgraded to a compliant
version with the remaining 40% scheduled to complete such upgrades by the
end of the second quarter of 1999. The Company intends to obtain further
documentation to support such compliance, as well as conduct testing to
verify compliance.
The Company has developed other software applications that are in use
at its AutoNation USA megastores as well as some of its franchised
automotive dealerships. Although none of these systems are considered
mission critical, after an initial pilot to assess these systems, the
Company has proceeded with an effort to assess, analyze, remediate and test
this code. This effort is 65% complete with completion scheduled for the
end of the second quarter of 1999.
The Company has completed an inventory of its franchised automotive
dealerships and megastores to identify other business systems, products,
suppliers and embedded chips. Those issues identified are expected to be
remediated or replaced by the end of the second quarter of 1999.
Automotive Rental Division:
For over a year, the Company, in conjunction with external
consultants, has been developing the Global Odyssey system, which will
replace substantially all rental systems, as well as the applicable
hardware and operating systems. This system was designed to be Y2K
compliant and Y2K testing was completed prior to the recent implementation
of the Global Odyssey reservation, operations and financial systems at
National's North American locations prior to the end of 1998. The Global
Odyssey fleet system was implemented at National's North American locations
during the first quarter of 1999.
Alamo's existing systems have been undergoing remediation as a
contingency to Global Odyssey not being fully deployed in 1999. That
process, which began in 1997, has remediated 100% of the systems and 80%
has been tested and put into production. A full integration test is
expected to be completed during the third quarter of 1999.
The Rental Division has surveyed the majority of its North American
rental locations to identify other critical business systems, products and
vendors, including embedded chip issues. Work is ongoing to remediate or
replace business systems, products and vendors that are not Y2K compliant.
Completion of remediation or replacement is expected by the end of the
second quarter of 1999. The Company has also developed a plan for its
European locations, some of which are supported by the Alamo mainframe,
which is discussed above. The remaining European locations are supported by
systems developed and
38
<PAGE> 41
supported by the United Kingdom headquarters which are currently scheduled
to be Y2K compliant by the end of the third quarter of 1999.
Solid Waste Division:
RSG has identified six critical systems or processes related to Y2K
compliance. These are hauling and disposal fleet operations, electrical
systems, telecommunications, payroll processing, billing systems and
payments to critical third parties. RSG primarily uses industry standard
automated applications in most of its locations which are provided by third
parties. The majority of these applications are believed to be Y2K
compliant, but RSG is currently testing compliance in coordination with the
vendors. The three locations with proprietary software are currently in the
remediation phase and expect to be completed by the end of the second
quarter of 1999.
RSG is currently finalizing its assessment of embedded chips and third
party suppliers. RSG expects to complete the inventory and assessment of
this information during the second quarter of 1999. As information is
received related to these areas, RSG analyzes the compliance of products
and develops a strategy for repair or replacement of non-compliant systems
as well as testing and validation of such items. RSG expects to be
substantially complete with the analysis of this information by the end of
the third quarter of 1999. The remediation phase is expected to be complete
by the end of the third quarter of 1999.
Costs To Address Y2K
To date, the Company's automotive retail and rental divisions have
spent approximately $7.1 million on Y2K efforts across all areas and expect
to spend a total of approximately $27.9 million when complete; of which
$9.1 million is scheduled to be incurred as capital expenditures and
depreciated accordingly. Such amounts exclude costs associated with
replacing the Company's automotive rental systems with Global Odyssey since
the Global Odyssey implementation was planned in advance and not
accelerated as a result of Y2K. The Company expects to fund Y2K costs
through operating cash flow. All system modification costs associated with
Y2K will be expensed as incurred. Y2K expenditures vary significantly in
project phases and vary depending on remedial methods used. Past
expenditures in relation to total estimated costs should not be considered
or relied on as a basis for estimating progress to completion for any
element of the Y2K project.
RSG has spent approximately $1.2 million to date on Y2K efforts across
all areas and expects to spend a total of approximately $4.0 million when
complete; of which $1.3 million is scheduled to be incurred as capital
expenditures and depreciated accordingly.
Risks and Contingency Plans
The Company presently believes, that upon remediation of its business
software applications, as well as other equipment with embedded technology,
the Y2K issue will not present a materially adverse risk to the Company's
future consolidated results of operations, liquidity and capital resources.
However, if such remediation is not completed in a timely manner or the
level of timely compliance by key suppliers or vendors is not sufficient,
the Company believes that the most likely worst case scenario would be the
delay or disruption in the delivery of products which could have a material
adverse impact on the Company's operations including, but not limited to,
loss of revenue, increased operating costs, loss of customers or suppliers,
or other significant disruptions to the Company's business. The Company has
initiated comprehensive contingency and business continuation plans, which
are expected to be in place in the second quarter of 1999 in order to
ensure enough time for implementation of such plans, if necessary and thus
possibly avoid such risks.
Determining the Y2K readiness of third party products and business
dependencies requires pursuit, collection and appraisal of voluntary statements
made or provided by those parties, if available, together with independent
factual research. The Company has identified its material third-party
relationships and has
39
<PAGE> 42
surveyed these parties. The results are being analyzed as surveys are received.
Although the Company has taken, and will continue to take, reasonable efforts to
gather information to determine and verify the readiness of products and
dependencies, there can be no assurances that reliable information will be
offered or otherwise available. In addition, verification methods (including
testing methods) may not be reliable or fully implemented. Accordingly,
notwithstanding the foregoing efforts, there are no assurances that the Company
is correct in its determination or belief that a product (information technology
and other computerized equipment) or a business dependency (including a
supplier, distributor or ancillary industry group) is Y2K ready.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 prospectively beginning January 1, 1999. Adoption of this
Statement will not have a material impact on the Company's consolidated
financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company's accounting policies conform with the
requirements of SOP 98-5; therefore adoption of this Statement will not impact
the Company's consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. SFAS 133 cannot be
applied retroactively. The Company will adopt SFAS 133 beginning January 1,
2000. The Company has not yet quantified the impact of adopting SFAS 133 on the
Company's consolidated financial statements. However, SFAS 133 could increase
volatility in earnings and other comprehensive income.
FORWARD-LOOKING STATEMENTS
Certain statements and information included herein constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, competition in the Company's lines of business; the ability to integrate
and successfully operate acquired businesses and the risks associated with such
businesses; the dependence on vehicle manufacturers to approve franchised
automotive dealership acquisitions and the restrictions imposed by vehicle
manufacturers on franchised automotive dealership acquisitions and operations;
the risk of unfavorable economic conditions on the Company's operations; the
Company's dependence on key personnel; the ability to obtain financing on
acceptable terms to finance the Company's operations and growth strategy and for
the Company to operate within the limitations imposed by financing arrangements;
the risks and costs associated with complying with the date change in the year
2000; the ability to develop and implement operational and financial systems to
manage rapidly growing operations; and other factors contained in the Company's
filings with the Securities and Exchange Commission.
40
<PAGE> 43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... 42
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 43
Consolidated Statements of Operations for Each of the Three
Years Ended December 31, 1998............................. 44
Consolidated Statements of Shareholders' Equity for Each of
the Three Years Ended
December 31, 1998......................................... 45
Consolidated Statements of Cash Flows for Each of the Three
Years Ended December 31, 1998............................. 46
Notes to Consolidated Financial Statements.................. 47
Financial Statement Schedule II, Valuation and Qualifying
Accounts and Reserves, for Each of the Three Years Ended
December 31, 1998......................................... 69
</TABLE>
41
<PAGE> 44
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Republic Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Republic
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 3, 1999.
42
<PAGE> 45
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 217.3 $ 129.2
Receivables, net.......................................... 1,605.3 846.3
Revenue earning vehicles, net............................. 4,588.7 4,466.5
Inventory................................................. 1,853.5 1,083.1
Other current assets...................................... 141.5 120.1
--------- ---------
Total Current Assets.............................. 8,406.3 6,645.2
INVESTMENTS................................................. 172.3 13.4
PROPERTY AND EQUIPMENT, NET................................. 2,043.6 1,295.1
INTANGIBLE AND OTHER ASSETS, NET............................ 2,473.4 1,225.6
NET ASSETS OF DISCONTINUED OPERATIONS....................... 830.2 1,016.9
--------- ---------
$13,925.8 $10,196.2
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 307.4 $ 220.6
Accrued liabilities....................................... 697.9 500.3
Insurance reserves........................................ 128.3 102.1
Revenue earning vehicle debt.............................. 2,618.2 2,209.4
Notes payable and current maturities of long-term debt.... 1,441.8 521.2
Other current liabilities................................. 346.8 263.4
--------- ---------
Total Current Liabilities......................... 5,540.4 3,817.0
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 555.9 306.6
LONG-TERM REVENUE EARNING VEHICLE DEBT...................... 1,759.7 1,962.7
DEFERRED INCOME TAXES....................................... 227.1 196.9
OTHER LIABILITIES........................................... 418.5 428.7
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 5,000,000
shares authorized; none issued......................... -- --
Common stock, par value $.01 per share; 1,500,000,000
shares authorized; 467,240,307 and 432,705,796 shares
issued and outstanding including shares held in
treasury, respectively................................. 4.7 4.3
Additional paid-in capital................................ 4,628.9 3,051.5
Retained earnings......................................... 930.9 431.4
Accumulated other comprehensive loss...................... (4.3) (2.9)
Treasury stock, at cost; 9,110,400 shares held at December
31, 1998............................................... (136.0) --
--------- ---------
Total Shareholders' Equity........................ 5,424.2 3,484.3
--------- ---------
$13,925.8 $10,196.2
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
43
<PAGE> 46
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
REVENUE:
Automotive retail sales................................... $12,664.6 $6,122.8 $2,933.7
Automotive rental revenue................................. 3,453.6 3,055.1 2,699.4
--------- -------- --------
16,118.2 9,177.9 5,633.1
EXPENSES:
Cost of automotive retail sales........................... 10,909.6 5,459.0 2,611.3
Cost of automotive rental operations...................... 2,622.9 2,337.5 2,167.2
Selling, general and administrative....................... 2,050.5 1,214.2 847.9
Restructuring and other charges........................... -- 179.1 29.5
--------- -------- --------
OPERATING INCOME (LOSS)..................................... 535.2 (11.9) (22.8)
INTEREST INCOME............................................. 10.2 13.3 19.8
INTEREST EXPENSE............................................ (22.0) (11.1) (37.5)
OTHER INCOME (EXPENSE), NET................................. (.7) 112.6 4.8
--------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES..................................................... 522.7 102.9 (35.7)
PROVISION FOR INCOME TAXES.................................. 188.1 38.3 15.3
--------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY CHARGE...................................... 334.6 64.6 (51.0)
--------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of minority
interest and income taxes.............................. 153.3 145.1 75.9
Gain on disposal of segment, net of income tax provision
of $8.4 in 1998 and $233.7 in 1997..................... 11.6 230.0 --
--------- -------- --------
Income from discontinued operations....................... 164.9 375.1 75.9
--------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE.......................... 499.5 439.7 24.9
EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF
DEBT, NET OF BENEFIT FOR INCOME TAXES OF $15.0............ -- -- (31.6)
--------- -------- --------
NET INCOME (LOSS)........................................... $ 499.5 $ 439.7 $ (6.7)
========= ======== ========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ .74 $ .16 $ (.16)
Discontinued operations................................... .36 .93 .24
Extraordinary charge...................................... -- -- (.10)
--------- -------- --------
Net income (loss)......................................... $ 1.10 $ 1.09 $ (.02)
========= ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ .71 $ .15 $ (.16)
Discontinued operations................................... .35 .87 .24
Extraordinary charge...................................... -- -- (.10)
--------- -------- --------
Net income (loss)......................................... $ 1.06 $ 1.02 $ (.02)
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
44
<PAGE> 47
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE- COMPRE-
ADDITIONAL HENSIVE HENSIVE
COMMON PAID-IN RETAINED INCOME TREASURY INCOME
STOCK CAPITAL EARNINGS (LOSS) STOCK (LOSS)
------ ---------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................. $3.0 $ 675.6 $107.8 $ 2.6 $ --
Comprehensive loss:
Net loss................................. -- -- (6.7) -- -- $ (6.7)
Other comprehensive loss -- foreign
currency translation adjustments....... -- -- -- (.8) -- (.8)
------
Comprehensive loss..................... -- -- -- -- -- $ (7.5)
======
Sales of common stock...................... .2 550.7 -- -- --
Stock issued in acquisitions............... .1 86.5 -- -- --
Exercise of stock options and warrants,
including income tax benefit of $20.3
million.................................. -- 43.7 -- -- --
Distributions to former owners of pooled
companies................................ -- -- (78.4) -- --
Other...................................... .1 31.1 4.4 -- --
---- -------- ------ ----- -------
BALANCE AT DECEMBER 31, 1996................. 3.4 1,387.6 27.1 1.8 --
Comprehensive income (loss):
Net income............................... -- -- 439.7 -- -- $439.7
Other comprehensive loss -- foreign
currency translation adjustments....... -- -- -- (4.7) -- (4.7)
------
Comprehensive income................... -- -- -- -- -- $435.0
======
Sales of common stock...................... .2 552.5 -- -- --
Stock issued in acquisitions............... .6 942.5 -- -- --
Exercise of stock options and warrants,
including income tax benefit of $32.7
million.................................. .1 92.0 -- -- --
Distributions to former owners of pooled
companies................................ -- -- (31.4) -- --
Other...................................... -- 76.9 (4.0) -- --
---- -------- ------ ----- -------
BALANCE AT DECEMBER 31, 1997................. 4.3 3,051.5 431.4 (2.9) --
Comprehensive income (loss):
Net income............................... -- -- 499.5 -- -- $499.5
------
Other comprehensive income (loss):
Foreign currency translation
adjustments......................... -- -- -- -- -- (1.6)
Unrealized loss on marketable
securities.......................... -- -- -- -- -- (.4)
Unrealized gain on interest-only strip
receivables......................... -- -- -- -- -- .6
------
Other comprehensive loss............... -- -- -- (1.4) -- (1.4)
------
Comprehensive income................ -- -- -- -- -- $498.1
======
Stock issued in acquisitions............... .3 540.9 -- -- --
Sale of common stock of RSG................ -- 998.5 -- -- --
Purchases of treasury stock................ -- -- -- -- (136.0)
Exercise of stock options and warrants,
including income tax benefit of $4.8
million.................................. .1 38.0 -- -- --
---- -------- ------ ----- -------
BALANCE AT DECEMBER 31, 1998................. $4.7 $4,628.9 $930.9 $(4.3) $(136.0)
==== ======== ====== ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE> 48
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH USED IN OPERATING ACTIVITIES:
Net income (loss)......................................... $ 499.5 $ 439.7 $ (6.7)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Purchases of revenue earning vehicles................... (6,974.6) (5,227.3) (4,695.3)
Sales of revenue earning vehicles....................... 5,780.1 3,892.3 3,356.4
Depreciation of revenue earning vehicles................ 905.6 831.9 747.9
Depreciation and amortization of property and
equipment............................................. 92.4 62.7 47.6
Amortization of intangible assets....................... 53.6 22.9 5.1
Non-cash restructuring and other charges................ -- 186.0 86.7
Loss on extinguishment of debt, net of income taxes..... -- -- 31.6
Gain on sale of marketable securities................... -- (102.3) --
Income from discontinued operations..................... (164.9) (375.1) (75.9)
Changes in assets and liabilities, net of effects from
business acquisitions:
Receivables........................................... (504.6) (193.7) (94.5)
Inventory............................................. 66.5 (205.9) (21.4)
Other assets.......................................... (26.9) 76.1 (58.0)
Accounts payable and accrued liabilities.............. (101.2) (264.3) 108.3
Other liabilities..................................... 5.7 9.5 108.6
---------- ---------- ----------
(368.8) (847.5) (459.6)
---------- ---------- ----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Cash used in business acquisitions, net of cash
acquired................................................ (1,221.4) (216.6) (51.5)
Purchases of property and equipment....................... (437.9) (294.5) (105.9)
Purchases of marketable securities........................ (195.5) (300.0) --
Sales of marketable securities............................ 94.1 402.3 42.3
Proceeds from sale of common stock of RSG................. 1,433.6 -- --
Cash received on disposal of electronic security
division................................................ -- 610.0 --
Other..................................................... (64.7) (49.1) (239.3)
---------- ---------- ----------
(391.8) 152.1 (354.4)
---------- ---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing........... 46,950.4 29,103.7 17,802.7
Payments on revenue earning vehicle financing............. (46,578.3) (28,688.7) (17,452.0)
Proceeds from long-term debt and notes payable............ 17.1 373.2 227.0
Payments of long-term debt and notes payable.............. (294.2) (732.1) (350.6)
Net proceeds (payments) from revolving credit and vehicle
inventory financing facilities.......................... 373.8 (139.7) 158.6
Sales of common stock..................................... -- 552.7 550.9
Purchases of treasury stock............................... (136.0) -- --
Other..................................................... 28.8 19.0 33.8
---------- ---------- ----------
361.6 488.1 970.4
---------- ---------- ----------
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS:
Operating activities...................................... 297.1 275.0 154.0
Investing activities...................................... (182.2) (170.8) (176.9)
Financing activities...................................... 928.8 (88.2) (146.6)
---------- ---------- ----------
1,043.7 16.0 (169.5)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 644.7 (191.3) (13.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 129.2 320.5 357.8
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. 773.9 129.2 344.7
LESS: CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS
AT END OF PERIOD.......................................... (556.6) -- (24.2)
---------- ---------- ----------
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF
PERIOD.................................................... $ 217.3 $ 129.2 $ 320.5
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE> 49
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
Republic Industries, Inc. and its subsidiaries (the "Company"). All intercompany
accounts and transactions have been eliminated.
In May 1998, the Company announced its intention to separate the Company's
solid waste subsidiary, Republic Services, Inc. ("RSG"), from the Company. The
Company and RSG have entered into certain agreements providing for the
separation and governing various interim and ongoing relationships between the
companies. The Company also announced its intention to distribute its remaining
shares of common stock in RSG as of the distribution date to the Company's
stockholders in 1999, subject to certain conditions and consents (the
"Distribution"). The Distribution was conditioned, in part, on the Company
obtaining a private letter ruling from the Internal Revenue Service ("IRS") to
the effect that, among other things, the Distribution would qualify as a tax
free distribution for federal income tax purposes under Section 355 of the
Internal Revenue Code of 1986, as amended, in form and substance satisfactory to
the Company.
In July 1998, the Company filed its request for the private letter ruling
with the IRS, and continued to process the request through February 1999 with
the expectation of completing the Distribution in mid-1999. In March 1999, the
IRS advised the Company in writing that the IRS would not rule as requested. In
light of the IRS action, the Company's Board of Directors decided not to
complete the Distribution. Alternatively, the Company has decided to sell its
remaining interest in RSG. Accordingly, as discussed in Note 12, Discontinued
Operations, the Company's solid waste services segment has been accounted for as
discontinued operations and the accompanying Consolidated Financial Statements
presented herein have been restated to report separately the net assets and
operating results of these discontinued operations.
In October 1997, the Company sold its electronic security services
division. Accordingly, as discussed in Note 12, Discontinued Operations, these
operations have been accounted for as discontinued operations and the
accompanying Consolidated Financial Statements presented herein have been
restated to report separately the operating results of these discontinued
operations.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements to conform with the financial statement presentation of the
current period.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
All per share data and numbers of shares of the Company's common stock, par
value $.01 per share ("Common Stock") for all periods included in the
consolidated financial statements and notes thereto have been adjusted to
reflect a two-for-one stock split in the form of a 100% stock dividend that
occurred in June 1996, as is more fully described in Note 7, Shareholders'
Equity.
47
<PAGE> 50
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECEIVABLES
The components of receivables, net of allowance for doubtful accounts at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Automotive retail trade receivables......................... $ 493.6 $198.7
Automotive rental trade receivables......................... 264.7 207.1
Vehicle manufacturer receivables............................ 458.2 366.4
Automotive finance receivables.............................. 354.0 38.1
Other....................................................... 97.1 73.3
-------- ------
1,667.6 883.6
Less: allowance for doubtful accounts....................... (62.3) (37.3)
-------- ------
$1,605.3 $846.3
======== ======
</TABLE>
Automotive finance receivables are generated by the Company's automotive
retail finance subsidiary and include finance lease receivables, installment
loan receivables and retained interests in securitized installment loan
receivables. In 1998, the Company entered into a $1.0 billion commercial paper
warehouse facility with certain financial institutions for the securitization of
installment loan receivables. Through December 31, 1998, the Company has
securitized approximately $698.8 million of loan receivables under this program.
Installment loans sold under this program are nonrecourse beyond the Company's
retained interests. The Company sells its receivables to a commercial paper
conduit, but retains responsibility for servicing the loans for which it is paid
a servicing fee. The Company retains a subordinated interest in the sold
receivables and the future excess cash flow from the loan portfolio after
required interest payments, servicing and other fees and expenses. The Company
provides additional credit enhancement in the form of restricted cash deposits.
As further discussed in Note 13, Derivative Financial Instruments, the Company
enters into interest rate protection agreements to manage the impact of interest
rate changes on amounts securitized.
The Company accounts for the sale of receivables in accordance with
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". Gains or
losses from the sales of automotive finance receivables are recognized in the
period in which sales occur. In determining the gain or loss for each sale, the
Company allocates the book value of the loan portfolio between amounts sold and
retained interests based upon relative fair values. The Company's retained
interests in securitized installment loan receivables consist of retained
interests in sold principal, interest-only strip receivables representing the
present value of future excess cash flow and servicing assets. Retained
interests in the sold principal are carried at allocated carrying amounts and
subsequently assessed for impairment. Interest-only strip receivables are
carried at fair value and marked to market as a component of other comprehensive
income. Servicing assets are initially recorded at allocated carrying amounts
and subsequently amortized over the servicing period and assessed for
impairment.
48
<PAGE> 51
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE EARNING VEHICLES
Revenue earning vehicles are stated at cost less accumulated depreciation.
The straight-line method is used to depreciate revenue earning vehicles to their
estimated residual values over periods typically ranging from three to twelve
months. Depreciation expense includes costs relating to damaged vehicles and
gains and losses on revenue earning vehicle sales in the ordinary course of
business and is included as a component of cost of automotive rental operations
in the accompanying Consolidated Statements of Operations.
A summary of revenue earning vehicles at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenue earning vehicles.................................... $5,062.8 $4,980.1
Less: accumulated depreciation.............................. (474.1) (513.6)
-------- --------
$4,588.7 $4,466.5
======== ========
</TABLE>
Revenue earning vehicles with a net book value of approximately $3.73
billion at December 31, 1998 were acquired under programs that allow the Company
to require counterparties to repurchase vehicles held for periods of up to
twenty-four months. The agreements contain varying mileage and damage
limitations.
The Company also leases vehicles under operating lease agreements which
require the Company to provide normal maintenance and liability coverage. The
agreements generally have terms of four to thirteen months. Many agreements
provide for an option to terminate the leases early and allow for the purchase
of leased vehicles subject to certain restrictions.
INVENTORY
Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method, net of reserves. Cost includes acquisition
expenses, including reconditioning and transportation costs. Parts and
accessories are valued at the factory list price which approximates lower of
cost (first-in, first-out) or market.
A summary of inventory at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
New vehicles................................................ $1,274.3 $ 642.7
Used vehicles............................................... 457.3 377.4
Parts and accessories....................................... 119.3 55.2
Other....................................................... 2.6 7.8
-------- --------
$1,853.5 $1,083.1
======== ========
</TABLE>
INVESTMENTS
Investments consist of marketable securities and investments in businesses
accounted for under the equity method. Marketable securities include investments
in debt securities classified as available for sale and are stated at fair value
with unrealized gains and losses included in other comprehensive income. Fair
value is estimated based on quoted market prices. Equity method investments
represent investments in 50% or less owned automotive businesses over which the
Company has the ability to exercise significant influence. The Company records
its initial equity method investments at cost and subsequently adjusts the
carrying amounts of the investments for the Company's share of the earnings or
losses of the investee after the acquisition date as a component of other income
(loss) in the Company's Consolidated Statements of Operations.
49
<PAGE> 52
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of investments at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Marketable securities....................................... $101.4 $ 4.7
Equity method investments................................... 70.9 8.7
------ ------
$172.3 $ 13.4
====== ======
</TABLE>
Investments in marketable securities at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
U.S. government debt securities............................. $ 70.0 $ --
Corporate debt securities................................... 31.4 4.7
------ ------
$101.4 $ 4.7
====== ======
</TABLE>
At December 31, 1998, aggregate maturities of marketable securities are as
follows:
<TABLE>
<CAPTION>
FAIR
COST VALUE
------ ------
<S> <C> <C>
Due in 2 - 5 years.......................................... $ 91.9 $ 91.3
Due in 6 - 10 years......................................... 3.0 3.0
Due after 10 years.......................................... 7.1 7.1
------ ------
$102.0 $101.4
====== ======
</TABLE>
Gross unrealized losses on U.S. government debt securities were $.6 million
at December 31, 1998. There were no gross unrealized losses on corporate debt
securities at December 31, 1998 or 1997. There were no gross unrealized gains on
U.S. government or corporate debt securities at December 31, 1998 or 1997.
Proceeds from sales of available for sale securities were $94.1 million, $402.3
million and $42.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Gross realized gains and losses were not material for the years
ended December 31, 1998 and 1996. During the year ended December 31, 1997,
realized gains of $102.3 million were recognized on the sale of 15.0 million
common shares of ADT Limited. Such shares of ADT Limited common stock were
received in March 1997 upon the Company's exercise of a warrant which became
exercisable upon termination of the Company's agreement to acquire ADT Limited
by mutual agreement of the parties in September 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
Consolidated Statements of Operations.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation is provided over the estimated
useful lives of the assets involved using the straight-line method. The
estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for equipment and five to ten years for
furniture and fixtures.
50
<PAGE> 53
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of property and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 687.0 $ 474.9
Furniture, fixtures and equipment........................... 530.6 299.8
Buildings and improvements.................................. 1,116.9 752.0
-------- --------
2,334.5 1,526.7
Less: accumulated depreciation and amortization............. (290.9) (231.6)
-------- --------
$2,043.6 $1,295.1
======== ========
</TABLE>
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired. The cost in
excess of the fair value of net assets is amortized over forty years on a
straight-line basis. Accumulated amortization of intangible assets was $85.6
million and $31.7 million at December 31, 1998 and 1997, respectively.
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
measuring their recoverability.
LIABILITY INSURANCE
The Company retains up to $1.0 million of risk per claim plus claims
handling expense under its various liability insurance programs for third party
property damage and bodily injury claims, primarily relating to claims arising
from the Company's automotive rental operations. Costs in excess of this
retained risk per claim are insured under various contracts with insurance
carriers. The ultimate costs of these retained insurance risks are estimated by
management and by actuarial evaluation based on historical claims experience,
adjusted for current trends and changes in claims-handling procedures. In 1996,
the Company changed its method of accounting for estimated auto rental liability
insurance claims by no longer discounting such liability. The effect of this
change was not material to the Company's consolidated financial position or
results of operations.
REVENUE RECOGNITION
Revenue from the Company's automotive retail operations consists of sales
of new and used vehicles, parts and service and finance and insurance products.
An estimated allowance for chargebacks against revenue recognized from sales of
finance and insurance products is established during the period in which related
revenue is recognized. Revenue from the Company's automotive rental operations
consists primarily of fees from rentals and the sale of related rental products.
The Company recognizes revenue over the period in which products are sold,
vehicles are rented or services are provided.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes interest rate protection agreements with several
counterparties to manage the impact of interest rate changes on the Company's
debt obligations. The Company does not use derivative financial instruments for
trading purposes. Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference between fixed-rate
and floating-rate interest amounts calculated by reference to an agreed notional
principal amount. Income or expense on derivative financial instruments used to
manage interest rate exposure is recorded on an accrual basis, as an adjustment
to the yield of the underlying exposures over the periods covered by the
contracts. If an interest rate swap is terminated early,
51
<PAGE> 54
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
any resulting gain or loss is deferred and amortized as an adjustment of the
cost of the underlying exposure position over the remaining periods originally
covered by the terminated swap. If all or part of an underlying position is
terminated, the related pro-rata portion of any unrecognized gain or loss on the
swap is recognized in income at that time as part of the gain or loss on the
termination. Amounts receivable or payable under the agreements are included in
receivables or accrued liabilities in the accompanying Consolidated Balance
Sheets and were not material at December 31, 1998 or 1997.
ADVERTISING
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. No advertising costs were capitalized at
December 31, 1998 or 1997. Advertising expense was $283.1 million, $229.1
million and $148.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents unless the investments
are legally or contractually restricted for more than three months. The effect
of non-cash transactions related to business combinations, as discussed in Note
2, Business Combinations, and other non-cash transactions are excluded from the
accompanying Consolidated Statements of Cash Flows.
The Company made interest payments of approximately $382.5 million, $286.4
million and $285.1 million for the years ended December 31, 1998, 1997 and 1996,
respectively, including interest on vehicle inventory and revenue earning
vehicle financing. The Company made income tax payments of approximately $139.8
million, $72.1 million and $20.4 million for the years ended December 31, 1998,
1997 and 1996, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 prospectively beginning January 1, 1999. Adoption of this
Statement will not have a material impact on the Company's consolidated
financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company's accounting policies conform with the
requirements of SOP 98-5, therefore adoption of this Statement will not impact
the Company's consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. SFAS 133 cannot be
applied retroactively. The Company will adopt SFAS 133 beginning January 1,
2000. The Company has not yet quantified the impact of adopting SFAS 133 on the
Company's consolidated financial statements. However, SFAS 133 could increase
volatility in earnings and other comprehensive income.
52
<PAGE> 55
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS
Businesses acquired through December 31, 1998 and accounted for under the
purchase method of accounting are included in the Consolidated Financial
Statements from the date of acquisition. Businesses acquired and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception.
During the year ended December 31, 1998, the Company acquired various
businesses primarily in the automotive retail and solid waste services
industries. The Company issued an aggregate of approximately 21.9 million shares
of Common Stock and paid approximately $736.1 million of cash for primarily
automotive retail acquisitions accounted for under the purchase method of
accounting. The Company issued an aggregate of 3.4 million shares of Common
Stock and paid approximately $485.3 million of cash and certain properties for
solid waste acquisitions accounted for under the purchase method of accounting.
During the year ended December 31, 1997, the Company acquired various
businesses in the automotive retail, automotive rental and solid waste services
industries. The Company issued an aggregate of approximately 53.7 million shares
of Common Stock and paid approximately $248.6 million of cash or notes in such
transactions which have been accounted for under the purchase method of
accounting, and issued an aggregate of approximately 83.5 million shares of
Common Stock in such transactions which have been accounted for under the
pooling of interests method of accounting.
During the year ended December 31, 1996, the Company acquired various
businesses in the automotive retail, automotive rental, solid waste services and
electronic security services industries. The Company issued an aggregate of
approximately 9.1 million shares of Common Stock and paid approximately $51.5
million of cash in such transactions which have been accounted for under the
purchase method of accounting, and issued an aggregate of approximately 71.4
million shares of Common Stock in such transactions which have been accounted
for under the pooling of interests method of accounting.
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ------
<S> <C> <C> <C>
Revenue earning vehicles................................ $ 26.8 $ 415.3 $ 79.4
Property and equipment.................................. 372.6 517.8 3.4
Intangible and other assets............................. 1,252.7 1,138.7 57.8
Net assets of discontinued operations................... 553.5 140.9 71.1
Working capital (deficiency)............................ 733.7 61.6 (8.9)
Debt assumed............................................ (1,102.3) (1,095.9) (59.2)
Other liabilities....................................... (74.4) (18.7) (5.5)
Common stock issued..................................... (541.2) (943.1) (86.6)
--------- --------- ------
Cash used in business acquisitions, net of cash
acquired.............................................. $ 1,221.4 $ 216.6 $ 51.5
========= ========= ======
</TABLE>
As discussed in Note 12, Discontinued Operations, the Company has decided
to sell its remaining interest in RSG. In addition, the Company sold its
electronic security services division in October 1997. Accordingly, the
financial position and results of operations of businesses acquired in the solid
waste services and electronic security services segments have been accounted for
as discontinued operations in the accompanying Consolidated Financial
Statements.
53
<PAGE> 56
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's unaudited pro forma consolidated results of continuing
operations assuming automotive retail and rental acquisitions accounted for
under the purchase method of accounting had occurred at the beginning of each
period presented are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenue..................................................... $18,604.1 $16,673.0
Income from continuing operations........................... 360.9 122.8
Diluted earnings per share from continuing operations....... .76 .27
</TABLE>
The unaudited pro forma results of continuing operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of the beginning of each
period presented.
3. REVENUE EARNING VEHICLE DEBT
Revenue earning vehicle debt at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Amounts under various commercial paper programs secured by
eligible vehicle collateral; interest based on
market-dictated commercial paper rates; weighted average
interest rates of 5.54% and 5.85% at December 31, 1998 and
1997, respectively........................................ $3,363.2 $2,919.4
Amounts under various medium-term note programs secured by
eligible vehicle collateral:
Fixed rate component; weighted average interest rates of
7.12% and 7.09% at December 31, 1998 and 1997,
respectively; maturities through 2003.................. 655.9 736.3
Floating rate component based on a spread over 3 month
LIBOR; weighted average interest rates of 5.80% and
6.28% at December 31, 1998 and 1997, respectively;
maturities through 2001................................ 143.7 166.5
Other uncommitted secured vehicle financings primarily with
financing institutions in the United Kingdom; LIBOR based
interest rates; weighted average interest rates of 6.16%
and 6.99% at December 31, 1998 and 1997, respectively..... 215.1 349.9
-------- --------
4,377.9 4,172.1
Less: long-term portion..................................... (1,759.7) (1,962.7)
-------- --------
$2,618.2 $2,209.4
======== ========
</TABLE>
The Company's $3.55 billion commercial paper programs are comprised of a
$2.3 billion single-seller commercial paper program and three bank-sponsored
multi-seller commercial paper conduit facilities totaling $1.25 billion. Bank
lines of credit of $2.07 billion terminating March 1999 provide liquidity backup
for the facilities. Letters of credit totaling $335.0 million provide credit
enhancement and additional liquidity backup for the facilities. The weighted
average interest rate on total revenue earning vehicle debt was 5.82% and 6.17%
at December 31, 1998 and 1997, respectively. Interest expense on revenue earning
vehicle debt is included as a component of cost of automotive rental operations
in the accompanying Consolidated Statements of Operations.
In January 1999, the Company increased the commercial paper programs to
$3.9 billion through an increase in the conduit facilities from $1.25 billion to
$1.6 billion. On February 26, 1999, the Company issued $1.8 billion of rental
vehicle asset backed notes consisting of $550.0 million floating rate notes;
$750.0 million 5.88% fixed rate notes; and $500.0 million 6.02% fixed rate notes
(collectively, the "Notes"). The Company
54
<PAGE> 57
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fixed the effective interest rate on the $550.0 million floating rate notes at
5.73% through the use of certain derivative transactions. Letters of credit
totaling $150.0 million provide credit enhancement for the Notes. Proceeds from
the Notes were used to refinance amounts outstanding under the Company's
commercial paper programs. As a result of the refinancing, the Company has
reduced its commercial paper programs from $3.9 billion to $3.24 billion
comprised of a $1.99 billion single-seller program and three bank-sponsored
multi-seller commercial paper conduit facilities totaling $1.25 billion. Bank
lines of credit of $1.79 billion terminating February 2000 provide liquidity
backup for these facilities. Letters of credit totaling $310.0 million provide
credit enhancement and additional liquidity backup for the facilities.
At December 31, 1998, aggregate maturities of revenue earning vehicle debt
were as follows:
<TABLE>
<S> <C>
1999........................................................ $2,618.2
2000........................................................ 1,259.9
2001........................................................ 325.0
2002........................................................ --
2003........................................................ 174.8
--------
$4,377.9
========
</TABLE>
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Vehicle inventory credit facilities; secured by the
Company's vehicle inventory; weighted average interest
rates of 5.81% and 6.36% at December 31, 1998 and 1997,
respectively.............................................. $1,339.2 $472.5
$1.0 billion unsecured revolving credit facility; interest
payable using LIBOR based rates; weighted average interest
rates of 6.57% and 5.93% at December 31, 1998 and 1997,
respectively; matures 2002................................ 500.0 250.0
Other notes; secured by real property, equipment and other
assets; interest ranging from 6% to 10%; maturing through
2009...................................................... 158.5 105.3
-------- ------
1,997.7 827.8
Less: current portion....................................... (1,441.8) (521.2)
-------- ------
$ 555.9 $306.6
======== ======
</TABLE>
The Company's revolving credit facility requires, among other items, that
the Company maintain certain financial ratios and comply with certain financial
covenants. The Company was in compliance with these ratios and covenants at
December 31, 1998.
In March 1999, the Company entered into a $500.0 million 364-day unsecured
bank revolving credit facility. This facility will be used for general corporate
purposes and complements the $1.0 billion bank revolving credit facility
maturing 2002.
In November 1998, the Company entered into a $500.0 million bank-sponsored
multi-seller commercial paper conduit facility to finance new and used vehicle
inventory for the Company's automotive retail operations. The facility
supplements the new and used vehicle inventory finance facilities provided by
vehicle manufacturer captive finance companies. At December 31, 1998,
approximately $7.5 million was financed under this facility.
In December 1996, the Company completed a tender offer and consent
solicitation resulting in the repurchase of approximately $100.0 million
aggregate principal amount 11.75% senior notes due 2006
55
<PAGE> 58
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("Senior Notes"), which were issued in February 1996. The Company recorded an
extraordinary charge of $31.6 million, net of income taxes, during 1996 related
to the early extinguishment of the Senior Notes and certain other debt. Included
in this charge are bond redemption premiums, the write-off of debt issue costs,
prepayment penalties and other fees related to the tender offer and the
repayment of other debt.
Interest expense on vehicle inventory credit facilities is included as a
component of cost of automotive retail sales in the accompanying Consolidated
Statements of Operations.
At December 31, 1998, aggregate maturities of notes payable and long-term
debt were as follows:
<TABLE>
<S> <C>
1999........................................................ $1,441.8
2000........................................................ 10.1
2001........................................................ 2.3
2002........................................................ 537.2
2003........................................................ 1.2
Thereafter.................................................. 5.1
--------
$1,997.7
========
</TABLE>
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
Certain businesses acquired in 1997 and 1996 and accounted for under the
pooling of interests method of accounting were subchapter S corporations for
income tax purposes. The subchapter S corporation status of these companies was
terminated effective with the closing date of the acquisitions. For purposes of
these Consolidated Financial Statements, federal and state income taxes have
been recorded as if these companies had filed subchapter C corporation tax
returns for the pre-acquisition periods, and the current income tax expense is
reflected as an increase to additional paid-in capital.
Effective with the RSG initial public offering on July 1, 1998 as further
described in Note 7, Shareholders' Equity, RSG is no longer included in the
Company's consolidated federal income tax return.
The components of the provision for income taxes related to continuing
operations for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Current:
Federal................................................... $140.1 $10.2 $15.1
State..................................................... 12.3 .2 (2.1)
Federal and state deferred.................................. 60.1 32.3 (9.6)
Foreign deferred............................................ (9.9) (4.4) (8.8)
Change in valuation allowance............................... (14.5) -- 20.7
------ ----- -----
Provision for income taxes.................................. $188.1 $38.3 $15.3
====== ===== =====
</TABLE>
56
<PAGE> 59
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for continuing operations for the years ended December 31 is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% (35.0)%
Non-deductible expenses..................................... 2.4 3.9 10.9
State income taxes, net of federal benefit.................. 2.2 2.5 (1.9)
Change in valuation allowance............................... (2.8) -- 57.4
Other, net.................................................. (.8) (4.2) 11.5
---- ---- -----
Effective tax rate.......................................... 36.0% 37.2% 42.9%
==== ==== =====
</TABLE>
Components of the net deferred income tax liability at December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis..................... $532.0 $385.4
Deferred income tax assets:
Net operating losses...................................... (98.5) (55.0)
Accruals not currently deductible......................... (378.6) (270.0)
Valuation allowance......................................... 172.2 136.5
------ ------
Net deferred income tax liability........................... $227.1 $196.9
====== ======
</TABLE>
At December 31, 1998, the Company had available domestic net operating loss
carryforwards of approximately $134.9 million which begin to expire in the year
2011 and foreign net operating loss carryforwards of approximately $89.4
million, the majority of which have an indefinite carryforward. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The Company provides valuation allowances to offset portions of
deferred tax assets due to uncertainty surrounding the future realization of
such deferred tax assets. The Company adjusts the valuation allowance in the
period management determines it is more likely than not that deferred tax assets
will or will not be realized.
The foreign losses included in income from continuing operations before
income taxes and extraordinary charge for the years ended December 31, 1998,
1997 and 1996 were $(28.8) million, $(11.5) million and $(22.0) million,
respectively.
6. OTHER COMPREHENSIVE INCOME
During the year ended December 31, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements. The changes
in the components of other comprehensive income (loss), net of income taxes, are
as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
PRE-TAX TAX NET PRE-TAX TAX NET PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT
------- ------ ------ ------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign currency translation adjustments...... $(1.6) $ -- $(1.6) $(4.7) $ -- $(4.7) $(.8) $ -- $(.8)
Unrealized loss on marketable securities...... (.6) .2 (.4) -- -- -- -- -- --
Unrealized gain on interest-only strip
receivables................................. .9 (.3) .6 -- -- -- -- -- --
----- ---- ----- ----- ----- ----- ---- ----- ----
Other comprehensive loss...................... $(1.3) $(.1) $(1.4) $(4.7) $ -- $(4.7) $(.8) $ -- $(.8)
===== ==== ===== ===== ===== ===== ==== ===== ====
</TABLE>
57
<PAGE> 60
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accumulated other comprehensive loss consists of the following at December
31:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Foreign currency translation adjustments.................... $(4.5) $(2.9)
Unrealized loss on marketable securities.................... (.4) --
Unrealized gain on interest-only strip receivables.......... .6 --
----- -----
$(4.3) $(2.9)
===== =====
</TABLE>
No material reclassification adjustments were recorded in 1998 or 1996.
During the year ended December 31, 1997, the Company reclassified unrealized
holding gains totaling approximately $65.0 million, net of income taxes of
approximately $37.3 million, to realized gains in connection with the sale of
the shares of ADT Limited common stock in May 1997.
7. SHAREHOLDERS' EQUITY
During the year ended December 31, 1998, the Company's solid waste
subsidiary, RSG, completed an initial public offering of approximately 36.1% of
its outstanding common stock, resulting in net proceeds of approximately $1.43
billion. In addition, in August 1998, the Company's Board of Directors
authorized the repurchase of up to $500.0 million of Common Stock over the
following 12 months. Repurchases are made either pursuant to Rule 10b-18 of the
Securities Exchange Act of 1934, as amended, or in privately negotiated
transactions. As of December 31, 1998, the Company had repurchased an aggregate
of 9.1 million shares of Common Stock for an aggregate purchase price of
approximately $136.0 million.
During the year ended December 31, 1997, the Company sold 15.8 million
shares of Common Stock in a private placement transaction resulting in net
proceeds of approximately $552.7 million. In addition, in May 1997, the
Company's Certificate of Incorporation was amended to increase the number of
authorized shares of Common Stock from 500.0 million to 1.5 billion shares.
During the year ended December 31, 1996, the Company sold an aggregate of
22.0 million shares of Common Stock in private placement transactions resulting
in net proceeds of approximately $550.9 million. In May 1996, the Board of
Directors declared a two-for-one split of the Company's Common Stock in the form
of a 100% stock dividend, payable June 8, 1996, to holders of record on May 28,
1996. In addition, in May 1996 the Company's Certificate of Incorporation was
amended to increase the number of authorized shares of Common Stock from 350.0
million shares to 500.0 million shares.
The Company has 5.0 million authorized shares of preferred stock, par value
$.01 per share, none of which are issued or outstanding. The Board of Directors
has the authority to issue the preferred stock in one or more series and to
establish the rights, preferences and dividends.
8. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common
Stock may be granted to key employees and directors of the Company. Options
granted under the plans are non-qualified and are granted at a price equal to
the fair market value of the Common Stock at the date of grant. Generally,
options granted will have a term of 10 years from the date of grant, and will
vest in increments of 25% per year over a four-year period on the yearly
anniversary of the grant date. In October 1998, the Company's Board of Directors
approved the repricing of approximately 32.1 million employee stock options at
$12.75 per share, equal to the closing price of the Company's Common Stock on
the last business day prior to the date of the repricing. Option holders will be
precluded from exercising any of their repriced options prior to January 2,
2000. All other terms of the existing options, including the vesting schedules,
remain unchanged.
58
<PAGE> 61
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
\A summary of stock option and warrant transactions is as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants outstanding at
beginning of period............... 48.1 $15.67 52.5 $7.63 49.6 $4.87
Granted............................. 16.9 21.89 15.2 28.52 8.7 21.86
Exercised........................... (9.3) 3.62 (18.7) 3.24 (5.6) 4.03
Canceled............................ (1.1) 25.34 (.9) 24.59 (.2) 9.44
---- ----- ----
Options and warrants outstanding at
end of period..................... 54.6 12.52 48.1 15.67 52.5 7.63
==== ===== ====
Options and warrants exercisable at
end of period..................... 18.8 11.27 26.8 8.71 38.5 4.12
Options available for future
grants............................ 28.2 14.0 7.9
</TABLE>
The following table summarizes information about outstanding and
exercisable stock options and warrants at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------- --------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE PRICE OR CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE(YRS.) PRICE SHARES PRICE
- --------------------------------------- ------- ------------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
$ 1.13 - $12.38........................ 15.3 3.10 $ 7.29 14.1 $ 6.96
12.75................................. 32.1 7.98 12.75 -- --
13.38 - 31.19........................ 7.2 8.33 23.24 4.7 24.19
---- ----
54.6 6.66 12.52 18.8 11.27
==== ====
</TABLE>
In March 1999, approximately 8.5 million options held by employees of RSG
were cancelled and replaced with options to acquire common shares of RSG.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock options
is deducted in determining net income (loss). Had compensation cost for the
Company's stock option plans been determined pursuant to SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income (loss) and
earnings (loss) per share would have decreased (increased) accordingly. Using
the Black-Scholes option pricing model for all options granted after December
31, 1994, the Company's pro forma net income (loss), pro forma earnings (loss)
per share and pro forma weighted average fair value of options granted, with
related assumptions, are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Pro forma net income (loss)............... $368.5 $375.3 $(25.4)
Pro forma diluted earnings (loss) per
share................................... .81 .88 (.08)
Pro forma weighted average fair value of
options granted......................... 13.87 10.03 9.80
Risk free interest rates.................. 4.76 - 4.82% 5.74 - 5.78% 5.98 - 6.17%
Expected lives............................ 5-7 years 5-7 years 5-7 years
Expected volatility....................... 40% 40% 40%
</TABLE>
59
<PAGE> 62
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The
Auto Superstore, ("CarMax") accused the Company's wholly-owned subsidiary,
AutoNation USA, of infringing CarMax's trademark rights by using the marks
AutoNation USA(SM) and "The Better Way to Buy a Car(SM)." AutoNation USA denied
such allegations and on February 5, 1996, filed suit in the U.S. District Court
for the Southern District of Florida seeking a declaratory judgment that its use
and registration of such marks do not violate any of the rights of CarMax. On or
about October 11, 1996, CarMax filed a counterclaim against AutoNation USA
seeking damages and an order enjoining AutoNation USA from using certain marks,
including the marks AutoNation USA and "The Better Way to Buy a Car." On
November 5, 1998, following a jury trial, the court entered a judgement in favor
of AutoNation USA and against CarMax with respect to the marks in question. On
December 2, 1998, CarMax filed a notice of appeal of the trial court's decision
with the U.S. Court of Appeals for the Eleventh Circuit. The Company is
confident the appellate court will affirm the lower court's decision.
The Company is also a party to various other general corporate legal
proceedings which have arisen in the ordinary course of business. While the
results of these matters, as well as the matter described above, cannot be
predicted with certainty, the Company believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, cash flows or
financial position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the quarterly periods in
which they are resolved.
LEASE COMMITMENTS
The Company and its subsidiaries lease real property, equipment and
software under various operating leases with terms from 1 to 25 years. The
Company has also entered into various airport concession and permit agreements
which generally provide for payment of a percentage of revenue from vehicle
rentals with a guaranteed minimum lease obligation.
Expenses under real property, equipment and software leases and airport
concession and permit agreements (excluding amounts charged through to
customers) for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Real property............................................... $ 97.5 $ 59.5 $ 47.2
Equipment and software...................................... 29.8 42.5 23.8
Airport concession and permit fees:
Minimum fixed obligations................................. 79.3 86.3 89.6
Additional amounts, based on revenue from vehicle
rentals................................................ 96.4 110.0 94.5
------ ------ ------
Total............................................. $303.0 $298.3 $255.1
====== ====== ======
</TABLE>
60
<PAGE> 63
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease obligations under noncancelable real property,
equipment and software leases and airport agreements with initial terms in
excess of one year at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1999...................................................... $181.2
2000...................................................... 134.9
2001...................................................... 110.6
2002...................................................... 78.6
2003...................................................... 56.4
Thereafter................................................ 218.9
------
$780.6
======
</TABLE>
In connection with the development of the AutoNation USA megastores, the
Company is the lessee under a $500.0 million operating lease facility
established to acquire and develop properties used in its business. The Company
has guaranteed the residual value of the properties under this facility which
guarantee totaled approximately $418.6 million at December 31, 1998.
OTHER MATTERS
In the normal course of business, the Company is required to post
performance and surety bonds, letters of credit, and/or cash deposits as
financial guarantees of the Company's performance. To date, the Company has
satisfied financial responsibility requirements for regulatory agencies by
making cash deposits, obtaining surety bonds or by obtaining bank letters of
credit. At December 31, 1998, surety bonds and letters of credit totaling $279.1
million expire through 2012.
10. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is based on the combined weighted average
number of common shares and common share equivalents outstanding which include,
where appropriate, the assumed exercise or conversion of warrants and options.
In computing diluted earnings (loss) per share, the Company has utilized the
treasury stock method.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share is as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Weighted average shares outstanding used in calculating
basic earnings per share.................................. 455.1 403.1 320.9
Gross common equivalent shares.............................. 62.5 63.6 --
Weighted average treasury shares purchased.................. (13.6) (24.3) --
Effect of using weighted average common equivalent shares
outstanding............................................... (33.1) (11.5) --
----- ----- -----
Weighted average common and common equivalent shares used in
calculating diluted earnings per share.................... 470.9 430.9 320.9
===== ===== =====
</TABLE>
At December 31, 1998 and 1997, the Company had approximately 4.8 million
and 5.4 million stock options outstanding, respectively, which have been
excluded from the computation of diluted earnings per share since they are
anti-dilutive. For the year ended December 31, 1996, weighted average common
equivalent shares of approximately 34.6 million shares have been excluded from
the computation of diluted earnings per share since they are anti-dilutive.
61
<PAGE> 64
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RESTRUCTURING AND OTHER CHARGES
During the year ended December 31, 1997, the Company recorded pre-tax
charges of approximately $244.1 million. These charges consisted of $150.0
million associated with combining the Company's franchised automotive
dealerships and used vehicle megastore operations into one automotive retail
division and $94.1 million associated with integrating the Company's automotive
rental operations.
Approximately $85.0 million of the $150.0 million automotive retail charge
appears as restructuring and other charges in the Company's 1997 Consolidated
Statement of Operations and consists of: $42.5 million for consolidation of
information systems; $25.3 million related primarily to relocating certain
operations; and $17.2 million of severance and other costs. The remaining $65.0
million of the $150.0 million automotive retail charge relates to inventory
consolidation and is included in cost of automotive retail sales in the
Company's 1997 Consolidated Statement of Operations. During the year ended
December 31, 1998, the Company reduced its estimated restructuring reserves for
information systems and increased its estimated reserves for the relocation of
certain operations by approximately $21.0 million. The decrease in the
information systems reserve is a result of the Company's decision to eliminate
or delay the conversion of certain systems. The increase in the relocation
reserve is due to the Company's decision to close its reconditioning centers and
relocate the reconditioning operations to the Company's AutoNation USA
megastores. Through December 31, 1998, the Company has spent approximately $30.3
million related to restructuring activities and has recorded $30.6 million of
these restructuring charges against certain assets. As of December 31, 1998,
approximately $24.1 million remained in accrued liabilities related to these
charges. The Company believes the activities associated with these charges will
be substantially completed during 1999.
The primary components of the $94.1 million automotive rental charge in
1997 are as follows: $32.0 million related to elimination of redundant
information systems; $18.0 million related to fleet consolidation; and $44.1
million related to closure or sale of duplicate rental facilities and merger and
other non-recurring expenses. Through December 31, 1998, the Company has spent
approximately $45.5 million related to restructuring activities and has recorded
$26.6 million of these restructuring charges against certain assets. As of
December 31, 1998, approximately $22.0 million remained in accrued liabilities
related to these charges. The Company believes the activities associated with
these charges will be substantially completed during 1999.
During the year ended December 31, 1996, the Company recorded pre-tax
charges of approximately $86.7 million related primarily to the integration of
the operations of Alamo Rent-A-Car, Inc. into those of the Company. Also
included in these charges are merger expenses associated with an acquisition
accounted for under the pooling of interests method of accounting. Approximately
$29.5 million of such expenses appear as restructuring and other charges in the
Company's Consolidated Statement of Operations for the year ended December 31,
1996 with the remainder of approximately $57.2 million included in cost of
automotive rental operations and selling, general and administrative expenses.
These costs primarily include asset write-offs, severance benefits, accounting
and legal merger costs and changes in various estimated reserve requirements.
The activities associated with these charges were substantially completed during
1997.
12. DISCONTINUED OPERATIONS
As a result of the Company's decision to sell its remaining interest in
RSG, the net assets and operating results of the Company's solid waste services
segment have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements. The minority
shareholders' interest in the equity of RSG as of December 31, 1998 and the net
earnings of RSG for the period subsequent to the July 1, 1998 initial public
offering have been included as a reduction of the net assets and income from
discontinued operations, respectively.
62
<PAGE> 65
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1997, the Company sold its electronic security services division
for approximately $610.0 million resulting in an after tax gain of approximately
$230.0 million. In 1998, the Company finalized the sale resulting in an
additional after tax gain of approximately $11.6 million. The operating results
and gain on disposition of the electronic security services segment have been
classified as discontinued operations in the accompanying Consolidated Financial
Statements.
A summary of the net assets of discontinued operations for the Company's
solid waste services segment is as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current assets.............................................. $ 784.0 $ 175.9
Non-current assets.......................................... 2,028.1 1,172.1
-------- --------
Total assets........................................... 2,812.1 1,348.0
-------- --------
Current liabilities......................................... 783.8 158.0
Non-current liabilities..................................... 729.2 173.1
-------- --------
Total liabilities...................................... 1,513.0 331.1
-------- --------
Minority interest........................................... 468.9 --
-------- --------
Net assets of discontinued operations....................... $ 830.2 $1,016.9
======== ========
</TABLE>
A summary of the results of operations of the Company's solid waste
services and electronic security services segments is as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------------------------------- ------------------------------
SOLID SOLID ELECTRONIC SOLID ELECTRONIC
WASTE WASTE SECURITY TOTAL WASTE SECURITY TOTAL
-------- -------- ---------- -------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................................. $1,369.1 $1,127.7 $83.8 $1,211.5 $953.3 $85.3 $1,038.6
Expenses:
Cost of operations..................... 949.0 809.1 38.4 847.5 703.6 37.3 740.9
Selling, general and administrative.... 120.8 107.1 30.7 137.8 126.9 33.5 160.4
Restructuring and other charges........ -- -- -- -- 8.8 -- 8.8
-------- -------- ----- -------- ------ ----- --------
Operating income......................... 299.3 211.5 14.7 226.2 114.0 14.5 128.5
Interest expense......................... (7.4) (5.7) -- (5.7) (10.9) (.5) (11.4)
Interest and other income................ .6 6.7 -- 6.7 13.9 .5 14.4
-------- -------- ----- -------- ------ ----- --------
Income before income taxes............... 292.5 212.5 14.7 227.2 117.0 14.5 131.5
Provision for income taxes............... 105.3 76.9 5.2 82.1 49.5 6.1 55.6
-------- -------- ----- -------- ------ ----- --------
Net income before minority interest...... 187.2 135.6 9.5 145.1 67.5 8.4 75.9
Minority interest........................ 33.9 -- -- -- -- -- --
-------- -------- ----- -------- ------ ----- --------
Net income............................... $ 153.3 $ 135.6 $ 9.5 $ 145.1 $ 67.5 $ 8.4 $ 75.9
======== ======== ===== ======== ====== ===== ========
</TABLE>
13. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to market risks arising from changes in interest
rates. Due to its limited foreign operations, the Company does not have material
market risk exposures relative to changes in foreign exchange rates.
CREDIT EXPOSURE
The Company is exposed to credit related losses in the event of
non-performance by counterparties to certain derivative financial instruments.
The Company monitors the credit worthiness of the counterparties
63
<PAGE> 66
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and presently does not expect default by any of the counterparties. The Company
does not obtain collateral in connection with its derivative financial
instruments.
The credit exposure that results from interest rate contracts is
represented by the fair value of contracts with a positive fair value as of the
reporting date. See Note 14, Fair Value of Financial Instruments, for the fair
value of derivatives. The Company's credit exposure on its interest rate
derivatives was not material at December 31, 1998 or 1997.
INTEREST RATE RISK MANAGEMENT
The Company uses interest rate swap agreements to manage the impact of
interest rate changes on the Company's variable rate debt. The amounts exchanged
by the counterparties to interest rate swap agreements are based upon the
notional amounts and other terms, generally related to interest rates, of the
derivatives. While notional amounts of interest rate swaps form part of the
basis for the amounts exchanged by the counterparties, the notional amounts are
not themselves exchanged and, therefore, do not represent a measure of the
Company's exposure as an end user of derivative financial instruments. At
December 31, 1998 and 1997, notional principal amounts related to interest rate
swaps (variable to fixed rate) were $2.55 billion and $2.25 billion,
respectively. The swap portfolio maturities are as follows at December 31, 1998:
$650.0 million in 1999; $1.0 billion in 2000; $250.0 million in 2001; $150.0
million in 2002; and $500.0 million in 2003. At December 31, 1998, the weighted
average fixed rate payment on variable to fixed rate swaps was 5.87%. Variable
rates received are indexed to the Commercial Paper Nonfinancial Rate ($2.45
billion notional principal amount) and LIBOR ($.10 billion notional principal
amount).
In 1998, the Company entered into interest rate derivative transactions
with certain financial institutions to manage the impact of interest rate
changes on securitized installment loan receivables. These derivative
transactions consist of a series of interest rate caps and floors with an
aggregate notional amount of $737.1 million contractually maturing in 2004 which
effectuate a variable to fixed rate swap at a weighted average rate of 5.18% at
December 31, 1998. Variable rates on the underlying portfolio are indexed to the
Commercial Paper Nonfinancial Rate.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. The assumptions
used have a significant effect on the estimated amounts reported.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
- Cash and cash equivalents, trade and manufacturer receivables, other
current assets, accounts payable, accrued liabilities, other current
liabilities and variable rate debt: The amounts reported in the
accompanying Consolidated Balance Sheets approximate fair value.
- Automotive finance installment loans receivable and retained interests in
securitized receivables: The fair value of installment loans receivable
and retained interests in securitized receivables are estimated based
upon the discounted value of the future cash flows expected to be
received. Significant assumptions used to estimate the fair value at
December 31, 1998 are as follows: discount rate -- 8.13%; default
rate -- 1.0% per year; and prepayment rate -- 1.5% per month.
64
<PAGE> 67
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- Medium-term notes payable: The fair value of medium-term notes payable is
estimated based on the quoted market prices for the same or similar
issues.
- Other fixed rate debt: The fair value of other fixed rate debt is based
upon the discounted expected cash flows at rates then offered to the
Company for debt of similar terms.
- Interest rate swaps, caps and floors: The fair value of interest rate
swaps, caps and floors is determined from dealer quotations and
represents the discounted future cash flows through maturity or
expiration using current rates, and is effectively the amount the Company
would pay or receive to terminate the agreements.
The following table sets forth the carrying amounts and fair values of the
Company's financial instruments, except for those noted above for which carrying
amounts approximate fair value, as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE
- -------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Installment loans receivable...................... $ 95.6 $ 99.2 $ 36.8 $ 36.5
Retained interests in securitized receivables:
Principal....................................... 44.2 44.6 -- --
Interest-only strips............................ 38.2 38.2 -- --
Servicing assets................................ 3.1 3.1 -- --
Medium-term notes payable......................... (799.6) (813.6) (902.8) (917.7)
Other fixed rate debt............................. (37.0) (37.5) (38.3) (38.3)
Interest rate swaps............................... -- (47.0) -- (8.0)
Interest rate caps................................ -- 8.9 -- --
Interest rate floors.............................. -- (7.1) -- --
</TABLE>
15. BUSINESS AND CREDIT CONCENTRATIONS
AUTOMOTIVE RETAIL INDUSTRY
The Company owns and operates franchised automotive dealerships and used
vehicle megastores in the United States.
Automotive dealerships operate pursuant to franchise agreements with
vehicle manufacturers. Franchise agreements generally provide the manufacturers
with considerable influence over the operations of the dealership and generally
provide for termination of the franchise agreement for a variety of causes. The
success of any franchised automotive dealership is dependent, to a large extent,
on the financial condition, management, marketing, production and distribution
capabilities of the vehicle manufacturers of which the Company holds franchises.
At December 31, 1998 and 1997, the Company had receivables from manufacturers of
$86.1 million and $39.6 million, respectively.
The Company purchases substantially all of its new vehicles from various
manufacturers at the prevailing prices charged by the manufacturers to all
franchised dealers. The Company's sales volume could be adversely impacted by
the manufacturers' inability to supply the dealerships with an adequate supply
of vehicles.
Concentrations of credit risk with respect to non-manufacturer trade
receivables related to the Company's automotive retail operations are limited
due to the wide variety of customers and markets in which the Company's products
are sold as well as their dispersion across many different geographic areas in
the United States. Consequently, at December 31, 1998, the Company does not
consider itself to have any significant non-manufacturer concentrations of
credit risk in the automotive retail segment.
65
<PAGE> 68
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUTOMOTIVE RENTAL INDUSTRY
The Company owns and operates vehicle rental facilities primarily in the
United States. The automotive rental industry in which the Company operates is
highly seasonal.
The Company enters into vehicle repurchase programs with one principal
vehicle manufacturer, as well as other vehicle manufacturers. At December 31,
1998 and 1997, the Company had vehicle receivables from manufacturers of $372.1
million and $326.8 million, respectively. During model year 1998, the Company
purchased approximately 57% of its vehicle fleet under repurchase programs with
one vehicle manufacturer.
Concentrations of credit risk with respect to non-vehicle manufacturer
receivables related to the Company's automotive rental operations are limited
due to the wide variety of customers and markets in which services are provided
as well as their dispersion across many different geographic areas primarily in
the United States. Consequently, at December 31, 1998, the Company does not
consider itself to have any significant non-vehicle manufacturer receivable
concentrations of credit risk in the automotive rental segment.
16. OPERATIONS BY INDUSTRY SEGMENT
The Company operates subsidiaries in the automotive retail and automotive
rental industries. The Company's reportable segments are strategic business
units that offer different products and services. The Company evaluates the
performance of its segments based on revenue and operating income. The Company's
automotive retail business consists primarily of the sale of new and used
vehicles and related automotive services and products. The Company's automotive
rental business primarily rents vehicles on a daily or weekly basis through
National Car Rental, Inc., Alamo Rent-A-Car, Inc. and CarTemps USA. There is no
material intersegment revenue. Interest expense related to vehicle inventory and
revenue earning vehicle financing is included in cost of automotive retail sales
and cost of automotive rental operations, respectively, in the Company's
Consolidated Statements of Operations.
The following table presents financial information regarding the Company's
different industry segments as of and for the years ended December 31:
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------------------
TOTAL -- NET ASSETS --
AUTOMOTIVE AUTOMOTIVE REPORTABLE DISCONTINUED
RETAIL RENTAL SEGMENTS CORPORATE OPERATIONS CONSOLIDATED
---------- ---------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Domestic revenue....... $12,664.6 $3,015.6 $15,680.2 $ -- $ -- $15,680.2
Foreign revenue........ -- 438.0 438.0 -- -- 438.0
--------- -------- --------- ------ ------ ---------
Total
revenue.... $12,664.6 $3,453.6 $16,118.2 $ -- $ -- $16,118.2
========= ======== ========= ====== ====== =========
Operating income
(loss)............... $ 395.8 $ 193.7 $ 589.5 $(54.3) $ -- $ 535.2
Vehicle interest
expense.............. 106.9 321.3 428.2 -- -- 428.2
Depreciation and
amortization......... 72.3 971.9 1,044.2 7.4 -- 1,051.6
Capital expenditures... 201.8 193.6 395.4 42.5 -- 437.9
Total assets........... 6,285.8 6,282.1 12,567.9 527.7 830.2 13,925.8
Total foreign
non-current assets... -- 63.6 63.6 -- -- 63.6
</TABLE>
66
<PAGE> 69
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------------------
TOTAL -- NET ASSETS --
AUTOMOTIVE AUTOMOTIVE REPORTABLE DISCONTINUED
RETAIL RENTAL SEGMENTS CORPORATE OPERATIONS CONSOLIDATED
---------- ---------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Domestic revenue........ $6,122.8 $2,767.0 $8,889.8 $ -- $ -- $ 8,889.8
Foreign revenue......... -- 288.1 288.1 -- -- 288.1
-------- -------- -------- ------ -------- ---------
Total
revenue..... $6,122.8 $3,055.1 $9,177.9 $ -- $ -- $ 9,177.9
======== ======== ======== ====== ======== =========
Operating income
(loss)................ $ (68.4) $ 86.6 $ 18.2 $(30.1) $ -- $ (11.9)
Vehicle interest
expense............... 55.3 258.0 313.3 -- -- 313.3
Depreciation and
amortization.......... 32.6 878.6 911.2 6.3 -- 917.5
Non-cash restructuring
and other charges..... 115.4 70.6 186.0 -- -- 186.0
Capital expenditures.... 168.9 84.5 253.4 41.1 -- 294.5
Total assets............ 3,078.8 5,899.1 8,977.9 201.4 1,016.9 10,196.2
Total foreign
non-current assets.... -- 52.6 52.6 -- -- 52.6
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------------------
TOTAL -- NET ASSETS --
AUTOMOTIVE AUTOMOTIVE REPORTABLE DISCONTINUED
RETAIL RENTAL SEGMENTS CORPORATE OPERATIONS CONSOLIDATED
---------- ---------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Domestic revenue........ $2,933.7 $2,500.5 $5,434.2 $ -- $ -- $5,434.2
Foreign revenue......... -- 198.9 198.9 -- -- 198.9
-------- -------- -------- ------ ------ --------
Total
revenue..... $2,933.7 $2,699.4 $5,633.1 $ -- $ -- $5,633.1
======== ======== ======== ====== ====== ========
Operating income
(loss)................ $ 33.3 $ (28.4) $ 4.9 $(27.7) $ -- $ (22.8)
Vehicle interest
expense............... 20.4 233.6 254.0 -- -- 254.0
Depreciation and
amortization.......... 9.3 789.3 798.6 2.0 -- 800.6
Non-cash restructuring
and other charges..... -- 75.7 75.7 11.0 -- 86.7
Capital expenditures.... 57.6 45.1 102.7 3.2 -- 105.9
Total assets............ 995.6 4,691.7 5,687.3 83.1 797.2 6,567.6
Total foreign
non-current assets.... -- 27.7 27.7 -- -- 27.7
</TABLE>
Revenue from the Company's automotive retail segment was derived from the
sale of the following major products and services for the years ended December
31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
New vehicles............................................ $ 6,792.1 $3,599.7 $1,909.6
Used vehicles........................................... 4,129.6 1,883.6 658.3
Parts, service and other................................ 1,742.9 639.5 365.8
--------- -------- --------
$12,664.6 $6,122.8 $2,933.7
========= ======== ========
</TABLE>
67
<PAGE> 70
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Company's automotive retail operations generally experience higher
volumes of vehicle sales in the second and third quarters of each year in part
due to consumer buying trends and the introduction of new vehicle models.
The Company's automotive rental operations and particularly the leisure
travel segment is highly seasonal. In these operations, the third quarter which
includes the peak summer travel months has historically been the strongest
quarter of the year. During the peak season the Company increases its rental
fleet and workforce to accommodate increased rental activity. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect. The first and fourth quarters for the Company's
automotive rental operations are generally the weakest, when there is limited
leisure travel and a greater potential for adverse weather conditions. Many of
the operating expenses such as rent, general insurance and administrative
personnel are fixed and cannot be reduced during periods of decreased rental
demand.
The fourth quarters of 1998 and 1997 include after tax gains of
approximately $11.6 million and $230.0 million, respectively, from the sale of
the Company's electronic security services division, as described in Note 12,
Discontinued Operations.
The second and fourth quarters of 1997 include restructuring and other
pre-tax charges of approximately $94.1 million and $150.0 million, respectively,
as described in Note 11, Restructuring and Other Charges. The second quarter of
1997 also contained a pre-tax gain on the sale of ADT Limited common shares of
approximately $102.3 million as described in Note 1, Summary of Significant
Accounting Policies, Investments.
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1998 and 1997.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue................................... 1998 $3,119.1 $4,037.4 $4,513.6 $4,448.1
1997 1,679.0 2,230.2 2,633.7 2,635.0
Operating income (loss)................... 1998 61.3 136.3 225.5 112.1
1997 6.7 (37.4) 131.4 (112.6)
Income (loss) from continuing
operations.............................. 1998 36.8 80.0 146.9 70.9
1997 7.4 40.6 84.8 (68.2)
Basic earnings (loss) per share from
continuing operations................... 1998 .08 .18 .32 .15
1997 .02 .10 .20 (.16)
Diluted earnings (loss) per share from
continuing operations................... 1998 .08 .17 .31 .15
1997 .02 .10 .20 (.16)
Net income................................ 1998 77.1 127.4 179.7 115.3
1997 38.7 74.5 125.3 201.2
</TABLE>
68
<PAGE> 71
REPUBLIC INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE
AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END
CLASSIFICATIONS OF YEAR INCOME DEDUCTIONS OTHER OF YEAR
- --------------- --------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1998.................................... $37.3 $16.8 $(19.1)(2) $ 27.3(1) $62.3
1997.................................... 11.6 8.4 (4.9)(2) 22.2(1) 37.3
1996.................................... 7.5 7.5 (4.3)(2) .9(1) 11.6
Restructuring reserves(3):
1998.................................... 93.7 --(6) (37.5)(5) (10.1)(4) 46.1
1997.................................... 25.5 179.1 (63.8)(5) (47.1)(4) 93.7
1996.................................... -- 29.5 -- (4.0)(4) 25.5
</TABLE>
- ---------------
(1) Allowance of acquired businesses.
(2) Accounts written off.
(3) Included under the caption "Accrued Liabilities" in the accompanying
Consolidated Balance Sheets.
(4) Primarily asset write-offs.
(5) Primarily cash payments of costs associated with restructuring activities.
(6) During the year ended December 31, 1998, the Company reduced its estimated
restructuring reserves for information systems and increased its estimated
reserves for the relocation of certain operations by approximately $21.0
million.
69
<PAGE> 72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
70
<PAGE> 73
PART III
The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the Proxy Statement of the Company relating to the
1999 Annual Meeting of Stockholders and is incorporated herein by reference.
71
<PAGE> 74
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements of the Company are set forth in Part II, Item
8.
(2) Financial Statement Schedule II, Valuation and Qualifying Accounts
and Reserves, for each of the three years ended December 31, 1998 is
submitted herewith.
(3) Exhibits -- (See Index to Exhibits included elsewhere herein.)
(b) Reports on Form 8-K.
None
72
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
Republic Industries, Inc.
By: /s/ H. WAYNE HUIZENGA
------------------------------------
H. Wayne Huizenga
Chairman of the Board and
Co-Chief Executive Officer
March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ H. WAYNE HUIZENGA Chairman of the Board and March 31, 1999
- ----------------------------------------------------- Co-Chief Executive
H. Wayne Huizenga Officer (Principal
Executive Officer)
/s/ STEVEN R. BERRARD Co-Chief Executive March 31, 1999
- ----------------------------------------------------- Officer and Director
Steven R. Berrard
/s/ MICHAEL S. KARSNER Senior Vice President and March 31, 1999
- ----------------------------------------------------- Chief Financial Officer
Michael S. Karsner (Principal Financial
Officer)
/s/ HARRIS W. HUDSON Vice Chairman and March 31, 1999
- ----------------------------------------------------- Director
Harris W. Hudson
/s/ MARY E. WOOD Vice President and March 31, 1999
- ----------------------------------------------------- Corporate Controller
Mary E. Wood (Principal Accounting
Officer)
/s/ ROBERT J. BROWN Director March 31, 1999
- -----------------------------------------------------
Robert J. Brown
/s/ J.P. BRYAN Director March 31, 1999
- -----------------------------------------------------
J.P. Bryan
/s/ RICK L. BURDICK Director March 31, 1999
- -----------------------------------------------------
Rick L. Burdick
/s/ MICHAEL G. DEGROOTE Director March 31, 1999
- -----------------------------------------------------
Michael G. DeGroote
</TABLE>
73
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE D. JOHNSON, JR. Director March 31, 1999
- -----------------------------------------------------
George D. Johnson, Jr.
/s/ JOHN J. MELK Director March 31, 1999
- -----------------------------------------------------
John J. Melk
/s/ IRENE B. ROSENFELD Director March 31, 1999
- -----------------------------------------------------
Irene B. Rosenfeld
</TABLE>
74
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
-------- ----------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger and Reorganization, dated May
30, 1991, by and between Republic Waste Industries, Inc., an
Oklahoma corporation, and Republic Waste Industries, Inc., a
Delaware corporation (incorporated by reference to Exhibit
3.1 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991).
3.1 -- Third Amended and Restated Certificate of Incorporation of
Republic Industries, Inc. (incorporated by reference to
Exhibit 99 to the Registrant's Current Report on Form 8-K
Dated May 14, 1997).
3.2 -- Bylaws of Republic Industries, Inc., as amended to date
(incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.1 -- Credit Facilities and Reimbursement Agreement dated as of
April 23, 1997, by and among Republic Industries, Inc., and
Republic Resources Company, as Borrowers, NationsBank,
National Association (South), as Arranger and Administrative
Agent, Various Co-Agents Listed Therein and Various Lenders
Listed Therein (incorporated by reference to Exhibit 4.22 to
the Registrant's Current Report on Form 8-K, dated June 13,
1997).
4.2 -- Base Indenture dated as of April 30, 1996, between National
Car Rental Financing L.P. as Issuer and The Bank of New York
as Trustee (incorporated by reference to Exhibit 4.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
4.3 -- Master Motor Vehicle Lease and Servicing Agreement dated as
of October 29, 1997, among National Car Rental Financing
Limited Partnership; National Car Rental System, Inc.; Alamo
Rent-A-Car, Inc.; Spirit Rent-A-Car, Inc.; and those
subsidiaries and affiliates of Republic Industries from time
to time becoming Lessees and Servicers thereunder; and
Republic Industries, Inc. (incorporated by reference to
Exhibit 4.3 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
4.4 -- Second Amended and Restated Master Collateral Agency
Agreement among Republic Industries, Inc.; National Car
Rental Financing Limited Partnership; Alamo Rent-A-Car,
Inc.; National Car Rental System, Inc.; Spirit Rent-A-Car,
Inc.; Value Rent-A-Car, Inc.; Citibank, N.A.; Various
Financing Sources Parties Thereto; and Various Beneficiaries
Parties Thereto (incorporated by reference to Exhibit 4.4 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.5 -- Series 1997-1 Supplement to the Base Indenture between
National Car Rental Financing Limited Partnership and The
Bank of New York (incorporated by reference to Exhibit 4.5
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.6 -- Series 1997-1 Support Reimbursement Agreement among Republic
Industries Funding Corp.; Alamo Rent-A-Car, Inc.; National
Car Rental System, Inc.; Spirit Rent-A-Car, Inc.; Value
Rent-A-Car, Inc.; those additional Subsidiaries and
Affiliates of Republic Industries, Inc. from time to time
becoming Additional Lessees thereunder; National Car Rental
Financing Limited Partnership; Republic Industries, Inc.;
and those financial institutions identified on the signature
pages thereto as the Series 1997-1 Support Letter of Credit
Providers (incorporated by reference to Exhibit 4.6 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
4.7 -- Series 1997-1 Letter of Credit Agreement among Republic
Industries Funding Corp.; Alamo Rent-A-Car, Inc.; National
Car Rental System, Inc.; Spirit Rent-A-Car, Inc.; Value
Rent-A-Car, Inc.; those additional Subsidiaries and
Affiliates of Republic Industries, Inc. from time to time
becoming Additional lessees thereunder; Republic Industries,
Inc.; and Westdeutsche Landesbank Girozentrale, New York
Branch (incorporated by reference to Exhibit 4.7 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
</TABLE>
75
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
-------- ----------------------
<C> <C> <S>
4.8 -- Series 1997-1 Note Purchase Agreement Variable Funding
Rental Car Asset Backed Notes, Series 1997-1) among National
Car Rental Financing Limited Partnership; Republic
Industries Funding Corp.; and Credit Suisse First Boston
(incorporated by reference to Exhibit 4.8 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
4.9 -- Series 1997-1 Liquidity Agreement among Republic Industries
Funding Corp.; Certain Financial Institutions; and Credit
Suisse First Boston (incorporated by reference to Exhibit
4.9 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
4.10 -- Series 1997-1 Collateral Agreement among Republic Industries
Funding Corp.; General Motors Corporation; Certain Financing
Institutions identified therein as the Series 1997-1 Support
Letter of Credit Providers; Westdeutsche Landesbank
Girozentrale, New Nork Branch; Credit Suisse First Boston;
Credit Suisse First Boston Corporation; Bancamerica
Robertson Stephens; Chase Securities, Inc.; Citicorp
Securities, Inc.; and Merrill Lynch Money Markets, Inc.; and
Citibank, N.A. Note: Pursuant to the provisions of Item
601(b)(4)(iii) of Regulation S-K, the registrant hereby
undertakes to furnish to the Commission upon request copies
of any instruments governing long-term debt of Republic and
its consolidated subsidiaries that does not exceed 10% of
the total assets of Republic and its subsidiaries on a
consolidated basis (incorporated by reference to Exhibit
4.10 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.1 -- Republic Waste Industries, Inc. 1990 Stock Option and Stock
Purchase Plan (incorporated by reference to Exhibit 10.1(a)
to the Registrant's Registration Statement on Form S-1
Commission File No. 33-37191).
10.2 -- Warrant to Purchase 1,150,000 Shares of Republic Waste
Industries, Inc. Common Stock issued to MGD Holdings Ltd.
(incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement on Form S-1 Commission
File No. 33-42530).
10.3 -- Republic Waste Industries, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.42 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.4 -- Form of Warrant to purchase 50,000 shares of Republic Waste
Industries, Inc. Common Stock issued to Rick L. Burdick
(incorporated by reference to Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.5 -- Stock Purchase Agreement, dated May 21, 1995, by and between
H. Wayne Huizenga and Republic Waste Industries, Inc.
(incorporated by reference to Exhibit (c)(1) to the
Registrant's Current Report on Form 8-K/A, dated July 17,
1995).
10.6 -- Stock Purchase Agreement, dated May 21, 1995, by and between
Harris W. Hudson and Republic Waste Industries, Inc.
(incorporated by reference to Exhibit (c)(4) to the
Registrant's Current Report on Form 8-K/A, dated July 17,
1995).
10.7 -- Stock Purchase Agreement, dated May 21, 1995, by and between
Westbury (Bermuda) Ltd. and Republic Waste Industries, Inc.
(incorporated by reference to Exhibit (c)(5) to the
Registrant's Current Report on Form 8-K/A, dated July 17,
1995).
10.8 -- First Amendment to Stock Purchase Agreement, dated July 17,
1995, by and between Republic Waste Industries, Inc. and H.
Wayne Huizenga (incorporated by reference to Exhibit (c)(8)
to the Registrant's Current Report on Form 8-K/A, dated July
17, 1995).
10.9* -- Republic Industries, Inc. 1995 Amended and Restated Employee
Stock Option Plan.
10.10* -- Republic Industries, Inc. Amended and Restated 1995
Non-Employee Director Stock Option Plan.
10.11** -- Letter Agreement between National Car Rental System, Inc.
and General Motors Corporation dated September 23, 1996
(incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
</TABLE>
76
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
-------- ----------------------
<C> <C> <S>
10.12** -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation dated October 8, 1996. (incorporated by
reference to Exhibit 10.20 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.13 -- Agreement and Plan of Reorganization, dated November 6,
1996, among Republic Industries, Inc., certain acquisition
subsidiaries of Republic Industries, Inc., Michael S. Egan,
Norman D. Tripp, William H. Kelly, Michael S. Egan as
trustee of certain trusts, Alamo Rent-A-Car, Inc., and
certain affiliated entities of Alamo Rent-A-Car, Inc.
(incorporated by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K dated November 25, 1996).
10.14 -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation (incorporated by reference to Exhibit
10.16 to the Registration Statement on Form S-1 of Alamo
Rent-A-Car, Inc. Commission File No. 33-80271).
10.15 -- Share Exchange Agreement, dated as of January 5, 1997, among
Republic Industries, Inc., National Car Rental Systems, Inc.
("National") and the stockholders of National (incorporated
by reference to Exhibit 2 to the Registrant's Current Report
on Form 8-K dated January 5, 1997).
10.16 -- Asset Purchase Agreement, dated as of September 26, 1997
among Republic Industries, Inc., Republic Security Companies
Holding Co. II, Inc., Ameritech Corporation and Ameritech
Monitoring Services, Inc. (incorporated by reference from
Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated October 3, 1997).
10.17** -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation dated November 18, 1997 (incorporated by
reference to Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.18** -- Letter Agreement between National Car Rental System, Inc.
and General Motors Corporation dated November 18, 1997
(incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.19* -- Republic Industries, Inc. Amended and Restated 1997 Employee
Stock Option Plan.
10.20* -- Republic Industries, Inc. Amended and Restated 1998 Employee
Stock Option Plan.
10.21 -- Separation and Distribution Agreement (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period Ended June 30,
1998).
10.22*** -- Letter Agreement between National Car Rental System, Inc.
and General Motors Corporation dated December 16, 1998.
10.23*** -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation dated December 16, 1998.
21.1* -- Subsidiaries of Republic Industries, Inc.
23.1* -- Consent of Arthur Andersen LLP.
27.1* -- 1998 Financial Data Schedule (for SEC use only).
27.2* -- 1997 Financial Data Schedule (restated for discontinued
operations) (for SEC use only).
27.3* -- 1996 Financial Data Schedule (restated for discontinued
operations) (for SEC use only).
99.1* -- Item 1 and Item 2 of the Annual Report on Form 10-K for the
year ended December 31, 1998 for Republic Services, Inc. as
filed with the Securities and Exchange Commission
(Commission File No. 1-14267), which are expressly
incorporated by reference in Item 1 and Item 2 of this
Report by Republic Industries, Inc.
</TABLE>
- -------------------------
* Filed herewith.
** Portions of this agreement have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
*** Filed herewith; portions of this agreement have been omitted pursuant to a
request for confidential treatment filed with the Securities and Exchange
Commission.
77
<PAGE> 1
REPUBLIC INDUSTRIES, INC.
1995 AMENDED AND RESTATED EMPLOYEE
STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. This Amended and Restated 1995 Employee Stock
Option Plan (the "Plan") is to benefit Republic Industries, Inc., a Delaware
corporation (the "Company"), and its subsidiaries through the maintenance and
development of their respective businesses by offering certain present and
future key employees and officers, and independent contractors providing
services to the Company, a favorable opportunity to become holders of stock in
the Company over a period of years, thereby giving them a permanent stake in the
growth and prosperity of the Company and encouraging the continuance of their
involvement with the Company or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee"), consisting of two or more outside directors (as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
appointed by the Board of Directors, whose interpretation of the terms and
provisions of the Plan shall be final and conclusive. The selection of
employees, officers and consultants for participation in the Plan and all
decisions concerning the timing, pricing and amount of any grant or award under
the Plan shall be made solely by the Committee.
3. ELIGIBILITY. Options shall be granted only to key employees of the
Company and its subsidiaries (including officers of the Company and its
subsidiaries but excluding non-employee directors of the Company and its
subsidiaries) and independent contractors performing services for the Company
and its subsidiaries selected initially and from time to time by the Committee
on the basis of their importance to the business of the Company and its
subsidiaries.
4. GRANTING OF OPTIONS. The Committee may grant options under which a
total of not in excess of 20,000,000 shares of the $.01 par value common stock
of the Company ("Common Stock") may be purchased from the Company, subject to
adjustment as provided in Section 10. In the event that an option expires or is
terminated or canceled unexercised as to any shares, such released shares may
again be optioned (including a grant in substitution for a canceled option).
Shares subject to options may be made available from unissued or reacquired
shares of Common Stock. Nothing contained in the Plan or in any option granted
pursuant thereto shall confer upon any optionee any right to be continued in the
employment of the Company or any subsidiary of the Company or as a consultant to
the Company or any subsidiary of the Company, or interfere in any way with the
right of the Company or its subsidiaries to terminate his employment or
consulting relationship at any time. The maximum number of shares of Common
Stock subject to options that may be granted during any calendar year under the
Plan to any executive officer or other employee of the Company or any subsidiary
whose compensation is or may be subject to Section 162(m) of the Code is
2,000,000 shares (subject to adjustment as provided in Section 10 hereof).
1
<PAGE> 2
5. OPTION PRICE. The option price shall be determined by the Committee
and, subject to the provisions of Section 10 hereof, shall be not less than the
fair market value, at the time the option is granted, of the shares of Common
Stock subject to the option.
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Section 8 hereof, each option shall be for such a term of not less
than five years nor more than ten years, as shall be determined by the Committee
at the time the option is granted. Each option shall become exercisable with
respect to 25% of the total number of shares subject to the option twelve months
after the date of its grant and with respect to each additional 25% at the end
of each twelve-month period thereafter during the succeeding three years.
Notwithstanding the foregoing, the Committee may in its discretion (i)
specifically provide for another time or times of exercise at the time the
option is granted; (ii) accelerate the exercisability of any option subject to
such terms and conditions as the Committee deems necessary and appropriate; or
(iii) at any time prior to the expiration or termination of any option
previously granted, extend the term of any option (including such options held
by officers) for such additional period as the Committee in its discretion shall
determine. In no event, however, shall the aggregate option period with respect
to any option, including the original term of the option and any extensions
thereof, exceed ten years. Subject to the foregoing, all or any part of the
shares to which the right to purchase has accrued may be purchased at the time
of such accrual or at any time or times thereafter during the option period.
In the event of a Change of Control (as defined below), all outstanding
options shall become immediately exercisable. Notwithstanding any other
provision in the Plan during the period of thirty (30) days after such Change of
Control, each optionee who is any officer or a director (and also an employee or
consultant) of the Company shall have the right to require the Company to
purchase for him any option granted under the Plan at a purchase price equal to
(i) the excess of fair market value per share over the option price (ii)
multiplied by the number of option shares specified by such individual for
purchase in a written notice to the Company, attention of the Secretary. For
purposes of this Plan, a "Change in Control" shall be deemed to occur if any
person shall (a) acquire direct or indirect beneficial ownership of at least 50%
of the issued and outstanding Common Stock of the Company, or (b) has the power
(whether such power arises as a result of the ownership of capital stock, by
contract or otherwise), or ability to elect or cause the election of directors
consisting at the time of such election of a majority of the board of directors
of the Company. As used herein, "person" shall mean any person, corporation,
partnership, joint venture or other entity or any group (as such term is defined
in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder). For purposes of this paragraph, "fair market
value per share" shall mean the average of the highest sales price per share of
the Company's Common Stock as quoted on The Nasdaq Stock Market or by the
principal exchange upon which the Company's Common Stock is listed on each of
the five trading days immediately preceding the date on which such individual so
notifies the Company. The amount payable to each such individual by the Company
shall be in cash or by certified check and shall be reduced by any taxes
required to be withheld.
2
<PAGE> 3
7. EXERCISE OF OPTION. As a condition to the exercise of any option,
the "Quoted Price" (as defined below) per share of Common Stock on the date of
exercise must be equal or exceed the option price referred to in Section 5
hereof. An option may be exercised by giving written notice to the Company,
attention of the Secretary, specifying the number of shares to be purchased,
accompanied by the full purchase price for the shares to be purchased either (i)
in cash, (ii) by check, (iii) by a promissory note in a form specified by the
Company and payable to the Company no later than fifteen business days after the
date of exercise of the option, (iv) if so approved by the Committee, by shares
of the Common Stock of the Company or (v) by a combination of these methods of
payment. The "Quoted Price" and the per share value of Common Stock for purposes
of paying the option price in accordance with the immediately preceding sentence
shall equal the closing selling price per share of Common Stock on the date in
question on The Nasdaq Stock Market or the principal stock exchange upon which
the Company's Common Stock is listed (the "Exchange"). The right to pay the
purchase price of shares by delivery of a promissory note shall not be available
to any optionee who is a person described in Section 16(a) of the Securities
Exchange Act of 1934, as amended (the "1934 Act").
At any time of any exercise of an option, the Company may, if it shall
determine it necessary or desirable for any reason, require the optionee (or his
or her heirs, legatees, or legal representatives, as the case may be), as a
condition upon the exercise thereof, to deliver to the Company a written
representation of present intention to purchase the shares for investment and
not for distribution. In the event such representation is required to be
delivered, an appropriate legend may be placed upon each certificate delivered
to the optionee upon his or her exercise of part or all of the option and a stop
transfer order may be placed with the transfer agent. Each option shall also be
subject to the requirement that, if at any time the Company determines, in its
discretion, that the listing, registration or qualification of the shares
subject to the option upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is necessary
or desirable as a condition of or in connection with, the issue or purchase of
shares thereunder, the option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
At the time of the exercise of any option the Committee may require, as
a condition of the exercise of such option, the optionee to (x) pay the Company
an amount equal to the amount of tax the Company may be required to withhold to
obtain a deduction for federal income tax purposes as a result of the exercise
of such option by the optionee or (y) make such other arrangements with the
Company which would enable the Company to pay such withholding tax, including,
without limitation, holding back a number of shares issuable upon exercise of
the option equal to the amount of such withholding tax, or permitting the
optionee to deliver a promissory note in a form specified by the Committee or
withhold taxes from other compensation payable to the optionee by the Company,
or (z) a combination of the foregoing.
3
<PAGE> 4
8. TERMINATION OF RELATIONSHIP - EXERCISE THEREAFTER. In the event the
relationship between the Company and an optionholder is terminated for any
reason other than death, permanent disability or retirement, such optionholder's
options shall expire and all rights to purchase shares pursuant thereto shall
terminate immediately. The Committee may, in its sole discretion, permit any
option to remain exercisable for such period after such termination as the
Committee may prescribe, but in no event after the expiration date of the
option. Temporary absence from employment or as a consultant because of illness,
vacation, approved leaves of absence, and transfers of employment among the
Company and its subsidiaries shall not be considered to terminate employment or
consulting relationship or to interrupt continuous employment or consulting
relationship.
In the event of termination of said relationship because of death,
permanent disability (as that term is defined in Section 22 (e) (3) of the Code,
as now in effect or as subsequently amended), or retirement, the option may be
exercised in full, without regard to any installments established under Section
6 hereof, by the optionee or, if he is not living, by his heirs, legatees or
legal representative (as the case may be) during its specified term prior to
three years after the date of death, permanent disability or retirement, or such
longer period as the Committee may prescribe, but in no event after the
expiration of the date of the option.
9. TRANSFERABILITY OF OPTIONS. No option shall be assignable or
transferable by the optionee to whom it is granted, other than by will or the
laws of descent and distribution, except that, upon approval by the Board, the
optionee may transfer an option that is not intended to constitute an Incentive
Stock Option (a) pursuant to a qualified domestic relations order as defined for
purposes of the Employee Retirement Income Security Act of 1974, as amended, or
(b) by gift: to a member of the "Family" (as defined below) of the optionee, to
or for the benefit of one or more organizations qualifying under Code Sections
501(c) (3) and 170(c) (2) (a "Charitable Organization") or to a trust for the
exclusive benefit of the optionee, one or more members of the optionee's Family,
one or more Charitable Organizations, or any combination of the foregoing,
provided that any such transferee shall enter into a written agreement to be
bound by the terms of this Plan. For this purpose, "Family" shall mean the
ancestors, spouse, siblings, spouses of siblings, lineal descendants and spouses
of lineal descendants of the optionee. During the lifetime of an optionee to
whom an Incentive Stock Option is granted, only such optionee (or, in the event
of legal incapacity of incompetence, the optionee's guardian or legal
representative) may exercise the Incentive Stock Option.
10. ADJUSTMENTS. The number of shares subject to this Plan and to
options granted under this Plan shall be adjusted as follows: (a) in the event
that the outstanding shares of Common Stock of the Company is changed by any
stock dividend, stock split or combination of shares, the number of shares
subject to the Plan and to options granted hereunder shall be proportionately
adjusted; (b) in the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, these shall be substituted,
on an equitable basis as determined by the Committee, for each share of Common
Stock then subject to the Plan whether or not at the time subject to outstanding
options, the number and kind of shares of stock or other securities to which the
holders of shares of Common Stock of the Company will be entitled pursuant to
the transaction; and (c) in the event of any other relevant change in the
capitalization of the Company, the Committee shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the Plan,
whether or not then subject to outstanding options. In the event of any such
adjustment, the purchase price per share shall be proportionately adjusted.
4
<PAGE> 5
11. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any
option granted pursuant to the Plan shall confer upon any optionee any right to
be continued in the employment of the Company or any subsidiary of the Company
or to be continued as a consultant to the Company or any subsidiary of the
Company to interfere in any way with the right of the Company and its
subsidiaries to terminate such employment or consulting relationship and/or to
remove any optionee who is a director from service on the Board of Directors of
the Company at any time in accordance with the provisions of applicable law.
12. AMENDMENT OF PLAN. The Board of Directors of the Company may amend
or discontinue the Plan at any time. However, no such amendments or
discontinuance shall be made without the requisite stockholder approval of the
stockholders of the Company if stockholder approval is required as a condition
to the Plan continuing to comply with the provisions of Rule 16b-3 of the 1934
Act or Section 162(m) of the Code.
13. GOVERNANCE BY RULE 16b-3. The Plan is intended to and shall be
governed by Rule 16b-3 promulgated under the 1934 Act.
14. EFFECTIVE DATE. This Plan is effective as of February 12, 1996.
This Plan was duly approved and adopted by the stockholders of Republic
at a meeting held the 10th day of May, 1996.
This Plan was duly amended by the Board of Directors of Republic on the
3rd day of February, 1998, which amendment was duly approved and adopted by the
stockholders of Republic at a meeting held the 20th day of May, 1998.
/s/ James O. Cole
-------------------------------
Secretary of Republic
This Plan was duly amended by the Board of Directors of Republic
effective as of the 20th day of May, 1998.
/s/ James O. Cole
-------------------------------
Secretary of Republic
5
<PAGE> 1
1995 AMENDED AND RESTATED NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
(Effective August 3, 1998)
1. STATEMENT OF PURPOSE. This 1995 Non-Employee Director Stock Option
Plan (this "Plan") (which was originally effective August 3, 1995 which is again
amended and restated effective May 20, 1998) is intended to promote the
interests of Republic Industries, Inc., a Delaware corporation (the "Company"),
by offering non-employee members of the Board of Directors of the Company
(individually, a "Non-Employee Director," and collectively, "Non-Employee
Directors") the opportunity to participate in a special stock option program
designed to provide them with significant incentives to remain in the service of
the Company.
2. ELIGIBILITY. Each Non-Employee Director shall be eligible to
receive grants of nonstatutory options under this Plan (individually, an
"Option," collectively, "Options") pursuant to the provisions of Section 4
hereof.
Except for the automatic grants of Options to be made pursuant to the
provisions of Section 4 hereof, Non-Employee Directors shall not be eligible to
receive any additional Option grants or stock issuance under this Plan or any
other stock plan of the Company or any of its affiliates.
3. STOCK SUBJECT TO PLAN. The stock issuable under this Plan shall be
the shares of the Company's common stock, par value of $.01 per share ("Common
Stock"). Such shares may be made available from authorized but unissued shares
of Common Stock or shares of Common Stock reacquired by the Company. The
aggregate number of shares of Common Stock issuable under exercise of Options
upon this Plan shall not exceed 2,000,000 shares, subject to adjustment from
time to time in accordance with Section 10 hereof.
4. AUTOMATIC GRANTING OF OPTIONS. Each individual who is initially
elected or appointed as a Non-Employee Director on or after August 3, 1995 shall
be automatically granted, on such date, an Option to purchase 50,000 shares of
Common Stock. Commencing with the first business day of calendar year 1996 and
continuing in effect for the first business day of each subsequent calendar
year, each individual who is at the time serving as a Non-Employee Director
shall receive an additional automatic grant of an Option to purchase 20,000
shares of Common Stock. The foregoing dates are herein referred to individually
as an "Automatic Grant Date" and collectively as "Automatic Grant Dates" and the
Non-Employee Directors receiving Options are herein referred to individually as
an "Optionee" and collectively as "Optionees." Options granted under the Plan
are not intended to be treated as incentive stock options as defined Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
In the event that an Option expires or is terminated or canceled and is
unexercised as to any shares of Common Stock, the shares subject to the Option,
or a portion thereof not so exercised, shall be made available for subsequent
automatic Option grants under this Plan.
1
<PAGE> 2
Should the total number of shares of Common Stock at the time available
under this Plan not be sufficient for the automatic grants to be made at that
particular time, the available shares shall be allocated proportionately among
all the automatic grants to be made at that time.
5. EXERCISE PRICE. The price per share payable upon exercise of an
Option ("Exercise Price") shall be the "Closing Selling Price" per share of
Common Stock as of the Automatic Grant Date.
For purposes of establishing the Exercise Price, the "Closing Selling
Price" per share of the Common Stock on any relevant date shall be the closing
selling price per share of Common Stock on the date immediately prior to the
automatic grant date as quoted on the Nasdaq Stock Market or by the principal
U.S. stock exchange upon which the Company's Common Stock is listed (the
"Exchange"), or if there is no reported closing selling price of Common Stock on
the Exchange on the date in question, the closing selling price on the Exchange
on the last preceding date for which such quotation exists.
6. DURATION OF OPTIONS AND EXERCISABILITY. Subject to the provisions
of Section 8 hereof, each Option shall have a term of ten years measured from
the Automatic Grant Date. Each Option shall become exercisable for any or all of
the shares covered by such Option immediately upon the Automatic Grant Date. The
Option shall thereafter remain so exercisable until the expiration or sooner
termination of the Option term.
Notwithstanding any such provision in this Plan, during the period of
thirty (30) days after a Change of Control (as defined below), each Optionee
shall have the right to require the Company to purchase from Optionee any Option
granted under this Plan at a purchase price equal to (i) the excess of fair
market value per share over the Exercise Price (both of which as existing on the
date of such Change of Control), multiplied by (ii) the number of Option shares
specified by such individual for purchase by the Company, in a written notice to
the Company, attention of the Secretary. A "Change of Control" shall be deemed
to occur if any person shall (a) acquire direct or indirect beneficial ownership
of at least 50% of the issued and outstanding Common Stock of the Company, or
(b) has the power (whether such power arises as a result of the ownership of
capital stock, by contract or otherwise), or the ability to elect or cause the
election of directors consisting at the time of such election of a majority of
the Board of Directors of the Company. As used herein, "person" shall mean any
person, corporation, partnership, joint venture or other entity or any group (as
such term is defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules promulgated thereunder). For purposes of this paragraph,
"fair market value per share" shall mean the average of the highest sales price
per share of the Company's Common Stock as quoted on the Nasdaq Stock Market, or
by the principal exchange upon which the Company's Common Stock is listed, on
each of the five trading days immediately preceding the date on which such
individual so notifies the Company. The amount payable to each such individual
by the Company shall be in cash or by certified check and shall be reduced by
any taxes required to be withheld.
2
<PAGE> 3
7. EXERCISE OF OPTION. As a condition to the exercise of any Option,
the "Quoted Price" (as defined below) per share of Common Stock on the date of
exercise must equal or exceed the Exercise Price. An Option may be exercised by
giving written notice to the Company, attention of the Secretary, specifying the
number of shares to be purchased, accompanied by the full purchase price for the
shares to be purchased either (i) in cash, (ii) by check, (iii) by shares of the
Common Stock, (iv) by a combination of these methods of payment. The "Quoted
Price" and the per share value of Common Stock for purposes of paying the
Exercise Price in accordance with the immediately preceding sentence shall be
determined pursuant to the definition of Closing Selling Price under Section 5
hereof, but determined with respect to the date of exercise. The Company may in
its discretion permit an Optionee to deliver a promissory note in a form
specified by the Company, and payable to the Company no later than the fifteenth
day of April in the year following the year of exercise of any Option, in
payment of any withholding tax requirements of the Company with respect to such
exercise.
At any time of any exercise of any Option, the Company may, if it shall
determine it necessary or desirable for any reason, require the Optionee (or his
or her heirs, legatees, or legal representative, as the case may be), as a
condition upon the exercise thereof, to deliver to the Company a written
representation of present intention to purchase the shares for investment and
not for distribution. In the event such representation is required to be
delivered, an appropriate legend may be placed upon each certificate delivered
to the Optionee (or his or her heirs, legatees or legal representative, as the
case may be) upon his or her exercise of part or all of the Option and a stop
transfer order may be placed with the transfer agent. Each Option shall also be
subject to the requirement that, if at any time the Company determines, in its
discretion, that the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is necessary
or desirable as a condition or in connection with, the issue or purchase of
shares thereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
At the time of the exercise of any Option the Company may require, as a
condition of the exercise of such Option, the Optionee to pay the Company an
amount equal to the amount of tax the Company may be required to withhold to
obtain a deduction for federal income tax purposes as a result of the exercise
of such Option by the Optionee.
8. TERMINATION OF BOARD MEMBERSHIP -- EXERCISE THEREAFTER. Should an
Optionee cease to be an outside member of the Board of Directors of the Company
for any reason other than death or permanent disability, such Optionees' Options
shall expire and all rights to purchase shares pursuant thereto shall terminate
thirty (30) days after the date the Optionee ceases to be an outside member of
the Board of Directors of the Company. The Company may, in its sole discretion,
permit such Options to remain exercisable for a reasonable period after such
cessation of Board membership.
3
<PAGE> 4
Should an Optionee cease to be an outside member of the Board of
Directors of the Company because of death or permanent disability (as that term
is defined in Section 22(e) (3) of the Code, as now in effect or as subsequently
amended), the Option may be exercised in full by the Optionee or, if he or she
is not living, by his or her heirs, legatees, or legal representative, as the
case may be, during its specified term prior to three years after the date of
death or permanent disability, but in no event after the expiration date of the
Option.
9. TRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution, except that, upon approval by the Board, the
Optionee may transfer an Option that is not intended to constitute an Incentive
Stock Option (a) pursuant to a qualified domestic relations order as defined for
purposes of the Employee Retirement Income Security Act of 1974, as amended, or
(b) by gift: to a member of the "Family" (as defined below) of the Optionee, to
or for the benefit of one or more organizations qualifying under Code Sections
501(c) (3) and 170(c) (2) (a "Charitable Organization") or to a trust for the
exclusive benefit of the Optionee, one or more members of the Optionee's Family,
one or more Charitable Organizations, or any combination of the foregoing,
provided that any such transferee shall enter into a written agreement to be
bound by the terms of this Plan. For this purpose, "Family" shall mean the
ancestors, spouse, siblings, spouses of siblings, lineal descendants and spouses
of lineal descendants of the Optionee. During the lifetime of an Optionee to
whom an Incentive Stock Option is granted, only such Optionee (or, in the event
of legal incapacity of incompetence, the Optionee's guardian or legal
representative) may exercise the Incentive Stock Option.
10. ADJUSTMENTS. The number of shares subject to this Plan and to
Options granted under this Plan shall be adjusted as follows: (a) in the event
that the number of outstanding shares of Common Stock is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
this Plan and to Options granted hereunder shall be proportionately adjusted;
(b) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted, on an
equitable basis, for each share of Common Stock then subject to this Plan,
whether or not at the time subject to outstanding Options, the number and kind
of shares of stock or other securities to which the holders of shares of Common
Stock will be entitled pursuant to the transaction; and (c) in the event of any
other relevant change in the capitalization of the Company, an equitable
adjustment shall be made in the number of shares of Common Stock then subject to
this Plan, whether or not then subject to outstanding Options. In the event of
any such adjustment, the Exercise Price per share shall be proportionately
adjusted.
11. AMENDMENT OF PLAN. This Plan may from time to time be amended or
discontinued by action of the Board of Directors of the Company, provided that
(i) no such amendment or discontinuance shall change or impair any Options
previously granted without the consent of the Optionee, (ii) the provisions of
this Plan relating to the amount of shares which may be subject to Options, the
Automatic Grant Dates and/or the Exercise Price shall not be amended more than
once every six months, other than to comply with Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the Code, and or
the rules thereunder and (iii) any amendment which would (A) materially increase
the benefits accruing to the participants under this Plan, (B) materially
increase the number of securities which may be issued under this Plan, and/or
(C) materially modify the requirements as to the eligibility for participation
in this Plan shall require the approval of the stockholders of the Company,
unless such approval is not required by Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), or any other federal regulations.
4
<PAGE> 5
12. CASH PROCEEDS. Any cash proceeds received by the Company from the
sale of shares pursuant to the Options granted under this Plan shall be used for
general corporate purposes.
13. NO IMPAIRMENT OF RIGHTS. Nothing in this Plan or any automatic
grant made pursuant to this Plan shall be construed or interpreted so as to
affect adversely or otherwise impair the Company's right to remove any Optionee
from service on the Board of Directors of the Company at any time in accordance
with the Company's Bylaws or any provisions of applicable law.
14. HOLDING PERIOD. Anything contained in this Plan to the contrary
notwithstanding, any disposition of an Option otherwise permitted by the terms
of this Plan, or of the Common Stock acquired upon exercise of an Option, shall
be subject to compliance with the requirements of paragraph (c) (1) of Rule
16b-3 or its successors promulgated under the 1934 Act, applicable to such
disposition, and any date, period or procedure specified or referred to in this
Plan with respect to any such disposition shall be adjusted, if necessary, so as
to give effect to this Section 14.
15. COMPLIANCE WITH RULE 16b-3. This Plan is intended to comply with
all applicable conditions of Rule 16b-3 or its successors promulgated under the
1934 Act, regardless of whether such conditions are set forth in this Plan. To
the extent any provision of this Plan or action of this Plan administrators
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by this Plan administrators.
16. EFFECTIVE DATE. This Plan became effective as of August 3, 1995.
5
<PAGE> 1
REPUBLIC INDUSTRIES, INC.
AMENDED AND RESTATED 1997 EMPLOYEE STOCK OPTION PLAN
Republic Industries, Inc. ("Republic") hereby adopts this Republic
Industries, Inc. 1997 Employee Stock Option Plan (the "Plan"), amended and
restated as of November 2, 1998, the terms of which shall be as follows:
1. PURPOSE
The Plan is intended to advance the interests of Republic by providing
eligible individuals (as designated pursuant to Section 4 below) with an
opportunity to acquire or increase a proprietary interest in Republic, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of Republic and its subsidiaries, and will encourage such eligible
individuals to remain in the employ of Republic or one or more of its
subsidiaries. Each stock option granted under the Plan (an "Option") shall be an
option that is not intended to constitute an "incentive stock option"
("Incentive Stock Option") within the meaning of Section 422 of the Internal
Revenue Code of 1986, or the corresponding provision of any subsequently-enacted
tax statute, as amended from time to time (the "Code") unless such Option is
granted to an employee of Republic or a "subsidiary corporation" (a
"Subsidiary") thereof within the meaning of Section 424(f) of the Code and is
specifically designated at the time of grant as being an Incentive Stock Option.
Any Option so designated shall constitute an Incentive Stock Option only to the
extent that it does not exceed the limitations set forth in Section 7 below.
2. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board of Directors of
Republic (the "Board"), which shall have the full power and authority to take
all actions, and to make all determinations required or provided for under the
Plan or any Option granted or Option Agreement (as defined in Section 8 below)
entered into under the Plan and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Board to be necessary or appropriate to the administration of the Plan or any
Option granted or Option Agreement entered into hereunder. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting at which any issue relating to the Plan is
properly raised for consideration or without a meeting by written consent of the
Board executed in accordance with Republic's Certificate of Incorporation and
Bylaws, and with applicable law. The interpretation and construction by the
Board of any provision of the Plan or of any Option granted or Option Agreement
entered into hereunder shall be final and conclusive.
(b) COMMITTEE. The Board may from time to time appoint a Stock Option
Committee (the "Committee") consisting of not less than two members of the
Board, none of whom shall be an officer or other salaried employee of Republic
or any Subsidiary, and each of whom shall qualify in all respects as a
"non-employee director" as defined in Rule 16b-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (the "Exchange Act") and an
"outside director" for purposes of Section 162(m) of the Code. The Board, in its
sole discretion, may provide that the role of the Committee shall be limited to
making recommendations to the Board concerning any determinations to be made and
actions to be taken by the Board pursuant to or with respect to the Plan, or the
Board may delegate to the Committee such powers and authorities related to the
administration of the Plan, as set forth in Section 2(a) above, as the Board
shall determine, consistent with the Certificate of Incorporation and Bylaws of
Republic and applicable law. The Board may remove members, add members, and fill
vacancies on the Committee from time to time, all in accordance with Republic's
Certificate of Incorporation and Bylaws, and with applicable law. The
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majority vote of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
(c) NO LIABILITY. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option granted or Option Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any
Option granted or Option Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in Section 2(b) above. Unless otherwise expressly determined by the Board,
any such action or determination by the Committee shall be final and conclusive.
3. STOCK
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of common stock, $.01 par value, of Republic (the "Stock"),
which shares may be treasury shares or authorized but unissued shares. The
number of shares of Stock that may be issued pursuant to Options granted under
the Plan shall not exceed in the aggregate 20,000,000 shares, subject to
adjustment as provided in Section 17 below. If any Option expires, terminates,
or is terminated or canceled for any reason prior to exercise in full, the
shares of Stock that were subject to the unexercised portion of such Option
shall be available for future Options granted under the Plan. Any Stock covered
by an award (or portion of an award) granted under the Plan, which is forfeited
or canceled, expires or is settled in cash, including the settlement of tax
withholding obligations using Stock, shall be deemed not to have been delivered
for purposes of determining the maximum number of shares of Stock available for
delivery under the Plan. Likewise, if any Option is exercised by tendering
shares of Stock, either actually or by attestation, to Republic as full or
partial payment for such exercise under this Plan or any prior plan of Republic,
only the number of shares issued net of the shares tendered shall be deemed
delivered for purposes of determining the maximum number of shares of Stock
available for delivery under the Plan. Further, Stock issued under the Plan
through the settlement, assumption or substitution of outstanding awards or
obligations to grant future awards as a condition of Republic acquiring another
entity shall not reduce the maximum number of shares of Stock available for
delivery.
4. ELIGIBILITY
(a) EMPLOYEES. Options may be granted under the Plan to any employee of
Republic, a Subsidiary or any other entity of which on the relevant date at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions ("Voting Securities") are at the time owned
directly or indirectly by Republic or any Subsidiary (an "Affiliate"), including
any such employee who is an officer or director of Republic, a Subsidiary or an
Affiliate, as the Board shall determine and designate from time to time prior to
expiration or termination of the Plan. The maximum number of shares of Stock
subject to Options that may be granted during any calendar year under the Plan
to any executive officer or other employee of Republic or any Subsidiary or
Affiliate whose compensation is or may be subject to Code ?162(m) is 5,000,000
shares (subject to adjustment as provided in Section 17 hereof).
(b) INDEPENDENT CONTRACTORS. Options may be granted to independent
contractors performing services for Republic or any Subsidiary or Affiliate as
determined by the Board from time to time on the basis of their importance to
the business of Republic or such Subsidiary or Affiliate. Independent
contractors shall not be eligible to receive options intended to constitute
Incentive Stock Options. Non-employee directors of Republic shall not be
eligible to receive options under the Plan.
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(c) MULTIPLE GRANTS. An individual may hold more than one Option,
subject to such restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall be effective as of the date of
adoption by the Board, which date is set forth below, subject to approval of the
Plan, within one year of such effective date, by the stockholders of Republic by
a majority of the votes present and entitled to vote at a duly held meeting of
the stockholders at which a quorum representing a majority of all outstanding
voting stock is present, either in person or by proxy or by written consent in
accordance with Republic's Certificate of Incorporation and Bylaws; provided,
however, that upon approval of the Plan by the stockholders of Republic as set
forth above, all Options granted under the Plan on or after the effective date
shall be fully effective as if the stockholders of Republic had approved the
Plan on the effective date. If the stockholders fail to approve the Plan within
one year of such effective date, any options granted hereunder shall be null and
void and of no effect.
(b) TERM. The Plan shall terminate on the date 10 years from the
effective date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at any
time and from time to time, prior to the date of termination of the Plan, grant
to such eligible individuals as the Board may determine ("Optionees"), Options
to purchase such number of shares of the Stock on such terms and conditions as
the Board may determine. The date on which the Board approves the grant of an
Option (or such later date as is specified by the Board) shall be considered the
date on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option intended to constitute an Incentive Stock Option (and so
designated at the time of grant) shall qualify as an Incentive Stock Option only
to the extent that the aggregate fair market value (determined at the time the
Option is granted) of the stock with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under the Plan and all other plans of the Optionee's employer corporation and
its parent and subsidiary corporations within the meaning of Section 422(d) of
the Code) does not exceed $100,000. This limitation shall be applied by taking
Options into account in the order in which they were granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by Republic and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar provisions; provided, however, that all such Option
Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option
shall be not less than 100 percent of the fair market value of a share of the
Stock which shall mean either the closing price of a share of the Stock on the
business day prior to the date the option is granted or,with respect to annual
grants of stock options commencing with the year 2000, the average of the
closing price of a share of the Stock on the first three business days of the
year as reported on The New York Stock Exchange, absent manifest error, or at a
price otherwise fixed by the Board or by the Committee in good faith as the fair
market value and stated in an option agreement with the Optionee (the "Option
Price") PROVIDED, HOWEVER, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than 10 percent), the Option Price of an Option that is intended to be an
Incentive Stock Option shall be not less than 110 percent of the fair market
value of a share of Stock at the time such Option is granted.
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10. TERM AND EXERCISE OF OPTIONS
(a) OPTION PERIOD. Each Option granted under the Plan shall terminate
and all rights to purchase shares thereunder shall cease upon the expiration of
ten years from the date such Option is granted, or on such date prior thereto as
may be fixed by the Board and stated in the Option Agreement relating to such
Option; PROVIDED, HOWEVER, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than 10 percent), an Option granted to such Optionee that is intended to be an
Incentive Stock Option shall in no event be exercisable after the expiration of
five years from the date it is granted.
(b) VESTING AND LIMITATIONS ON EXERCISE. Except as otherwise provided
herein, each Option shall become exercisable with respect to 25% of the total
number of shares subject to the Option on the date that is 12 months after the
date of its grant (the "Vesting Date") and with respect to an additional 25% of
the number of such shares on each of the next three succeeding anniversaries of
the Vesting Date; provided, however, that the Board may in its discretion
provide that an Option may be exercised, in whole or in part, at any time and
from time to time, over a period commencing on or after the date of grant and
ending upon the expiration or termination of the Option, as the Board shall
determine and set forth in the Option Agreement relating to such Option. Without
limiting the foregoing, the Board, subject to the terms and conditions of the
Plan, may in its sole discretion provide that an Option may be exercised
immediately upon grant or that it may not be exercised in whole or in part for
any period or periods of time during which such Option is outstanding; pROVIDED,
HOWEVER, that any vesting requirement or other such limitation on the exercise
of an Option may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the date of grant of such
Option, so as to accelerate the time at which the Option may be exercised.
(c) METHOD OF EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to Republic on any business day, at its principal office,
addressed to the attention of the Stock Option Administrator, of written notice
of exercise, which notice shall specify the number of shares with respect to
which the Option is being exercised, and shall be accompanied by payment in full
of the Option Price of the shares for which the Option is being exercised,
except as provided below. The minimum number of shares of Stock with respect to
which an Option may be exercised, in whole or in part, at any time shall be the
lesser of 100 shares or the maximum number of shares available for purchase
under the Option at the time of exercise. Payment of the Option Price for the
shares of Stock purchased pursuant to the exercise of an Option shall be made
(i) in cash or in cash equivalents; (ii) through the tender to Republic of
shares of Stock, which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their fair market
value (determined in the manner described in Section 9 above) on the date of
exercise; (iii) by delivering a written direction to Republic that the Option be
exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to Republic by a broker
upon receipt of stock certificates from Republic) or a cashless exercise/loan
procedure (pursuant to which the optionees would obtain a margin loan from a
broker to fund the exercise) through a licensed broker acceptable to Republic
whereby the stock certificate or certificates for the shares of Stock for which
the Option is exercised will be delivered to such broker as the agent for the
individual exercising the Option and the broker will deliver to Republic cash
(or cash equivalents acceptable to Republic) equal to the Option Price for the
shares of Stock purchased pursuant to the exercise of the Option plus the amount
(if any) of federal and other taxes that Republic, may, in its judgment, be
required to withhold with respect to the exercise
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of the Option; (iv) to the extent permitted by applicable law and under the
terms of the Option Agreement with respect to such Option, by the delivery of a
promissory note of the Optionee to Republic on such terms as shall be set out in
such Option Agreement; or (v) by a combination of the methods described in (i),
(ii), (iii) and (iv). The Optionee must also satisfy any tax obligations through
delivery of cash, Stock or withholding of shares of Stock by the Company.
Payment in full of the Option Price need not accompany the written notice of
exercise if the Option is exercised pursuant to the cashless exercise/sale
procedure described above. An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Promptly after the exercise of an Option, the individual exercising the Option
shall be entitled to the issuance of a Stock certificate or certificates
evidencing his ownership of such shares. A separate Stock certificate or
certificates shall be issued for any shares purchased pursuant to the exercise
of an Option that is intended to be an Incentive Stock Option, which certificate
or certificates shall not include any shares that were purchased pursuant to the
exercise of an Option that is not an Incentive Stock Option. An individual
holding or exercising an Option shall have none of the rights of a shareholder
until the shares of Stock covered thereby are fully paid and issued to him and,
except as provided in Section 18 below, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date of such
issuance.
(d) RESTRICTIONS ON TRANSFER OF STOCK. If an Option is exercised before
the date that is six months from the later of (i) the date of grant of the
Option or (ii) the date of shareholder approval of the Plan and the sale of
stock acquired pursuant to such exercise would subject the individual exercising
the Option to liability under Section 16 of the Exchange Act, then such
certificate or certificates shall bear a legend restricting the transfer of the
Stock covered thereby until the expiration of six months from the later of the
date specified in clause (i) above or the date specified in clause (ii) above.
(e) CHANGE IN CONTROL. In the event of a Change in Control (as defined
below), except as the Board shall otherwise provide in an Option Agreement with
respect to an Option granted under the Plan, all outstanding Options shall
become immediately exercisable in full, without regard to any limitation on
exercise imposed pursuant to Section 10(b) above, and, unless waived in advance
of such Change in Control by the Board, each Optionee who is a director, an
employee or a consultant of Republic or a Subsidiary or Affiliate at the time of
such Change in Control shall have the right to require Republic to pay, in
cancellation of such Option, an amount equal to the product of (i) the excess of
(x) the fair market value per share of the Stock over (y) the Option Price times
(ii) the number of shares of Stock specified by the Optionee in a written notice
to Republic (up to the full number of shares of Stock then subject to such
Option). For purposes of the Plan, a "Change in Control" shall be deemed to
occur if any person shall (a) acquire direct or indirect beneficial ownership of
more than 50% of the total combined voting power with respect to the election of
directors of the issued and outstanding stock of Republic (except that no Change
in Control shall be deemed to have occurred if the persons who were stockholders
of Republic immediately before such acquisition own all or substantially all of
the voting stock or other interests of such person immediately after such
transaction), or (b) have the power (whether as a result of stock ownership,
revocable or irrevocable proxies, contract or otherwise) or ability to elect or
cause the election of directors consisting at the time of such election of a
majority of the Board. A "person" for this purpose shall mean any person,
corporation, partnership, joint venture or other entity or any group (as such
term is defined for purposes of Section 13(d) of the Exchange Act) and a person
shall be deemed to be a beneficial owner as that term is used in Rule 13d-3
under the Exchange Act. The amount payable under this Section 10(e) shall be
remitted by Republic in cash or by certified or bank check, reduced by
applicable tax withholding.
(f) Notwithstanding any other provision of the Plan, no Option granted
to an Optionee under the Plan shall be exercisable in whole or in part prior to
the date the Plan is approved by the stockholders of Republic as provided in
Section 5 above.
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11. TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee to whom
it is granted, other than by will or the laws of descent and distribution,
except that, upon approval by the Board, the Optionee may transfer an Option
that is not intended to constitute an Incentive Stock Option (a) pursuant to a
qualified domestic relations order as defined for purposes of the Employee
Retirement Income Security Act of 1974, as amended, or (b) by gift: to a member
of the "Family" (as defined below) of the Optionee, to or for the benefit of one
or more organizations qualifying under Code ??501(c)(3) and 170(c)(2) (a
"Charitable Organization") or to a trust for the exclusive benefit of the
Optionee, one or more members of the Optionee's Family, one or more Charitable
Organizations, or any combination of the foregoing, provided that any such
transferee shall enter into a written agreement to be bound by the terms of this
Agreement. For this purpose, "Family" shall mean the ancestors, spouse,
siblings, spouses of siblings, lineal descendants and spouses of lineal
descendants of the Optionee. During the lifetime of an Optionee to whom an
Incentive Stock Option is granted, only such Optionee (or, in the event of legal
incapacity or incompetence, the Optionee's guardian or legal representative) may
exercise the Incentive Stock Option.
12. TERMINATION OF EMPLOYMENT OR SERVICE
(a) GENERAL. Except as otherwise provided herein, upon the termination
of the employment or other service of an Optionee with Republic, a Subsidiary, a
spin-off corporation or an Affiliate, other than by reason of a "Change in
Ownership" (as defined below) or the death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Optionee, any
Option granted to an Optionee pursuant to the Plan shall terminate upon the date
of such termination of employment or service and such Optionee shall have no
further right to purchase shares of Stock pursuant to such Option.
Notwithstanding the foregoing provisions of this Section 12, the Board may
provide, in its discretion, that following the termination of employment or
service of an Optionee with Republic, a Subsidiary, a spin-off corporation or
Affiliate, an Optionee may exercise an Option, in whole or in part, at any time
subsequent to such termination of employment or service and prior to termination
of the Option pursuant to Section 10(a) above, either subject to or without
regard to any vesting or other limitation on exercise imposed pursuant to
Section 10(b) above.
(b) CHANGE IN OWNERSHIP OF SUBSIDIARY OR AFFILIATE. If an Optionee
ceases to be an employee or an independent contractor of Republic or any
Subsidiary following a "Change in Ownership" (as defined below) (whether because
of the termination of employment or service of the Optionee, because the
corporation or other entity by which the Optionee was employed or for which the
Optionee was providing services as an independent contractor, ceases to be a
Subsidiary of Affiliate or otherwise) then such options shall continue to vest
according to the vesting schedule unless the Board determines otherwise. A
"Change in Ownership" shall be deemed to have occurred with respect to an
Optionee if (i) as a result of a merger, consolidation, reorganization, business
combination, sale, exchange or other disposition of Voting Securities (as
defined in Section 4(a)) or other transaction, the corporation or other entity
by which the Optionee is employed or for which the Optionee is providing
services as an independent contractor ceases to be a Subsidiary or Affiliate of
Republic and, immediately after such transaction, the persons who were
stockholders of Republic immediately before such transaction (the "Republic
Stockholders") do not own at least a majority of the Voting Securities of such
corporation or other entity or (ii) there is a sale or other disposition of all
or substantially all of the assets of the trade or business by which the
Optionee is employed or for which the Optionee is providing services as an
independent contractor and, immediately after such transaction, Republic or the
Republic Stockholders do not own at least a majority of the Voting Securities of
a corporation or other entity that acquires such assets and engages in such
trade or business.
(c) Whether a leave of absence or leave on military or government
service shall constitute a termination of employment of service for purposes of
the Plan shall be determined by the Board, which determination shall be final
and conclusive.
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For purposes of the Plan, a termination of employment or service with Republic,
a Subsidiary, a spin-off corporation or Affiliate shall not be deemed to occur
if the Optionee is immediately thereafter employed by or otherwise providing
services to Republic, any Subsidiary, any spin-off corporation or Affiliate.
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) DEATH. If an Optionee dies while in the employ or service of
Republic, a Subsidiary, a spin-off corporation or Affiliate or within the period
following the termination of employment or service during which the Option is
exercisable under Section 12 above or Section 13(b) below, all Options held by
such Optionee prior to death shall become immediately exercisable in full and
the executors or administrators or legatees or distributees of such Optionee's
estate shall have the right, at any time within three years after the date of
such Optionee's death and prior to termination of the Option pursuant to Section
10(a) above, to exercise any Option held by such Optionee at the date of such
Optionee's death; PROVIDED, HOWEVER, that the Board may provide, in its
discretion, that following the death of an Optionee, the executors or
administrators or legatees or distributees of such Optionee's estate may
exercise an Option, in whole or in part, at any time subsequent to such
Optionee's death and prior to termination of the Option pursuant to Section
10(a) above, either subject to or without regard to any vesting or other
limitation on exercise imposed pursuant to Section 10(b) above.
(b) DISABILITY. If an Optionee terminates employment or service with
Republic, a Subsidiary, a spin-off corporation or Affiliate by reason of the
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee, then all Options held by such Optionee shall become
immediately exercisable in full and the Optionee shall have the right, at any
time within three years after such termination of employment or service and
prior to termination of the Option pursuant to Section 10(a) above, to exercise,
in whole or in part, any Option held by such Optionee at the date of such
termination of employment or service; PROVIDED, HOWEVER,that the Board may
provide, in its discretion, that an Optionee may, in the event of the
termination of employment or service of the Optionee with Republic, a
Subsidiary, a spin-off corporation or Affiliate by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option in whole or in part, at any time subsequent to such
termination of employment or service and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
vesting or other limitation on exercise imposed pursuant to Section 10(b) above.
Whether a termination of employment or service is to be considered by reason of
"permanent and total disability" for purposes of this Plan shall be determined
by the Board, which determination shall be final and conclusive.
14. USE OF PROCEEDS
The proceeds received by Republic from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of Republic.
15. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. Republic shall not be required to sell or issue
any shares of Stock under any Option if the sale or issuance of such shares
would constitute a violation by the individual exercising the Option or Republic
of any provisions of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. Any determination in this connection by the Board shall be final,
binding, and conclusive. Republic shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority. As to any jurisdiction that expressly imposes the requirement that an
Option shall not be exercisable unless and until the shares of Stock covered by
such Option are registered or are subject to an available exemption from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
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(b) COMPLIANCE WITH RULE 16b-3. The intent of this Plan is to qualify
for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent
any provision of the Plan does not comply with the requirements of Rule 16b-3,
it shall be deemed inoperative to the extent permitted by law and deemed
advisable by the Board and shall not affect the validity of the Plan. In the
event Rule 16b-3 is revised or replaced, the Board, or the Committee acting on
behalf of the Board, may exercise discretion to modify this Plan in any respect
necessary to satisfy the requirements of the revised exemption or its
replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may,at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; PROVIDED, HOWEVER, that no amendment by the Board shall, without
approval by a majority of the votes present and entitled to vote at a duly held
meeting of the stockholders of Republic at which a quorum representing a
majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the amendment, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and Bylaws of
Republic, change the requirements as to eligibility to receive Options that are
intended to qualify as Incentive Stock Options, increase the maximum number of
shares of Stock in the aggregate that may be sold pursuant to Options that are
intended to qualify as Incentive Stock Options granted under the Plan (except as
permitted under Section 17 hereof) or modify the Plan so that Options granted
under the Plan could not satisfy the applicable requirements of Code ?162(m).
Except as permitted under Section 17 hereof, no amendment, suspension or
termination of the Plan shall, without the consent of the holder of the Option,
alter or impair rights or obligations under any Option theretofore granted under
the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) ADJUSTMENT FOR CORPORATE TRANSACTIONS. The Board may determine that
a corporate transaction has affected the price of the Stock such than an
adjustment or adjustments to outstanding awards are required to preserve (or
prevent enlargement of) the benefits or potential benefits intended at time of
grant. For this purpose a corporate transaction may include, but is not limited
to, any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares of Stock, or other similar occurrence. In the
event of such a corporate transaction, the Board may, in such manner as the
Board deems equitable, adjust (i) the number and kind shares of Stock which may
be delivered under the Plan pursuant to Section 3; (ii) the number and kind of
shares of Stock subject to outstanding awards; and (iii) the exercise price of
outstanding stock options.
(b) DISSOLUTION OR LIQUIDATION; REORGANIZATION IN WHICH REPUBLIC IS NOT
THE SURVIVING CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution or
liquidation of Republic the Plan and all Options outstanding hereunder shall
terminate. In the event of any termination of the Plan under this Section 17(b),
each individual holding an Option shall have the right, immediately prior to the
occurrence of such termination and during such reasonable period as the Board in
its sole discretion shall determine and designate, to exercise such Option in
whole or in part, whether or not such Option was otherwise exercisable at the
time such termination occurs and without regard to any vesting or other
limitation on exercise imposed pursuant to Section 10(b) above. In connection
with a merger, consolidation, reorganization or other business combination of
Republic with one or more other entities in which Republic is not the surviving
entity, or upon a sale of all or substantially all of the assets of Republic to
another entity, or upon any transaction (including, without limitation, a merger
or reorganization in which Republic is the surviving corporation) that results
in any person or entity (or persons or entities acting as a group or otherwise
in concert) owning more than 50 percent of the combined voting power of all
classes of stock of
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Republic, Republic and the acquiring or surviving entity shall provide for the
continuation of the Plan and the assumption of the Options theretofore granted,
or for the substitution for such Options of new options covering the stock of a
successor entity, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares and exercise prices. The Board
shall send prior written notice of the occurrence of an event described in this
Section 17(b) to all individuals who hold Options not later than the time at
which Republic gives notice to its stockholders that such event is proposed.
(c) NO LIMITATIONS ON CORPORATION. The grant of an Option pursuant to
the Plan shall not affect or limit in any way the right or power of Republic to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve or liquidate, or to
sell or transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of Republic, any Subsidiary, any
spin-off corporation or Affiliate, or to interfere in any way with the right and
authority of Republic, any Subsidiary, any spinoff corporation or Affiliate
either to increase or decrease the compensation of any individual at any time,
or to terminate any employment or other relationship between any individual and
Republic, any Subsidiary, any spin-off corporation or Affiliate.
19. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of Republic for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
This Plan was duly adopted and approved by the Board of Directors of
Republic effective as of the 2nd day of January, 1997, subject to approval and
adoption by the stockholders of Republic.
/s/ Richard L. Handley
--------------------------------
Secretary of Republic
This Plan was duly approved and adopted by the stockholders of Republic
at a meeting held the 13th day of May, 1997.
/s/ Richard L. Handley
--------------------------------
Secretary of Republic
This Plan was duly amended by the Board of Directors of Republic
effective as of the 2nd day of November, 1998.
/s/ James O. Cole
--------------------------------
Secretary of Republic
This Plan was duly amended by the Board of Directors of Republic
effective as of the 6th day of January, 1999.
/s/ James O. Cole
--------------------------------
Secretary of Republic
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REPUBLIC INDUSTRIES, INC.
AMENDED AND RESTATED 1998 EMPLOYEE STOCK OPTION PLAN
Republic Industries, Inc. ("Republic") hereby adopts this Republic
Industries, Inc. 1998 Employee Stock Option Plan (the "Plan"), the terms of
which shall be as follows:
1. PURPOSE
The Plan is intended to advance the interests of Republic by providing
eligible individuals (as designated pursuant to Section 4 below) with an
opportunity to acquire or increase a proprietary interest in Republic, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of Republic and its subsidiaries, and will encourage such eligible
individuals to remain in the employ of Republic or one or more of its
subsidiaries. Each stock option granted under the Plan (an "Option") shall be an
option that is not intended to constitute an "incentive stock option"
("Incentive Stock Option") within the meaning of Section 422 of the Internal
Revenue Code of 1986, or the corresponding provision of any subsequently-enacted
tax statute, as amended from time to time (the "Code") unless such Option is
granted to an employee of Republic or a "subsidiary corporation" (a
"Subsidiary") thereof within the meaning of Section 424(f) of the Code and is
specifically designated at the time of grant as being an Incentive Stock Option.
Any Option so designated shall constitute an Incentive Stock Option only to the
extent that it does not exceed the limitations set forth in Section 7 below.
2. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board of Directors of
Republic (the "Board"), which shall have the full power and authority to take
all actions, and to make all determinations required or provided for under the
Plan or any Option granted or Option Agreement (as defined in Section 8 below)
entered into under the Plan and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Board to be necessary or appropriate to the administration of the Plan or any
Option granted or Option Agreement entered into hereunder. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting at which any issue relating to the Plan is
properly raised for consideration or without a meeting by written consent of the
Board executed in accordance with Republic's Certificate of Incorporation and
Bylaws, and with applicable law. The interpretation and construction by the
Board of any provision of the Plan or of any Option granted or Option Agreement
entered into hereunder shall be final and conclusive.
(b) COMMITTEE. The Board may from time to time appoint a Stock Option
Committee (the "Committee") consisting of not less than two members of the
Board, none of whom shall be an officer or other salaried employee of Republic
or any Subsidiary, and each of whom shall qualify in all respects as an "outside
director" for purposes of Section 162(m) of the Code. The Board, in its sole
discretion, may provide that the role of the Committee shall be limited to
making recommendations to the Board concerning any determinations to be made and
actions to be taken by the Board pursuant to or with respect to the Plan, or the
Board may delegate to the Committee such powers and authorities related to the
administration of the Plan, as set forth in Section 2(a) above, as the Board
shall determine, consistent with the Certificate of Incorporation and Bylaws of
Republic and applicable law. The Board may remove members, add members, and fill
vacancies on the Committee from time to time, all in accordance with Republic's
Certificate of Incorporation and Bylaws, and with applicable law. The majority
vote of the Committee, or acts reduced to or approved in writing by a majority
of the members of the Committee, shall be the valid acts of the Committee.
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(c) NO LIABILITY. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option granted or Option Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any
Option granted or Option Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in Section 2(b) above. Unless otherwise expressly determined by the Board,
any such action or determination by the Committee shall be final and conclusive.
3. STOCK
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of common stock, $.01 par value, of Republic (the "Stock"),
which shares may be treasury shares or authorized but unissued shares. The
number of shares of Stock that may be issued pursuant to Options granted under
the Plan shall not exceed in the aggregate 30,000,000 shares, subject to
adjustment as provided in Section 17 below. If any Option expires, terminates,
or is terminated or canceled for any reason prior to exercise in full, the
shares of Stock that were subject to the unexercised portion of such Option
shall be available for future Options granted under the Plan. Any Stock covered
by an award (or portion of an award) granted under the Plan, which is forfeited
or canceled, expires or is settled in cash, including the settlement of tax
withholding obligations using Stock, shall be deemed not to have been delivered
for purposes of determining the maximum number of shares of Stock available for
delivery under the Plan. Likewise, if any Option is exercised by tendering
shares of Stock, either actually or by attestation, to Republic as full or
partial payment for such exercise under this Plan or any prior plan of Republic,
only the number of shares issued net of the shares tendered shall be deemed
delivered for purposes of determining the maximum number of shares of Stock
available for delivery under the Plan. Further, Stock issued under the Plan
through the settlement, assumption or substitution of outstanding awards or
obligations to grant future awards as a condition of Republic acquiring another
entity shall not reduce the maximum number of shares of Stock available for
delivery.
4. ELIGIBILITY
(a) EMPLOYEES. Options may be granted under the Plan to any employee of
Republic, a Subsidiary or any other entity of which on the relevant date at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions ("Voting Securities") are at the time owned
directly or indirectly by Republic or any Subsidiary (an "Affiliate"), including
any such employee who is an officer or director of Republic, a Subsidiary or an
Affiliate, as the Board shall determine and designate from time to time prior to
expiration or termination of the Plan. The maximum number of shares of Stock
subject to Options that may be granted during any calendar year under the Plan
to any executive officer or other employee of Republic or any Subsidiary or
Affiliate whose compensation is or may be subject to Code ?162(m) is 5,000,000
shares (subject to adjustment as provided in Section 17 hereof).
(b) INDEPENDENT CONTRACTORS. Options may be granted to independent
contractors performing services for Republic or any Subsidiary or Affiliate as
determined by the Board from time to time on the basis of their importance to
the business of Republic or such Subsidiary or Affiliate. Independent
contractors shall not be eligible to receive options intended to constitute
Incentive Stock Options. Non-employee directors of Republic shall not be
eligible to receive options under the Plan.
(c) MULTIPLE GRANTS. An individual may hold more than one Option,
subject to such restrictions as are provided herein.
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5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall be effective as of the date of
adoption by the Board, which date is set forth below, subject to approval of the
Plan, within one year of such effective date, by the stockholders of Republic by
a majority of the votes present and entitled to vote at a duly held meeting of
the stockholders at which a quorum representing a majority of all outstanding
voting stock is present, either in person or by proxy or by written consent in
accordance with Republic's Certificate of Incorporation and Bylaws; provided,
however, that upon approval of the Plan by the stockholders of Republic as set
forth above, all Options granted under the Plan on or after the effective date
shall be fully effective as if the stockholders of Republic had approved the
Plan on the effective date. If the stockholders fail to approve the Plan within
one year of such effective date, any options granted hereunder shall be null and
void and of no effect.
(b) TERM. The Plan shall terminate on the date 10 years from the
effective date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at any
time and from time to time, prior to the date of termination of the Plan, grant
to such eligible individuals as the Board may determine ("Optionees"), Options
to purchase such number of shares of the Stock on such terms and conditions as
the Board may determine. The date on which the Board approves or ratifies the
grant of an Option (or if the grant is ratified by the Board or Committee such
earlier date as is specified by the Board or Committee) shall be considered the
date on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option intended to constitute an Incentive Stock Option (and so
designated at the time of grant) shall qualify as an Incentive Stock Option only
to the extent that the aggregate fair market value (determined at the time the
Option is granted) of the stock with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under the Plan and all other plans of the Optionee's employer corporation and
its parent and subsidiary corporations within the meaning of Section 422(d) of
the Code) does not exceed $100,000. This limitation shall be applied by taking
Options into account in the order in which they were granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by Republic and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar provisions; provided, however, that all such Option
Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option
shall be not less than 100 percent of the fair market value of a share of the
Stock which shall mean either the closing price of a share of the Stock on the
business day prior to the date the Option is granted with respect to annual
grants of stock options commencing with the year 2000, the average of the
closing price of a share of the Stock on the first three business days of the
year as reported on the New York Stock Exchange, absent manifest error, or a
price otherwise fixed by the Board or the Committee in good faith as the fair
market value and stated in an Option Agreement with the Optionee (the ?Option
Price?); PROVIDED HOWEVER, that in the event that the Optionee would otherwise
be ineligible to receive an Incentive Stock Option by reason of the provisions
of Section 422(b)(6) and 424 (d) of the Code (relating to stock ownership of
more than 10 percent), the Option Price of an Option that is intended to be an
Incentive Stock Option shall be not less than 110 percent of the fair market
value of a share of Stock at the time such Option is granted.
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<PAGE> 4
10. TERM AND EXERCISE OF OPTIONS
(a) OPTION PERIOD. Each Option granted under the Plan shall terminate
and all rights to purchase shares thereunder shall cease upon the expiration of
ten years from the date such Option is granted, or on such date prior thereto as
may be fixed by the Board and stated in the Option Agreement relating to such
Option; PROVIDED, HOWEVER, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than 10 percent), an Option granted to such Optionee that is intended to be an
Incentive Stock Option shall in no event be exercisable after the expiration of
five years from the date it is granted.
(b) VESTING AND LIMITATIONS ON EXERCISE. Except as otherwise provided
herein, each Option shall become exercisable with respect to 25% of the total
number of shares subject to the Option on the date that is 12 months after the
date of its grant (the "Vesting Date") and with respect to an additional 25% of
the number of such shares on each of the next three succeeding anniversaries of
the Vesting Date; provided, however, that the Board may in its discretion
provide that an Option may be exercised, in whole or in part, at any time and
from time to time, over a period commencing on or after the date of grant and
ending upon the expiration or termination of the Option, as the Board shall
determine and set forth in the Option Agreement relating to such Option. Without
limiting the foregoing, the Board, subject to the terms and conditions of the
Plan, may in its sole discretion provide that an Option may be exercised
immediately upon grant or that it may not be exercised in whole or in part for
any period or periods of time during which such Option is outstanding; pROVIDED,
HOWEVER, that any vesting requirement or other such limitation on the exercise
of an Option may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the date of grant of such
Option, so as to accelerate the time at which the Option may be exercised.
(c) METHOD OF EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to Republic on any business day, at its principal office,
addressed to the attention of the Stock Option Administrator, of written notice
of exercise, which notice shall specify the number of shares with respect to
which the Option is being exercised, and shall be accompanied by payment in full
of the Option Price of the shares for which the Option is being exercised,
except as provided below. The minimum number of shares of Stock with respect to
which an Option may be exercised, in whole or in part, at any time shall be the
lesser of 100 shares or the maximum number of shares available for purchase
under the Option at the time of exercise. Payment of the Option Price for the
shares of Stock purchased pursuant to the exercise of an Option shall be made
(i) in cash or in cash equivalents; (ii) through the tender to Republic of
shares of Stock, which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their fair market
value (determined in the manner described in Section 9 above) on the date of
exercise; (iii) by delivering a written direction to Republic that the Option be
exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to Republic by a broker
upon receipt of stock certificates from Republic) or a cashless exercise/loan
procedure (pursuant to which the optionees would obtain a margin loan from a
broker to fund the exercise) through a licensed broker acceptable to Republic
whereby the stock certificate or certificates for the shares of Stock for which
the Option is exercised will be delivered to such broker as the agent for the
individual exercising the Option and the broker will deliver to Republic cash
(or cash equivalents acceptable to Republic) equal to the Option Price for the
shares of Stock purchased pursuant to the exercise of the Option plus the amount
(if any) of federal and other taxes that Republic, may, in its judgment, be
required to withhold with respect to the exercise of the Option; (iv) to the
extent permitted by applicable law and under the terms of the Option Agreement
with respect to such Option, by the delivery of a promissory note of the
Optionee to Republic on such terms as shall be set out in such Option Agreement;
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<PAGE> 5
or (v) by a combination of the methods described in (i), (ii), (iii) and (iv).
The Optionee must also satisfy any tax obligations through delivery of cash,
Stock or withholding of shares of Stock by the Company. Payment in full of the
Option Price need not accompany the written notice of exercise if the Option is
exercised pursuant to the cashless exercise/sale procedure described above. An
attempt to exercise any Option granted hereunder other than as set forth above
shall be invalid and of no force and effect. Promptly after the exercise of an
Option, the individual exercising the Option shall be entitled to the issuance
of a Stock certificate or certificates evidencing his ownership of such shares.
A separate Stock certificate or certificates shall be issued for any shares
purchased pursuant to the exercise of an Option that is intended to be an
Incentive Stock Option, which certificate or certificates shall not include any
shares that were purchased pursuant to the exercise of an Option that is not an
Incentive Stock Option. An individual holding or exercising an Option shall have
none of the rights of a shareholder until the shares of Stock covered thereby
are fully paid and issued to him and, except as provided in Section 18 below, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date of such issuance.
(d) RESTRICTIONS ON TRANSFER OF STOCK. If an Option is exercised before
the date that is six months from the later of (i) the date of grant of the
Option or (ii) the date of shareholder approval of the Plan and the sale of
stock acquired pursuant to such exercise would subject the individual exercising
the Option to liability under Section 16 of the Exchange Act, then such
certificate or certificates shall bear a legend restricting the transfer of the
Stock covered thereby until the expiration of six months from the later of the
date specified in clause (i) above or the date specified in clause (ii) above.
(e) CHANGE IN CONTROL. In the event of a Change in Control (as defined
below), except as the Board shall otherwise provide in an Option Agreement with
respect to an Option granted under the Plan, all outstanding Options shall
become immediately exercisable in full, without regard to any limitation on
exercise imposed pursuant to Section 10(b) above, and, unless waived in advance
of such Change in Control by the Board, each Optionee who is a director, an
employee or a consultant of Republic or a Subsidiary or Affiliate at the time of
such Change in Control shall have the right to require Republic to pay, in
cancellation of such Option, an amount equal to the product of (i) the excess of
(x) the fair market value per share of the Stock over (y) the Option Price times
(ii) the number of shares of Stock specified by the Optionee in a written notice
to Republic (up to the full number of shares of Stock then subject to such
Option). For purposes of the Plan, a "Change in Control" shall be deemed to
occur if any person shall (a) acquire direct or indirect beneficial ownership of
more than 50% of the total combined voting power with respect to the election of
directors of the issued and outstanding stock of Republic (except that no Change
in Control shall be deemed to have occurred if the persons who were stockholders
of Republic immediately before such acquisition own all or substantially all of
the voting stock or other interests of such person immediately after such
transaction), or (b) have the power (whether as a result of stock ownership,
revocable or irrevocable proxies, contract or otherwise) or ability to elect or
cause the election of directors consisting at the time of such election of a
majority of the Board. A "person" for this purpose shall mean any person,
corporation, partnership, joint venture or other entity or any group (as such
term is defined for purposes of Section 13(d) of the Exchange Act) and a person
shall be deemed to be a beneficial owner as that term is used in Rule 13d-3
under the Exchange Act. The amount payable under this Section 10(e) shall be
remitted by Republic in cash or by certified or bank check, reduced by
applicable tax withholding.
(f) Notwithstanding any other provision of the Plan, no Option granted
to an Optionee under the Plan shall be exercisable in whole or in part prior to
the date the Plan is approved by the stockholders of Republic as provided in
Section 5 above.
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11. TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee to whom
it is granted, other than by will or the laws of descent and distribution,
except that, upon approval by the Board, the Optionee may transfer an Option
that is not intended to constitute an Incentive Stock Option (a) pursuant to a
qualified domestic relations order as defined for purposes of the Employee
Retirement Income Security Act of 1974, as amended, or (b) by gift: to a member
of the "Family" (as defined below) of the Optionee, to or for the benefit of one
or more organizations qualifying under Code ??501(c)(3) and 170(c)(2) (a
"Charitable Organization") or to a trust for the exclusive benefit of the
Optionee, one or more members of the Optionee's Family, one or more Charitable
Organizations, or any combination of the foregoing, provided that any such
transferee shall enter into a written agreement to be bound by the terms of this
Agreement. For this purpose, "Family" shall mean the ancestors, spouse,
siblings, spouses of siblings, lineal descendants and spouses of lineal
descendants of the Optionee. During the lifetime of an Optionee to whom an
Incentive Stock Option is granted, only such Optionee (or, in the event of legal
incapacity or incompetence, the Optionee's guardian or legal representative) may
exercise the Incentive Stock Option.
12. TERMINATION OF EMPLOYMENT OR SERVICE
(a) GENERAL. Except as otherwise provided herein, upon the termination
of the employment or other service of an Optionee with Republic, a Subsidiary, a
spin-off corporation or an Affiliate, other than by reason of a "Change in
Ownership" (as defined below) or the death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Optionee, any
Option granted to an Optionee pursuant to the Plan shall, unless agreed in
writing with the Optionee, terminate sixty days after the date of such
termination of employment or service and such Optionee shall have no further
right to purchase shares of Stock pursuant to such Option. Notwithstanding the
foregoing provisions of this Section 12, the Board may provide, in its
discretion, that following the termination of employment or service of an
Optionee with Republic, a Subsidiary, a spin-off corporation or Affiliate, an
Optionee may exercise an Option, in whole or in part, at any time subsequent to
such termination of employment or service and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
vesting or other limitation on exercise imposed pursuant to Section 10(b) above.
(b) CHANGE IN OWNERSHIP OF SUBSIDIARY OR AFFILIATE. If an Optionee
ceases to be an employee or an independent contractor of Republic or any
Subsidiary, spin-off corporation or Affiliate following a ?Change in Ownership?
(as defined below)(whether because of the termination of employment or service
of the Optionee, because the corporation or other entity by which the Optionee
was employed or for which the Optionee was providing services as an independent
contractor, ceases to be a Subsidiary of Affiliate or otherwise) then such
options shall continue to vest according to the vesting schedule unless the
Board determines otherwise. A "Change in Ownership" shall be deemed to have
occurred with respect to an Optionee if (i) as a result of a merger,
consolidation, reorganization, business combination, sale, exchange or other
disposition of Voting Securities (as defined in Section 4(a)) or other
transaction, the corporation or other entity by which the Optionee is employed
or for which the Optionee is providing services as an independent contractor
ceases to be a Subsidiary or Affiliate of Republic and, immediately after such
transaction, the persons who were stockholders of Republic immediately before
such transaction (the "Republic Stockholders") do not own at least a majority of
the Voting Securities of such corporation or other entity or (ii) there is a
sale or other disposition of all or substantially all of the assets of the trade
or business by which the Optionee is employed or for which the Optionee is
providing services as an independent contractor and, immediately after such
transaction, Republic or the Republic Stockholders do not own at least a
majority of the Voting Securities of a corporation or other entity that acquires
such assets and engages in such trade or business.
(c) Whether a leave of absence or leave on military or government
service shall constitute a termination of employment of service for purposes of
the Plan shall be determined by the Board, which determination shall be final
and conclusive. For purposes of the Plan, a termination of employment or service
with Republic, a Subsidiary, a spin-off corporation or Affiliate shall not be
deemed to occur if the Optionee is immediately thereafter employed by or
otherwise providing services to Republic, any Subsidiary, any spin-off
corporation or Affiliate.
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13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) DEATH. If an Optionee dies while in the employ or service of
Republic, a Subsidiary, a spin-off corporation or Affiliate or within the period
following the termination of employment or service during which the Option is
exercisable under Section 13(b) below, all Options held by such Optionee prior
to death shall become immediately vested and exercisable in full and the
executors or administrators or legatees or distributees of such Optionee's
estate shall have the right, at any time within three years after the date of
such Optionee's death and prior to termination of the Option pursuant to Section
10(a) above, to exercise any Option held by such Optionee at the date of such
Optionee's death; PROVIDED, HOWEVER, that the Board may provide, in its
discretion, that following the death of an Optionee, the executors or
administrators or legatees or distributees of such Optionee's estate may
exercise an Option, in whole or in part, at any time subsequent to such
Optionee's death and prior to termination of the Option pursuant to Section
10(a) above, either subject to or without regard to any vesting or other
limitation on exercise imposed pursuant to Section 10(b) above.
(b) DISABILITY. If an Optionee terminates employment or service with
Republic, a Subsidiary, a spin-off corporation or Affiliate by reason of the
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee, then all Options held by such Optionee shall become
immediately exercisable in full and the Optionee shall have the right, at any
time within three years after such termination of employment or service and
prior to termination of the Option pursuant to Section 10(a) above, to exercise,
in whole or in part, any Option held by such Optionee at the date of such
termination of employment or service; PROVIDED, HOWEVER,that the Board may
provide, in its discretion, that an Optionee may, in the event of the
termination of employment or service of the Optionee with Republic, a
Subsidiary, a spin-off corporation or Affiliate by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option in whole or in part, at any time subsequent to such
termination of employment or service and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
vesting or other limitation on exercise imposed pursuant to Section 10(b) above.
Whether a termination of employment or service is to be considered by reason of
"permanent and total disability" for purposes of this Plan shall be determined
by the Board, which determination shall be final and conclusive.
14. USE OF PROCEEDS
The proceeds received by Republic from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of Republic.
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15. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. Republic shall not be required to sell or issue
any shares of Stock under any Option if the sale or issuance of such shares
would constitute a violation by the individual exercising the Option or Republic
of any provisions of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. Any determination in this connection by the Board shall be final,
binding, and conclusive. Republic shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority. As to any jurisdiction that expressly imposes the requirement that an
Option shall not be exercisable unless and until the shares of Stock covered by
such Option are registered or are subject to an available exemption from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
(b) COMPLIANCE WITH RULE 16b-3. The intent of this Plan is to qualify
for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent
any provision of the Plan does not comply with the requirements of Rule 16b-3,
it shall be deemed inoperative to the extent permitted by law and deemed
advisable by the Board and shall not affect the validity of the Plan. In the
event Rule 16b-3 is revised or replaced, the Board, or the Committee acting on
behalf of the Board, may exercise discretion to modify this Plan in any respect
necessary to satisfy the requirements of the revised exemption or its
replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; PROVIDED, HOWEVER, that no amendment by the Board shall, without
approval by a majority of the votes present and entitled to vote at a duly held
meeting of the stockholders of Republic at which a quorum representing a
majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the amendment, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and Bylaws of
Republic, change the requirements as to eligibility to receive Options that are
intended to qualify as Incentive Stock Options, increase the maximum number of
shares of Stock in the aggregate that may be sold pursuant to Options that are
intended to qualify as Incentive Stock Options granted under the Plan (except as
permitted under Section 17 hereof) or modify the Plan so that Options granted
under the Plan could not satisfy the applicable requirements of Code ?162(m).
Except as permitted under Section 17 hereof, no amendment, suspension or
termination of the Plan shall, without the consent of the holder of the Option,
alter or impair rights or obligations under any Option theretofore granted under
the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) ADJUSTMENT FOR CORPORATE TRANSACTIONS. The Board may determine that
a corporate transaction has affected the price of the Stock such than an
adjustment or adjustments to outstanding awards are required to preserve (or
prevent enlargement of) the benefits or potential benefits intended at time of
grant. For this purpose a corporate transaction may include, but is not limited
to, any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares of Stock, or other similar occurrence. In the
event of such a corporate transaction, the Board may, in such manner as the
Board deems equitable, adjust (i) the number and kind shares of Stock which may
be delivered under the Plan pursuant to Section 3; (ii) the number and kind of
shares of Stock subject to outstanding awards; and (iii) the exercise price of
outstanding stock options.
8
<PAGE> 9
(b) DISSOLUTION OR LIQUIDATION; REORGANIZATION IN WHICH REPUBLIC IS NOT
THE SURVIVING CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution or
liquidation of Republic the Plan and all Options outstanding hereunder shall
terminate. In the event of any termination of the Plan under this Section 17(b),
each individual holding an Option shall have the right, immediately prior to the
occurrence of such termination and during such reasonable period as the Board in
its sole discretion shall determine and designate, to exercise such Option in
whole or in part, whether or not such Option was otherwise exercisable at the
time such termination occurs and without regard to any vesting or other
limitation on exercise imposed pursuant to Section 10(b) above. In connection
with a merger, consolidation, reorganization or other business combination of
Republic with one or more other entities in which Republic is not the surviving
entity, or upon a sale of all or substantially all of the assets of Republic to
another entity, or upon any transaction (including, without limitation, a merger
or reorganization in which Republic is the surviving corporation) that results
in any person or entity (or persons or entities acting as a group or otherwise
in concert) owning more than 50 percent of the combined voting power of all
classes of stock of Republic, Republic and the acquiring or surviving entity
shall provide for the continuation of the Plan and the assumption of the Options
theretofore granted, or for the substitution for such Options of new options
covering the stock of a successor entity, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares and exercise
prices. The Board shall send prior written notice of the occurrence of an event
described in this Section 17(b) to all individuals who hold Options not later
than the time at which Republic gives notice to its stockholders that such event
is proposed.
(c) NO LIMITATIONS ON CORPORATION. The grant of an Option pursuant to
the Plan shall not affect or limit in any way the right or power of Republic to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve or liquidate, or to
sell or transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of Republic, any Subsidiary, any
spin-off corporation or Affiliate, or to interfere in any way with the right and
authority of Republic, any Subsidiary, any spin-off corporation or Affiliate
either to increase or decrease the compensation of any individual at any time,
or to terminate any employment or other relationship between any individual and
Republic, any Subsidiary, any spin-off corporation or Affiliate.
19. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of Republic for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
9
<PAGE> 10
This Plan was duly adopted and approved by the Board of Directors of
Republic effective as of the 3rd day of February, 1998, subject to approval and
adoption by the stockholders of Republic.
/s/ James O. Cole
--------------------------------
Secretary of Republic
This Plan was duly approved and adopted by the stockholders of Republic
at a meeting held the 20th day of May, 1998.
/s/ James O. Cole
--------------------------------
Secretary of Republic
This Plan was duly amended by the Board of Directors of Republic
effective as of the 2nd day of November, 1998.
/s/ James O. Cole
--------------------------------
Secretary of Republic
This Plan was duly amended by the Board of Directors of Republic
effective as of the 6th day of January, 1999.
/s/ James O. Cole
--------------------------------
Secretary of Republic
10
<PAGE> 1
[Certain portions of this Exhibit have been omitted pursuant to a request for
confidential treatment as indicated by an * and separately filed with the
Commission]
GENERAL MOTORS
NAO FLEET OPERATIONS
December 16, 1998
Mr. Barry Benoit
Vice President--Fleet Operations
Automotive Rental Group
Republic Industries, Inc.
110 S.E. 6th Street
Ft. Lauderdale, FL 33301
Dear Mr. Benoit:
This letter will confirm the agreement ("Agreement") reached between National
Car Rental System, Inc. ("National") and General Motors ("GM") regarding
National's purchase or lease of GM vehicles for model year 1999. The details of
the Agreement are as follows:
1999 MODEL YEAR
- ---------------
1. National will purchase or lease from GM dealers of their choice a *
1999 model GM vehicles under the terms and conditions of GM's 1999 Model Year
Daily Rental Purchase Program (refer Attachment 1). National has agreed to
purchase these GM vehicles in a mix which includes a considerable number of GM's
higher priced models and which represents a higher percentage of these units
than National otherwise would purchase. The agreed mix of units is as follows:
Cavalier * DeVille *
Sunfire * Camaro *
Grand Am * Firebird *
Alero * Venture *
Malibu * Trans Sport *
Cutlass * Silhouette *
Century * Astro van *
Lumina * Safari van *
Monte Carlo * Blazer *
Grand Prix * Jimmy *
Regal * Bravada *
Intrigue * Full Size Van *
Bonneville * C/K Truck *
LeSabre * Yukon *
Eighty Eight * Suburban *
Total Units *
2. a. National agrees*.
b. *.
<PAGE> 2
Page 2
3. GM agrees to offer National the availability of the YT1/YT2 short term
programs for vehicles described in Paragraph 1. Refer to ATTACHMENT 4
AND 5 for program parameters.
4. National agrees that in all advertising and promotional materials
which National undertakes for the 1999 Model Year (September 1, 1998
through August 31, 1999), National will feature only General Motors
products where any vehicle is featured or promoted. During the term of
this Agreement, National agrees to allow such space and include such
tag lines as is in accordance with the customer of the trade industry.
5. In exchange for this Agreement to purchase, promote and service the
number of 1999 models and in a vehicle mix satisfactory to GM, as
described in Paragraph 1, GM will provide National with * in addition
to any incentives due under the terms and conditions of GM's 1999 Model
Year Daily Rental Purchase Program.
6. The * 25th day of the month following vehicle delivery and receipt of
a diskette/electronic media transmission by GM provided GM receives
National's diskette/electronic media transmission by the last business
day of the month. A diskette/electronic media transmission received
after the last business day of the month * the 25th of the following
month. This diskette/electronic media transmission must include VIN
numbers on the portion of the * in the preceding month and not covered
*. ATTACHMENT 2 details data transmission and record format
requirements and should be used when reporting vehicle acquisitions.
The report of vehicle acquisitions should be transmitted by EDS Elite
to the GM Auction Sales and Remarketing Department or diskettes sent to
the following address:
Attention: J.P. Larson, Director - Finance
NAO Fleet Operations
Renaissance Center
Tower 100, 11th Floor
MC 482-A11-B96
Detroit, Michigan 48265-1000
In the event that National does not purchase or lease the agreed number
of vehicles at the agreed mix, * National as described in Paragraph 6
by General Motors * to GM on demand subject to Paragraph 7.
7. All volume and mix requirements are subject to reasonable minor
adjustments based upon mutual agreement between the parties when the
exact circumstances faced by both parties are known at the time of
vehicle delivery. It is understood that these adjustments may require
National to purchase a comparably priced mix of product. In the event
that either party cannot fulfill any terms of this Agreement due to
events beyond its control, such as acts of God, labor disputes, and
severe economic downturns, the parties will enter negotiations with the
intent of allowing both to continue business without substantial
penalty.
<PAGE> 3
Page 3
8. National agrees to provide to GM, at the beginning of each month, a
schedule of anticipated purchases of 1999 model year vehicles (model
year fleet plan) by division and car line, by month and model year.
National also agrees to provide to GM, at the end of each month, a
schedule of 1998 and 1999 model vehicle returns by vehicle size (e.g.,
economy, midsize, etc.) by month of the 1998 and 1999 calendar years. *
9. National agrees to retain any documents or records relevant to
vehicles purchased under this Agreement or any GM program and/or * this
Agreement or any other GM program for two years after the close of the
program. National agrees to permit any designated representative of GM
to examine, audit and take copies of any accounts and records National
is to maintain under this Agreement. National agrees to make such
accounts and records readily available at its facilities during regular
business hours. GM agrees to furnish National with a list of any
reproduced records.
10. This agreement is confidential and proprietary information of General
Motors and is intended for the sole use by GM and National. Failure to
maintain confidentiality of the terms of this agreement may result in
loss of Fleet Authorization privileges with regard to future purchases.
On behalf of the General Motors' Car and Truck Divisions, I would like to
express my appreciation for your business and hope this Agreement will continue
to strengthen our business relationship.
Please return a copy of this letter acknowledging your agreement to the above.
Very truly yours,
/s/ Richard M. Lee
Richard M. Lee
Executive Director
Fleet Operations
/s/ Barry Benoit
- -----------------------------
Acknowledged and Agreed
Republic Industries, Inc.
Date: December 18, 1998
------------------------
<PAGE> 1
[Certain portions of this Exhibit have been omitted pursuant to a request for
confidential treatment as indicated by an * and separately filed with the
Commission]
General Motors Corporation
[LOGO]
NAO Fleet Operations
December 16, 1998
Mr. Barry Benoit
Vice President - Fleet Operations
Automotive Rental Group
Republic Industries, Inc.
110 S. E. 6th Street
Ft. Lauderdale, FL 33301
Dear Mr. Benoit:
This letter will confirm the agreement ("Agreement") reached between Alamo Rent
A Car, Inc. ("Alamo") and General Motors ("GM") regarding Alamo's purchase or
lease of GM vehicles for model year 1999 through model year 2002.
The details of this Agreement are as follows:
1999 MODEL YEAR
- ---------------
1. Alamo will purchase or lease from GM dealers of their choice a * 1999 model
GM vehicles under the terms and conditions of GM's 1999 Model Year Daily Rental
Purchase Program (refer ATTACHMENT 1). Alamo has agreed to purchase these GM
vehicles in a mix which includes a considerable number of GM's higher priced
models and which represents a higher percentage of these units than Alamo
otherwise would purchase. The agreed mix of units is as follows:
Metro * Eighty Eight *
Cavalier * Park Avenue *
Cavalier Cvt. * DeVille *
Sunfire * Camaro *
Sunfire Cvt. * Venture *
Grand Am * Trans Sport *
Alero * Silhouette *
Malibu * Astro van *
Cutlass * Safari van *
Century * Blazer *
Lumina * Jimmy *
Monte Carlo * Bravada *
Grand Prix * Full Size Van *
Bonneville * Tahoe/Yukon *
LeSabre * Suburban *
Intrigue * Total Units *
General Motors Corporation
[LOGO]
RENAISSANCE CENTER TOWER 100, 11TH FLOOR 313-667-9452
MAIL CODE 482-A11-B96 DETROIT, MI 48265-1000 FAX 313-667-9827
<PAGE> 2
Page 2
2. a. Alamo agrees * the following 1999MY units from the 1999 CY into the
1998 CY: *
b. *
3. GM agrees to offer Alamo the availability of the YT1/YT2 short term
programs for vehicles described in Paragraph 1. Refer to ATTACHMENT 4
AND 5 for program parameters.
4. Alamo agrees that in all advertising and promotional materials which
Alamo undertakes for the 1999 Model Year (September 1, 1998 through
August 31, 1999), Alamo will feature only General Motors products where
any vehicle is featured or promoted. During the term of this Agreement,
Alamo agrees to allow such space and include such tag lines as is in
accordance with the customer of the trade and industry.
5. In exchange for this Agreement to purchase, promote and service the
number of 1999 models and in a vehicle mix satisfactory to GM, as
described in Paragraph 1, GM will provide Alamo * in addition to any
incentives due under the terms and conditions of GM's 1999 Model Year
Daily Rental Purchase Program.
6. The * by the 25th day of the month following vehicle delivery and
receipt of a diskette/electronic media transmission by GM provided GM
receives Alamo's diskette/electronic media transmission by the last
business day of the month. A diskette/electronic media transmission
received after the last business day of the month * by the 25th of the
following month. This diskette/electronic media transmission must
include VIN numbers on the portion of * in the preceding month and not
covered in *. ATTACHMENT 2 details data transmission and record format
requirements and should be used when reporting vehicle acquisitions.
The report of vehicle acquisitions should be transmitted by EDS Elite
to the GM Auction Sales and Remarketing Department or diskettes sent to
the following address:
Attention: J. P. Larson, Director - Finance
NAO Fleet Operations
Renaissance Center
Tower 100, 11th floor
MC 482-A11-B96
Detroit, Michigan 48265-1000
In the event that Alamo does not purchase or lease the agreed number of
vehicles at the agreed mix, * Alamo as described in Paragraph 6 by
General Motors * GM on demand subject to Paragraph 8.
7. GM agrees to make the *, as described in Paragraph 5, available to
Alamo through GM's *; otherwise GM will mail * to Alamo on the due date
stated in Paragraph 6. The provisions of GM's * to be available to
Alamo three (3) calendar days from the time period specified in
Paragraph 6. * For example, if * is Wednesday, the 25th of the month, *
would normally be scheduled for Saturday, the 28th. *
<PAGE> 3
Page 3
8. All volume and mix requirements are subject to reasonable minor
adjustments based upon mutual agreement between the parties when the
exact circumstances faced by both parties are known at the time of
vehicle delivery. It is understood that these adjustments may require
Alamo to purchase a comparably priced mix of product. In the event that
either party cannot fulfill any terms of this Agreement due to events
beyond its control, such as acts of God, labor disputes, and severe
economic downturns, the parties will enter negotiations with the intent
of allowing both to continue business without substantial penalty.
9. Alamo agrees to provide to GM, at the beginning of each month, a
schedule of anticipated purchases of 1999 model year vehicles (model
year fleet plan) by division and car line, by month and model year.
Alamo also agrees to provide to GM, at the end of each month, a
schedule of 1998 and 1999 model vehicle returns by vehicle size (e.g.,
economy, midsize, etc.) by month of the 1998 and 1999 calendar years.
*
10. Alamo agrees to retain any documents or records relevant to vehicles
purchased under this Agreement or any GM program and/or claims * or any
other GM program for two years after the close of the program. Alamo
agrees to permit any designated representative of GM to examine, audit
and take copies of any accounts and records Alamo is to maintain under
this Agreement. Alamo agrees to make such accounts and records readily
available at its facilities during regular business hours. GM agrees to
furnish Alamo with a list of any reproduced records.
GM agrees to assist Alamo in vehicle financing by providing the following at the
request of Alamo:
a. *
b. GM agrees to execute an amendment to the General Motors Corporation
Repurchase Agreement dated August 22, 1994, as amended from time to
time, in order to clarify that GM's obligations thereunder will be
applicable to 1999 through 2000 model year vehicles. The terms of
the GM Daily Rental Purchase Guidelines and the GM National Fleet
Purchase Program Guidelines for the 1999 model year will be
incorporated into the amendment.
MODEL YEARS 1999 THROUGH 2002
This letter will also confirm the Agreement reached between Alamo and GM
regarding Alamo's purchase or lease GM vehicles for model year 1999 through
model year 2002. The details of this Agreement are as follows:
11. GM agrees to extend the terms and conditions of GM's 1999 Model Year
Daily Rental Fleet Program (refer ATTACHMENT 1) for model year 1999
through model year 2000.
<PAGE> 4
Page 4
GM reserves the right to place "new" models (as defined by GM) on any
of the four (4) 1998 MY repurchase percentage tiers or create a new
tier. Additionally, GM also reserves the right to shift vehicles only
to higher percentage tiers, (e.g. shift from repurchase tier 1 to tier
2, thus lowering Alamo's vehicle depreciation cost).
Notwithstanding the above items, should GM alter the terms and
conditions of its vehicle purchase program, then Alamo would be granted
the option of choosing which program is more beneficial to its
business.
12. GM agrees to commit to Alamo the availability of the 100% Vehicle
Purchase Program through model year 2002.
13. GM agrees that Alamo may purchase or lease from GM dealers of its
choice a * during each model year of this Agreement. GM and Alamo agree
that the vehicle mix and production timing provided in future model
years must be mutually satisfactory to both parties.
14. Alamo agrees to maintain a minimum GM share penetration of 51%. The 51%
GM share penetration can be measured as a percent of acquisitions or as
a percent of fleet months. Further, during the term of this Agreement,
Alamo agrees that all advertising and promotional materials which Alamo
undertakes for future model years, Alamo will feature only General
Motors products where any vehicle is featured or promoted. Accordingly,
Alamo agrees to allow such space and include such tag lines as in
accordance with the custom of the trade and industry. In exchange, GM
will provide Alamo with * during each year of this Agreement. These
sums are in addition to any Incentives due under the terms and
conditions of GM's Model Year Daily Rental Fleet Programs, if any are
available.
15. This agreement is confidential and proprietary of General Motors and is
intended for the sole use by GM and Alamo. Failure to maintain
confidentiality of the terms of this a agreement may result in loss of
Fleet Authorization privileges with regard to future purchases.
<PAGE> 5
Page 5
On behalf of the General Motors' Car and Truck Divisions, I would like to
express my appreciation for your business and hope this Agreement will continue
to strengthen our business relationship.
Very truly yours,
/s/ Richard M. Lee
---------------------------------
R. M. Lee
Executive Director
Fleet Operations
/s/ Barry Benoit
- --------------------------------
Acknowledged and Agreed
Republic Industries, Inc.
Date: December 18, 1998
-------------------
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
Set forth below are certain subsidiaries of the continuing operations
of Republic Industries, Inc. Republic Services, Inc., 63.9 percent owned by
Republic Industries, Inc., is a public company traded on the New York Stock
Exchange. Republic Services, Inc. and its consolidated subsidiaries are not
presented.
<TABLE>
<CAPTION>
Legal Entity State of Organization
- ------------ ---------------------
<S> <C>
7 Rod Real Estate North, A Limited Liability Company WY
7 Rod Real Estate South, A Limited Liability Company WY
A&R Insurance Enterprises, Inc. FL
Allstate Rent-A-Car, Inc. NV
Anderson Dealership Group CA
Anderson Dealership Realty Corp. DE
ANFS Texas Insurance Services Corp. TX
Auto By Internet, Inc. FL
Auto Holding Corp. DE
Automart Superstore, Inc. AZ
Autonation DS Investments, Inc. TX
Autonation Financial Services Corp. DE
Autonation Floor Plan Funding Corp. DE
Autonation GM Holding Corporation DE
Autonation Holding Corp. DE
Autonation Incorporated FL
Autonation Realty Corporation DE
Autonation Receivables Funding Corp. DE
B-S-P Automotive, Inc. TX
Bankston Auto, Inc. TX
Batfish LLC CO
BBCSS, Inc. AZ
Bengal Motors, Inc. FL
Buick Mart Limited Partnership GA
C. Garrett, Inc. CO
Central Motors, Inc. FL
Champion Planning, Inc. TX
Charlie Thomas Auto Sales, Inc. TX
Charlie Thomas Courtesy Leasing, Inc. TX
Chesrown Automotive Group, Inc. CO
Chesrown Collision Center, Inc. CO
Colonial Imports, Inc. FL
Consumer Car Care Corporation TN
Courtesy Wholesale Corporation FL
Credit Management Acceptance Corporation FL
Dealership Accounting Services, Inc. FL
Dealership Realty Corporation TX
Desert Buick-GMC Management Group, Inc. NV
Ditschman/Flemington Property Rentals, Inc. NJ
Driver's Mart Worldwide, Inc. VA
Ed Mullinax, Inc. DE
Empire Services Agency, Inc. FL
Empire Warranty Corporation FL
Empire Warranty Holding Company FL
EMX Leasing, Inc OH
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Legal Entity State of Organization
- ------------ ---------------------
<S> <C>
Financial Services, Inc. TX
First Team Automotive Corp. DE
First Team Imports, Ltd. FL
First Team Infiniti, Ltd. FL
First Team Management, Inc. FL
First Team Premier, Ltd. FL
Flemington Equities, Inc. NJ
Florida Auto Corp. DE
Ford of Garden Grove Limited Partnership GA
General Providers Reinsurance Company, Ltd. Turks & Caicos Islands
George Sutherlin Chevrolet of Georgia, Inc. GA
Hillard Auto Group, Inc. TX
Irvine Toyota/Nissan/Volvo Limited Partnership GA
J-R Advertising Company CO
Jemautco, Inc. OH
Kelnat Advertising, Ltd. Co. FL
KLJ of Nevada, Inc. NV
Lance Children, Inc. OH
Lexus of Cerritos Limited Partnership GA
LGS Holding Company DE
Libertyville Enterprises, Inc. IL
Lovern, Inc. FL
M.L.F. Insurance Agency OH
Maronie Information Services, LLC DE
Maroone Car and Truck Rental Company FL
Maroone Management Services, Inc FL
Mealey Holdings, Inc. FL
Mechanical Warranty Protection, Inc. FL
Mullinax Insurance Agency OH
Mullinax Management, Inc. DE
Mullinax Used Cars, Inc. OH
Pierce Automotive Corporation AZ
Prime Auto Resources, Inc. CA
Quantum Premium Finance Corporation FL
R. Coop Limited CO
R.L. Buscher II, Inc. CO
R.L. Buscher III, Inc. CO
Real Estate Holdings, Inc. FL
Republic Anderson Investment Group, Inc. CA
Republic DM Property Acquisition Corp. DE
Republic of Rochester, Inc. DE
Republic Resources Company DE
Resources Aviation, Inc. FL
RI Merger Corp. CO
RI Shelf Corp. DE
RI/BBNM Acquisition Corp DE
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Legal Entity State of Organization
- ------------ ---------------------
<S> <C>
RI/BRC Real Estate Corp. CA
RI/CC Acquisition Corp. DE
RI/DM Acquisition Corp. DE
RII Management Company DE
RIVT (a Delaware Business Trust) DE
RIVT I LLC DE
RIVT I LP DE
RIVT II LLC DE
RIVT II LP DE
RIVT Management, Inc. DE
SCM Enterprises, Inc. FL
SCM Realty II, Inc. FL
SCM Realty, Inc. FL
Seven Rod Life Insurance Company AZ
SGSCP Limited Partnership FL
Six Jays LLC CO
Southeast Lease Car, Inc. FL
Steve Moore's Buy-Right Auto Center, Inc. FL
T-Five, Inc. MI
Tallahassee Automotive Group, Inc. FL
Tennco Life Insurance Company AZ
The Consulting Source, Inc. FL
The Pierce Corporation II, Inc. AZ
Total Care, Inc. CO
Toyota Cerritos Limited Partnership GA
W.O. Bankston Enterprises, Inc. DE
Wallace Imports, Inc. FL
Webb Automotive Group, Inc. CA
Woody Capital Investment Company II CO
Woody Capital Investment Company III CO
World Wide Warranty Co. FL
BOSC Automotive Realty, Inc. DE
RI/LLC Acquisition Corp. CO
RI/LLC-2 Acquisition Corp. CO
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
NAME OF CORPORATION STATE OF INCORPORATION d/b/a NAME
- ------------------- ---------------------- ----------
<S> <C> <C>
AFL Fleet Funding, Inc. NY
Alamo Financing LLC DE Alamo Financing of Delaware LLC
Alamo Financing L.P. DE Alamo Financing Limited Partnership
Alamo Funding, LP NY
Alamo Fuhrpark Leasing GmbH Germany (LLC)
Alamo International Sales, Inc. FL
Alamo Rent-A-Car, Inc. FL
Alamo Rent-A-Car (Canada), Inc. FL
Alamo Rent A Car Locadora de Automovels, Ltda. Brazil
Alamo Rent-A-Car (UK) Limited (LLC) UK
Alamo Rent-A-Car (Vienna) GmbH Austria (LLC)
Anastasia Advertising Art, Inc. FL
ARG Funding Corp. DE
ARC-TM, Inc. DE
ARI Fleet Services, Inc. MO
Atrium Restaurants, Inc. FL
AutoNation Insurance Company, Inc. VT
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
NAME OF CORPORATION STATE OF INCORPORATION d/b/a NAME
- ------------------- ---------------------- ----------
<S> <C> <C>
Auto Rental, Inc. MO
CC-Autohansa GmbH & CO.KG Germany (LLC)
Car Rental Claims, Inc. DE
CarTemps Financing L.P. DE CarTemps Financing Limited Partnership
CarTemps Financing LLC DE CarTemps Financing LLC
CarTemps Financing of Delaware LLC
Claims Management Center, Inc. FL
Design-Graphic, Inc. FL
Golden Communications, Inc. MI
Guy Salmon USA, Inc. FL
Jerry's Outdoor Advertising, Inc. FL
Jiffy Billboards, Inc. FL
Maxmedia, Inc. FL
NCR Affiliate Servicer, Inc. DE
NCRS Insurance Agency, Inc. DE
NCRS NR, Inc. DE
National Car Rental Asia-Pacific Pty. Limited Australia
National Car Rental (Australia) Pty Ltd (Joint Venture) Australian
National Car Rental de Brasil Empreedimentos Ltda. Brazil
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
NAME OF CORPORATION STATE OF INCORPORATION d/b/a NAME
- ------------------- ---------------------- ----------
<S> <C> <C>
National Car Rental System (New Zealand) Limited New Zealand
National Car Rental (Germany) GmbH Germany
National Car Rental Hong Kong Limited Hong Kong
National Car Rental Financing Corporation DE NCRS Financing Corporation
National Car Rental Financing Limited Partnership DE NCRS Financing Limited Partnership
National Car Rental Financing Limited
Partnership
National Car Rental Holdings (Australia) Pty Ltd. New South Wales
National Car Rental Licensing, Inc. DE NCRS Arizona Licensing, Inc.
National Car Rental System, Inc. DE
National Tilden Operations, Inc. Ontario
National Tilden System, Inc. Ontario
Outdoor Communication, Inc. FL
Post Retirement Liability Management, Inc. FL
RRM Corporation DE
Rental Liability Management, Inc. FL
Rental Liability Management Holdings, LLC DE
Republic Corporate Management Co. FL
Republic Fiduciary, Inc. DE
Republic Guy Salmon Partner, Inc. FL
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
NAME OF CORPORATION STATE OF INCORPORATION d/b/a NAME
- ------------------- ---------------------- ----------
<S> <C> <C>
Republic Industries Automotive Group (Belgium), Inc. FL
Republic Industries Automotive Rental Group (Holland) B.V. Netherlands (LLC)
Republic Industries Automotive Rental Group Switzerland (LLC)
(Switzerland) AG
Republic Industries Autovermietung GmbH Germany (LLC)
Republic Industries Europe UK UK (UKC)
Republic Industries Funding Corp. DE
Republic Industries (German Holding)GmbH Germany (LLC)
Republic Industries, Inc. DE Republic Tower
Republic Industries (UK) PLC UK
Republic Media, Inc. FL
Republic Media Companies Holding Co. DE
Republic Risk Management Services, Inc. FL
R.I./Triangle, Ltd. Bermuda
SRAC-TM, Inc. FL
Snappy Fleet Finance Corporation DE
Snappy Funding Corporation DE
Snappy Funding Limited Partnership DE
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
NAME OF CORPORATION STATE OF INCORPORATION d/b/a NAME
- ------------------- ---------------------- ----------
<S> <C> <C>
Spitfire Properties, Inc. FL
Spirit Leasing, Inc. OH
Spirit Rent-A-Car, Inc. OH CarTemps USA
Tower Food & Beverage, Inc. FL
Triangle Corporation DE
Tripperoo Wings, Inc. FL
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Legal Entity d/b/a Name State of Organization
- ------------ ---------- ---------------------
<S> <C> <C>
Abraham Chevrolet-Miami, Inc. Abraham Chevrolet (Miami) DE
Abraham Chevrolet-Tampa, Inc. Abraham Chevrolet (Tampa) DE
Al Maroone Ford, Inc. Al Maroone Ford NY
Albert Berry Motors, Inc. Barney Garver VW/Mazda/Land Rover TX
American Way Motors, Inc. Courtesy Honda TN
Anderson Cadillac, Inc. Anderson Cadillac - Oldsmobile CA
Anderson Chevrolet Anderson Chevrolet - Menlo Park CA
Anderson Chevrolet - Los Gatos, Inc. Anderson Chevrolet - Los Gatos CA
Anderson Cupertino, Inc. Anderson Chevrolet - Cupertino CA
Anderson Chrysler-Plymouth CA
Anderson Isuzu Anderson Honda - Isuzu CA
Appleway Chevrolet, Inc. Appleway Toyota WA
Appleway Mitsubishi WA
Appleway Chevrolet - Geo WA
Lexus of Spokane WA
Appleway Mazda-Subaru-VW-Audi WA
Autonation USA Corporation
Autonation USA of Virginia Beach, LLC AutoNation USA of Virginia Beach DE
Bankston Ford of Frisco, Ltd. Co Bankston Ford of Frisco TX
Bankston Nissan in Irving, Inc. Bankston Nissan-Irving TX
Bankston Nissan Lewisville, Inc. Bankston Nissan Lewisville DE
Batfish Auto, LLC John Elway Nissan South CO
Beach City Chevrolet Company, Inc. Beach City Chevrolet CA
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Beacon Motors, Inc. Chevrolet Add Point (De La Cruz) FL
Bell Dodge, LLC Bell Dodge DE
Bengal Motor Company, Ltd Miami Honda FL
BH Cars, Inc. Beverly Hills Ford CA
Bill Ayares Chevrolet, Inc. Fox Chevrolet of Laurel MD
Bill Wallace Enterprises, Inc. Wallace Stuart Mitsubishi FL
Bledsoe Dodge, Inc. Bledsoe Dodge (Marvin) DE
Bledsoe Dodge (Arlington) DE
Bledsoe Dodge (Dallas) DE
Bob Townsend Ford, Inc. Bob Townsend Ford DE
Brown & Brown Chevrolet, Inc. Brown & Brown Chevrolet AZ
Brown & Brown Nissan Mesa, LLC Brown & Brown Nissan Mesa AZ
Brown & Brown Nissan, Inc. Brown & Brown Nissan AZ
Buick Mart, Inc. Buick Mart CA
Bull Motors, Inc. Sunshine Ford FL
Carlisle Motors, Inc. Carlisle Ford FL
Carlisle Lincoln-Mercury FL
Carwell Corporation South Bay Autohaus (Mercedes) CA
Land Rover South Bay CA
Central Motor Company, Ltd Central Hyundai FL
Central Kia FL
Cerritos Body Works, Inc. Irvine Volvo CA
Cerritos Imports, Inc. Volvo of Cerritos DE
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C>
Champion Chevrolet, Inc. Champion Chevrolet/Oldsmobile DE
Champion Ford, Inc. Champion Ford TX
Charlie Hillard, Inc. Charlie Hillard Ford TX
Charlie Hillard Mazda Buick TX
Charlie Thomas Chevrolet, Inc. Charlie Thomas Chevrolet/Mitsubishi TX
Charlie Thomas Chrysler-Plymouth, Inc. Charlie Thomas Chrysler-Plymouth-
Jeep-Eagle-Hyundai-Isuzu TX
Charlie Thomas Ford, Inc. Charlie Thomas Ford TX
Charlie Thomas' Courtesy Ford, Inc. Padre Ford/Mazda TX
Chesrown Auto, Inc. John Elway Ford Boulder CO
Chesrown Chevrolet, Inc. John Elway Chevrolet CO
Chesrown Ford, Inc. John Elway Ford West CO
Chevrolet World, Inc. World Chevrolet FL
Chuck Clancy Ford of Marietta, Inc. Marietta Ford (fka Chuck Clancy Ford of Marietta) GA
Circle Buick/GMC, Inc. Flemington Circle Chevrolet Buick GMC Isuzu NJ
Coastal Cadillac, Inc. Coastal Cadillac FL
Colonial Imports, Ltd. Don Mealey Mitsubishi FL
Cook-Whitehead Ford, Inc. Cook-Whitehead Ford FL
Costa Mesa Cars, Inc. Costa Mesa Honda CA
Courtesy Auto Group, Inc. Courtesy Magic Isuzu/Suzuki/Kia FL
Courtesy Pontiac/GMC FL
Courtesy Acura/Suzuki FL
Courtesy Buick FL
Covington Pike Motors, Inc. Covington Pike Honda TN
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C>
CT Intercontinental, Inc. Charlie Thomas Intercontinental BMW TX
CT Motors, Inc. Charlie Thomas Acura TX
D/L Motor Company Lokey Honda/Isuzu FL
Deal Dodge of Des Plains, Inc. Dodge World of Des Plains IL
Desert Buick-GMC Trucks, LLC Desert Buick GMC Trucks DE
Desert Dodge, Inc. Desert Dodge NV
Desert GMC, LLC Desert Pontiac GMC Buick DE
Desert GMC-East, Inc. Desert GMC East Volvo Truck NV
Desert Lincoln-Mercury, Inc. Desert Lincoln-Mercury NV
Ditschman/Flemington Ford-Lincoln-Mercury, Inc. Ditschman/Flemington Ford Lincoln-Mercury NJ
Ditschman/Flemington Pontiac, Inc. Flemington Pontiac/Subaru NJ
Dobbs Brothers Buick-Pontiac, Inc. Dobbs Bros. Buick (franchise sold??) TN
Dobbs Bros. Mazda TN
Dobbs Bros. Mitsubishi TN
Dobbs Bros. Pontiac-GMC TN
Dobbs Ford, Inc. Dobbs Ford FL
Dobbs Mobile Bay, Inc. Treadwell Ford AL
Dobbs Motors of Arizona, Inc. Dobbs Honda AZ
Don Mealey Chevrolet, Inc. Don Mealey Chevrolet-Oldsmobile FL
Don Mealey Imports, Inc. Don Mealey Acura FL
Don Mealey Infiniti, Inc. Don Mealey Infiniti FL
Don Mealey Oldsmobile, Inc. Don Mealey Chevrolet/Oldsmobile FL
Don-A-Vee Jeep Eagle, Inc. Don-A-Vee Jeep Eagle Chrysler Plymouth Kia CA
Don-A-Vee Jeep/Eagle-Kia
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C>
Eastgate Ford, Inc. Eastgate Ford OH
Ed Mullinax Ford, Inc. Ed Mullinax Ford DE
El Monte Imports, Inc. Gunderson Nissan DE
El Monte Motors, Inc. Gunderson Chevrolet DE
Elmhurst Auto Mall, Inc. Elmhurst Kia IL
Elmhurst Dodge, Inc. Elmhurst Dodge IL
Emich Chrysler Plymouth, Inc. John Elway Chrysler-Plymouth on Broadway CO
Emich Dodge, Inc. John Elway Dodge on Broadway CO
Emich Lincoln-Mercury, Inc. John Elway Lincoln-Mercury in Aurora DE
Emich Oldsmobile, Inc. John Elway Lamborghini CO
John Elway Pontiac Buick GMC South CO
John Elway Pontiac Buick GMC West
(Oldsmobile will be dropped) CO
John Elway Subaru South CO
John Elway Chrysler-Plymouth Jeep West CO
Emich Subaru West, Inc. John Elway Subaru West CO
First Team Cadillac-Oldsmobile, Ltd Don Mealey Cadillac-Oldsmobile FL
First Team Ford of Manatee, Ltd Bill Graham Ford FL
First Team Ford, Ltd Don Mealey Seminole Ford FL
First Team Jeep Eagle, Chrysler Plymouth, Ltd. Royal Jeep Eagle Chrysler Plymouth FL
Fit Kit, Inc. Lew Webb's Toyota of Buena Park CA
Flemington Chrysler-Plymouth-Dodge-
Jeep-Eagle, Inc. Flemington Chrysler Plymouth Dodge Jeep Eagle NJ
Flemington Infiniti, Inc. Flemington Infiniti NJ
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
Flemington Land Rover, Inc. Land Rover Princeton NJ
Flemington Nissan/BMW, Inc. Flemington Nissan NJ
Flemington Subaru, Inc. Flemington Subaru NJ
Fox Buick Isuzu, Inc. Fox Buick Pontiac GMC Isuzu MD
Fox Chevrolet, Inc. Fox Chevrolet MD
Fox Hyundai, Inc. Fox Lincoln-Mercury/Fox Kia MD
Fox, Inc. Fox Mitsubishi MD
Ft. Lauderdale Nissan, Inc. L.P. Evans Ft. Lauderdale Nissan FL
G.B. Import Sales & Service, Inc. South Bay Volvo CA
G.F.B. Enterprises, LLC Lexus of Kendall DE
Gene Evans Ford, Inc. Gene Evans Ford DE
George Sutherlin Nissan, Inc George Sutherlin Nissan of Marietta GA
Government Blvd. Motors, Inc. Treadwell Honda AL
Gulf Management, Inc. Lexus of Tampa Bay FL
Lexus of Clearwater FL
Henry Brown Chevrolet, LLC Chevrolet Add Point AZ
Hollywood Imports Limited, Inc. Hollywood Honda FL
Hollywood Kia, Inc. Hollywood Kia FL
Hoover Toyota, Inc. Hoover Toyota AL
House of Imports, Inc. House of Imports (Mercedes) CA
Hub Motor Co. Hub Ford GA
J-R Motors Company Central, LLC John Elway Ford Downtown CO
J-R Motors Company North John Elway Olds Mazda Hyundai North CO
John Elway Honda CO
J-R Motors Company South John Elway Toyota CO
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C>
J-R-M Motors Company Northwest, LLC John Elway Nissan North CO
Jack Sherman Chevrolet, Inc. Jack Sherman Chevrolet Buick Mazda TX
Jim Quinlan Chevrolet Co. Jim Quinlan Chevrolet FL
Jim Quinlan, Ford Lincoln-Mercury, Inc. Jim Quinlan Ford Lincoln-Mercury FL
JJSS, Inc. Flemington Mazda NJ
John M. Lance Ford, Inc. John Lance Ford OH
Kendall Imports, LLC Kendall Toyota DE
Kendall Kia DE
Kenyon Dodge, Inc. Carlisle Dodge (Kenyon) FL
King's Crown Ford, Inc. King's Crown Ford DE
L.P. Evans Motors WPB, Inc. L.P. Evans Motors FL
L.P. Evans Motors, Inc. L.P. Evans Miami Nissan FL
Lew Webb's Ford, Inc. Lew Webb's Ford of Garden Grove CA
Lew Webb's Irvine Nissan, Inc. Lew Webb's Irvine Nissan CA
Lew Webb's Irvine Toyota, Inc. Lew Webb's Irvine Toyota CA
Lou Grubb Chevrolet, LLC Lou Grubb Chevrolet DE
Lou Grubb Chevrolet-Arrowhead, Inc. New Chevrolet Add Point DE
Lou Grubb Ford, LLC Lou Grubb Ford DE
Magic Acquisition Corp. Magic Ford DE
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C>
Manhattan Beach Motors, Inc. Manhattan Toyota CA
Manhattan Motors, Inc. Manhattan Ford CA
Marlin Imports, Inc. Star Motors (Mercedes) FL
Maroone Chevrolet Fort Lauderdale, Inc. Maroone Chevrolet Fort Lauderdale FL
Maroone Chevrolet, Inc. Maroone Chevrolet FL
Maroone Dodge Pompano, Inc. Maroone Dodge Pompano FL
Maroone Dodge, Inc. Maroone Dodge FL
Maroone Ford, Inc. Maroone Ford FL
Maroone Isuzu, Inc. Maroone Isuzu FL
Maroone Jeep Eagle, Inc. Maroone Chrysler Plymouth Jeep Eagle DE
Maroone Oldsmobile II, Inc. Maroone Oldsmobile (Miami) DE
Maroone Oldsmobile, LLC Maroone Oldsmobile DE
Marshall Lincoln-Mercury, Inc. Marshall Lincoln-Mercury Mazda (did not change to Elway) CO
Mike Hall Chevrolet, Inc. Mike Hall Chevrolet DE
Mike Shad Chrysler Plymouth Jeep Eagle, Inc. Mike Shad Chrysler Plymouth Jeep FL
Mike Shad Ford, Inc. Mike Shad Ford FL
Miller-Sutherlin Automotive, Inc. Miller - Sutherlin Che/Pon/Chr-Ply/J-E/Dod AL
Mr. Wheels, Inc. Toyota of Cerritos CA
Mullinax East, Inc. Mullinax Ford East DE
Mullinax Ford North Canton, Inc. Mullinax Ford North Canton OH
Mullinax Ford South, Inc. Mullinax Ford South FL
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C>
Mullinax Lincoln-Mercury, Inc. Mullinax Lincoln-Mercury DE
Mullinax of Mayfield, Inc. Mullinax Jeep Eagle of Mayfield OH
Mullinax Lincoln-Mercury of Mayfield OH
Newport Beach Cars, Inc. Newport Auto Center CA
Northpoint Chevrolet, Inc.
(fka, RI/PCR Acquisition Corp.) Northpoint Chevrolet DE
Northside Nissan, Inc. Northside Nissan SC
Northwest Financial Group, Inc. BMW of Bellevue WA
Orange County Automotive Imports, Inc. Anaheim Mazda Pontiac Buick CA
Orange Park Toyota, LLC Orange Park Toyota DE
Orlando Imports, Inc. Saab of Orlando DE
Peyton Cramer Automotive, Inc. Peyton Cramer Acura/Isuzu CA
Peyton Cramer Ford Peyton Cramer Ford CA
Peyton Cramer Infiniti Peyton Cramer Infiniti CA
Peyton Cramer Jaguar Peyton Cramer Jaguar CA
Peyton Cramer Lincoln-Mercury Peyton Cramer Lincoln-Mercury-VW CA
Pitre Buick-Pontiac-GMC of Scottsdale, Inc. Pitre Buick-Pontiac-GMC of Scottsdale DE
Pitre Chrysler-Plymouth-Jeep of Scottsdale, Inc. Pitre Chrysler-Plymouth-Jeep of Scottsdale DE
Pitre Chrysler-Plymouth-Jeep on Bell, Inc. Pitre Chrysler-Plymouth-Jeep on Bell DE
Pitre Isuzu-Subaru-Hyundai of Scottsdale, Inc. Pitre Isuzu-Subaru-Hyundai of Scottsdale DE
Pitre Isuzu-Subaru-Kia on Bell, Inc. Pitre Isuzu-Subaru-Kia on Bell DE
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C>
Pitre Kia of Scottsdale, Inc. Pitre Kia Scottsdale DE
Port City Imports, Inc. Port City Imports (Honda/Hyundai/Volvo) TX
Port City Pontiac-GMC Trucks, Inc. Port City Pontiac/GMC TX
Princeton's Nassau/Conover Ford
Lincoln-Mercury, Inc. Princeton's Nassau Ford Lincoln Mercury Audi NJ
Prinu, Inc. Princeton Audi DE
Quinlan Motors, Inc. Jim Quinlan Nissan FL
RI/HGMC Acquisition Corp. Hendrix GMC Truck DE
RI/Hollywood Nissan Acquisition Corp. Maroone Nissan DE
RI/PII Acquisition Corp. Northpoint Mitsubishi DE
RI/RMC Acquisition Corp Red McCombs Chevrolet-Austin DE
RI/RMP Acquisition Corp Red McCombs Pontiac/GMC/Hyundai/Jeep DE
RI/RMT Acquisition Corp. Red McCombs Toyota of Austin DE
RI/WFI Acquisition Corporation Woodfield Ford DE
SaBeK, Inc. Flemington Mitsubishi NJ
Sahara Imports, Inc. Las Vegas Honda NV
Saul Chevrolet, Inc. Corona Chevrolet-Oldsmobile CA
Corona Motors (aka Corona Volkswagen, Subaru and Isuzu) CA
SMI Motors, Inc. Costa Mesa Infiniti CA
Infiniti of Santa Monica CA
Infiniti of Beverly Hills CA
Smythe Europen, Inc. Smythe European Mercedes Benz/Volvo CA
SNDK, Inc. Flemington Porsche/Audi/BMW/VW NJ
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C>
Southwest Dodge, Inc. John Elway Dodge Southwest CO
Steeplechase Motor Company Charlie Thomas Mazda/Hyundai TX
Steve Moore Chevrolet Delray, Inc. Steve Moore Chevrolet Delray FL
Steve Moore Chevrolet, Inc. Steve Moore Chevrolet FL
Steve Moore, LLC Steve Moore Chevrolet/Cadillac/Buick/Oldsmobile/Pontiac DE
Steve Rayman Buick/GMC/Pontiac, Inc. Steve Rayman Buick/GMC/Pontiac NC
Stuart Lincoln-Mercury, Inc. Wallace Stuart Lincoln Mercury FL
Sunrise Nissan of Jacksonville, Inc. Sunrise Nissan of Jacksonville FL
Sunrise Nissan of Orange Park, Inc. Sunrise Nissan of Orange Park FL
Sunset Pontiac-GMC, Inc. Sunset Pontiac-GMC Truck North MI
Sunset Pontiac-GMC Truck South FL
Superior Nissan, Inc. Superior Nissan NC
Sutherlin Chrysler-Plymouth Jeep-Eagle, Inc. Sutherlin Chrysler-Plymouth Jeep-Eagle GA
Sutherlin Imports, Inc. Sutherlin Honda GA
Sutherlin Nissan of Town Center, Inc. Nissan Add Point GA
Sutherlin Nissan, Inc. Sutherlin Nissan of Lithia Springs GA
Sutherlin Toyota, Inc. Sutherlin Toyota FL
Tallahassee Imports, Inc. Tallahassee Mitsubishi FL
Tallahassee Motors, Inc. Tallahassee Ford FL
Taylor Jeep Eagle, Inc. Taylor Jeep Eagle DE
Texan Ford, Inc. Texan Ford TX
Texan Lincoln-Mercury, Inc. Texan Lincoln-Mercury/Isuzu DE
</TABLE>
<PAGE> 20
<TABLE>
<S> <C> <C>
The Pierce Corporation, Inc. Tempe Toyota AZ
Torrance Nissan, Inc. Torrance Nissan CA
Tousley Ford, Inc. Tousley Ford MN
Valencia Lincoln-Mercury, Inc. Magic Lincoln-Mercury DE
Valley Chevrolet, Inc. Fox of Timonium MD
Village Motors, Inc. Libertyville Toyota IL
W.O. Bankston Lincoln-Mercury, Inc. Bankston Lincoln-Mercury/Saab DE
W.O. Bankston Nissan, Inc. Bankston Nissan of Dallas TX
W.O. Bankston Paint & Body, Inc. Bankston Paint & Body, Inc. TX
Wallace Dodge, Inc. Wallace Dodge FL
Wallace Ford, Inc. Wallace Ford FL
Wallace Lincoln-Mercury, Inc. Wallace Lincoln-Mercury FL
Wallace Nissan, Inc. Wallace Nissan FL
West Ashley Toyota, Inc. West Ashley Toyota SC
West Colton Cars, Inc. Redlands Ford CA
West Side Motors, Inc. West Side Honda TN
</TABLE>
<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 in this Form 10-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, 333-42891 and 333-56967).
Fort Lauderdale, Florida,
March 31, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 217,300
<SECURITIES> 0
<RECEIVABLES> 1,667,600
<ALLOWANCES> (62,300)
<INVENTORY> 1,853,500
<CURRENT-ASSETS> 8,406,300
<PP&E> 2,334,500
<DEPRECIATION> 290,900
<TOTAL-ASSETS> 13,925,800
<CURRENT-LIABILITIES> 5,540,400
<BONDS> 2,315,600
0
0
<COMMON> 4,700
<OTHER-SE> 5,419,500
<TOTAL-LIABILITY-AND-EQUITY> 13,925,800
<SALES> 12,664,600
<TOTAL-REVENUES> 16,118,200
<CGS> 10,909,600
<TOTAL-COSTS> 13,532,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,000
<INCOME-PRETAX> 522,700
<INCOME-TAX> 188,100
<INCOME-CONTINUING> 334,600
<DISCONTINUED> 164,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499,500
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 129,200
<SECURITIES> 0
<RECEIVABLES> 883,600
<ALLOWANCES> (37,300)
<INVENTORY> 1,083,100
<CURRENT-ASSETS> 6,645,200
<PP&E> 1,526,700
<DEPRECIATION> (231,600)
<TOTAL-ASSETS> 10,196,200
<CURRENT-LIABILITIES> 3,817,000
<BONDS> 2,269,300
0
0
<COMMON> 4,300
<OTHER-SE> 3,480,000
<TOTAL-LIABILITY-AND-EQUITY> 10,196,200
<SALES> 6,122,800
<TOTAL-REVENUES> 9,177,900
<CGS> 5,459,000
<TOTAL-COSTS> 7,796,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,100
<INCOME-PRETAX> 102,900
<INCOME-TAX> 38,300
<INCOME-CONTINUING> 64,600
<DISCONTINUED> 375,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439,700
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 2,933,700
<TOTAL-REVENUES> 5,633,100
<CGS> 2,611,300
<TOTAL-COSTS> 4,778,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,500
<INCOME-PRETAX> (35,700)
<INCOME-TAX> 15,300
<INCOME-CONTINUING> (51,000)
<DISCONTINUED> 75,900
<EXTRAORDINARY> (31,600)
<CHANGES> 0
<NET-INCOME> (6,700)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PART I
ITEM 1. BUSINESS
BACKGROUND
In July 1998, Republic Services, Inc. (the "Company") completed the initial
public offering (the "Initial Public Offering") of its Class A common stock, par
value $.01 per share (the "Class A Common Stock"), resulting in net proceeds of
$1.4 billion. All of the proceeds were used to repay debt owed to Republic
Industries, Inc. ("Republic Industries"). As of December 31, 1998, approximately
63.9% of the Company's common stock (including its Class B common stock, par
value $.01 per share (the "Class B Common Stock" and together with the Class A
Common Stock, the "Common Stock") was owned by Republic Industries.
COMPANY OVERVIEW
The Company is a leading provider of services in the domestic non-hazardous
solid waste industry. The Company provides solid waste collection services for
commercial, industrial, municipal and residential customers through 131
collection companies in 26 states. The Company also owns or operates 70 transfer
stations and 48 solid waste landfills.
The Company had revenue of $1,369.1 million and $1,127.7 million and
operating income of $284.3 million and $201.3 million for the years ended
December 31, 1998 and 1997, respectively. The $241.4 million (or 21.4%) increase
in revenue and the $83.0 million (or 41.2%) increase in operating income are
primarily attributable to the successful execution of the Company's growth and
operating strategies described below.
The Company's internal growth strategy is supported by its presence in high
growth markets throughout the Sunbelt, including Florida, Georgia, Nevada,
Southern California and Texas, and other domestic markets that have experienced
higher than average population growth during the past several years. The Company
believes that its presence in such markets positions it to experience growth at
rates that are generally higher than the industry's overall growth rate.
Since 1995, the Company has acquired numerous solid waste companies with an
aggregate of over $1.4 billion in annual revenue. In September 1998, the Company
agreed to purchase certain assets, including landfills, transfer stations,
routes and other items, from Waste Management, Inc. ("Waste Management"), and to
convey to Waste Management certain of the Company's assets for a net purchase
price of approximately $490 million in cash plus certain properties. By December
31, 1998, closings with Waste Management had been completed with respect to 6
landfills, 7 transfer stations and 136 commercial collection routes. See "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Business Combinations."
The Company believes that it is well positioned to continue to increase its
revenue and operating income in order to enhance stockholder value.
INDUSTRY OVERVIEW
Based on analyst reports and industry trade publications, the Company
believes that the United States non-hazardous solid waste services industry
generated revenue of approximately $35.0 billion in 1997, of which approximately
44% was generated by publicly-owned waste companies, 23% was generated by
privately-held waste companies and 33% was generated by municipal and other
local governmental authorities. The substantial majority of the publicly-owned
companies' total revenue of approximately $15.4 billion was generated by only
five companies in 1997. However, according to industry data, the domestic
non-hazardous waste industry remains highly fragmented as the privately-held
companies' total revenue of approximately $8.0 billion was generated by more
than 5,000 companies.
1
<PAGE> 2
The Company believes that in recent years there has been a trend toward
rapid consolidation in the solid waste collection industry, which has
historically been characterized by numerous small companies. The Company
believes that this trend will continue as a result of the following factors:
Subtitle D Regulation. Subtitle D ("Subtitle D") of the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and similar
state regulations have significantly increased the amount of capital,
technical expertise, operating costs and financial assurance obligations
required to own and operate a landfill and other solid waste facilities.
Many of the smaller industry participants have found these costs difficult,
if not impossible, to bear. Large publicly-owned companies, such as the
Company, have greater access to capital, and a lower cost of capital,
available to finance such increased capital expenditures and costs,
relative to many of the privately owned companies in the industry.
Additionally, the required permits for landfill development, expansion or
construction have become more difficult to acquire. Consequently, many
smaller, independent operators have decided to either close their
operations or sell them to larger operators with greater access to capital.
Integration of Solid Waste Businesses. Vertically integrated solid
waste companies gain further competitive advantage over non-integrated
operators by being able to control the waste stream in a market through the
collection, transfer and disposal process. The ability of the integrated
companies to internalize the disposal of collected solid waste, coupled
with access to significant capital resources to make acquisitions, has
created an environment in which large publicly-owned integrated companies
can operate more cost effectively and competitively than non-integrated
operators.
Municipal Privatization. The trend toward consolidation in the solid
waste services industry is further supported by the increasing tendency of
a number of municipalities to privatize their waste disposal operations.
Privatization of municipal waste operations is often an attractive
alternative to funding the changes required by Subtitle D.
These developments, as well as the fact that there are a limited number of
viable exit strategies for many of the owners and principals of numerous
privately-held companies in the industry, have contributed to the overall
consolidation trend in the solid waste industry.
GROWTH STRATEGY
The Company's growth strategy is to increase revenue, gain market share and
enhance stockholder value through internal growth and acquisitions. For certain
risks related to the Company's growth strategy, see "-- Risk Factors."
- - INTERNAL GROWTH. The Company's internal growth strategy focuses on retaining
existing customers and obtaining commercial, municipal and industrial
customers through its well-managed sales and marketing activities.
Long-Term Contracts. The Company seeks to obtain long-term contracts
for the collection of solid waste in the high-growth markets in which it
operates. These include exclusive franchise agreements with municipalities
as well as commercial and industrial contracts. By obtaining such long-term
agreements, the Company has the opportunity to grow its contracted revenue
base at the same rate as the underlying population growth in such markets.
For example, the Company has secured exclusive, long-term franchise
agreements in high-growth markets such as Los Angeles and Orange Counties,
California, Las Vegas, Nevada, Arlington, Texas and many areas of Florida.
The Company believes that this positions it to experience internal growth
rates that are generally higher than the overall industry's growth rate. In
addition, the Company believes that by securing a base of long-term
recurring revenue in growth markets, the Company is better able to protect
its market position from competition and is less susceptible to downturns
in economic conditions.
Sales and Marketing Activities. The Company's well-managed sales and
marketing activities enable it to capitalize on its leading positions in
many of the markets in which it operates. The Company currently has over
350 sales and marketing employees in the field, who are incentivized by a
commission structure to generate high levels of revenue. For the most part,
such employees directly solicit business
2
<PAGE> 3
from existing and prospective commercial, industrial and municipal
customers. The Company trains new and existing sales personnel with an
emphasis on teaching sales personnel to understand the Company's rate and
cost structures.
- - ACQUISITION GROWTH. As a result of the highly fragmented nature of the solid
waste industry, the Company has been able to grow significantly through
acquisitions. The Company's acquisition growth strategy is focused on the
approximately $8.0 billion of revenue that was generated by over 5,000
privately-held solid waste companies in 1997. The Company believes that its
ability to acquire many of these privately-held companies is enhanced by
increasing competition in the solid waste industry, increasing capital
requirements as a result of changes in solid waste regulatory requirements and
the limited number of exit strategies for such companies' owners and
principals. The Company's acquisition growth strategy is to (i) acquire
businesses that position the Company for growth in existing and new markets,
(ii) acquire well-managed companies and retain local management, (iii)
integrate business in existing markets and (iv) acquire operations and
facilities from municipalities that are privatizing. For certain risks
involved with the Company's growth strategy, see "-- Risk Factors."
Acquire Businesses Positioning the Company for Growth. In making
acquisitions, the Company principally targets high quality businesses that
will allow it to be, or provide it favorable prospects of becoming, a
leading provider of integrated solid waste services in markets with
favorable demographic growth. The Company generally has acquired, and will
continue to seek to acquire, solid waste collection, transfer and disposal
companies that (i) have strong operating margins, (ii) are in growth
markets, (iii) are among the largest or have a significant presence in
their local markets and (iv) have long-term contracts or franchises with
municipalities and other customers. Although the Company seeks to expand
its operations to selected new markets where the potential for growth and
further integration of operations exists, the Company's primary focus is to
concentrate its acquisition efforts in its existing markets in the Sunbelt,
including Florida, Georgia, Nevada, Southern California and Texas and other
domestic markets that have experienced higher than average population
growth during the past several years. The Company is not limited to the
foregoing target criteria for acquisitions, and may also acquire additional
non-hazardous solid waste operations as opportunities arise. The Company
continuously reviews possible acquisition candidates and is in discussions
from time to time with one or more of such candidates. In September 1998,
the Company entered into an agreement with Waste Management to purchase 16
landfills, 11 transfer stations and 136 commercial collection routes across
the United States as well as to obtain disposal agreements at various Waste
Management disposal sites. With these acquisitions, the Company will have
expanded its presence in four existing markets and will enter 16 new
markets. At December 31, 1998, closings had been completed for 6 landfills,
7 transfer stations and all of the collection routes. Management believes
that the closing of the remaining Waste Management assets will be completed
in the first quarter of 1999. See also "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Business
Combinations."
Acquire Well-Managed Companies. The Company also seeks to acquire
businesses that have experienced management teams that are willing to work
for the Company. The Company generally retains the local management of the
larger acquired companies in order to capitalize on their local market
knowledge, community relations and name recognition, and to instill their
entrepreneurial drive at all levels of operations. By furnishing the local
management of such acquired companies with the Company's financial and
marketing resources and technical expertise, it is the Company's belief
that such acquired companies are better able to secure additional municipal
franchises and other contracts. This enables the Company to grow internally
such acquired businesses at faster rates than the industry average.
Integrate Business in Existing Markets. Once it has a base of
operations in a particular market, the Company focuses on acquiring trucks
and routes of smaller businesses that also operate in that market and
surrounding markets, which are typically referred to as "tuck-in"
acquisitions. The operations of such "tuck-in" businesses, upon being
acquired by the Company, are integrated into the Company's existing
operations in that market. In addition, the Company seeks to acquire
landfills, transfer stations, and collection companies that operate in
markets already serviced by the Company. By doing so, the
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Company not only is able to grow its revenue and increase its market share,
but also is able to integrate operations and consolidate duplicative
facilities and functions to maximize cost efficiencies and economies of
scale.
Privatize Municipal Operations. The Company also seeks to acquire
solid waste collection operations, transfer stations and landfills that are
being privatized by municipalities and other governmental authorities. Many
municipalities are seeking to outsource or sell these types of solid waste
operations, as they lack the capital, technical expertise and/or
operational resources necessary to comply with increasingly stringent
regulatory standards and/or to compete effectively with private-sector
companies.
OPERATING STRATEGY
The Company seeks to leverage existing assets and revenue growth to
increase operating margins and enhance stockholder value. The Company's
operating strategy to accomplish this goal is to (i) utilize the extensive
industry knowledge and experience of the Company's executive management, (ii)
utilize a decentralized management structure in overseeing day-to-day
operations, (iii) integrate waste operations, (iv) improve operating margins
through economies of scale, cost efficiencies and asset utilization and (v)
achieve high levels of customer satisfaction. For certain risks related to the
Company's operating strategy, see "-- Risk Factors."
- - EXPERIENCED EXECUTIVE MANAGEMENT TEAM. The Company believes that it has one
of the most experienced executive management teams among publicly-traded
companies in the solid waste industry.
H. Wayne Huizenga, the Company's Chairman, after several years of owning
and operating private waste hauling companies in Florida, co-founded Waste
Management in 1971. From 1971 to 1984 he served in various executive
capacities with Waste Management, including President and Chief Operating
Officer. By then, Waste Management had become the world's largest integrated
solid waste services company. From 1987 to 1994, Mr. Huizenga served as
Chairman and Chief Executive Officer of Blockbuster Entertainment Corporation,
leading its growth from 19 stores to the world's largest video rental company.
In August 1995, he became Chairman and Chief Executive Officer of Republic
Industries.
Harris W. Hudson, the Company's Vice Chairman, worked closely with Mr.
Huizenga, from 1964 until 1982, at Waste Management and at the private waste
hauling firms they operated prior to the formation of Waste Management. In
1982, Mr. Hudson retired as Vice President of Waste Management of Florida,
Inc., a subsidiary of Waste Management. In 1983, Mr. Hudson founded Hudson
Management Corporation ("Hudson Management"), a solid waste collection company
in Florida, and served as its Chairman and Chief Executive Officer until it
merged with Republic Industries in August 1995. By that time, Hudson
Management had grown to over $50.0 million in annual revenue, becoming one of
Florida's largest privately-held solid waste collection companies based on
revenue. Since August 1995, Mr. Hudson has served as an executive officer of
Republic Industries, including as President and Vice Chairman.
James E. O'Connor, the Company's Chief Executive Officer since December
1998, also worked at Waste Management from 1972 to 1978 and from 1982 to 1998.
During that time, he served in various management positions, including Senior
Vice President in 1997 and 1998 and Area President of Waste Management of
Florida, Inc. for five years, from 1992 to 1997.
James H. Cosman, the Company's President and Chief Operating Officer, has
served as President of Republic Industries' Solid Waste Group since January
1997. Prior to joining Republic Industries, Mr. Cosman was employed by
Browning-Ferris Industries, Inc. for over 24 years. During that time, he
served in various management positions, including Regional Vice
President -- Northern Region.
The other officers with responsibility for operational affairs of the
Company have an average of over 16 years of management experience in the solid
waste industry.
- - DECENTRALIZED MANAGEMENT STRUCTURE. The Company maintains a relatively small
corporate headquarters staff, relying on a decentralized management structure
to minimize administrative overhead costs and to manage its day-to-day
operations more efficiently. The Company's local management has extensive
industry
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experience in growing, operating and managing solid waste companies, and
substantial experience in their local geographic markets. The Company's four
Regional Vice Presidents have an average of 22 years of experience in the
industry, and the Company's 23 Area Presidents have an average of 20 years of
experience in the industry. The Regional Vice Presidents and Area Presidents
have extensive authority, responsibility and autonomy for operations within
their geographic markets. Compensation for management within regions and areas
is in large part based on the improvement in operating income produced in each
manager's geographic area of responsibility. In addition, through long-term
incentive programs, including stock options, the Company believes that it has
one of the lowest turnover levels in the industry for its local management
teams. As a result of retaining experienced managers with extensive local
knowledge, community relations and name recognition, the Company is able to
react rapidly to changes in its markets. The Company also seeks to implement
the best practices of its various regions and areas throughout its operations
to improve operating margins.
- - INTEGRATE OPERATIONS. The Company seeks to achieve a high rate of waste
integration by controlling waste streams from the point of collection through
disposal. Through acquisitions and other market development activities, the
Company creates market specific, vertically integrated operations typically
consisting of one or more collection companies, transfer stations and
landfills. The Company considers acquiring companies which own or operate
landfills with significant permitted disposal capacity and appropriate levels
of waste volume. The Company also seeks to acquire solid waste collection
companies in markets in which its owns or operates landfills. In addition, the
Company generates internal growth in its disposal operations by constructing
new landfills and expanding its existing landfills from time to time in
markets in which it has significant collection operations or in markets that
it determines lack sufficient disposal capacity. During the year ended
December 31, 1998, approximately 40% of the total volume of waste collected by
the Company was disposed of at the Company's landfills. Because the Company
does not have landfill facilities for all markets in which it provides
collection services, the Company believes that through landfill and transfer
station acquisitions and development it has the opportunity to increase its
waste internalization rate and further integrate its operations. By further
integrating operations in existing markets through acquisitions and
developments of landfills and transfer stations, the Company is able to reduce
its disposal costs.
- - ECONOMIES OF SCALE AND COST EFFICIENCIES. To improve operating margins, the
Company's management is focused on achieving economies of scale and cost
efficiencies. The consolidation of acquired businesses into existing
operations reduces costs by decreasing capital and expenses used in routing,
personnel, equipment and vehicle maintenance, inventories and back-office
administration. The Company is generally consolidating its administrative
centers to reduce its general and administrative costs. The Company reduced
its selling, general and administrative expenses from 14.2% of consolidated
revenue in 1996 to 9.9% of consolidated revenue in 1998. In addition, the
Company's size allows it to negotiate volume discounts for certain purchases,
including waste disposal rates at landfills operated by third parties.
Furthermore, the Company has taken steps to increase its utilization of
assets. For example, to reduce the number of collection vehicles, drivers are
paid incentive wages based upon the number of customers they service on each
route. In addition, routes are frequently analyzed and rerouted to ensure that
the highest number of customers are efficiently serviced over the fewest
possible miles. By using assets more efficiently, operating expenses are
lowered significantly.
- - HIGH LEVELS OF CUSTOMER SATISFACTION. The Company complements its operating
strategy with a goal of maintaining high levels of customer satisfaction. The
Company's personalized sales process of periodically contacting commercial,
industrial and municipal customers is intended to maintain relationships and
ensure service is being properly provided.
OPERATIONS
The Company's operations primarily consist of the collection and disposal
of non-hazardous solid waste.
Collection Services. The Company provides solid waste collection services
to commercial, industrial, municipal and residential customers in 26 states
through 131 collection companies. In 1998, the Company's revenue from collection
services was derived approximately one third from services provided to
commercial
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customers, one third from services provided to industrial customers, and one
third from services provided to municipal and residential customers. The
Company's commercial and residential collection operations involve the curbside
collection of refuse from small containers into collection vehicles for
transport to transfer stations or directly to landfills. Commercial collection
services are generally performed under one-year to three-year service
agreements, and fees are determined by such considerations as market factors,
collection frequency, type of equipment furnished, the type and volume or weight
of the waste collected, the distance to the disposal facility and the cost of
disposal.
Residential solid waste collection services are typically performed under
contracts with municipalities, which are generally secured by competitive bid
and which give the Company exclusive rights to service all or a portion of the
homes in their respective jurisdictions. Such contracts or franchises usually
range in duration from one to five years, although some of the Company's
exclusive franchises are for as long as 20 years. Residential solid waste
collection services may also be performed on a subscription basis, in which
individual households contract directly with the Company. The fees received for
subscription residential collection are based primarily on market factors,
frequency and type of service, the distance to the disposal facility and cost of
disposal. In general, subscription residential collection fees are paid
quarterly in advance by the residential customers receiving the service.
In its commercial and industrial collection operations, the Company
supplies its customers with waste containers commonly known as "roll-off"
containers. The Company also rents compactors to large waste generators. Waste
collection services are provided to individual commercial, industrial and
construction facilities on a contractual basis with terms generally ranging from
a single pickup to one year. The Company also rents waste roll-off containers to
construction sites and provides hauling services. The Company collects the
roll-off containers or compacted waste and transports them either to a landfill,
where the waste is disposed of, or to a transfer station.
The Company owns or operates 70 transfer stations. Waste is deposited at
these stations by the Company, other private haulers and municipal haulers for
compaction and transfer to trailers for transport to landfills, incinerators,
recycling facilities or other disposal sites.
The Company also currently provides recycling services in certain markets
primarily to comply with local laws or obligations under its franchise
agreements. These services include the curbside collection of residential
recyclable waste and the provision of a variety of recycling services to
commercial and industrial customers.
Disposal Services. The Company owns or operates 48 solid waste landfills
with approximately 6,200 permitted acres and total available permitted disposal
capacity of approximately 1.2 billion in-place cubic yards as of December 31,
1998. See "ITEM 2. PROPERTIES." The in-place capacity of the Company's landfills
is subject to change based on engineering factors, requirements of regulatory
authorities and successful site expansions. Certain of the landfills accept
non-hazardous special waste, including utility ash, asbestos and contaminated
soils.
Most of the Company's existing landfill sites have the potential for
expanded disposal capacity beyond the currently permitted acreage. The Company
monitors the availability of permitted disposal capacity at each of its
landfills and evaluates whether to pursue expansion at a given landfill based on
estimated future waste volumes and prices, remaining capacity and likelihood of
obtaining expansion. As of December 31, 1998, the Company believes that each of
its landfills has adequate permitted capacity. To satisfy future disposal
demand, the Company is currently seeking to expand permitted capacity at certain
of its landfills.
Other Services. The Company has materials recovery facilities and other
recycling operations, which are generally required to fulfill its obligations
under long-term municipal contracts for residential collection services. These
facilities primarily sort recyclable paper, aluminum, glass and other materials.
Most of these recyclable materials are internally collected by the Company's
residential collection operations. In certain areas, the Company receives
certain types of commercial and industrial solid waste that is sorted at its
facilities into recyclable materials and non-recyclable waste. The recyclable
materials are salvaged, repackaged and sold to third parties and the
non-recyclable waste is disposed of at landfills or incinerators. The Company's
strategy, wherever possible, is to reduce its exposure to fluctuations in
recyclable commodity prices
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by utilizing third parties' facilities, thereby minimizing its recycling
investment. Long-term contracts for the sale of recycling materials are also
used to mitigate the impact of commodity price fluctuations. The Company also
has composting operations at which yard waste is composted, packaged and sold as
mulch.
SALES AND MARKETING
The Company seeks to provide quality services that will enable it to
maintain high levels of customer satisfaction. The Company derives its business
from a broad customer base which the Company believes will enable it to
experience stable growth. Marketing efforts focus on continuing and expanding
business with existing customers as well as attracting new customers.
The Company has more than 350 sales and marketing employees. The Company's
sales and marketing strategy is to provide high-quality comprehensive solid
waste collection, recycling, transfer and disposal services to its customers at
competitive prices. The Company targets potential customers of all sizes, from
small quantity generators to large "Fortune 500" companies and municipalities.
All marketing activity by the Company is local in nature. The Company
generally does not change the tradenames of the local businesses that it
acquires, and therefore it does not operate nationally under any one mark or
tradename. Rather, the Company relies on the goodwill associated with the
acquired companies' local tradenames as used in each geographic market in which
it operates.
CUSTOMERS
The Company provides services to commercial, industrial, municipal and
residential customers. No one customer has individually accounted for more than
10.0% of the consolidated revenue of the Company in any of the last three years.
REGULATION
The Company's facilities and operations are subject to a variety of
federal, state and local requirements which regulate health, safety, the
environment, zoning and land use. Operating and other permits are generally
required for landfills, certain waste collection vehicles, fuel storage tanks
and other facilities owned or operated by the Company, and these permits are
subject to revocation, modification and renewal. Federal, state and local
regulations vary, but generally govern wastewater or stormwater discharges, air
emissions, the treatment, storage, transportation and disposal of hazardous and
non-hazardous wastes and the remediation of contamination associated with the
release of hazardous substances. Such regulations provide governmental
authorities with strict powers of enforcement, which include the ability to
obtain injunctions and/or impose fines or penalties in the case of violations,
including criminal penalties. These regulations are administered by the U.S.
Environmental Protection Agency ("EPA") and various other federal, state and
local environmental, health and safety agencies and authorities, including the
Occupational Safety and Health Administration of the U.S. Department of Labor
("OSHA").
The Company strives to conduct its operations in compliance with applicable
laws and regulations. However, in the existing climate of heightened
environmental concerns, the Company, from time to time, has been issued
citations or notices from governmental authorities which have resulted in the
need to expend funds for remedial work and related activities at various of the
Company's landfills and other facilities. The Company has established a reserve
which it believes, based on currently available information, will be adequate to
cover any potential regulatory costs. However, there can be no assurance that
actual costs will not exceed the Company's reserve.
Federal Regulation. The following summarizes the primary environmental and
safety-related federal statutes of the United States affecting the facilities
and operations of the Company:
(1) The Solid Waste Disposal Act, as amended by RCRA ("SWDA"). SWDA
and its implementing regulations establish a framework for regulating the
handling, transportation, treatment, storage and disposal of hazardous and
non-hazardous solid wastes, and require states to develop programs to
ensure the safe disposal of solid wastes in sanitary landfills.
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Subtitle D of RCRA establishes a framework for regulating the disposal
of municipal solid wastes. Regulations under Subtitle D currently include
minimum comprehensive solid waste management criteria and guidelines,
including location restrictions, facility design and operating criteria,
closure and post-closure requirements, financial assurance standards,
groundwater monitoring requirements and corrective action standards, many
of which have not commonly been in effect or enforced in the past in
connection with municipal solid waste landfills. Each state was required to
submit a permit program designed to implement Subtitle D regulations to the
EPA by April 9, 1993. These state permit programs may include landfill
requirements which are more stringent than those of Subtitle D. Some states
have not yet fully implemented permit programs pursuant to RCRA and
Subtitle D. Once a state has an approved permit program it is required to
review all existing landfill permits to ensure compliance with the new
regulations.
All of the Company's planned landfill expansions or new landfill
development projects have been engineered to meet or exceed Subtitle D
requirements. Operating and design criteria for existing operations have
been modified to comply with these new regulations. Compliance with the
Subtitle D regulations has resulted in increased costs and may in the
future require substantial additional expenditures in addition to other
costs normally associated with the Company's waste management activities.
(2) The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"). CERCLA, among other things,
provides for the cleanup of sites from which there is a release or
threatened release of a hazardous substance into the environment. CERCLA
may impose strict, joint and several liability for the costs of cleanup and
for damages to natural resources upon current owners and operators of the
site, parties who were owners or operators of the site at the time the
hazardous substances were released, parties who transported hazardous
substances to the site and parties who arranged for disposal at the site.
Under the authority of CERCLA and its implementing regulations, detailed
requirements apply to the manner and degree of investigation and
remediation of facilities and sites where hazardous substances have been or
are threatened to be released into the environment. CERCLA liability is not
dependent upon the existence or disposal of "hazardous wastes" but can also
be based upon the existence of small quantities of more than 700
"substances" characterized by the EPA as "hazardous," many of which may be
found in common household waste.
Among other things, CERCLA authorizes the federal government to
investigate and remediate sites at which hazardous substances have been or
are threatened to be released into the environment, or to order (or offer
an opportunity to) persons potentially liable for the cleanup of the
hazardous substances to do so. In addition, CERCLA requires the EPA to
establish a National Priorities List of sites at which hazardous substances
have been or are threatened to be released and which require investigation
or cleanup.
Liability under CERCLA is not dependent upon the intentional disposal
of hazardous wastes. It can be founded upon the release or threatened
release, even as a result of unintentional, non-negligent or lawful action,
of thousands of hazardous substances, including very small quantities of
such substances. Thus, even if the Company's landfills have never knowingly
received hazardous wastes as such, it is possible that one or more
hazardous substances may have come to be located or "released" at its
landfills or at other properties which the Company may have owned or
operated. The Company could thus be liable under CERCLA for the cost of
cleaning up such hazardous substances at such sites and for damages to
natural resources, even if those substances were deposited at the Company's
facilities before the Company acquired or operated them. The costs of a
CERCLA cleanup can be very expensive. Given the difficulty of obtaining
insurance for environmental impairment liability, such liability could have
a material impact on the Company's business and financial condition. For a
further discussion, see "-- Liability Insurance and Bonding."
(3) The Federal Water Pollution Control Act of 1972 (the "Clean Water
Act"). The Clean Water Act regulates the discharge of pollutants from a
variety of sources, including solid waste disposal sites, into streams,
rivers and other waters. Point source runoff from the Company's landfills
and transfer
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stations that is discharged into surface waters must be covered by
discharge permits that generally require the Company to conduct sampling
and monitoring and, under certain circumstances, reduce the quantity of
pollutants in those discharges. Storm water discharge regulations under the
Clean Water Act require a permit for certain construction activities, which
may affect the Company's operations. If a landfill or transfer station
discharges wastewater through a sewage system to a publicly-owned treatment
works ("POTW"), the facility must comply with discharge limits imposed by
the POTW. In addition, states may adopt groundwater protection programs
under the Clean Water Act or Safe Drinking Water Act that could affect
solid waste landfills. Furthermore, development which alters or affects
"wetlands" must generally be permitted prior to such development
commencing, and certain mitigation requirements may be required by the
permitting agencies.
(4) The Clean Air Act. The Clean Air Act imposes limitations on
emissions from various sources, including landfills. On March 12, 1996, the
EPA enacted rules that require large municipal solid waste landfills to
install landfill gas monitoring systems. These EPA regulations apply to
landfills that have been operating since November 8, 1987, and that can
accommodate 2.5 million cubic meters or more of municipal solid waste. The
regulations apply whether the landfill is active or closed. The date by
which each affected landfill must have the required gas collection and
control system is dependent upon the adoption of state regulations and the
date the EPA approves the state program. Many state regulatory agencies
currently require monitoring systems for the collection and control of
landfill gas. Compliance with the new EPA regulations is not expected to
have a material effect on the Company.
(5) The Occupational Safety and Health Act of 1970 (the "OSH
Act"). The OSH Act authorizes OSHA to promulgate occupational safety and
health standards. Various of these standards, including standards for
notices of hazardous chemicals and the handling of asbestos, apply to the
Company's facilities and operations.
State Regulation. Each state in which the Company operates has its own
laws and regulations governing solid waste disposal, water and air pollution
and, in most cases, releases and cleanup of hazardous substances and liability
for such matters. States also have adopted regulations governing the design,
operation, maintenance and closure of landfills and transfer stations. The
Company's facilities and operations are likely to be subject to these types of
requirements. In addition, the Company's solid waste collection and landfill
operations may be affected by the trend in many states toward requiring the
development of waste reduction and recycling programs. For example, several
states have enacted laws that require counties or municipalities to adopt
comprehensive plans to reduce, through waste planning, composting, recycling or
other programs, the volume of solid waste deposited in landfills. Additionally,
laws and regulations restricting the disposal of certain wastes, including yard
waste, newspapers, beverage containers, unshredded tires, lead-acid batteries
and household appliances in solid waste landfills have been promulgated in
several states and are being considered in others. Legislative and regulatory
measures to mandate or encourage waste reduction at the source and waste
recycling also are under consideration by Congress and the EPA.
In order to construct, expand and operate a landfill, one or more
construction or operating permits, as well as zoning approvals, must be
obtained. These are difficult and time-consuming to obtain, are often opposed by
neighboring landowners and citizens' groups, may be subject to periodic renewal
and are subject to modification and revocation by the issuing agency. In
connection with the Company's acquisition of existing landfills, it may be
necessary to expend considerable time, effort and money to bring the acquired
facilities into compliance with applicable requirements and to obtain the
permits and approvals necessary to increase their capacity.
Many of the Company's facilities own and operate underground storage tanks
("USTs") which are generally used to store petroleum-based products. USTs are
generally subject to federal, state and local laws and regulations that mandate
periodic testing, upgrading, closure and removal of USTs and that, in the event
of leaks from USTs, require that polluted groundwater and soils be remediated.
The Company believes that all the Company's USTs currently meet federal
regulations. If USTs owned or operated by the Company leak, and such leakage
migrates onto the property of others, the Company could be liable for response
costs and other damages to third parties. Compliance with regulations related to
USTs is not expected to have a material adverse effect on the Company.
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Finally, with regard to its solid waste transportation operations, the
Company is subject to the jurisdiction of the Interstate Commerce Commission and
is regulated by the Federal Highway Administration, Office of Motor Carriers and
by regulatory agencies in each state. Various states have enacted, or are
considering enacting, laws and regulations that would restrict the interstate
transportation and processing of solid waste. In 1978, the United States Supreme
Court held similar laws and regulations unconstitutional; however, states have
attempted to distinguish proposed laws and regulations from the laws and
regulations involved in that ruling. In May 1994, the Supreme Court ruled that
state and local flow control laws and ordinances (which attempt to restrict
waste from leaving its place of generation) were an impermissible burden on
interstate commerce, and therefore, were unconstitutional. In response to these
Supreme Court rulings, Congress has considered passing legislation authorizing
states and local governments to restrict the free movement of solid waste in
interstate commerce. If federal legislation authorizing state and local
governments to restrict the free movement of solid waste in interstate commerce
is enacted, such legislation could adversely affect the Company's operations.
The Company has a reserve for environmental and landfill costs, which
includes landfill site closure and post-closure costs. The Company periodically
reassesses such costs based on various methods and assumptions regarding
landfill airspace and the technical requirements of Subtitle D of RCRA and
adjusts its accruals accordingly. Based on current information and regulatory
requirements, the Company believes that its reserve for such environmental
expenditures is adequate. However, environmental laws may change, and there can
be no assurance that the Company's reserves will be adequate to cover
requirements under existing or new environmental regulations, future changes or
interpretations of existing regulations or the identification of adverse
environmental conditions previously unknown to the Company. See "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Environmental and Landfill Matters" and "-- Risk Factors -- Risks
relating to environmental regulation."
COMPETITION
The Company operates in a highly competitive industry, which is changing as
a result of rapid consolidation. Entry into the Company's business and the
ability to operate profitably in such industry requires substantial amounts of
capital and managerial experience.
Competition in the non-hazardous solid waste industry comes from a number
of large, national publicly-owned companies, including Waste Management,
Browning-Ferris Industries, Inc. and Allied Waste Industries, Inc., numerous
regional publicly- and privately-owned solid waste companies, and from thousands
of small privately-owned companies in their respective markets. Some of the
Company's publicly-owned competitors also are engaging in aggressive acquisition
strategies. Certain of the Company's competitors have significantly larger
operations, and may have significantly greater financial resources, than the
Company. In addition to national and regional firms and numerous local
companies, the Company competes with those municipalities that maintain waste
collection or disposal operations. These municipalities may have financial
advantages due to the availability of tax revenues and tax-exempt financing.
The Company competes for collection accounts primarily on the basis of
price and the quality of its services. From time to time, competitors may reduce
the price of their services in an effort to expand market share or to win a
competitively bid municipal contract.
In each market in which it owns or operates a landfill, the Company
competes for landfill business on the basis of disposal costs, geographical
location and quality of operations. The Company's ability to obtain landfill
business may be limited by the fact that some major collection companies also
own or operate landfills to which they send their waste. There also has been an
increasing trend at the state and local levels to mandate waste reduction at the
source and to prohibit the disposal of certain types of wastes, such as yard
wastes, at landfills. This may result in the volume of waste going to landfills
being reduced in certain areas, which may affect the Company's ability to
operate its landfills at their full capacity and/or affect the prices that can
be charged for landfill disposal services. In addition, most of the states in
which the Company operates landfills
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have adopted plans or requirements that set goals for specified percentages of
certain solid waste items to be recycled.
LIABILITY INSURANCE AND BONDING
The nature of the Company's business exposes it to the risk of liabilities
arising out of its operations, including possible damages to the environment.
Such potential liabilities could involve, for example, claims for remediation
costs, personal injury, property damage, and damage to the environment in cases
where the Company may be held responsible for the escape of harmful materials;
claims of employees, customers or third parties for personal injury or property
damage occurring in the course of the Company's operations; or claims alleging
negligence or professional errors and omissions in the planning or performance
of work. The Company could also be subject to fines and civil and criminal
penalties in connection with alleged violations of regulatory requirements.
Because of the nature and scope of the possible environmental damages,
liabilities imposed in environmental litigation can be significant. The majority
of the Company's solid waste operations have third party environmental liability
insurance with limits in excess of those required by permit regulations, subject
to certain limitations and exclusions. However, there is no assurance that the
limits of such environmental liability insurance would be adequate in the event
of a major loss, nor is there assurance that the Company would continue to carry
environmental liability insurance should market conditions in the insurance
industry make such coverage costs prohibitive.
The Company carries general liability, vehicle liability, workers
compensation and employer's liability coverage, as well as umbrella liability
policies to provide excess coverage over the underlying limits contained in
these primary policies. The Company also carries property insurance. Although
the Company strives to operate safely and prudently and has, subject to certain
limitations and exclusions, substantial liability insurance, no assurance can be
given that the Company will not be exposed to uninsured liabilities which could
have a material adverse effect on its financial condition.
In the normal course of business, the Company may be required to post a
performance bond or a bank letter of credit in connection with municipal
residential collection contracts, the operation, closure or post-closure of
landfills, certain remediation contracts, certain environmental permits and
certain business licenses and permits. Bonds issued by surety companies operate
as a financial guarantee of the Company's performance. To date, the Company has
satisfied financial responsibility requirements by making cash deposits,
obtaining bank letters of credit or by obtaining surety bonds.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 10,000 full
time employees, approximately 2,400 of whom were covered by collective
bargaining agreements. The management of the Company believes that it has good
relations with its employees.
RISK FACTORS
This Risk Factors section of our Annual Report on Form 10-K includes
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, including, in particular, certain statements
about our plans, strategies and prospects. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that such plans, intentions or
expectations will be achieved. Important factors that could cause our actual
results of differ materially from our forward-looking statements are set forth
in this Risk Factors section. All forward-looking statements attributable to us
or any persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements set forth below. Unless the context requires
otherwise, all references to the "Company," "we," "us,' or "our" include
Republic Services, Inc. and its subsidiaries.
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<PAGE> 12
RISK THAT REPUBLIC INDUSTRIES WILL FAIL TO COMPLETE ITS DISTRIBUTION OF REPUBLIC
SERVICES COMMON STOCK OR WILL FAIL TO OBTAIN FAVORABLE LETTER RULING FROM THE
IRS.
Assuming that certain conditions are met, Republic Industries intends to
distribute to its stockholders in 1999 all of the shares of our common stock
which it then owns. In this Annual Report, we will refer to Republic Industries'
distribution of our common stock as the "Distribution." One condition to the
Distribution is that Republic Industries must obtain a private letter ruling
from the Internal Revenue Service stating, to Republic Industries' satisfaction,
that the Distribution of its shares of our common stock will not be taxable to
Republic Industries or to its stockholders for federal income tax purposes.
Republic Industries has applied for this letter ruling from the IRS and intends
promptly to take all necessary steps to complete a tax-free distribution within
three months after all of the conditions to the Distribution, including
obtaining the letter ruling, have been met or waived. Republic Industries does
not plan to distribute its shares of our common stock to its stockholders
without a satisfactory letter ruling from the IRS.
Due to recent changes in the tax laws, we cannot assure you that Republic
Industries will receive a satisfactory letter ruling within the time frame it
contemplates, or at all. Republic Industries filed its request for the letter
ruling with the IRS in July 1998, and in recent weeks has had several meetings
with the IRS to attempt to resolve certain issues relating to the request.
Consequently, we cannot assure you that Republic Industries will complete the
Distribution of its shares of our common stock within the time frame it
contemplates, or at all.
Republic Industries' Distribution of its shares of our common stock also is
subject to the condition that no events or developments occur prior to the
Distribution that, in the sole judgment of the Board of Directors of Republic
Industries, would or could result in the Distribution having a material adverse
effect on Republic Industries or its stockholders. In addition, prior to the
Distribution, Republic Industries must obtain certain consents from governmental
authorities and other third parties.
We cannot assure you that any of the conditions just described, or any
other conditions necessary to the Distribution, will be satisfied. If the
Distribution does not occur in the time frame contemplated, or does not occur at
all, then the market price of the Class A common stock could be materially
adversely affected.
RISKS RELATING TO REPUBLIC INDUSTRIES' VOTING CONTROL OF REPUBLIC SERVICES.
Republic Industries currently owns approximately 63.9% of our outstanding
shares of common stock, which represents approximately 88.7% of the combined
voting power of the outstanding shares of our Class A and Class B common stock.
As a result of its voting power, Republic Industries can determine virtually all
matters requiring a vote of the stockholders, including the election of all of
our directors. Our Board of Directors currently consists of five members, two of
whom also currently serve as members of Republic Industries' Board of Directors.
Republic Industries intends to maintain ownership of at least 80% of the
combined voting power of the outstanding shares of our common stock until the
Distribution of its shares of our common stock can be completed. If Republic
Industries does not complete the Distribution, it may elect to maintain its
controlling interest in our common stock indefinitely. As long as Republic
Industries maintains a controlling interest in our common stock, the market
price of our Class A common stock may be adversely affected by events which are
unrelated to our business or operations.
RISKS RESULTING FROM THE DISPARATE VOTING RIGHTS OF THE CLASS A AND CLASS B
COMMON STOCK.
The holders of Class A common stock have different voting rights from the
holders of Class B common stock. On all matters submitted to a vote of the
stockholders, holders of Class A common stock are entitled to one vote per share
while holders of Class B common stock are entitled to five votes per share. As a
result of this disparity in voting rights, potential investors and potential
future purchasers of our Class A common stock may not be willing to pay as much
for shares of Class A common stock and the shares of Class A common stock may be
less easily sold for cash.
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<PAGE> 13
RISKS RELATING TO AGREEMENTS WHICH WERE NOT SUBJECT TO ARM'S LENGTH
NEGOTIATIONS.
We entered into certain agreements with Republic Industries while we were
its wholly owned subsidiary. None of these agreements were the result of
arm's-length negotiations. As a result, we cannot assure you that these
agreements were made on terms as favorable as could have been obtained from
parties with whom we were not related.
RISKS RELATING TO CONFLICTS OF INTEREST OF CERTAIN EXECUTIVE OFFICERS AND
DIRECTORS.
Two of our executive officers also serve as executive officers of Republic
Industries. Two members of our Board of Directors also serve as members of
Republic Industries' Board of Directors. Some of our executive officers and
directors hold shares of Republic Industries common stock or hold options or
warrants to acquire shares of Republic Industries' common stock. As a result of
these relationships, there is a potential for conflicts of interest with respect
to decisions which may arise in the ordinary course of business. Conflicts which
concern whether or not Republic Industries will complete the Distribution of its
shares of our common stock may also arise. We have not established formal
procedures to resolve any conflicts that arise. Consequently, we intend to
resolve any conflicts on a case-by-case basis.
RISKS RELATING TO OUR LIMITED ABILITY TO ISSUE COMMON STOCK IN CONNECTION WITH
REPUBLIC INDUSTRIES' DISTRIBUTION OF ITS SHARES OF OUR COMMON STOCK.
In order for Republic Industries' Distribution of its shares of our common
stock to be tax-free to it and its stockholders, among other requirements,
Republic Industries must distribute shares of our common stock representing at
least 80% of the total combined voting power of all classes of our voting stock.
If Republic Industries cannot meet this percentage requirement when it
distributes its shares of our common stock to its stockholders, then the
Distribution will not be tax-free and will not occur.
In order to allow Republic Industries to meet the percentage requirements
of a tax-free Distribution, we have agreed not to issue additional shares of our
capital stock without the consent of Republic Industries if the issuance of
additional shares of our capital stock would, or could, prevent the Distribution
from being tax-free. In addition, in connection with the Distribution proposed
by Republic Industries, we may be required to refrain, prior to and after
completion of the Distribution, from issuing additional capital stock in a
single transaction or series of transactions which, when added to the shares of
our common stock which we issued in our initial public offering and any shares
of our common stock which may be sold by Republic Industries prior to the
Distribution, could result in a 50% or greater change in the vote or value of
our outstanding capital stock.
Meeting the requirements of a tax-free Distribution may make it difficult
for us to raise cash by issuing equity securities, including shares of our
common stock. Meeting these requirements may also make it difficult for us to
complete acquisitions of businesses by issuing equity securities, including
shares of our common stock, to pay for the acquisition.
RISKS RELATING TO OUR OBLIGATION TO INDEMNIFY REPUBLIC INDUSTRIES FROM CERTAIN
TAX LIABILITIES ASSOCIATED WITH THE DISTRIBUTION.
We will indemnify Republic Industries for any tax liability it may incur as
a result of actions by us after the Distribution which cause the Distribution to
lose its tax-free status. Any indemnification which we are required to provide
to Republic Industries as a result of tax liability related to the Distribution
would have a material adverse effect on our business, financial condition and
results of operations.
RISKS RELATING TO OUR FUTURE CAPITAL REQUIREMENTS AND THE ABSENCE OF FUNDING
FROM REPUBLIC INDUSTRIES.
Our working capital requirements and cash flow from operating activities
can vary from quarter to quarter, depending on the timing of capital
expenditures, acquisitions and other factors. Prior to our initial public
offering, Republic Industries satisfied our working capital needs pursuant to
its corporate-wide cash management policies. Following our initial public
offering, Republic Industries has no longer been required to
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provide funds to finance our operations or acquisitions. As a result, we have
incurred and expect to continue to incur both long-term debt and short-term debt
having interest rates and/or repayment terms less favorable than those which
were historically enjoyed with Republic Industries. Additionally, as long as we
remain a subsidiary of Republic Industries, certain restrictive covenants in
Republic Industries' bank credit facilities could adversely affect our ability
to borrow money.
Republic Industries amended its credit facilities to permit us to incur
unsecured indebtedness in excess of $1.0 billion. We have a $1.0 billion
unsecured revolving credit facility with a group of banks. The credit facility
consists of a $500.0 million facility expiring July 1999 and a $500.0 million
facility expiring July 2003. Borrowings under our credit facility bear interest
at LIBOR based rates. When the existing credit facility expires, we cannot
assure you that we will be able to refinance borrowings under that facility on
terms that are as favorable. If we are unable to obtain additional needed
financing on acceptable terms, we may need to reduce the scope of our
acquisition growth strategy, which could have a material adverse effect on our
growth prospects and the market price of our common stock.
RISKS RELATING TO THE COMPETITIVE ENVIRONMENT IN WHICH WE OPERATE.
We operate in a highly competitive business environment. Some of our
competitors have significantly larger operations and may have significantly
greater financial resources than we do. In addition, the solid waste industry is
constantly changing as a result of rapid consolidation which may create
additional competitive pressures in our business environment.
We also compete with municipalities that maintain their own waste
collection or disposal operations. These municipalities may have a financial
advantage over us due to the availability of tax revenue and tax-exempt
financing.
In each market in which we own or operate a landfill, we compete for solid
waste volume on the basis of disposal or "tipping" fees, geographical location
and quality of operations. Our ability to obtain solid waste volume for our
landfills may be limited by the fact that some major collection companies also
own or operate landfills to which they send their waste.
We compete for collection accounts primarily on the basis of price and the
quality of services. From time to time our competitors may reduce the price of
their services in an effort to expand their market share or to win a
competitively bid municipal contract.
As a result, we may have difficulty competing effectively from time to
time.
RISKS RELATING TO OUR DEPENDENCE ON ACQUISITIONS FOR GROWTH.
Our ability to execute our growth strategy depends in part on our ability
to identify and acquire desirable acquisition candidates as well as our ability
to successfully integrate the acquired companies' operations into our business
and then increase the market share of these acquired companies. The
consolidation of our operations with the operations of acquired companies,
including the integration of systems, procedures, personnel and facilities, the
relocation of staff, and the achievement of anticipated cost savings, economies
of scale and other business efficiencies, presents significant challenges to our
management, particularly if several acquisitions occur at the same time. We
cannot assure you that we will be able to identify desirable acquisition
candidates, that we will be able to acquire any of the identified candidates,
that we will effectively integrate companies which are acquired and fully
realize the expected cost savings, economies of scale or business efficiencies,
or that any acquisitions will be profitable or accretive to our earnings.
Additional factors may negatively impact our acquisition growth strategy.
Our acquisition strategy requires the expenditure of significant amounts of
capital. The intense competition among our competitors pursuing the same
acquisition candidates may further increase such capital requirements. In
addition, our inability to account for acquisitions under the pooling of
interests method of accounting for a period ending two years following the
Distribution may limit our ability to complete certain transactions.
Furthermore, in order not to adversely impact the tax-free status of the
Distribution, following the Distribution, we may need to refrain from issuing
additional shares of capital stock in a single transaction or series of
transactions related
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to the Distribution which, when combined with the Class A common stock issued in
the initial public offering along with any shares of common stock sold by
Republic Industries prior to the Distribution, could cause a 50% or greater
change in the vote or value of our outstanding capital stock. If any of the
aforementioned factors force us to alter our growth strategy, our financial
condition, results of operations and growth prospects could be adversely
affected.
RISKS RELATING TO UNDISCLOSED LIABILITIES OF BUSINESSES WE ACQUIRE.
In pursuing our acquisition strategy our investigations of the acquisition
candidates may fail to discover certain undisclosed liabilities of the
acquisition candidates. If we acquire a candidate having undisclosed
liabilities, as a successor owner we may be responsible for such undisclosed
liabilities. We typically try to minimize our exposure to such liabilities by
obtaining indemnification from each seller of the acquired companies, and by
deferring payment of a portion of the purchase price as a security for the
indemnification. However, we cannot assure you that such indemnifications will
be obtainable, enforceable, collectible or sufficient in amount, scope or
duration to fully offset any undisclosed liabilities arising from our
acquisitions.
RISKS RELATING TO MANAGEMENT OF OUR GROWTH.
Our growth strategy places significant demands on our financial,
operational and management resources. In order to continue our growth and
operate independently of Republic Industries, we will need to add administrative
and other personnel, and make additional investments in operations and systems.
We cannot assure you that we will be able to find and train qualified personnel,
or do so on a timely basis, or expand our operations and systems to the extent,
and in the time, required.
RISKS RELATING TO OUR DEPENDENCE ON KEY PERSONNEL.
Our future success depends on the continued contributions of certain key
executive officers. Most of our executive officers do not have employment
agreements and we do not maintain key man life insurance policies on any of our
executive officers. In addition, as a result of our separation from Republic
Industries we will need to employ additional personnel for certain functions
which were previously performed by employees of Republic Industries. The loss of
the services of key employees and officers, whether such loss is through
resignation or other causes, or our inability to attract additional qualified
personnel, could have a material adverse effect on our financial condition,
results of operations and growth prospects.
RISKS RELATING TO ENVIRONMENTAL REGULATION.
We may need to spend considerable time, effort and capital to keep our
facilities in compliance with federal, state and local requirements regulating
health, safety, environment, zoning and land use. In addition, certain of our
waste operations that cross state boundaries could be adversely affected if the
federal government, or the state or locality in which these waste operations are
located, imposes discriminatory fees on, or otherwise limits or prohibits, the
transportation or disposal of solid waste. If environmental laws become more
stringent, our environmental capital expenditures and costs for environmental
compliance may increase in the future. In addition, due to the possibility of
unanticipated events or regulatory developments, the amounts and timing of
future environmental expenditures could vary substantially from those we
currently anticipate. Because of the nature of our operations, we have in the
past and may in the future be named as a potentially responsible party in
connection with the investigation or remediation of environmental conditions. We
cannot assure you that the resolution of these investigations will not have a
material adverse effect on our financial condition or results of operations.
Citizens' groups have become increasingly active in challenging the grant
of renewal permits and licenses for landfills and other waste facilities.
Responding to the challenges presented by these citizens' groups has further
increased our costs and extended the time associated with establishing new
facilities and expanding existing facilities.
We currently accrue for landfill costs, which include expected landfill
site closure and post-closure costs, based on consumption of landfill airspace.
At December 31, 1998, assuming that all available landfill capacity is used, we
expect to expense approximately $370.5 million of landfill costs over the
remaining lives of these facilities. We cannot assure you that our reserves for
landfill and environmental costs will be adequate to cover
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the requirements of existing environmental regulations, future changes or
interpretations of existing regulations or the identification of adverse
environmental conditions previously unknown to us.
RISKS RELATING TO LEGAL PROCEEDINGS.
We are involved in various administrative and legal proceedings in the
ordinary course of business. We cannot give you any assurance with respect to
the outcome of these proceedings or the effect which the outcomes may have on
our insurance coverages or otherwise, or that our reserves are adequate to meet
the requirements of any adverse outcomes. A significant judgment against us, the
loss of significant permits or licenses, or the imposition of a significant fine
could have a material adverse effect on our financial condition or results of
operations.
Citizens' groups have become increasingly active in challenging the grant
or renewal of permits and licenses for landfills and other waste facilities.
Responding to the challenges presented by those citizens' groups has further
increased our costs and extended the time associated with establishing new
facilities and expanding existing facilities.
Except for routine litigation incidental to our business, presently there
are no pending material legal proceedings to which we are a party or to which
any of our property is subject.
RISKS RELATING TO THE YEAR 2000.
We use computer software and related technologies throughout our business
that are likely to be affected by the date change in the year 2000. We may not
discover and remediate all potential problems with our systems in a timely
manner. In addition, computer software and related technologies used by our
customers, service providers, vendors and suppliers are also likely to be
affected by the year 2000 date change. Failure of any of these parties to
properly process dates for the year 2000 and thereafter could result in
unanticipated expenses and delays to us, including delays in the payment by our
customers for services provided and delays in our ability to conduct normal
banking operations. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Year 2000."
RISKS RELATING TO THE SEASONALITY OF OUR BUSINESS AND OPERATIONS.
Our operations can be adversely affected by periods of inclement weather
which could delay the collection and disposal of waste, reduce the volume of
waste generated or delay the construction or expansion of our landfill sites and
other facilities.
RISKS RELATING TO SHARES ELIGIBLE FOR FUTURE SALE.
Subject to applicable law, Republic Industries may sell any and all of the
shares of our common stock that it owns. The Separation and Distribution
Agreement gives Republic Industries the right in certain circumstances to
require us to use our best efforts to register for resale shares of our common
stock held by Republic Industries and its wholly owned subsidiaries. In
addition, prior to the Distribution, Republic Industries may acquire additional
solid waste companies and contribute them to us in exchange for additional
shares of our common stock. Republic Industries may also make additional
investments in our capital securities, or otherwise, prior to the Distribution.
The planned Distribution would involve the distribution of an aggregate of
95,688,083 shares of Class B common stock and 16,474,417 shares of Class A
common stock to Republic Industries' stockholders in 1999 (assuming that no
additional shares of common stock are disposed of or acquired by Republic
Industries between the date hereof and the date of the Distribution). Shares of
Class B common stock may be converted into shares of Class A common stock in
certain circumstances. Substantially all of the shares of common stock to be
distributed to Republic Industries' stockholders in the Distribution will be
eligible for immediate resale in the public market. We cannot predict whether
substantial amounts of shares of our common stock will be sold in the open
market in anticipation of, or following, the Distribution. Any sales of
substantial amounts of shares of our common stock in the public market, or the
perception that such sales might occur, could materially adversely affect the
market price of the Class A common stock.
Any issuance by us of any additional shares of our capital stock is subject
to our agreement with Republic Industries not to issue any shares of capital
stock that would reduce Republic Industries' ownership below the required
distribution percentage described earlier in this Risk Factors section. Subject
to these contractual
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limitations with Republic Industries, we may file registration statements
covering the issuance and/or resale of shares of Class A common stock which may
be issued in potential future acquisitions by us of non-hazardous solid waste
businesses.
WE DO NOT PRESENTLY ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK.
We intend to retain all earnings for the foreseeable future for use in the
operation and expansion of our business. In addition, our credit facility
contains restrictions on our ability to declare and pay dividends. Consequently,
we do not anticipate paying any cash dividends on our common stock to our
stockholders for the foreseeable future.
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ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Ft. Lauderdale, Florida
in premises leased from a subsidiary of Republic Industries. As of December 31,
1998, the Company owned approximately 4,900 collection vehicles. Certain of the
property and equipment of the Company are subject to liens securing payment of
portions of the Company's indebtedness. The Company also leases certain of its
offices and equipment. The Company believes that all of its facilities are
sufficient for its current needs.
The following table provides certain information regarding the 48 landfills
owned or operated by the Company as of December 31, 1998.
<TABLE>
<CAPTION>
UNUSED
TOTAL PERMITTED PERMITTED
LANDFILL NAME LOCATION ACREAGE ACREAGE ACREAGE
------------- -------- ------- --------- ---------
<S> <C> <C> <C> <C>
Anderson(1).......................... Anderson, California 1,200 150 101
Apex................................. Clark County, Nevada 2,340 1,233 1,153
Brazoria............................. Clute, Texas 1,000 246 176
Broadhurst Landfill(2)............... Jesup, Georgia 900 90 64
C&T Regional......................... Linn, Texas 200 77 19
Capital Waste & Recycling
Disposal........................... Rotterdam, New York 33 5 --
Charter Waste........................ Abilene, Texas 396 300 283
Cleveland Container.................. Shelby, North Carolina 174 77 40
CWI Florida.......................... Winter Haven, Florida 80 58 14
Dozit Landfill....................... Morganfield, Kentucky 232 47 33
East Carolina Landfill............... Aulander, North Carolina 729 108 71
Epperson Landfill.................... Williamstown, Kentucky 861 100 58
Foothills Landfill(2)................ Lenior, North Carolina 231 78 72
Forest Lawn.......................... Three Oaks, Michigan 387 126 73
Front Range.......................... Denver, Colorado 602 195 162
Green Ridge.......................... Scottdale, Pennsylvania 580 87 54
Green Valley Landfill................ Ashland, Kentucky 263 37 --
Kestral Hawk......................... Racine, Wisconsin 210 125 37
Laughlin(2).......................... Laughlin, Nevada 40 40 --
Los Mangos........................... Alajuela, Costa Rica 41 24 8
Mallard Ridge........................ Delavan, Wisconsin 659 40 14
National Serv-All.................... Fort Wayne, Indiana 265 204 41
Nine Mile Road....................... St. Augustine, Florida 154 28 9
North County......................... Houston, Texas 46 40 20
Northwest Tennessee.................. Union City, Tennessee 600 120 99
Oak Grove............................ Winder, Georgia 301 60 32
Ohio County Balefill(2).............. Beaver Dam, Kentucky 908 179 143
Pepperhill........................... North Charleston, South Carolina 37 22 13
Pine Ridge........................... Griffin, Georgia 850 101 81
Pinellas(2).......................... St. Petersburg, Florida 750 478 200
Presidio(2).......................... Presidio, Texas 10 10 6
Republic/Alpine(2)................... Alpine, Texas 80 74 63
Republic/CSC......................... Avalon, Texas 298 205 133
Republic/Imperial.................... Imperial, California 250 73 37
Republic/Maloy....................... Campbell, Texas 388 195 130
Safety Lights........................ Memphis, Tennessee 49 21 6
San Angelo(2)........................ San Angelo, Texas 257 232 109
Savannah Regional.................... Savannah, Georgia 132 59 52
Southern Illinois Regional........... DeSoto, Illinois 249 113 47
Springfield Environmental............ Mt. Vernon, Indiana 55 25 --
Swiftcreek Landfill.................. Macon, Georgia 792 81 33
Tay-Ban.............................. Birch Run, Michigan 90 25 6
Tri-K Landfill....................... Stanford, Kentucky 572 64 49
United Refuse........................ Fort Wayne, Indiana 305 77 16
Upper Piedmont Environmental......... Roxboro, North Carolina 614 70 54
Uwharrie Landfill(2)................. Mt. Gilead, North Carolina 905 90 31
Victory Environmental................ Terre Haute, Indiana 461 260 138
Wabash Valley........................ Wabash, Indiana 284 69 12
------ ----- -----
Total................................ 20,860 6,218 3,992
====== ===== =====
</TABLE>
- ---------------
(1) The Company has entered into a contract to sell this landfill to Waste
Management.
(2) Operated but not owned by the Company.
18
