<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1999
REGISTRATION STATEMENT NO. 333-73259
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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REPUBLIC SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4953 65-0716904
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
DAVID A. BARCLAY
SENIOR VICE PRESIDENT
REPUBLIC SERVICES, INC. AND GENERAL COUNSEL
110 S.E. SIXTH STREET REPUBLIC SERVICES, INC.
FORT LAUDERDALE, FLORIDA 33301 110 S.E. SIXTH STREET, 28TH FLOOR
(954) 769-6000 FORT LAUDERDALE, FLORIDA 33301
(Address, including zip code, and telephone number, (954) 769-6000
including area code, of registrant's principal executive offices) (Name, address, including zip code, and telephone
number, including area code, of agent for service)
</TABLE>
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COPIES TO:
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<S> <C>
JONATHAN L. AWNER, ESQ. VALERIE FORD JACOB, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE S.E. THIRD AVENUE, 28TH FLOOR ONE NEW YORK PLAZA
MIAMI, FLORIDA 33131-1704 NEW YORK, NEW YORK 10004
(305) 374-5600 (212) 859-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01 per
share......................................... 112,162,500 $16.375 $1,836,660,938 $510,591.74
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</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee, based on the average of the high and low
prices reported on the NYSE as of February 24, 1999.
(2) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS TWO SEPARATE PROSPECTUSES. THE FIRST
PROSPECTUS RELATES TO A PUBLIC OFFERING OF SHARES OF COMMON STOCK OF REPUBLIC
SERVICES, INC. IN THE UNITED STATES AND CANADA (THE "U.S. OFFERING"). THE SECOND
PROSPECTUS RELATES TO A CONCURRENT OFFERING OF COMMON STOCK OUTSIDE THE UNITED
STATES AND CANADA (THE "INTERNATIONAL OFFERING"). THE PROSPECTUSES FOR THE U.S.
OFFERING AND THE INTERNATIONAL OFFERING WILL BE IDENTICAL IN ALL RESPECTS, OTHER
THAN THE FRONT COVER PAGE, "UNDERWRITING" SECTIONS AND THE BACK COVER PAGE
RELATING TO THE INTERNATIONAL OFFERING. SUCH ALTERNATE PAGES APPEAR IN THIS
REGISTRATION STATEMENT IMMEDIATELY FOLLOWING THE COMPLETE PROSPECTUS FOR THE
U.S. OFFERING.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 6, 1999
PROSPECTUS
100,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
-------------------------
Republic Industries, Inc., a stockholder of Republic Services, is selling
100,000,000 shares of Class A common stock. The U.S. underwriters are offering
80,000,000 shares in the United States and Canada and the international managers
are offering 20,000,000 shares outside the United States and Canada.
The Class A common stock trades on The New York Stock Exchange under the
symbol "RSG." On April 5, 1999, the last sale price of the Class A common stock
as reported on the New York Stock Exchange was $16 3/16 per share.
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to Republic Industries.......... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 9,730,000
shares from Republic Industries, at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
aggregate of an additional 2,432,500 shares from Republic Industries.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of Class A common stock will be ready for delivery in New York,
New York on or about , 1999.
-------------------------
MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE
DEUTSCHE BANK SECURITIES
BEAR, STEARNS & CO. INC.
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
-------------------------
The date of this prospectus is , 1999.
<PAGE> 4
Republic Services, Inc. (LOGO)
(Map of continental United States highlighting the markets in which we do
business appears here)
<PAGE> 5
TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 5
Risk Factors................................................ 9
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Market and Market Prices of Common Stock.................... 13
Selected Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 26
Management.................................................. 40
Security Ownership of Selling Stockholder, Beneficial Owners
and Management............................................ 47
Intercompany Relationships and Related Transactions......... 49
Description of Capital Stock................................ 57
Shares Eligible for Future Sale............................. 61
Material United States Federal Tax Consequences for
Non-United States Holders................................. 63
Underwriting................................................ 67
Legal Matters............................................... 71
Experts..................................................... 71
Available Information....................................... 71
Index to Financial Statements............................... F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
3
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[THIS PAGE INTENTIONALLY LEFT BLANK]
4
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PROSPECTUS SUMMARY
This summary highlights some information contained in this prospectus. The
summary may not contain all of the information that is important to you. You
should carefully read the entire prospectus, including the risk factors and the
financial statements, in order to understand this offering. Where we refer to
ourself in this prospectus, including our references to "Republic Services" or
"our company," we mean Republic Services, Inc. and its subsidiaries since we
completed our initial public offering in July 1998, along with the historical
operating results and activities of, and assets and liabilities of, the solid
waste services business and operations of Republic Industries before we
completed our initial public offering in July 1998. Where we refer to "Republic
Industries" in this prospectus, we mean Republic Industries, Inc. and all of its
subsidiaries except for Republic Services.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results we
discuss in the forward-looking statements. We discuss some of the factors that
might cause differences in actual results in the "Risk Factors" section of this
prospectus.
OUR COMPANY
We are a leading provider of services in the domestic non-hazardous solid
waste industry. We provide non-hazardous solid waste collection services for
commercial, industrial, municipal and residential customers through 134
collection companies in 26 states. We also own or operate 74 transfer stations
and 57 solid waste landfills. We had revenue of $1,369.1 million and operating
income of $284.3 million in the year ended December 31, 1998, and revenue of
$1,127.7 million and operating income of $201.3 million in the year ended
December 31, 1997. We believe that 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 our growth and operating
strategies.
Our 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 supports our internal growth strategy. We believe that our
presence in these markets positions our company to experience growth at rates
that are generally higher than the industry's overall growth rate.
Since 1995, we have acquired numerous solid waste companies with an
aggregate of over $1.4 billion in annual revenue. We believe that we are well
positioned to continue to increase our revenue and operating income through
acquisitions in addition to our internal growth. We focus our acquisition growth
strategy on the approximately $8.0 billion of revenue generated by the over
5,000 privately held solid waste companies in 1997. We believe that several
factors enhance our ability to acquire many of these privately held companies,
including,
- increasing competition in the solid waste industry,
- increasing requirements for capital as a result of regulatory
changes in the solid waste industry, and
- the existence of only a limited number of exit strategies for the
owners and principals of these privately held solid waste companies.
RECENT DEVELOPMENTS
By March 26, 1999, we had completed the acquisition of 16 landfills, 11
transfer stations and 136 commercial collection routes from Waste Management,
Inc. under a contract we entered into in September 1998, for which we paid
approximately $438.0 million in cash plus properties.
BACKGROUND
In recent years, Republic Industries has acquired and developed numerous
businesses in several industries and, from time to time, has divested such
businesses. At the beginning of 1998, Republic
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<PAGE> 8
Industries operated in three broad business segments: (1) automotive retail, (2)
vehicle rental and (3) solid waste services. In May 1998, Republic Industries
announced its intention to separate our company from Republic Industries, and to
have our company complete an initial public offering of our Class A common
stock. At the time of this announcement, we were a wholly owned subsidiary of
Republic Industries.
In May 1998, Republic Industries also announced its intention to distribute
sometime in 1999 the remaining shares of our common stock that it owned, as of
the date of the distribution, to Republic Industries' stockholders on a tax-free
basis. This tax-free distribution was conditioned, in part, on Republic
Industries obtaining a favorable private letter ruling from the Internal Revenue
Service to the effect that, among other things, the distribution would qualify
as a tax-free distribution for federal income tax purposes.
In June 1998, we entered into several agreements with Republic Industries
that provided for:
- our separation from Republic Industries,
- the completion of our initial public offering of Class A common
stock,
- the tax-free distribution, subject to the receipt of a favorable
private letter ruling from the IRS, among other conditions, and
- interim and ongoing relationships between our company and Republic
Industries, before and after the completion of the tax-free
distribution.
In July 1998, we completed the initial public offering of our Class A
common stock, resulting in net proceeds of approximately $1.4 billion. We used
the net proceeds from our initial public offering to repay debt owed to Republic
Industries. Upon completing our initial public offering, Republic Industries
owned approximately 63.9% of our common stock, including all of the outstanding
shares of our Class B common stock.
In July 1998, Republic Industries 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 Republic Industries in writing that it will not rule as
requested.
Based on the IRS action, Republic Industries will not complete the tax-free
distribution, and has exercised its rights under its agreement with us to
register for sale to the public all of its approximately 112.2 million shares of
our common stock. In March 1999, Republic Industries converted all of its Class
B common stock into Class A common stock on a one-for-one basis. We intend to
amend our certificate of incorporation to eliminate the classifications of our
common stock, subject to stockholder approval, at our annual meeting in May
1999.
HOW TO REACH US
We are incorporated in Delaware. The mailing address for our principal
executive offices is Republic Services, Inc., 110 S.E. Sixth Street, 28th Floor,
Fort Lauderdale, Florida 33301 and our phone number there is (954) 769-6000.
6
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered
by Republic Industries
U.S. Offering.............................. 80,000,000 shares
International Offering..................... 20,000,000 shares
Total................................. 100,000,000 shares
Shares Outstanding After the Offering........... 175,412,500 shares
Use of Proceeds................................. We will not receive any proceeds from the sale of
shares of common stock by Republic Industries.
Risk Factors.................................... See "Risk Factors" and the other information
included in this prospectus for a discussion of
factors you should carefully consider before
deciding to invest in shares of the common stock.
New York Stock Exchange Symbol.................. "RSG"
</TABLE>
The number of shares of Class A common stock offered as listed above
includes 95,688,083 shares of Class A common stock which Republic Industries
converted from 95,688,083 shares of Class B common stock on March 2, 1999. No
shares of our Class B common stock are outstanding as of the date of this
prospectus.
The number of shares of our common stock to be outstanding immediately
after the offering listed above does not include shares of our Class A common
stock that we may issue upon the exercise of outstanding stock options under our
1998 Stock Incentive Plan. We have reserved 20.0 million shares of Class A
common stock for issuance under our 1998 Stock Incentive Plan. On March 2, 1999,
we issued options to purchase approximately 8.5 million shares of our Class A
common stock to employees under our 1998 Stock Incentive Plan to replace options
our employees held under Republic Industries' stock option plans. As of March
30, 1999, options to purchase a total of approximately 12.6 million shares of
Class A common stock were outstanding under our 1998 Stock Incentive Plan,
approximately 1.8 million of which are presently exercisable.
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<PAGE> 10
SUMMARY HISTORICAL FINANCIAL DATA
In the table below, we provide you with a summary of our historical
financial and operating data for the periods indicated. The summary historical
financial data set forth below should be read in conjunction with our
Consolidated Financial Statements and their Notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." See Notes 1, 3, 6 and 9 of Notes to Consolidated
Financial Statements for a discussion of basis of presentation, business
combinations, stockholders' equity and restructuring and other charges. The
summary historical financial data below is not necessarily indicative of the
results of operations or financial position which would have resulted had our
separation from Republic Industries and our initial public offering occurred at
the beginning of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN MILLIONS, EXCEPT RATIOS AND PER
SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $1,369.1 $1,127.7 $ 953.3
Expenses:
Cost of operations........................................ 842.7 723.0 628.3
Depreciation, amortization and depletion.................. 106.3 86.1 75.3
Selling, general and administrative....................... 135.8 117.3 135.3
Restructuring and other charges........................... -- -- 8.8
-------- -------- --------
Operating income............................................ 284.3 201.3 105.6
Interest expense............................................ (44.7) (25.9) (29.7)
Interest income............................................. 1.5 4.9 11.7
Other income (expense), net................................. (.9) 1.8 2.2
-------- -------- --------
Income before income taxes.................................. 240.2 182.1 89.8
Provision for income taxes.................................. 86.5 65.9 38.0
-------- -------- --------
Net income.................................................. $ 153.7 $ 116.2 $ 51.8
======== ======== ========
Basic and diluted earnings per share(a)..................... $ 1.13 $ 1.21 $ .54
======== ======== ========
Weighted average common and common equivalent shares
outstanding(a)............................................ 135.6 95.7 95.7
======== ======== ========
Pro forma basic and diluted earnings per share(b)........... $ 1.01
========
Pro forma weighted average common and common equivalent
shares outstanding(b)..................................... 175.4
========
OTHER OPERATING DATA:
EBITDA(c)................................................... $ 390.6 $ 287.4 $ 180.9
EBITDA margin(d)............................................ 28.5% 25.5% 19.0%
Capital expenditures........................................ $ 193.0 $ 165.3 $ 146.9
Cash flows from operating activities........................ 271.1 279.4 143.5
Cash flows from investing activities........................ (607.4) (168.1) (175.7)
Cash flows from financing activities........................ 892.9 (135.5) 20.3
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 556.6 $ -- $ 24.2
Total assets................................................ 2,812.1 1,348.0 1,090.3
Amounts due to Republic Industries.......................... -- 266.1 254.9
Total debt.................................................. 1,057.1 75.1 142.7
Total stockholders' equity.................................. 1,299.1 750.8 494.5
</TABLE>
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(a) Prior to our initial public offering on July 1, 1998, we had only 100 shares
of common stock outstanding, all of which were owned by Republic Industries.
Historical share and per share data have been retroactively adjusted for the
recapitalization of our 100 shares of common stock into 95.7 million shares
of Class B common stock in July 1998.
(b) Pro forma basic and diluted earnings per share assume the initial public
offering and the repayment in full of the amounts due to Republic Industries
occurred as of January 1, 1998.
(c) EBITDA represents operating income plus depreciation and amortization. While
EBITDA data should not be construed as a substitute for operating income,
net income or cash flows from operations in analyzing our operating
performance, financial position and cash flows, we have included EBITDA
data, which is not a measure of financial performance under generally
accepted accounting principles, because we believe that this data is
commonly used by certain investors to evaluate a company's performance in
the solid waste industry. Due to the fact that not all companies calculate
non-GAAP measures in the same manner, the EBITDA presentation herein may not
be comparable to similarly titled measures reported by other companies.
(d) EBITDA margin represents EBITDA divided by revenue.
8
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RISK FACTORS
You should be aware that there are various risks to an investment in our
Class A common stock, including those described below. You should carefully
consider these risk factors, together with all of the other information included
in this prospectus, before you decide to invest in shares of our Class A common
stock.
If any of the following risks, or other risks not presently known to us or
that we currently believe to not be significant, develop into actual events,
then our business, financial condition, results of operations or prospects could
be materially adversely affected. If that happens, the market price of our
common stock could decline, and you may lose all or part of your investment.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY AND MAY BE UNABLE TO COMPETE
EFFECTIVELY.
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 as a result of 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.
WE MAY BE UNABLE TO EXECUTE OUR ACQUISITION GROWTH STRATEGY.
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. In
short, we cannot assure you that:
- we will be able to identify desirable acquisition candidates;
- we will be able to acquire any of the identified candidates;
- we will effectively integrate companies which are acquired and fully
realize the expected cost savings, economies of scale or business
efficiencies;
- or any acquisitions will be profitable or accretive to our earnings.
Additional factors may negatively impact our acquisition growth strategy.
Our acquisition strategy requires spending significant amounts of capital. If we
are unable to obtain additional needed
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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. The intense
competition among our competitors pursuing the same acquisition candidates may
increase purchase prices for solid waste businesses and increase our capital
requirements. In addition, our inability to account for acquisitions under the
pooling of interests method of accounting for a period of two years following
the completion of this offering may impede our ability to complete some
transactions. 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, and the market price of our common stock may
decline.
WE MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.
Our growth strategy places significant demands on our financial,
operational and management resources. In order to continue our growth, and to
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.
BUSINESSES WE ACQUIRE MAY HAVE UNDISCLOSED LIABILITIES.
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 we will be able to obtain
indemnifications or that they will be enforceable, collectible or sufficient in
amount, scope or duration to fully offset any undisclosed liabilities arising
from our acquisitions.
WE DEPEND ON KEY PERSONNEL.
Our future success depends on the continued contributions of several key
employees and officers. Most of our officers do not have employment agreements
and we do not maintain key man life insurance policies on any of our officers.
The loss of the services of key employees and officers, whether such loss is
through resignation or other causes, or the inability to attract additional
qualified personnel, could have a material adverse effect on our financial
condition, results of operations and growth prospects.
COMPLIANCE WITH ENVIRONMENTAL REGULATION MAY IMPEDE OUR GROWTH.
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, some 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. A
significant judgment or fine against our company, or our loss of
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<PAGE> 13
significant permits or licenses, could have a material adverse effect on our
financial condition, results of operations or prospects.
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 at times
further increased our costs and extended the time associated with establishing
new facilities and expanding existing facilities.
We currently accrue for landfill closure and post-closure costs based on
consumption of landfill airspace. As of December 31, 1998, assuming that all
available landfill capacity is used, we expect to expense approximately $370.5
million of landfill closure and post-closure 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 the requirements of existing
environmental regulations, future changes or interpretations of existing
regulations or the identification of adverse environmental conditions previously
unknown to us.
POTENTIAL YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR BUSINESS.
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 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
SEASONAL CHANGES AND ECONOMIC FLUCTUATIONS MAY ADVERSELY AFFECT OUR BUSINESS AND
OPERATIONS.
Our operations may 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.
Our commercial and industrial collection operations, and our landfills
which accept construction and demolition debris, may be adversely affected by
periods of economic downturn or declines in the construction industry.
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.
THE POTENTIAL SALE OF SHARES BY REPUBLIC INDUSTRIES AND OTHERS MAY DEPRESS OUR
STOCK PRICE.
If the underwriters do not exercise in full their over-allotment options,
Republic Industries will hold 12,162,500 shares of Class A common stock
following this offering. Until Republic Industries completes the sale of all of
the shares of our common stock in the public market, the perception that
substantial sales might occur could materially adversely affect the market price
of our common stock. In addition, we have reserved 20.0 million shares of Class
A common stock for issuance under our
11
<PAGE> 14
1998 Stock Incentive Plan and, as of the date of this prospectus, options to
purchase approximately 12.6 million shares have been granted and are outstanding
under this plan. We also may issue additional shares of Class A common stock in
connection with our acquisition strategy.
OUR AGREEMENTS WITH REPUBLIC INDUSTRIES MAY NOT BE AS FAVORABLE AS AGREEMENTS
WITH THIRD PARTIES.
We entered into agreements with Republic Industries while we were its
wholly owned subsidiary. 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.
CONFLICTS OF INTEREST MAY ARISE FOR OUR EXECUTIVE OFFICERS AND DIRECTORS WHO
ALSO SERVE OR OWN STOCK IN REPUBLIC INDUSTRIES.
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 which may
arise when our directors and officers are faced with decisions that could have
different implications for our company and Republic Industries. 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.
OUR STOCK PRICE MAY BE VOLATILE.
The price at which the Class A common stock will trade will depend upon a
number of factors, including our historical and anticipated operating results,
announcements by our company or our competitors and general market and economic
conditions. A few of these factors may be beyond our control. In addition, the
stock market has from time to time experienced extreme price and volume
fluctuations. These broad market fluctuations may adversely affect the market
price of our Class A common stock. You may not be able to resell our Class A
common stock at a price equal to or higher than the public offering price.
12
<PAGE> 15
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares being offered
by Republic Industries under this prospectus.
DIVIDEND POLICY
We do not intend to pay cash dividends on our common stock for the
foreseeable future because we intend to retain all earnings for use in the
operation and expansion of our business. Furthermore, our ability to declare or
pay dividends is limited by the terms of our credit facility which contains
covenants that restrict the payment of cash dividends. Holders of Class A common
stock and Class B common stock have identical rights to cash dividends, which,
if declared, would be payable on a pro rata basis to all holders of our common
stock.
MARKET AND MARKET PRICES OF COMMON STOCK
The Class A common stock began trading on the New York Stock Exchange on
July 1, 1998. There is no market for the Class B common stock.
The following table sets forth the range of the high and low sales prices
of the Class A common stock for the periods indicated:
<TABLE>
<CAPTION>
1998 HIGH LOW
- ---- ---- ----
<S> <C> <C>
Third Quarter........................................... $ 27 7/16 $ 13 3/8
Fourth Quarter.......................................... 24 9/16 14
</TABLE>
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ----
<S> <C> <C>
First Quarter........................................... $ 22 3/16 $ 14 3/8
Second Quarter (through April 5, 1999).................. 16 3/4 15 3/4
</TABLE>
On April 5, 1999, the last reported sales price of the Class A common stock
was $16 3/16.
There were approximately 49 record holders of the Class A common stock at
April 1, 1999. On March 2, 1999, Republic Industries converted all of its shares
of our Class B common stock into shares of our Class A common stock. As of the
date of this prospectus, there are no record holders of our Class B common
stock.
13
<PAGE> 16
SELECTED FINANCIAL DATA
You should read the following selected financial data along with our
Consolidated Financial Statements and their Notes as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998 and
the section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Our selected Statement of
Operations Data for the full 1994 fiscal year, and our Selected Balance Sheet
Data as of December 31, 1995 and 1994 presented below are from our unaudited
consolidated financial statements, which we believe reflect all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of this data. See Notes 1, 3, 6 and 9 of the Notes to our
Consolidated Financial Statements for a discussion of basis of presentation,
business combinations, stockholders' equity and restructuring and other charges
and their effect on comparability of year-to-year data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $1,369.1 $1,127.7 $ 953.3 $ 805.0 $ 610.1
Expenses:
Cost of operations.............................. 842.7 723.0 628.3 507.1 380.8
Depreciation, amortization and depletion........ 106.3 86.1 75.3 63.0 53.2
Selling, general and administrative............. 135.8 117.3 135.3 137.7 115.0
Restructuring and other charges................. -- -- 8.8 3.3 --
-------- -------- -------- -------- --------
Operating income.................................. 284.3 201.3 105.6 93.9 61.1
Interest expense.................................. (44.7) (25.9) (29.7) (19.1) (13.2)
Interest income................................... 1.5 4.9 11.7 4.4 1.5
Other income (expense), net....................... (.9) 1.8 2.2 1.8 (5.5)
-------- -------- -------- -------- --------
Income from continuing operations before income
taxes........................................... 240.2 182.1 89.8 81.0 43.9
Provision for income taxes........................ 86.5 65.9 38.0 31.6 17.0
-------- -------- -------- -------- --------
Income from continuing operations................. 153.7 116.2 51.8 49.4 26.9
Loss from discontinued operations................. -- -- -- (24.8) (5.4)
-------- -------- -------- -------- --------
Net income........................................ $ 153.7 $ 116.2 $ 51.8 $ 24.6 $ 21.5
======== ======== ======== ======== ========
Basic and diluted earnings per share(a)........... $ 1.13 $ 1.21 $ .54 $ .26 $ .22
======== ======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding(a)........................... 135.6 95.7 95.7 95.7 95.7
======== ======== ======== ======== ========
Pro forma basic and diluted earnings per
share(b)........................................ $ 1.01
========
Pro forma weighted average common and common
equivalent shares outstanding(b)................ 175.4
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 556.6 $ -- $ 24.2 $ 36.1 $ 39.2
Total assets...................................... 2,812.1 1,348.0 1,090.3 838.9 681.1
Amounts due to Republic Industries................ -- 266.1 254.9 125.0 27.4
Total debt........................................ 1,057.1 75.1 142.7 160.1 195.2
Total stockholders' equity........................ 1,299.1 750.8 494.5 372.2 272.4
</TABLE>
- ---------------
(a) Prior to our initial public offering on July 1, 1998, we had only 100 shares
of common stock outstanding, all of which Republic Industries owned.
Historical share and per share data have been retroactively adjusted for the
recapitalization of our 100 shares of common stock into 95.7 million shares
of Class B common stock in July 1998.
(b) Pro forma basic and diluted earnings per share assume the initial public
offering and the repayment in full of the amounts we owed to Republic
Industries occurred as of January 1, 1998.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
Consolidated Financial Statements and their Notes, contained in this prospectus.
All references to historical share and per share data of our common stock have
been retroactively adjusted for the recapitalization of the 100 shares of our
common stock into 95,688,083 shares of Class B common stock in July 1998.
Republic Industries converted all of the outstanding Class B common stock into
shares of Class A common stock on a one-for-one basis on March 2, 1999.
OVERVIEW
In May 1998, Republic Industries announced its intention to separate our
company from itself. As a result, we entered into certain agreements with
Republic Industries providing for the separation and governing various interim
and ongoing relationships between our company and Republic Industries. Republic
Industries also announced its intention to distribute the remaining shares of
our common stock that it owned as of the distribution date to its stockholders
in 1999, subject to conditions and consents. One of the conditions of the
distribution was that the IRS would provide Republic Industries with a favorable
private letter ruling stating that, among other things, the distribution will
qualify as a tax-free distribution for federal income tax purposes under Section
355 of the IRS code.
As part of the separation, and prior to the initial public offering, we
declared and paid a $2.0 billion dividend in April 1998 to Republic Industries
with a series of promissory notes. In addition, we owed Republic Industries
approximately $139.5 million and owed Republic Resources Company, at that time a
subsidiary of ours, approximately $165.4 million, net of an approximate $90.5
million that Resources owed to our company. On June 30, 1998, we repaid $565.4
million of the promissory notes that we owed to Republic Industries with cash,
assets we received from Resources and with the receivable that Resources owed to
our company. In addition, we distributed all of our shares of common stock of
Resources to Republic Industries. We repaid the approximately $139.5 million we
owed to Republic Industries and the approximately $255.9 million we owed to
Resources by issuing 16,474,417 shares of our Class A common stock to Republic
Industries, and we repaid the remaining balance of the promissory notes due to
Republic Industries with the net proceeds from the sale of 63,250,000 shares of
Class A common stock in the initial public offering completed in July 1998,
which totalled approximately $1.4 billion.
Following the initial public offering and the repayment of amounts due to
Republic Industries, Republic Industries owned approximately 63.9% of the
outstanding shares of our Class A and Class B common stock representing
approximately 88.7% of the combined voting power of all of the outstanding
shares of the Class A and Class B common stock. Following the recapitalization
of our common stock, repayment of amounts due to Republic Industries and the
initial public offering, we had the following shares of common stock outstanding
(in millions):
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
------- ------- -----
<S> <C> <C> <C>
Recapitalization of our common stock........................ -- 95.7 95.7
Repayment of amounts due to Republic Industries............. 16.5 -- 16.5
Initial public offering..................................... 63.2 -- 63.2
---- ---- -----
79.7 95.7 175.4
==== ==== =====
</TABLE>
15
<PAGE> 18
In July 1998, Republic Industries 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 Republic Industries in writing that the IRS would not rule as
requested. In light of the IRS action, Republic Industries converted all of its
shares of Class B common stock into shares of Class A common stock, on a
one-for-one basis, and exercised registration rights that it had with our
company in order to be able to sell its entire interest in our company,
consisting of approximately 112.2 million shares of Class A common stock, under
this prospectus.
Prior to our initial public offering, our employees received options under
Republic Industries' stock option plans. As of March 2, 1999, options to
purchase approximately 8.5 million shares of Republic Industries common stock
were cancelled and were replaced, on a one-for-one basis, with options to
purchase shares of our Class A common stock under our 1998 Stock Incentive Plan.
These replacement options retained the vesting and exercise rights of the
original options, subject to exercise limitations for individuals who signed
stock option repricing agreements with Republic Industries. The individual
replacement options are priced so that the unrealized gain or loss on each grant
of Republic Industries options will generally be maintained under the
replacement options. We estimate the compensation expense related to our
granting of some replacement options with exercise prices below the fair market
value of the common stock at the date of grant to be approximately $3.5 million,
which we will record in the first quarter of 1999 as a one-time charge to
earnings. As of March 30, 1999, options to purchase a total of approximately
12.6 million shares of Class A common stock, at a weighted average exercise
price of $18.57 per share, were outstanding under our 1998 Stock Incentive Plan,
approximately 1.8 million of which are presently exercisable.
Prior to the initial public offering, we had been a wholly owned subsidiary
of Republic Industries. As a result, Republic Industries provided us with
various services including:
- accounting,
- auditing,
- cash management,
- corporate communications,
- corporate development,
- financial and treasury,
- human resources and benefit plan administration,
- insurance and risk management,
- legal,
- purchasing and
- tax services.
Republic Industries also provided our company with the services of a number
of its executives and employees. In consideration for these services, Republic
Industries allocated to our company a portion of its overhead costs related to
these services. This allocation had historically been based on the proportion of
our invested capital as a percentage of the consolidated invested capital of
Republic Industries and its subsidiaries, including our company. In June 1998,
we entered into a services
16
<PAGE> 19
agreement with Republic Industries under which Republic Industries agreed to
continue to provide various services to our company in exchange for a monthly
fee of $1.25 million. This fee is subject to review and adjustment from time to
time as we reduce the services we require from Republic Industries. Effective
January 1, 1999, we negotiated a reduction in this fee to $0.9 million per
month. Our management believes that the amounts allocated to our company and/or
charged under the services agreement were no less favorable to our company than
costs we would have incurred to obtain such services on our own or from
unaffiliated third parties.
The historical consolidated financial information included in this
prospectus does not necessarily reflect what our financial position and results
of operations would have been had we been operated as a separate, stand-alone
entity during the periods presented.
OUR BUSINESS
We are a leading provider of non-hazardous solid waste collection and
disposal services in the United States. We provide solid waste collection
services for commercial, industrial, municipal and residential customers through
134 collection companies in 26 states. We also own or operate 74 transfer
stations and 57 solid waste landfills.
We generate revenue primarily from our solid waste collection operations,
and our remaining revenue is from landfill disposal services and other services
including recycling and composting operations. Collection, transfer and
disposal, recycling and other services accounted for approximately 78.7%, 10.1%,
3.1% and 8.1%, respectively, of consolidated revenue for the year ended December
31, 1998.
Our revenue from collection operations consists of fees we receive from
commercial, industrial, municipal and residential customers. In 1998, our
revenue from collection services was approximately one third from services
provided to commercial customers, one third from services provided to industrial
customers and one third from services provided to municipal and residential
customers. Our residential and commercial collection operations in some markets
are based on long-term contracts with municipalities. We generally provide
industrial and commercial collection operations to individual customers under
contracts with terms up to three years. Our revenue from landfill operations is
from disposal or tipping fees charged to third parties. In general, we integrate
our recycling operations with our collection operations and obtain revenue from
the sale of recyclable materials. No one customer has individually accounted for
more than 10.0% of our consolidated revenue in any of the last three years.
The cost of our collection operations is primarily variable and includes
disposal, labor, fuel and equipment maintenance costs. We try to be more
efficient by controlling the movement of waste streams from the point of
collection through disposal. During 1998, we disposed of approximately 40% of
the total volume of waste we collected at our landfills. Our landfill cost of
operations includes most daily operating expenses, costs of capital for cell
development, accruals for closure and post-closure costs and the legal and
administrative costs of ongoing environmental compliance. We expense all
indirect landfill development costs as they are incurred and we capitalize and
deplete the following direct landfill development costs based on consumed
airspace:
- engineering,
- upgrading,
- cell construction and
- permitting costs.
17
<PAGE> 20
BUSINESS COMBINATIONS
We make decisions to acquire or invest in businesses based on financial and
strategic considerations.
We have retroactively included significant businesses that we acquired and
accounted for under the pooling of interests method of accounting in our
consolidated financial statements as if the companies had operated as one entity
since inception. We have included businesses that we acquired and accounted for
under the purchase method of accounting in our consolidated financial statements
from the date of acquisition.
In September 1998, we signed an agreement with Waste Management, to acquire
assets and to enter into disposal agreements at various Waste Management
facilities. The assets include 16 landfills, 11 transfer stations and 136
commercial collection routes across the United States, and will be accounted for
under the purchase method of accounting. By March 26, 1999, we had completed the
purchase of the assets for approximately $438.0 million in cash plus properties.
Prior to our initial public offering, Republic Industries acquired various
businesses operating in the solid waste services industry using cash and shares
of Republic Industries common stock. Republic Industries then contributed these
businesses to our company. We have applied the same accounting method Republic
Industries used in accounting for business acquisitions.
During the year ended December 31, 1998, Republic Industries acquired
various solid waste services businesses which it contributed to our company. The
aggregate purchase price Republic Industries paid in transactions accounted for
under the purchase method of accounting was $128.3 million, consisting of cash
and approximately 3.4 million shares of Republic Industries common stock.
Subsequent to our initial public offering, we acquired various solid waste
businesses. The aggregate purchase price we paid in transactions accounted for
under the purchase method of accounting was $450.5 million consisting of cash
and certain properties. Cost in excess of fair value of net assets acquired for
1998 acquisitions totaled approximately $572.4 million. As of December 31, 1998,
we had intangible assets, net of accumulated amortization, of $918.3 million,
which consists primarily of the cost in excess of fair value of net assets
acquired. We amortize cost in excess of the fair value of net assets acquired
over forty years on a straight-line basis. As of December 31, 1998, the
amortization expense associated with these intangible assets on an annualized
basis is approximately $32.2 million. We believe the forty year life assigned to
the cost in excess of the fair value of net assets acquired is reasonable as the
businesses we acquired are generally well-established companies which have been
in existence for many years and have stable, long-term customer relationships.
During the year ended December 31, 1997, Republic Industries acquired
various solid waste services businesses which it contributed to our company. The
aggregate purchase price Republic Industries paid in transactions accounted for
under the purchase method of accounting was $147.9 million, consisting of cash
and approximately 5.7 million shares of Republic Industries common stock. Cost
in excess of the fair value of net assets acquired in these acquisitions totaled
$149.1 million. In addition, Republic Industries issued an aggregate of
approximately 34.1 million shares of Republic Industries common stock in
transactions accounted for under the pooling of interests method of accounting.
Included in the shares of Republic Industries common stock issued in
acquisitions accounted for under the pooling of interests method of accounting
are approximately 0.3 million shares issued for acquisitions that were not
material individually or in the aggregate and, consequently, prior period
financial statements were not restated for such acquisitions.
During the year ended December 31, 1996, Republic Industries acquired
various solid waste services businesses which it contributed to our company. The
aggregate purchase price Republic Industries paid in transactions accounted for
under the purchase method of accounting was
18
<PAGE> 21
$87.6 million, consisting of cash and approximately 6.6 million shares of
Republic Industries common stock. Cost in excess of the fair value of net assets
acquired in these acquisitions totaled $73.6 million. In addition, Republic
Industries issued an aggregate of approximately 40.0 million shares of Republic
Industries common stock in transactions accounted for under the pooling of
interests method of accounting. Included in the shares of Republic Industries
common stock issued in acquisitions accounted for under the pooling of interests
method of accounting are approximately 1.1 million shares issued for
acquisitions that were not material individually or in the aggregate and,
consequently, prior period financial statements were not restated for such
acquisitions.
See Note 3, Business Combinations, of the Notes to our Consolidated
Financial Statements, for further discussion of business combinations.
PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
Our pro forma net income was $177.6 million, or $1.01 per share, for the
year ended December 31, 1998. Our pro forma operating results assume our initial
public offering and the repayment in full of the amounts we owed to Republic
Industries had occurred as of January 1, 1998.
See Note 1, Basis of Presentation, of the Notes to our Consolidated
Financial Statements, for further discussion of pro forma operating results.
CONSOLIDATED RESULTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
Our net income was $153.7 million for the year ended December 31, 1998 as
compared to $116.2 million in 1997 and $51.8 million in 1996. Our operating
results for the year ended December 31, 1996 includes restructuring and other
charges further described below.
The following table summarizes our costs and expenses in millions of
dollars and as a percentage of our revenues for 1996 through 1998:
<TABLE>
<CAPTION>
1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue.............................. $1,369.1 100.0% $1,127.7 100.0% $ 953.3 100.0%
Cost of operations................... 842.7 61.6 723.0 64.1 628.3 65.9
Depreciation, amortization and
depletion.......................... 106.3 7.8 86.1 7.6 75.3 7.9
Selling, general and administrative
expenses........................... 135.8 9.9 117.3 10.4 135.3 14.2
Restructuring and other charges...... -- -- -- -- 8.8 .9
-------- ----- -------- ----- -------- -----
Operating income..................... $ 284.3 20.8% $ 201.3 17.9% $ 105.6 11.1%
======== ===== ======== ===== ======== =====
</TABLE>
Revenue. Revenue was $1,369.1 million, $1,127.7 million 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 Operations. Cost of operations was $842.7 million, $723.0 million
and $628.3 million or, as a percentage of revenue, 61.6%, 64.1% and 65.9% for
the years ended December 31, 1998, 1997 and 1996, respectively. The increases in
aggregate dollars are a result of the expansion of our operations through
acquisitions and internal growth. The decreases in cost of operations as a
percentage of revenue are primarily a result of our improved operating
efficiencies.
19
<PAGE> 22
Depreciation, Amortization and Depletion. Depreciation, amortization and
depletion expenses were $106.3 million, $86.1 million and $75.3 million or, as
percentages of revenue, 7.8%, 7.6% and 7.9% for the years ended December 31,
1998, 1997 and 1996, respectively. The increases in depreciation, amortization
and depletion expenses in aggregate dollars are due primarily to our
acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $135.8 million, $117.3 million and $135.3 million
or, as percentages of revenue, 9.9%, 10.4% and 14.2% for the years ended
December 31, 1998, 1997 and 1996, respectively. The decreases in selling,
general and administrative expenses as percentages of revenue in each of the
years are primarily due to applying our existing overhead structure over an
expanding revenue base. Included in selling, general and administrative expenses
are Republic Industries' allocations of corporate general and administrative
costs of $7.5 million, $10.2 million and $8.4 million for the years ended
December 31, 1998, 1997 and 1996, respectively, and fees paid to Republic
Industries under the services agreement of $7.5 million for the year ended
December 31, 1998. See Note 10, Related Party Transactions, of the Notes to our
Consolidated Financial Statements for further information.
Restructuring and Other Charges. We recorded restructuring and other
charges of approximately $8.8 million for the year ended December 31, 1996,
which includes costs to close certain landfill operations, asset write-offs and
merger expenses associated with certain business combinations accounted for
under the pooling of interests method of accounting.
Operating Income. Operating income was $284.3 million, $201.3 million and
$105.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Excluding restructuring and other charges, operating income would
have been $114.4 million in 1996.
Interest Expense. We incurred interest expense on our revolving credit
facility, on amounts due to Republic Industries, and on the debt we assumed in
acquisitions. Interest expense was $44.7 million, $25.9 million and $29.7
million for the years ended December 31, 1998, 1997 and 1996, respectively, and
includes interest expense on amounts due to Republic Industries of $37.3
million, $20.2 million and $18.8 million for the years ended December 31, 1998,
1997 and 1996, respectively. We repaid in full the amounts due to Republic
Industries in July 1998 by issuing our Class A common stock and from the net
proceeds of the initial public offering. Pro forma interest expense was $7.4
million for the year ended December 31, 1998.
Interest and Other Income. Interest and other income was $0.6 million,
$6.7 million and $13.9 million for the years ended December 31, 1998, 1997 and
1996, respectively. The variances during the periods are primarily due to
fluctuations in cash balances on hand and related interest income.
Income Taxes. Our provision for income taxes was $86.5 million, $65.9
million and $38.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The effective income tax rate was 36.0%, 36.2% and 42.3% for the
years ended December 31, 1998, 1997 and 1996, respectively. The higher 1996
effective income tax rate is primarily due to varying higher historical
effective income tax rates of acquired businesses. We expect that our effective
income tax rate will be approximately 38.5% in 1999.
As of our initial public offering on July 1, 1998, we are no longer
included in Republic Industries' federal tax returns.
ENVIRONMENTAL AND LANDFILL MATTERS
We owned or operated 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
20
<PAGE> 23
December 31, 1998. As of December 31, 1998 and 1997, we had 1,230.1 million and
1,104.7 million, respectively, in-place cubic yards of available airspace at our
landfills. Airspace increased during 1998 by 125.4 million cubic yards as a
result of landfills we acquired and internally developed totaling 145.3 million
cubic yards, offset by consumption of 19.9 million cubic yards during the year.
We provide for accrued environmental and landfill costs which include
landfill site closure and post-closure costs. Landfill site closure and
post-closure costs include estimated costs to be incurred for final closure of
the landfills and estimated costs for providing required post-closure monitoring
and maintenance of landfills. We accrued these costs based on consumed airspace
at the landfills. We estimate our future cost requirements for closure and
post-closure monitoring and maintenance for our solid waste facilities based on
our interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations. These estimates do not take into account
discounts for the present value of our total estimated costs. We have
engineering reviews of the future cost requirements for closure and post-closure
monitoring and maintenance for our operating landfills performed on an annual
basis. These reviews provide the basis upon which we estimate future costs and
revise the related accruals. Changes in these estimates primarily relate to
modifications in available airspace, inflation and changes in regulations, all
of which we take into consideration annually. As of December 31, 1998, assuming
that all available landfill capacity is used, we expect to expense approximately
$370.5 million of these costs over the remaining lives of these facilities.
As of December 31, 1998 and 1997, accrued closure and post-closure costs
associated with landfills were $73.4 million and $47.3 million, respectively.
The current and long-term portion of these costs reflected in our Consolidated
Balance Sheets are included in other current liabilities and accrued
environmental and landfill costs, respectively. The increase in such accruals
resulted primarily from landfill acquisitions.
We accrue costs related to environmental remediation activities through a
charge to income in the period such liabilities become probable and can be
reasonably estimated.
FINANCIAL CONDITION
As of December 31, 1998, we had $556.6 million of unrestricted cash. We
used this cash primarily to fund acquisitions in the first quarter of 1999.
As previously discussed, on July 1, 1998, we completed our initial public
offering, resulting in net proceeds of approximately $1.4 billion. In July 1998,
we repaid all remaining amounts due to Republic Industries with all of the net
proceeds of our initial public offering and by issuing additional shares of our
Class A common stock.
Prior to our initial public offering, we obtained working capital and
capital for our general corporate purposes, including acquisitions, from
Republic Industries. After the initial public offering, Republic Industries has
not provided funds to finance our operations or acquisitions. We use our own
operating cash flow to finance our working capital, acquisitions and other
requirements. Additionally, in July 1998, we entered into a $1.0 billion
unsecured revolving credit facility with a group of banks. $500.0 million of the
facility has a term expiring in July 1999 and the remaining $500.0 million has a
term expiring in July 2003. Borrowings under the facility bear interest at LIBOR
based rates. We use proceeds from the facility to satisfy working capital
requirements, capital expenditures and acquisitions. As of December 31, 1998, we
had approximately $13.3 million of availability under the short term portion of
the credit facility.
We are currently evaluating debt and equity financing alternatives to
replace the portion of the credit facility expiring in July 1999. At present,
our management believes that it will be able to raise additional debt or equity
financing to fund general corporate needs and to complete acquisitions;
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however, we cannot assure you that we will be able to obtain additional
financing under favorable terms.
We believe that we have sufficient financial resources available to meet
our anticipated capital requirements and obligations as they come due.
LIQUIDITY AND CAPITAL RESOURCES
The major components of changes in cash flows for the years ended December
31, 1998, 1997 and 1996 are discussed below.
Cash Flows from Operating Activities. Cash provided by operating
activities was $271.1 million, $279.4 million and $143.5 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The changes in cash
provided by operating activities during the periods are due to expansion of our
business.
Cash Flows from Investing Activities. Cash flows from investing activities
consist primarily of cash used for business acquisitions and capital additions.
Cash used in business acquisitions, net of cash acquired, was $425.2 million
during the year ended December 31, 1998. Capital additions were $193.0 million,
$165.3 million and $146.9 million during the years ended December 31, 1998, 1997
and 1996, respectively.
We believe capital expenditures will increase as a result of the expansion
of our business. In addition, we expect to use primarily cash for business
acquisitions. We intend to finance capital expenditures and acquisitions through
cash on hand, cash flow from operations, the 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 commercial bank
and affiliate borrowings and repayments of debt and, in 1998, proceeds from the
sale of Class A common stock in the initial public offering.
We used proceeds from bank and affiliate borrowings to fund acquisitions
and capital additions, and to repay debt. We used all of the proceeds from the
initial public offering to repay amounts due to Republic Industries.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about our market sensitive financial
instruments and constitutes a "forward-looking statement." Our major market risk
exposure is changing interest rates in the United States and fluctuations in
LIBOR. We intend to manage interest rate risk through the use of a combination
of fixed and floating rate debt. All items described below are non-trading.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FAIR VALUE
--------------------------------------------------------------- DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
------ ----- ----- ----- ------ ---------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VARIABLE RATE DEBT
Amount outstanding.................. $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% 6.36%
</TABLE>
SEASONALITY
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.
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YEAR 2000
We utilize software and related technologies throughout our business that
will be affected by the date change in the year 2000. We are currently
addressing the impact of Y2K on our computer programs, embedded chips and third
party suppliers. We have developed a dedicated Y2K project office to coordinate
the compliance efforts and to monitor and report the project status throughout
our company.
We have identified four core phases in preparing for the year 2000:
Assessment -- In the assessment phase, an inventory of software,
hardware, telecommunications equipment, embedded chip technology and
significant third party suppliers is performed and critical systems and
vendors are identified and prioritized.
Analysis -- In the analysis phase, each system or item assessed as
critical is reviewed to determine its 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.
We have focused on six critical systems or processes in our compliance
efforts:
(1) hauling and disposal fleet operations,
(2) electrical systems,
(3) telecommunications,
(4) payroll processing,
(5) billing systems, and
(6) payments to critical third parties.
We primarily use industry standard automated applications in most of our
locations. We believe that the majority of these applications comply with Y2K
requirements but we are currently testing compliance in coordination with our
vendors. We expect to complete the testing and validation of these applications
by the second quarter of 1999. Our three locations using proprietary software
are currently in the remediation phase, which we expect to be completed by the
end of the second quarter of 1999. We expect to complete testing and validation
of the software at these locations by the third quarter of 1999.
We are currently finalizing our assessment of embedded chips and third
party suppliers. We expect to complete the inventory and assessment of this
information during the second quarter of 1999. As we receive information related
to these areas, we analyze the compliance of products and develop a strategy for
repair or replacement of non-compliant systems through testing and validation.
We expect to complete the testing and validation phases by the third quarter of
1999.
To date, we estimate that we have spent approximately $1.2 million on Y2K
efforts across all areas of our company and expect to spend a total of
approximately $4.0 million when complete. We expect to fund Y2K costs through
our operating cash flows. We will expense all system modification
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costs associated with Y2K as incurred. Our Y2K expenditures vary significantly
in project phases and vary depending on remedial methods used. Our past
expenditures in relation to total estimated costs should not be used as a basis
for estimating our progress to completion for any element of our Y2K project.
We presently believe that upon the remediation of our business software
applications, as well as other equipment with embedded technology, the Y2K issue
will not present a materially adverse risk to our future consolidated results of
operations, liquidity, and capital resources. However, if we do not complete
such remediation in a timely manner or if the level of timely compliance by our
key suppliers or vendors is not sufficient, the Y2K issue could have a material
impact on our operations, including:
- delays in delivery of services resulting in loss of revenue,
- increased operating costs,
- loss of customers or suppliers, and
- other significant disruptions in our business.
We have initiated contingency and business continuation plans which address
the six critical processes described above. We expect our contingency and
business continuation plans to be implemented by the third quarter of 1999.
The most likely reasonable worst case scenario resulting from the Y2K issue
would involve the failure of one of our critical systems. In response to this
scenario, contingency plans are currently being written and tested. These plans
include the manual performance of processes that are currently automated, such
as billing, accounts payable and payroll. We expect to complete the
implementation of these contingency plans by the third quarter of 1999.
Our company has a number of material third party relationships, the most
significant of which include billing services provided by municipalities,
delivery of fuel for collection vehicles and delivery of parts and supplies for
collection vehicles. Surveys have been distributed to each of the material third
parties identified and results are being analyzed as surveys are received. We
expect to complete this task by the second quarter of 1999. In addition,
employees of our company will independently verify and validate these responses
by the third quarter of 1999.
Determining the Y2K readiness of third party products including,
information technology and other computerized equipment and business
dependencies, including suppliers, distributors or ancillary industry groups,
requires pursuit, collection and appraisal of voluntary statements made or
provided by those parties, if available, together with independent factual
research. Although we have taken, and will continue to take, reasonable efforts
to gather information to determine and verify the readiness of such products and
business dependencies, we cannot assure you that we will be able to obtain
reliable information. In addition, verification methods, including testing
methods, may not prove to be reliable or may not be fully implemented.
Accordingly, notwithstanding our efforts, we cannot assure you that a product or
a business dependency is Y2K ready.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires computer
software costs associated with internal use software to be expensed as incurred
until certain capitalization criteria are met. We adopted SOP 98-1 beginning
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January 1, 1999. Adoption of this statement will not have a material impact on
our consolidated financial position or results of operations.
In April 1998, the American Institute issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. Our accounting policies conform with the requirements of
SOP 98-5, therefore adoption of this statement will not impact our 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." Standard No. 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. Standard No.
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Standard No. 133
cannot be applied retroactively. We will adopt Standard No. 133 beginning
January 1, 2000. We do not expect the adoption of this statement to have a
material impact on our consolidated financial position or results of operations.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This document contains certain statements that are "Forward Looking
Statements," which include, among other things, the discussions of our growth
and operating strategies, and expectations concerning market position, future
operations, margins, revenue, profitability, liquidity and capital resources, as
well as statements concerning the integration of the operations of acquired
businesses and achievement of financial benefits and operational efficiencies in
connection therewith.
Forward Looking Statements are included in the sections entitled
"Prospectus Summary," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business," and
elsewhere in this prospectus. Although we believe that the expectations
reflected in Forward Looking Statements are reasonable, we can give no assurance
that the expectations will prove to have been correct. Generally, these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of such plans or strategies, number of
acquisitions and projected or anticipated benefits from acquisitions that we
made or will make, or projections involving our operations, and are subject to a
number of uncertainties, risks and other influences, many of which are outside
our control and any one of which, or a combination of which, could materially
affect the results of our operations. Important factors that could cause actual
results to differ materially from our expectations include, but are not limited
to, those that are disclosed in this section and under the "Risk Factors"
section included herein. We assume no duty to update the Forward Looking
Statements.
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BUSINESS
BACKGROUND
In July 1998, we completed our initial public offering of our Class A
common stock for $1.4 billion in cash, all of the net proceeds of which we used
to repay debt owed to Republic Industries. As of the date of this prospectus,
Republic Industries owned approximately 63.9% of our common stock.
COMPANY OVERVIEW
We are a leading provider of services in the domestic non-hazardous solid
waste industry. We provide non-hazardous solid waste collection services for
commercial, industrial, municipal and residential customers through 134
collection companies in 26 states. We also own or operate 74 transfer stations
and 57 solid waste landfills.
We 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 our successful execution of our growth and operating strategies
described below.
Our presence in high growth markets throughout the Sunbelt, including
Florida, Georgia, Nevada, Southern California and Texas, and in other domestic
markets that have experienced higher than average population growth during the
past several years supports our internal growth strategy. We believe that our
presence in these markets positions our company to experience growth at rates
that are generally higher than the industry's overall growth rate.
Since 1995, we have acquired numerous solid waste companies with an
aggregate of over $1.4 billion in annual revenue. In September 1998, we agreed
to purchase 16 landfills, 11 transfer stations, 136 commercial collection routes
and related assets, from Waste Management. By March 26, 1999, we had completed
the purchase for approximately $438.0 million in cash plus certain properties.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Business Combinations."
We believe that we are well positioned to continue to increase our revenue
and operating income in order to enhance stockholder value.
INDUSTRY OVERVIEW
Based on analyst reports and industry trade publications, we believe 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. Only five companies generated the substantial majority of the
publicly-owned companies' total revenue of approximately $15.4 billion in 1997.
However, according to industry data, the domestic non-hazardous waste industry
remains highly fragmented as more than 5,000 privately-held companies generated
total revenue of approximately $8.0 billion.
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We believe 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. We believe that this trend will
continue as a result of the following factors:
Subtitle D Regulation. Subtitle D of the Resource Conservation and
Recovery Act of 1976, as currently in effect, 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
participants in our industry have found these costs difficult, if not
impossible, to bear. Large publicly-owned companies, like our 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. By being able to control the
waste stream in a market through the collection, transfer and disposal
process, integrated solid waste companies gain further competitive
advantage over non-integrated operators. The ability of the integrated
companies to both collect and dispose of solid waste, coupled with access
to significant capital resources necessary for 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
Our growth strategy focuses on increasing revenue, gaining market share and
enhancing stockholder value through internal growth and acquisitions. For
certain risks related to our growth strategy, see "Risk Factors."
- - INTERNAL GROWTH. Our internal growth strategy focuses on retaining existing
customers and obtaining commercial, municipal and industrial customers through
our well-managed sales and marketing activities.
Long-Term Contracts. We seek to obtain long-term contracts for
collecting solid waste in high-growth markets. These include exclusive
franchise agreements with municipalities as well as commercial and
industrial contracts. By obtaining such long-term agreements, we have the
opportunity to grow our contracted revenue base at the same rate as the
underlying population growth in these markets. For example, we have 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. We believe that this positions our company
to experience internal growth rates that are generally higher than our
industry's overall growth rate. In addition, we believe that by securing a
base of long-term recurring revenue in growth markets, we are better able
to protect our market position from competition and our business is less
susceptible to downturns in economic conditions.
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Sales and Marketing Activities. Our well-managed sales and marketing
activities enable our company to capitalize on our leading positions in
many of the markets in which we operate. We currently have 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, these
employees directly solicit business from existing and prospective
commercial, industrial, municipal and residential customers. We emphasize
our rate and cost structures when we train new and existing sales
personnel.
- - ACQUISITION GROWTH. As a result of the highly fragmented nature of the solid
waste industry, we have been able to grow significantly through acquisitions.
Our acquisition growth strategy focuses on the approximately $8.0 billion of
revenue generated by over 5,000 privately-held solid waste companies in 1997.
We believe that our 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 these
privately-held companies' owners and principals. Our acquisition growth
strategy focuses on:
- acquiring businesses that position our company for growth in existing and
new markets,
- acquiring well-managed companies and retaining local management,
- integrating business in existing markets and
- acquiring operations and facilities from municipalities that are
privatizing.
For certain risks involved with our growth strategy, see "Risk Factors -- We
may be unable to execute our acquisition growth strategy."
Acquiring Businesses Positioning the Company for Growth. In making
acquisitions, we principally target high quality businesses that will allow
our company to be, or provide our company favorable prospects of becoming,
a leading provider of integrated solid waste services in markets with
favorable demographic growth. Generally we have acquired, and will continue
to seek, solid waste collection, transfer and disposal companies that:
- have strong operating margins,
- are in growth markets,
- are among the largest or have a significant presence in their local
markets and
- have long-term contracts or franchises with municipalities and other
customers.
Although we are seeking to expand our operations to selected new
markets where the potential for growth and further integration of
operations exists, our primary focus is on acquisition efforts in our
existing markets in the Sunbelt, including Florida, Georgia, Nevada,
Southern California and Texas, and in other domestic markets that have
experienced higher than average population growth during the past several
years. We are, however, not limited to this target criteria for
acquisitions, and may also acquire additional non-hazardous solid waste
operations as opportunities arise. We continuously review possible
acquisition candidates and are in discussions from time to time with one or
more of such candidates. In September 1998, we 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
the completion of these acquisitions in March 1999, we have expanded our
presence in four existing markets and have
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entered 16 new markets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Business Combinations."
Acquire Well-Managed Companies. We also seek to acquire businesses
that have experienced management teams that are willing to work with our
company. We generally retain 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 our operations. By furnishing the local management of such
acquired companies with our financial and marketing resources and technical
expertise, we believe that the acquired companies are better able to secure
additional municipal franchises and other contracts. This enables our
company to grow internally acquired businesses at faster rates than the
industry average.
Integrate Business in Existing Markets. Once we have a base of
operations in a particular market, we focus 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. We
integrate the operations of such tuck-in businesses into our existing
operations in that market. In addition, we seek to acquire landfills,
transfer stations, and collection companies that operate in markets that we
are already servicing. By doing so, we are able to increase our revenue and
market share and integrate operations and consolidate duplicative
facilities and functions to maximize cost efficiencies and economies of
scale.
Privatize Municipal Operations. We also seek to acquire solid waste
collection operations, transfer stations and landfills that municipalities
and other governmental authorities are privatizing. 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
We seek to leverage existing assets and revenue growth to increase
operating margins and enhance stockholder value. Our operating strategy to
accomplish this goal is to:
(1) utilize the extensive industry knowledge and experience of our
executive management,
(2) utilize a decentralized management structure in overseeing day-to-day
operations,
(3) integrate waste operations,
(4) improve operating margins through economies of scale, cost efficiencies
and asset utilization and
(5) achieve high levels of customer satisfaction.
For certain risks related to our operating strategy, see "Risk Factors."
- - EXPERIENCED EXECUTIVE MANAGEMENT TEAM. We believe that we have one of the
most experienced executive management teams among publicly-traded companies in
the solid waste industry.
H. Wayne Huizenga, who serves as our 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
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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, who serves as our 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, 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, who has served as our 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., from 1992 to 1997.
James H. Cosman, our President and Chief Operating Officer, joined
Republic Industries as President of its Solid Waste Group in 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, from 1993 to 1996.
The other officers with responsibility for our operational affairs have
an average of over 16 years of management experience in the solid waste
industry.
- - DECENTRALIZED MANAGEMENT STRUCTURE. We maintain a relatively small corporate
headquarters staff, relying on a decentralized management structure to
minimize administrative overhead costs and to manage our day-to-day operations
more efficiently. Our local management has extensive industry experience in
growing, operating and managing solid waste companies, and substantial
experience in their local geographic markets. Our four Regional Vice
Presidents have an average of 22 years of experience in the industry, and our
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, we believe we have one of the lowest turnover levels
in the industry for our local management teams. As a result of retaining
experienced managers with extensive local knowledge, community relations and
name recognition, we react rapidly to changes in our markets. We also seek to
implement the best practices of our various regions and areas throughout our
operations to improve operating margins.
- - INTEGRATE OPERATIONS. By controlling waste streams from the point of
collection through disposal, we seek to achieve a high rate of waste
integration. Through acquisitions and other market development activities, we
create market specific, integrated operations typically consisting of one or
more collection companies, transfer stations and landfills. We consider
acquiring companies
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which own or operate landfills with significant permitted disposal capacity
and appropriate levels of waste volume. We also seek to acquire solid waste
collection companies in markets in which we own or operate landfills. In
addition, we generate internal growth in our disposal operations by
constructing new landfills and expanding our existing landfills from time to
time in markets in which we have significant collection operations or in
markets that we determine lack sufficient disposal capacity. During the year
ended December 31, 1998, we disposed of approximately 40% of the total volume
of waste that we collected at our own landfills. Because we do not have
landfill facilities for all markets in which we provide collection services,
we believe that through landfill and transfer station acquisitions and
development we have the opportunity to increase our waste internalization rate
and further integrate our operations. By further integrating operations in
existing markets through acquisitions and development of landfills and
transfer stations, we are able to reduce our disposal costs.
- - ECONOMIES OF SCALE AND COST EFFICIENCIES. To improve operating margins, our
management focuses on achieving economies of scale and cost efficiencies. The
consolidation of acquired businesses into existing operations reduces costs by
decreasing capital and expenses used for routing, personnel, equipment and
vehicle maintenance, inventories and back-office administration. Generally, we
are consolidating our administrative centers to reduce our general and
administrative costs. We have reduced our selling, general and administrative
expenses from 14.2% of consolidated revenue in 1996 to 9.9% of consolidated
revenue in 1998. In addition, our size allows our company to negotiate volume
discounts for certain purchases, including waste disposal rates at landfills
operated by third parties. Furthermore, we have taken steps to increase
utilization of our 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. Our goal of maintaining high levels of
customer satisfaction complements our operating strategy. Our personalized
sales process of periodically contacting commercial, industrial and municipal
customers is oriented towards maintaining relationships and ensuring that
service is being properly provided.
OPERATIONS
Our operations primarily consist of the collection and disposal of
non-hazardous solid waste.
Collection Services. We provide solid waste collection services to
commercial, industrial, municipal and residential customers in 26 states through
134 collection companies. In 1998, the revenue we derived from collection
services was approximately one third from services provided to municipal and
residential customers, one third from services provided to commercial customers
and one third from services provided to industrial customers.
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Our residential collection operations involve the curbside collection of
refuse from small containers into collection vehicles for transport to transfer
stations or directly to landfills. Residential solid waste collection services
are typically performed under contracts with municipalities, which we generally
secure by competitive bid and which give our company exclusive rights to service
all or a portion of the homes in their respective jurisdictions. These contracts
or franchises usually range in duration from one to five years, although some of
our 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 our 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 our commercial and industrial collection operations, we supply our
customers with small waste containers or large waste containers commonly known
as "roll-off" containers. We also rent compactors to large waste generators.
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.
We also provide waste collection services to industrial and construction
facilities on a contractual basis with terms generally ranging from a single
pickup to one year and we rent waste roll-off containers to construction sites.
We collect the containers or compacted waste and transport them either to a
landfill, where the waste is disposed of, or to a transfer station.
We own or operate 74 transfer stations. We deposit waste at these stations,
as do other private haulers and municipal haulers for compaction and transfer to
trailers for transport to landfills, incinerators, recycling facilities or other
disposal sites.
Also we currently provide recycling services in certain markets primarily
to comply with local laws or obligations under our 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. We own or operate 57 solid waste landfills. As of
December 31, 1998, the 48 landfills we owned or operated had approximately 6,200
permitted acres and total available permitted disposal capacity of approximately
1.2 billion in-place cubic yards. The in-place capacity of our landfills is
subject to change based on engineering factors, requirements of regulatory
authorities and successful site expansions. Some of our landfills accept
non-hazardous special waste, including utility ash, asbestos and contaminated
soils. See "-- Properties."
Most of our existing landfill sites have the potential for expanded
disposal capacity beyond the currently permitted acreage. We monitor the
availability of permitted disposal capacity at each of our landfills and
evaluate whether to pursue expansion at a given landfill based on estimated
future waste
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<PAGE> 35
volumes and prices, remaining capacity and likelihood of obtaining expansion. As
of December 31, 1998, we believe that each of our landfills has adequate
permitted capacity. To satisfy future disposal demand, we are currently seeking
to expand permitted capacity at certain of our landfills.
Other Services. We have materials recovery facilities and other recycling
operations, which are generally required to fulfill our 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 our residential
collection operations. In some areas, we receive commercial and industrial solid
waste that is sorted at our 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. Wherever possible, our strategy is to reduce our exposure to
fluctuations in recyclable commodity prices by utilizing third party facilities,
thereby minimizing our recycling investment. We use long-term contracts for the
sale of recycling materials to mitigate the impact of commodity price
fluctuations. We also have composting operations at which yard waste is
composted, packaged and sold as mulch.
SALES AND MARKETING
We seek to provide quality services that will enable our company to
maintain high levels of customer satisfaction. We derive our business from a
broad customer base which we believe will enable our company to experience
stable growth. We focus our marketing efforts on continuing and expanding
business with existing customers as well as attracting new customers.
We employ more than 350 sales and marketing employees. Our sales and
marketing strategy is to provide high-quality comprehensive solid waste
collection, recycling, transfer and disposal services to our customers at
competitive prices. We target potential customers of all sizes, from small
quantity generators to large "Fortune 500" companies and municipalities.
All our marketing activity is local in nature. We generally do not change
the tradenames of the local businesses that we acquire, and therefore we do not
operate nationally under any one mark or tradename. Rather, we rely on the
goodwill associated with the acquired companies' local tradenames as used in
each geographic market in which we operate.
CUSTOMERS
We provide services to commercial, industrial, municipal and residential
customers. No one customer has individually accounted for more than 10.0% of our
consolidated revenue in any of the last three years.
REGULATION
Our 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 that
we own or operate, 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. These regulations provide governmental authorities with strict
powers of enforcement, which include
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<PAGE> 36
the ability to obtain injunctions and/or impose fines or penalties in the case
of violations, including criminal penalties. The U.S. Environmental Protection
Agency 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 administer these regulations.
We strive to conduct our operations in compliance with applicable laws and
regulations. However, in the existing climate of heightened environmental
concerns, from time to time, we have 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 landfills and other facilities.
We have established a reserve which we believe, based on currently available
information, will be adequate to cover any potential regulatory costs. However,
we cannot assure you that actual costs will not exceed our reserve.
Federal Regulation. The following summarizes the primary environmental and
safety-related federal statutes of the United States affecting our facilities
and operations:
(1) The Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act. The RCRA 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.
Subtitle D of the 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 the 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 our 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 our waste management activities.
(2) The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980. 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. This Act 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
disposed of, parties who transported the hazardous substance to the site
and parties who arranged for disposal at the site. Under the authority of
this Act 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. Liability under this Act is not dependent upon
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<PAGE> 37
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, this Act 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, the EPA has established 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 our landfills have never knowingly received
hazardous wastes as such, it is possible that one or more hazardous
substances may have been deposited or "released" at our landfills or at
other properties which we may have owned or operated. Therefore, we could
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 our facilities before we 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 our business and
financial condition. For a further discussion, see "-- Liability Insurance
and Bonding."
(3) The Federal Water Pollution Control Act of 1972. This 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 our landfills and transfer stations that is discharged
into surface waters must be covered by discharge permits that generally
require us to conduct sampling and monitoring and, under certain
circumstances, reduce the quantity of pollutants in those discharges. Storm
water discharge regulations under this Act require a permit for certain
construction activities, which may affect our operations. If a landfill or
transfer station discharges wastewater through a sewage system to a
publicly-owned treatment works, the facility must comply with discharge
limits imposed by that treatment works. In addition, states may adopt
groundwater protection programs under this Act or the 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 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. We do not expect that compliance with the new regulations
will have a material effect on us.
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(5) The Occupational Safety and Health Act of 1970. This act
authorizes the Occupational Safety and Health Administration 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 our facilities and operations.
State Regulation. Each state in which we operate 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. Our facilities and
operations are likely to be subject to these types of requirements. In addition,
our 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 our acquisition of existing landfills, it may be necessary for
our company 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 our facilities own and operate underground storage tanks which are
generally used to store petroleum-based products. These tanks are generally
subject to federal, state and local laws and regulations that mandate their
periodic testing, upgrading, closure and removal and that, in the event of
leaks, require that polluted groundwater and soils be remediated. We believe
that all our underground storage tanks currently meet federal regulations. If
underground storage tanks we own or operate leak, and the leakage migrates onto
the property of others, we could be liable for response costs and other damages
to third parties. We do not believe that our compliance with regulations related
to underground storage tanks will have a material adverse effect on our business
or financial condition.
Finally, with regard to our solid waste transportation operations, we are
subject to the jurisdiction of the Interstate Commerce Commission and are
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
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movement of solid waste in interstate commerce is enacted, such legislation
could adversely affect our operations.
We have established a reserve for environmental and landfill costs, which
includes landfill site closure and post-closure costs. We periodically reassess
such costs based on various methods and assumptions regarding landfill airspace
and the technical requirements of Subtitle D of the RCRA and adjust our accruals
accordingly. Based on current information and regulatory requirements, we
believe that our reserve for such environmental expenditures is adequate.
However, environmental laws may change, and there can be no assurance that our
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 us. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Environmental and Landfill Matters" and "Risk
Factors -- Compliance with environmental regulation may impede our growth."
COMPETITION
We operate in a highly competitive industry, which is changing as a result
of rapid consolidation. Entry into our business and the ability to operate
profitably in the 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 and Allied Waste, numerous regional publicly- and
privately-owned solid waste companies, and from thousands of small
privately-owned companies in their respective markets. Some of our
publicly-owned competitors also are engaging in aggressive acquisition
strategies. Some of our competitors have significantly larger operations, and
may have significantly greater financial resources, than we do. In addition to
national and regional firms and numerous local companies, we compete 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.
We compete for collection accounts primarily on the basis of price and the
quality of our services. From time to time, our 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 we own or operate a landfill, we compete for
landfill business on the basis of disposal costs, geographical location and
quality of operations. Our 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 our ability to operate our landfills at their full
capacity and/or affect the prices that we can charge for landfill disposal
services. In addition, most of the states in which we operate landfills 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 our business exposes our company to the risk of liabilities
arising out of our 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
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environment in cases where we 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 our operations; or claims alleging
negligence or professional errors and omissions in the planning or performance
of work. We 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 our 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, we cannot assure you that the limits of such
environmental liability insurance would be adequate in the event of a major
loss, nor can we assure you that we would continue to carry environmental
liability insurance should market conditions in the insurance industry make such
coverage costs prohibitive.
We have 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.
We also carry property insurance. Although we try to operate safely and
prudently and while we have, subject to limitations and exclusions, substantial
liability insurance, no assurance can be given that we will not be exposed to
uninsured liabilities which could have a material adverse effect on our
financial condition.
In the normal course of business, we 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 our performance. To date, we have satisfied financial
responsibility requirements by making cash deposits, obtaining bank letters of
credit or by obtaining surety bonds.
LEGAL PROCEEDINGS
We are and will continue to be involved in various administrative and legal
proceedings in the ordinary course of business. We can give you no assurance
regarding the outcome of these proceedings or the effect their outcomes may
have, or that our insurance coverages or reserves are adequate. A significant
judgment against our company, the loss of significant permits or licenses, or
the imposition of a significant fine could have a material adverse effect on our
financial condition, results of operations and prospects.
Except for routine litigation incidental to our business, there are no
pending material legal proceedings to which we are a party or to which any of
our property is subject. We believe that the outcome of the proceedings to which
we are currently a party will not have a material adverse effect upon our
financial condition, results of operations or prospects. However, unfavorable
resolution of any proceedings could affect the consolidated results of
operations or cash flows for the quarterly period in which they are resolved.
EMPLOYEES
As of December 31, 1998, we employed approximately 10,000 full time
employees, approximately 2,400 of whom were covered by collective bargaining
agreements. Our management believes that we have good relations with our
employees.
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PROPERTIES
Our corporate headquarters are located in Ft. Lauderdale, Florida in
premises we lease from a subsidiary of Republic Industries. As of December 31,
1998, we owned approximately 4,900 collection vehicles. Some of our property and
equipment are subject to liens securing payment of indebtedness. We also lease
offices and equipment. We believe that all of our facilities are sufficient for
our current needs. See "Intercompany Relationships and Related
Transactions -- Lease."
The following table provides information regarding the 48 landfills that we
owned or operated as of December 31, 1998.(1)
<TABLE>
<CAPTION>
UNUSED
TOTAL PERMITTED PERMITTED
LANDFILL NAME LOCATION ACREAGE ACREAGE ACREAGE
------------- -------- ------- --------- ---------
<S> <C> <C> <C> <C>
Anderson(2).......................... 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(3)............... 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(3)................ 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(3).......................... 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(3).............. Beaver Dam, Kentucky 908 179 143
Pepperhill........................... North Charleston, South Carolina 37 22 13
Pine Ridge........................... Griffin, Georgia 850 101 81
Pinellas(3).......................... St. Petersburg, Florida 750 478 200
Presidio(3).......................... Presidio, Texas 10 10 6
Republic/Alpine(3)................... 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(3)........................ 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(3)................. 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) By March 26, 1999, we had acquired the following additional landfills from
Waste Management: Chiquita Canyon, Valencia, CA; Valley View, Louisville,
KY; Brent Run, Montrose, MI; Carleton Farms, Detroit, MI; Elk Run, Onaway,
MI; Whitefeather, Pinconning, MI; Pine Grove, Amanda, OH; Countywide, East
Sparta, OH; North WASCO, The Dalles, OR; and Modern, York, PA.
(2) We sold this landfill to Waste Management on February 1, 1999.
(3) We operate, but do not own this landfill.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
H. Wayne Huizenga.................... 61 Chairman of the Board
Harris W. Hudson..................... 56 Vice Chairman, Secretary and Director
James E. O'Connor.................... 49 Chief Executive Officer and Director
James H. Cosman...................... 56 President and Chief Operating Officer
David A. Barclay..................... 36 Senior Vice President, General Counsel and
Assistant Secretary
Steven R. Goldberg................... 48 Senior Vice President -- Corporate Development
Tod C. Holmes........................ 50 Senior Vice President and Chief Financial
Officer
John W. Croghan...................... 68 Director
Ramon A. Rodriguez................... 54 Director
Allan C. Sorensen.................... 60 Director
</TABLE>
Directors and Executive Officers
H. WAYNE HUIZENGA was named Chairman of the Board in May 1998. He also
served as our Chief Executive Officer from May 1998 until December 1998. Mr.
Huizenga has served as the Chairman of the Board of Republic Industries since
August 1995 and as Co-Chief Executive Officer of Republic Industries since
October 1996. From August 1995 until October 1996, Mr. Huizenga served as Chief
Executive Officer of Republic Industries. Since September 1996, Mr. Huizenga has
served as the Chairman of the Board of Florida Panthers Holdings, Inc., a
sports, entertainment and leisure company that owns and operates the Florida
Panthers professional sports franchise and several luxury resort hotels and
other facilities. Since January 1995, Mr. Huizenga also has served as the
Chairman of the Board of Extended Stay America, Inc., an operator of extended
stay lodging facilities. From September 1994 until October 1995, Mr. Huizenga
served as the Vice Chairman of Viacom Inc., a diversified entertainment and
communications company. During such period, Mr. Huizenga also served as the
Chairman of the Board of Blockbuster Entertainment Group, a division of Viacom.
From April 1987 through September 1994, Mr. Huizenga served as the Chairman of
the Board and Chief Executive Officer of Blockbuster, during which time he
helped build Blockbuster from a 19-store chain into the world's largest video
rental company. In September 1994, Blockbuster merged into Viacom. In 1971, Mr.
Huizenga co-founded Waste Management, which he helped build into the world's
largest integrated solid waste services company, and he served in various
capacities, including President, Chief Operating Officer and a director from its
inception until 1984. Mr. Huizenga also owns the Miami Dolphins professional
sports franchise, as well as Pro Player Stadium in South Florida, and is a
director of the globe.com, an internet on-line community, and NationsRent, Inc.,
a national equipment rental company.
HARRIS W. HUDSON was named Vice Chairman and Secretary and a director in
May 1998. Mr. Hudson has served as a director of Republic Industries since
August 1995 and as Vice Chairman of Republic Industries since October 1996. He
served as Chairman of Republic Industries' Solid Waste Group from October 1996
until July 1998. From August 1995 until October 1996, Mr. Hudson served as
President of Republic Industries. From 1983 until August 1995, Mr. Hudson served
as Chairman of the Board, Chief Executive Officer and President of Hudson
Management, a solid waste collection company that he founded, which was acquired
by Republic Industries in August 1995. From 1964 to 1982, Mr. Hudson served as
Vice President of Waste Management of
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Florida, Inc., a subsidiary of Waste Management and its predecessor. Mr. Hudson
also serves as a director of Florida Panthers Holdings.
JAMES E. O'CONNOR was named Chief Executive Officer and a director in
December 1998. From 1972 to 1978 and from 1982 to 1998, Mr. O'Connor served in
various positions with Waste Management, including Senior Vice President from
1997 to 1998, Area President of Waste Management of Florida, Inc. from 1992 to
1997, Senior Vice President of Waste Management-North America from 1991 to 1992
and Vice President -- Southeastern Region from 1987 to 1991.
JAMES H. COSMAN was named President and Chief Operating Officer in May
1998. Mr. Cosman served as President and Chief Operating Officer of Republic
Industries' Solid Waste Group from January 1997 until July 1998. From 1972 until
December 1996, Mr. Cosman served in various positions with Browning-Ferris,
including Regional Vice President -- Northern Region from 1993 to 1996, Regional
Vice President -- Mid America Region from 1989 to 1993, Regional Vice
President -- South Central Region from 1979 to 1988 and District Manager from
1975 to 1979.
DAVID A. BARCLAY was named Senior Vice President, General Counsel and
Assistant Secretary in August 1998. Mr. Barclay served as Senior Vice President
and General Counsel of Republic Industries' Solid Waste Group from March 1998
until July 1998. Prior to that, from January 1997 to February 1998, Mr. Barclay
was Vice President and Associate General Counsel of Republic Industries. From
June 1995 to January 1997, Mr. Barclay was Vice President, General Counsel and
Secretary of Discovery Zone, Inc. Discovery Zone filed a voluntary petition
under the federal bankruptcy laws in March 1996. Mr. Barclay served in various
positions with Blockbuster, including Senior Corporate Counsel from 1993 to 1995
and Corporate Counsel from 1991 to 1993. Prior to joining Blockbuster, Mr.
Barclay was an attorney in private practice in Miami, Florida.
STEVEN R. GOLDBERG was named Senior Vice President -- Corporate Development
in October 1998. From 1987 to 1998, Mr. Goldberg served in various positions
with Ryder System, Inc., including Vice President of Corporate Development
during 1998, Chief Financial Officer of Ryder Transportation Services, a
division of Ryder, from 1996 to 1998, and Vice President and Treasurer from 1993
to 1996.
TOD C. HOLMES was named Senior Vice President and Chief Financial Officer
in August 1998. Mr. Holmes served as our Vice President -- Finance from June
1998 until August 1998 and as Vice President of Finance of Republic Industries'
Solid Waste Group from January 1998 until July 1998. From 1987 to 1998, Mr.
Holmes served in various positions with Browning-Ferris, including Vice
President, Investor Relations from 1996 to 1998, Divisional Vice President,
Collection Operations from 1995 to 1996, Divisional Vice President and Regional
Controller, Northern Region, from 1993 to 1995 and Divisional Vice President and
Assistant Corporate Controller from 1991 to 1993.
JOHN W. CROGHAN was named a director in July 1998. Mr. Croghan is President
and General Partner of Lincoln Partners, a partnership of Lincoln Capital
Management Inc. He was a founder and, through 1997, the Chairman of Lincoln
Capital Management, an investment management firm. He is a director of Morgan
Stanley Dean Witter & Co.'s public closed-end funds, Lindsay Manufacturing Co.,
and St. Paul Bancorp, Inc.
RAMON A. RODRIGUEZ was named a director in March 1999. Mr. Rodriguez has
served as President of Madsen, Sapp, Meng, Rodriguez & Co., P.A., a certified
public accounting firm, since 1971.
ALLAN C. SORENSEN was named a director in November 1998. Mr. Sorensen is
also a director of Let's Talk Cellular & Wireless, Inc. and Westmark Group
Holdings, Inc. He is also a co-founder and Vice Chairman of the Board of Interim
Health Care, Inc., which was spun-off from Interim Services, Inc. in October
1997. Prior to that, Mr. Sorensen served as a director and in various capacities
41
<PAGE> 44
including President, Chief Executive Officer and Chairman of Interim Services
from 1967 to 1997. He was a member of the Board of Directors of H&R Block, Inc.
from 1979 until September 1993 when Interim Services was spun off in an initial
public offering.
There is no family relationship between any of our executive officers and
directors, except that Mr. Huizenga is Mr. Hudson's brother-in-law. Our
executive officers are selected by and serve at the discretion of our board of
directors. Our directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
The board of directors develops our business strategy, establishes our
overall policies and standards and reviews the performance of management in
executing our business strategy and implementing our policies and standards. The
directors are kept informed of our operations at meetings of the board of
directors and committees of the board of directors, through reports and analyses
presented to the board of directors, and by discussions with management.
Significant communications between the directors and management also occur apart
from meetings of the board of directors and committees of the board of
directors.
COMMITTEES OF THE BOARD
The board of directors has established three committees: the Executive
Committee, the Audit Committee and the Compensation Committee.
The Executive Committee has full authority to exercise all the powers of
the board of directors between meetings of the board of directors, except as
reserved by the board of directors. The Executive Committee does not have the
power to elect or remove executive officers, approve a merger, recommend a sale
of substantially all of our assets, recommend a dissolution of our company,
amend our certificate of incorporation or bylaws, declare dividends on our
outstanding securities, or, except as authorized by the board of directors,
issue any common stock or preferred stock. The board of directors has given the
Executive Committee the authority to approve acquisitions, borrowings,
guarantees and other transactions individually not involving more than $100
million in cash, securities, including common stock that we might issue, or
other consideration. The Executive Committee consists of Messrs. Huizenga and
Hudson.
The Audit Committee has the power to oversee the retention, performance and
compensation of the independent public accountants and the establishment and
oversight of such systems of internal accounting and auditing control as it
deems appropriate. The Audit Committee consists of Messrs. Croghan and Sorensen.
The Compensation Committee reviews and approves the compensation of our
executive officers, including payment of salaries, bonuses and incentive
compensation, determines our compensation philosophy and programs, and
administers our stock option plans. The Compensation Committee consists of
Messrs. Croghan and Sorensen.
EXECUTIVE COMPENSATION
Summary Compensation Information
The following tables set forth certain compensation information regarding
our Chief Executive Officer and former Chief Executive Officer and our four most
highly compensated executive officers during the year ended December 31, 1998.
Compensation earned by Messrs. Hudson, Cosman, Holmes and Goldberg was paid or
awarded by Republic Industries, and/or our company, through the end of 1998. All
amounts paid by Republic Industries were paid on our behalf and we reimbursed
Republic Industries for those amounts.
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<PAGE> 45
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(2) SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION
- --------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
H. Wayne Huizenga.................................... 1998 -- -- -- --
(Chairman of the Board and Chief 1997 -- -- -- --
Executive Officer through 1996 -- -- -- --
December 1998)(3)
James E. O'Connor.................................... 1998 $ 20,731 $ 8,432 250,000 --
(Chief Executive Officer 1997 -- -- -- --
and Director)(4) 1996 -- -- -- --
Harris W. Hudson..................................... 1998 398,461 200,000 -- --
(Vice Chairman and Secretary) 1997 395,769 100,000 -- --
1996 286,501 -- -- --
James H. Cosman...................................... 1998 340,961 87,500 -- --
(President and Chief 1997 300,000 75,000 -- $ 33,775(6)
Operating Officer)(5) 1996 -- -- -- --
Tod C. Holmes........................................ 1998 187,692 50,000 -- 46,342(8)
(Senior Vice President and 1997 -- -- -- --
Chief Financial Officer)(7) 1996 -- -- -- --
Steven R. Goldberg................................... 1998 58,173 35,000 110,000 105,000(10)
(Senior Vice President -- 1997 -- -- -- --
Corporate Development)(9) 1996 -- -- -- --
</TABLE>
- ---------------
(1) Messrs. O'Connor and Goldberg were the only people named in this chart who
received options to purchase shares of our common stock in 1998.
(2) The aggregate total value of perquisites, other personal benefits,
securities or property or other annual compensation did not equal $50,000
or ten percent of the annual salary and bonus for any person named in this
chart during 1996, 1997 or 1998 and has not been included in this table.
(3) We did not pay Mr. Huizenga any cash salary or bonus.
(4) Mr. O'Connor became an employee in December 1998.
(5) Mr. Cosman joined Republic Industries in January 1997.
(6) Consists of certain relocation expenses for Mr. Cosman.
(7) Mr. Holmes joined Republic Industries in January 1998.
(8) Consists of certain relocation expenses for Mr. Holmes.
(9) Mr. Goldberg became an employee in October 1998.
(10) Consists of an initial signing bonus received by Mr. Goldberg that is not
part of a recurring arrangement.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
- ---- ---------- ------------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga.......................... -- -- -- -- -- --
James E. O'Connor.......................... 250,000 53% $18.0625 12/6/08 $ 2,839,852 $ 7,196,743
James H. Cosman............................ -- -- -- -- -- --
Harris W. Hudson........................... -- -- -- -- -- --
Tod C. Holmes.............................. -- -- -- -- -- --
Steven R. Goldberg......................... 110,000 23% 14.50 10/8/08 879,369 2,165,927
</TABLE>
- ---------------
(1) Messrs. O'Connor and Goldberg were the only people named in this chart who
received options to purchase shares of our common stock in 1998.
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<PAGE> 46
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998(1) DECEMBER 31, 1998(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
H. Wayne Huizenga.................................. -- -- -- --
James E. O'Connor.................................. 62,500 187,500 $ 23,437 $ 70,312
Harris W. Hudson................................... -- -- -- --
James H. Cosman.................................... -- -- -- --
Tod C. Holmes...................................... -- -- -- --
Steven R. Goldberg................................. -- 110,000 -- 433,125
</TABLE>
- ---------------
(1) Messrs. O'Connor and Goldberg were the only people named in this chart who
received options to purchase shares of our common stock in 1998.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
Messrs. Croghan and Sorensen served as members of the Compensation
Committee in 1998. No member of the Compensation Committee was an officer or
employee of our company or Republic Industries during the prior year or was
formerly an officer of our company or Republic Industries. During the fiscal
year ended December 31, 1998, none of our executive officers served on the
compensation committee of any other entity, any of whose directors or executive
officers served either on our board of directors or on our Compensation
Committee.
COMPENSATION OF DIRECTORS
Commencing in January 1999, we pay each of our non-employee directors
$25,000 per year, and $1,000 for each board or committee meeting they attend in
person. Under our 1998 Stock Incentive Plan, we grant options to purchase shares
of Class A common stock to our non-employee directors. As of March 30, 1999,
170,000 options have been granted to our non-employee directors. Other than as
provided in our Stock Incentive Plan and the reimbursement of reasonable
expenses incurred for attending board of directors and committee meetings, we
have not adopted any other policies on directors' compensation and benefits. See
"-- Stock Incentive Plan."
EMPLOYMENT AGREEMENTS
We entered into a three year employment agreement with James E. O'Connor
who is our Chief Executive Officer, effective as of December 7, 1998. The
employment agreement provides that our board of directors will appoint Mr.
O'Connor to the board and that Mr. O'Connor will be nominated for election to
our board of directors at each annual meeting of our stockholders during the
term of the agreement. The employment agreement provides that Mr. O'Connor will
receive an annual base salary of $385,000. In addition, Mr. O'Connor will be
eligible for an annual bonus of up to 30% of his base salary, based on the
achievement of certain corporate goals and objectives. Pursuant to his
employment agreement, Mr. O'Connor also received options to purchase up to
250,000 shares of our Class A common stock, of which 62,500 shares were fully
vested and could be purchased immediately. The remaining shares shall vest and
be eligible for purchase in equal amounts of 46,875 shares each year on the
first four anniversary dates of the grant. If Mr. O'Connor is terminated
"without cause" or if he elects to terminate his employment for "good reason,"
in each case as defined in his employment agreement, Mr. O'Connor will continue
to receive his salary and health benefits for a period ending on the later of
the first anniversary date of the termination or the end of his employment
period. Mr. O'Connor is also subject to confidentiality obligations as well as
to non-
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<PAGE> 47
compete and non-solicitation covenants for a three year period following the
termination of his employment period.
We also entered into a three year employment agreement with Mr. Cosman, our
President and Chief Operating Officer, effective as of January 11, 1999. The
employment agreement provides that Mr. Cosman will receive an annual base salary
of $400,000. In addition, Mr. Cosman will be eligible for an annual bonus of up
to 30% of his base salary, based on the achievement of certain corporate goals
and objectives. If Mr. Cosman is terminated "without cause" or if he elects to
terminate his employment for "good reason," in each case as defined in his
employment agreement, Mr. Cosman shall be entitled to continue to receive his
salary and health benefits for a period ending on the later of the first
anniversary date of the termination or the end of his employment period. Mr.
Cosman is also subject to confidentiality obligations as well as to non-compete
and non-solicitation covenants for a three year period following the termination
of his employment period.
SEVERANCE AGREEMENTS
Mr. Holmes entered into a severance agreement with Republic Industries when
hired by Republic Industries. Mr. Holmes' severance agreement provides that if
his employment with Republic Industries is terminated without cause during the
first 24 months of his employment, then Mr. Holmes is entitled to continue to
receive severance pay equal to his base monthly salary for a period equal to the
greater of the balance of such 24-month period or 12 months. Mr. Holmes'
severance agreement also provides that if his employment with Republic
Industries is terminated without cause after the first 24 months of his
employment, Mr. Holmes is entitled to continue to receive his base monthly
salary for a period of 12 months. All options granted under Republic Industries'
stock option plans would continue to vest throughout the severance period. We
assumed Republic Industries' severance obligations under Mr. Holmes' agreement
prior to the closing of our initial public offering. Mr. Holmes will not be
entitled to any severance payments as a result of our separation from Republic
Industries or this offering.
Mr. Goldberg entered into a severance agreement with us which provides that
if his employment is terminated without cause in the first 24 months of his
employment, then Mr. Goldberg is entitled to continue to receive severance pay
equal to his base monthly salary for a period of 18 months as well as a prorated
portion of his annual incentive bonus. All options granted under our 1998 Stock
Incentive Plan would continue to vest throughout the severance period.
STOCK INCENTIVE PLAN
In July 1998, we adopted our 1998 Stock Incentive Plan to provide for the
grant of options to purchase shares of Class A common stock, stock appreciation
rights and stock grants to employees, non-employee directors and independent
contractors who are eligible to participate in the Stock Incentive Plan. The
Stock Incentive Plan provides for the grant of options to employees and
independent contractors at the discretion of our board of directors.
Additionally, the Stock Incentive Plan provides for an automatic grant of an
option to purchase 50,000 shares of Class A common stock to each member of the
board of directors who joins the board of directors as a non-employee director,
and an additional automatic grant of an option to purchase 10,000 shares of
common stock at the beginning of each fiscal year thereafter to each
non-employee director continuing to serve on the board of directors at such
date. We have reserved 20.0 million shares of Class A common stock for issuance
as a result of options granted under the Stock Incentive Plan. On March 2, 1999,
we issued approximately 8.5 million options to employees under our 1998 Stock
Incentive Plan to replace options our employees held under Republic Industries'
stock option plans. As of March 30, 1999,
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<PAGE> 48
options to purchase approximately 12.6 million shares of Class A common stock
were outstanding under our 1998 Stock Incentive Plan, approximately 1.8 million
of which are presently exercisable.
401(K) PLAN
Our board of directors is planning to adopt a 401(k) Savings and Retirement
Plan that is intended to qualify for preferential tax treatment under section
401(a) of the Internal Revenue Code. Although we have not yet adopted the
specific terms of this plan, we intend that most of our employees will be
eligible to participate in this plan when it is adopted.
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<PAGE> 49
SECURITY OWNERSHIP OF SELLING STOCKHOLDER, BENEFICIAL
OWNERS AND MANAGEMENT
The following table provides information as of March 30, 1999 regarding the
beneficial ownership of shares of Class A common stock by (1) each of our
stockholders whom we know to be a beneficial owner of more than 5% of shares of
Class A common stock outstanding, (2) each of our directors, (3) our Chief
Executive Officer, our former Chief Executive Officer and each of our four other
most highly compensated officers, and (4) all of our current directors and
executive officers as a group. Share amounts and percentages shown for each
individual, entity or group in the table are adjusted to give effect to shares
of common stock that are not outstanding but may be acquired by the individual,
entity or group upon exercise of any options exercisable within 60 days of March
30, 1999. However, these shares of Class A common stock are not deemed to be
outstanding for the purpose of computing the percentage of outstanding shares
beneficially owned by any other person. Except for Republic Industries, we are
not aware of any individual, entity or group that beneficially owns more than 5%
of the outstanding shares of our common stock. The information below for shares
beneficially owned after the offering assumes that the underwriters' options to
cover over-allotments are not exercised and that none of our directors and
executive officers purchases any shares in the offering or otherwise.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING SHARES AFTER THE OFFERING
NAME OF --------------------- BEING ---------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
---------------- ----------- ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Republic Industries, Inc................. 112,162,500 63.9% 100,000,000 12,162,500 6.9%
H. Wayne Huizenga........................ -- * -- -- *
James E. O'Connor........................ 64,700 * -- 64,700 *
Harris W. Hudson......................... -- * -- *
John W. Croghan.......................... 110,000 * -- 110,000 *
Ramon A. Rodriguez....................... 50,000 * -- 50,000 *
Allan C. Sorensen........................ 60,000 * -- 60,000 *
James H. Cosman.......................... 16,000 * -- 16,000 *
Tod C. Holmes............................ 5,000 * -- 5,000 *
Steven R. Goldberg....................... -- * -- -- *
All Directors and Executive Officers as a
group (10 persons)..................... 305,700 * -- 305,700 *
</TABLE>
- ---------------
* Less than 1 percent
The address of Republic Industries, Inc. is 110 S.E. Sixth Street, Fort
Lauderdale, FL 33301.
If the underwriters exercise their over-allotment options in full, then
Republic Industries will sell 112,162,500 shares of our Class A common stock in
this offering and will own no shares of our common stock after the offering.
On March 2, 1999, Republic Industries converted 95,688,083 shares of Class
B common stock into 95,688,083 shares of Class A common stock, which are
included in the total of 112,162,500 shares of Class A common stock listed
above.
The aggregate amount of Class A common stock beneficially owned by Mr.
O'Connor consists of 2,200 shares owned directly by him and vested options to
purchase 62,500 shares.
The aggregate amount of Class A common stock beneficially owned by Mr.
Croghan consists of 50,000 shares owned directly by him and vested options to
purchase 60,000 shares.
The aggregate amount of Class A common stock beneficially owned by Mr.
Rodriguez consists of vested options to purchase 50,000 shares.
The aggregate amount of Class A common stock beneficially owned by Mr.
Sorensen consists of vested options to purchase 60,000 shares.
47
<PAGE> 50
The aggregate amount of Class A common stock beneficially owned by Mr.
Cosman consists of 16,000 shares owned by Mr. Cosman and his wife as joint
tenants.
The aggregate amount of Class A common stock beneficially owned by all
directors and executive officers as a group consists of (a) 73,200 shares and
(b) vested options to purchase 232,500 shares. The table above does not include
a total of 136,809 options issued by our company to some officers replacing
options to purchase shares of Republic Industries common stock which, although
vested, may not be exercised until after January 2, 2000 under the terms of a
repricing agreement between the officers and Republic Industries.
48
<PAGE> 51
INTERCOMPANY RELATIONSHIPS AND RELATED TRANSACTIONS
The following includes brief summaries of the Separation and Distribution
Agreement, the Services Agreement, the Tax Indemnification and Allocation
Agreement, and the Employee Benefits Agreement between our company and Republic
Industries. The summaries of these agreements are qualified in their entirety by
the actual agreements, copies of which are incorporated herein by reference as
exhibits.
HISTORICAL INTERCOMPANY RELATIONSHIPS
Prior to our initial public offering, we had been a wholly owned subsidiary
of Republic Industries. As a result, Republic Industries provided our company
with various services, including:
- accounting,
- auditing,
- cash management,
- corporate communications,
- corporate development,
- financial and treasury,
- human resources and benefit plan administration,
- insurance and risk management,
- legal,
- purchasing, and
- tax services.
Republic Industries also provided our company with the services of a number
of its executives and employees. In consideration for these services, Republic
Industries allocated to our company a portion of its overhead costs related to
such services. Our management believes that the amounts allocated to our company
were no less favorable to our company than the expenses we would have incurred
to obtain such services on our own or from unaffiliated third parties.
From time to time, Republic Industries guaranteed some of our obligations.
These guarantees remain in place and may be called upon should there be a
default under these obligations. In that event, we would be obligated to
reimburse Republic Industries for all liabilities Republic Industries incurred
as a result of the obligations. After we are no longer a subsidiary of Republic
Industries, we will be required to cause all such guarantees by Republic
Industries to be released by the creditors and other parties holding such
guarantees.
DIVIDEND AND INTERCOMPANY DEBT REPAYMENTS
As part of our separation from Republic Industries, and prior to our
initial public offering, our company declared and paid a $2.0 billion dividend
in April 1998 to Republic Industries in the form of promissory notes. In
addition, we owed Republic Industries approximately $139.5 million and owed
Resources, at that time one of our subsidiaries, approximately $165.4 million,
net of an approximate $90.5 million Resources owed to our company. On June 30,
1998, we repaid $565.4 million of the promissory notes that we issued to
Republic Industries with cash, assets that we received from Resources and with
the receivable Resources owed to our company. In addition, we distributed all of
our shares of common stock of Resources to Republic Industries. We also repaid
the amounts we owed to Republic Industries and Resources by issuing 16,474,417
shares of Class A common stock to
49
<PAGE> 52
Republic Industries and we repaid the remaining balance of the promissory notes
that we had issued to Republic Industries with the net proceeds from the sale of
63,250,000 shares of Class A common stock in our initial public offering, which
totalled approximately $1.4 billion.
SEPARATION AND DISTRIBUTION AGREEMENT
The Separation and Distribution Agreement that we entered into with
Republic Industries in June 1998 provided for the principal corporate
transactions required to effect our separation from Republic Industries, for the
distribution by Republic Industries of our common stock that it owns to its
stockholders, and for other arrangements governing the future relationship
between our company and Republic Industries.
The Separation. Under the Separation and Distribution Agreement that we
entered into with Republic Industries and prior to our initial public offering,
(1) we distributed to Republic Industries all of the common stock of Resources,
whose assets and liabilities related to Republic Industries' automotive retail
businesses, and (2) we reorganized internally within our consolidated group of
subsidiaries certain subsidiaries engaged in the solid waste services business,
that we owned directly, or indirectly. Our financial statements exclude the
accounts of Resources.
The Initial Public Offering. Under the Separation and Distribution
Agreement, in July 1998, we sold 63,250,000 shares of our Class A common stock
in our initial public offering, resulting in net proceeds of approximately $1.4
billion. We used all the net proceeds, and issued an additional 16,474,417
shares of our Class A common stock, to repay in full all amounts that we owed to
Republic Industries. As of the date of this prospectus, Republic Industries owns
approximately 63.9% of the outstanding shares of our common stock.
The Distribution. Under the Separation and Distribution Agreement, the
distribution of our common stock that Republic Industries owns to its
stockholders is subject to the satisfaction or waiver by the Republic
Industries' board of directors, in its sole discretion, of several conditions,
including the receipt of a favorable private letter ruling from the IRS. In
March 1999, the IRS advised Republic Industries in writing that the IRS will not
rule as requested. As a result, with our consent, Republic Industries has
decided to sell all of its shares of our common stock that it owns under this
prospectus.
Registration Rights. The Separation and Distribution Agreement provides
that Republic Industries and any of Republic Industries' wholly owned
subsidiaries that own our common stock will have the right in certain
circumstances to require our company to use our best efforts to register for
resale shares of our common stock held by Republic Industries, under the
Securities Act, and applicable state securities laws, subject to conditions,
limitations and exceptions. We also agreed with Republic Industries that if we
file a registration statement for the sale of securities under the Securities
Act, then Republic Industries and its subsidiaries may, subject to conditions,
limitations and exceptions, include in the registration statement shares of
common stock held by Republic Industries and its subsidiaries. Republic
Industries has agreed to pay all of the offering expenses related to the
registration statement that we file at the request of Republic Industries,
provided that if we register any new shares of our common stock in the
registration statement that we prepare at Republic Industries' request, then we
will pay our pro rata portion of the offering expenses. We have agreed to pay
offering expenses related to the registration statement that we file on our own
behalf; however, Republic Industries will pay its pro rata portion of the
offering expenses if any shares of our common stock held by Republic Industries
and its subsidiaries are included in that registration statement. As a result of
the IRS decision not to rule on Republic Industries' request for a private
letter ruling as requested, Republic Industries has determined that it is in its
stockholders' best
50
<PAGE> 53
interest to sell its entire interest in our company to the public. Accordingly,
in March 1999, Republic Industries exercised its right under the Separation and
Distribution Agreement that we register all of the common stock owned by
Republic Industries, resulting in the offering under this prospectus.
Releases and Indemnification. The Separation and Distribution Agreement
provides for a full and complete release and discharge as of the time we made
our initial public offering of all liabilities, including any contractual
agreements or arrangements existing or alleged to exist, existing or arising
from all acts and events occurring or failing to occur or alleged to have
occurred or to have failed to occur and all conditions existing or alleged to
have existed on or before our initial public offering, between our company and
Republic Industries, including in connection with the transactions and all other
activities to implement our spinoff from Republic Industries, our initial public
offering and the proposed distribution of our common stock to Republic
Industries stockholders, except as otherwise expressly stated in the Separation
and Distribution Agreement.
Except as provided in the Separation and Distribution Agreement, we have
agreed to indemnify, defend and hold harmless Republic Industries and each of
Republic Industries' directors, officers and employees from and against all
liabilities relating to, arising out of or resulting from (1) our or any other
person's failure to pay, perform or otherwise promptly discharge any of our
liabilities under the Separation and Distribution Agreement, and (2) any breach
by our company of the Separation and Distribution Agreement or any of the
ancillary agreements entered into by the parties, related to the Separation and
Distribution Agreement.
Except as provided in the Separation and Distribution Agreement, Republic
Industries has agreed to defend and hold us harmless and to indemnify our
company and each of our directors, officers and employees from and against all
liabilities relating to, arising out of or resulting from (1) the failure of
Republic Industries or any other person to pay, perform or otherwise promptly
discharge any liabilities of Republic Industries other than our liabilities, (2)
any breach by Republic Industries of the Separation and Distribution Agreement
or any of the other agreements that we entered into related to the Separation
and Distribution Agreement and (3) any untrue statement of a material fact or
omission to state a material fact, or alleged untrue statements or omissions,
with respect to information relating to Republic Industries contained in the
registration statement for our Class A common stock that was issued in our
initial public offering or any registration statement that we file on behalf of
Republic Industries or on our own behalf.
The Separation and Distribution Agreement also specifies certain procedures
regarding claims subject to indemnification and related matters.
Contingent Liabilities and Contingent Gains. The Separation and
Distribution Agreement provides for indemnification by our company and Republic
Industries regarding contingent liabilities primarily relating to our respective
businesses or otherwise assigned to our company.
The Separation and Distribution Agreement provides for the establishment of
a Contingent Claims Committee comprised of one representative designated from
time to time by each of Republic Industries and ourselves that will establish
procedures for resolving disagreements among our company and Republic Industries
as to contingent gains and contingent liabilities.
The Separation and Distribution Agreement provides for the sharing of
shared contingent liabilities, which means:
- any contingent liabilities that are not exclusive contingent liabilities
of Republic Industries or exclusive contingent liabilities of ours and
- specifically identified liabilities.
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<PAGE> 54
The parties have agreed to allocate responsibility for shared contingent
liabilities based upon the respective market capitalizations of each party at
the time of our initial public offering or on other methodology to be
established by a committee that Republic Industries and we will establish for
the purpose. Republic Industries will assume the defense of, and may seek to
settle or compromise, any third party claim that is a shared contingent
liability, and the costs and expenses of the claim will be included in the
amount to be shared by Republic Industries and our company.
The Separation and Distribution Agreement provides that the parties will
each have the exclusive right to any benefit received with respect to any
contingent gain that primarily relates to the business of that party, or that is
expressly assigned to that party. Each party will have sole and exclusive
authority to manage, control and otherwise determine all matters whatsoever with
respect to a contingent gain that primarily relates to its respective business.
We have agreed with Republic Industries to share any benefit that may be
received from any contingent gain based upon market capitalizations of each
party as of the date we completed our initial public offering or another
methodology that a committee that the parties appoint may determine. We have
agreed that Republic Industries will have the sole and exclusive authority to
manage, control and otherwise determine all matters whatsoever with respect to
any contingent gain. Under the Separation and Distribution Agreement we have
agreed that Republic Industries may decide not to pursue any contingent gain for
any reason whatsoever, including a different assessment of the merits of any
action, claim or right or any business reasons that are in the best interests of
Republic Industries, without regard to our best interests, and that Republic
Industries will have no liability to us as a result of that determination.
Certain Business Transactions. Under the terms of the Separation and
Distribution Agreement, Republic Industries has agreed that, for a period of
five years after we are no longer a subsidiary of Republic Industries, Republic
Industries will not directly or indirectly compete with us in the solid waste
services industry anywhere in North America, and we have agreed that, for a
period of five years after that time, we will not directly or indirectly compete
with Republic Industries in the automotive retail or vehicle rental industries
anywhere in North America. The Separation and Distribution Agreement also
provides for the allocation of corporate opportunities prior to the time we
separate from Republic Industries. During this period, neither party will have
any duty to communicate or offer opportunities to the other and, subject to the
non-competition covenants, may pursue or acquire any opportunity for itself or
direct the opportunity to another. However, (1) if the opportunity relates
primarily to the business of the other party, the party that has the opportunity
will generally be required to let the other party know about it and (2) if the
opportunity relates to both of our businesses, the party that learns about the
opportunity shall use its reasonable best efforts to let the other party know
about it.
Insurance. Under the Separation and Distribution Agreement, Republic
Industries agreed to permit our company to continue to participate in certain of
its insurance policies and to provide claims adjustment services for automobile
liability and general liability claims. We have paid Republic Industries a
monthly fee of $43,000 for insurance costs plus an amount equal to five percent
of incurred losses for claims adjustment services. We are securing insurance
policies independent of Republic Industries. We have agreed with Republic
Industries to cooperate in good faith to provide for an orderly transition of
insurance coverage. However, Republic Industries will not be liable to our
company in the event any of these policies are terminated or prove to be
inadequate. See "Business -- Liability and Insurance Bonding."
Expenses. Except as set forth in an ancillary agreement, the Separation
and Distribution Agreement treats specific third-party fees, costs and expenses
paid or incurred in anticipation of the distribution of our shares to Republic
Industries' stockholders in the same manner as we will treat the
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expenses that are incurred for the contingent liabilities, and all other fees,
costs and expenses in connection with the distribution will be paid by Republic
Industries.
Termination. The Separation and Distribution Agreement provides that it
may be terminated at any time prior to the time our shares are distributed to
Republic Industries' stockholders, if Republic Industries and our company both
agree. In the event of any such termination, only the provisions of the
Separation and Distribution Agreement that obligate each party to pursue the
distribution terminate and the other provisions of the Separation and
Distribution Agreement and other related agreements will remain in full force
and effect.
SERVICES AGREEMENT
Republic Industries and our company have entered into the Services
Agreement under which Republic Industries provides our company with:
- accounting,
- auditing,
- cash management,
- corporate communications,
- corporate development,
- financial and treasury,
- human resources and benefit plan administration,
- insurance and risk management,
- legal,
- purchasing and
- tax services.
In exchange for providing these services, we paid Republic Industries a fee
of $1.25 million per month, subject to review and adjustment based upon a
reduction in the amount of services Republic Industries provided. Effective
January 1, 1999, the fee was reduced to $0.9 million per month. The fee is
payable 15 days after the close of each month and our management thinks that the
fee is no less favorable than if we were to provide these services ourselves or
if we had obtained them from unaffiliated third parties.
The Services Agreement has been amended to provide for an initial term
expiring June 30, 1999, with an option to extend the term until December 31,
1999. After that, we have an additional option to extend the term for another
year. At any time, we can terminate the agreement upon thirty days' written
notice.
Any services that Republic Industries provides our company beyond the
services to be provided under the terms of the Services Agreement, that Republic
Industries determines are not covered by the fees provided for under the terms
of the Services Agreement, will be billed to our company as described in the
Services Agreement, or on such other basis as Republic Industries and we may
agree. The price payable by our company for these non-covered services will be
established on a negotiated basis which is no less favorable than the charges
for comparable services from unaffiliated third parties.
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TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
We have entered into a Tax Indemnification and Allocation Agreement with
Republic Industries that provides that Republic Industries will indemnify us for
income taxes that we might incur if the internal restructuring transactions that
we entered into in June 1998 in connection with our initial public offering fail
to qualify as tax-free spin-offs.
In addition to the foregoing indemnities, the Tax Indemnification and
Allocation Agreement provides for four things:
(1) the allocation and payment of taxes for periods during which we and
Republic Industries are included in the same consolidated group for
federal income tax purposes or the same consolidated, combined or
unitary returns for state tax purposes,
(2) the allocation of responsibility for the filing of tax returns,
(3) the conduct of tax audits and the handling of tax controversies, and
(4) various related matters.
For periods during which Republic Industries includes our company in its
consolidated federal income tax returns or state consolidated, combined, or
unitary tax returns, which will include the periods on or before we became a
public company, we will be required to pay an amount of income tax equal to the
consolidated tax liability attributable to our operations. We will be
responsible for our own separate tax liabilities that are not determined on a
consolidated or combined basis. In the future we will also be responsible for
any increases to the consolidated tax liability of Republic Industries and our
company that is attributable to our company, and we will be entitled to refunds
for reductions of tax liabilities attributable to our company for prior periods.
We and our subsidiaries were included in Republic Industries' consolidated
group for federal income tax purposes for periods during which Republic
Industries beneficially owned at least 80% of the total voting power and value
of our outstanding common stock. Each corporation that is a member of a
consolidated group during any portion of the group's tax year is jointly and
severally liable for the federal income tax liability of the group for that
year. We and our subsidiaries stopped being members of Republic Industries'
consolidated group after we became a public company. While the Tax
Indemnification and Allocation Agreement allocates tax liabilities between
Republic Industries and our company during the periods when we were in included
in Republic Industries' consolidated group, we could be liable in the event
federal tax liability allocated to Republic Industries is incurred, but not
paid, by Republic Industries or any other member of Republic Industries'
consolidated group for Republic Industries' tax years before we were a public
company. If this were to happen, we could seek indemnification from Republic
Industries under the Tax Indemnification and Allocation Agreement.
EMPLOYEE BENEFITS AGREEMENT
We entered into an Employee Benefits Agreement with Republic Industries.
Under this Agreement, we have assumed and agreed to pay, perform, fulfill and
discharge all liabilities to, or relating to, former employees of Republic
Industries or its affiliates whom we will employ as of the date we are no longer
affiliated with Republic Industries and certain former employees of Republic
Industries or its affiliates, including retirees, who were employed by or
provided services primarily for our solid waste business. Until the date we are
no longer affiliated with Republic Industries, these employees and former
employees will continue to participate in Republic Industries' employee benefit
plans, although we are responsible for our allocable share of the costs of such
plans. After we become
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independent from Republic Industries we will establish our own employee benefit
plans, which generally will be similar to Republic Industries' plans in effect
at that time. The Employee Benefits Agreement that we are describing does not
preclude our company from discontinuing or changing such plans at any time
thereafter, with a few exceptions. Our plans generally will assume all
liabilities under Republic Industries' plans to employees and former employees
that are assigned to us, and any assets funding these liabilities will be
transferred from funding vehicles associated with Republic Industries' plans to
the corresponding funding vehicles associated with our plans.
REPLACEMENT OPTIONS
Prior to the initial public offering, employees of our company were granted
stock options under Republic Industries' stock option plans. As of March 2,
1999, the approximately 8.5 million Republic Industries options held by our
employees were canceled, and our company's Compensation Committee granted
replacement options on a one-for-one basis. The replacement options retained the
vesting and exercise rights of the original options, subject to exercise
limitations for individuals who signed stock option repricing agreements with
Republic Industries. The exercise price for individual replacement options are
priced so that the potential gain or loss on each grant of Republic Industries
stock options shall generally be maintained under the replacement options. We
estimate the compensation expense related to our granting of replacement options
at favorable exercise prices to be approximately $3.5 million, which we will
record in the first quarter of 1999.
LEASE
On July 1, 1998 we signed a lease with Alamo Rent-A-Car, Inc., a subsidiary
of Republic Industries for approximately 10,555 square feet of office space at
Republic Industries' corporate headquarters in Fort Lauderdale, Florida. The
annual lease rate is $220,320 ($20.40 per square foot), and we pay for certain
common area maintenance charges. Effective January 1, 1999, we amended the lease
to increase the space we are renting to approximately 14,443 square feet at an
annual rate of $294,637 ($20.40 per square foot). The lease has an initial term
of one year, and we can terminate it on 90 days' prior written notice. It is
automatically renewable by us for an additional one year term. The rent includes
utilities, security, parking, building maintenance and cleaning services. We
believe that the lease is on terms no less favorable than could be obtained from
persons unrelated to our company.
OTHER RELATIONSHIPS WITH REPUBLIC INDUSTRIES
Republic Industries currently owns 112,162,500 shares of our common stock,
which constitutes approximately 63.9% of the outstanding shares of our common
stock.
Mr. Huizenga, our Chairman, also is the Chairman and Co-Chief Executive
Officer of Republic Industries. Mr. Hudson, our Vice Chairman, also is the Vice
Chairman of Republic Industries.
During 1998, we collected solid waste from, and leased roll-off containers
to, certain automotive retail and vehicle rental subsidiaries of Republic
Industries and other properties. We provided all of these services at standard
rates. We continue to provide these services to Republic Industries on the same
terms. During 1998, we rented vehicles from Republic Industries' Alamo
Rent-A-Car and National Car Rental System subsidiaries, under standard form
vehicle rental agreements under which we were charged standard rates. We still,
at times, rent vehicles from Republic Industries on the same terms. In November
1998, we purchased a corporate aircraft from Republic Industries for
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$11 million. We believe these transactions were on terms as favorable as we
would have obtained from an unrelated third party.
OTHER TRANSACTIONS WITH RELATED PARTIES
The following is a summary of other agreements and transactions that we are
involved in with related parties. It is our policy that transactions with
related parties must be on terms that, on the whole, are no less favorable than
those that would be available from unaffiliated parties. Based on our
experience, it is our belief that all of these transactions met that standard at
the time such transactions were effected.
Pro Player Stadium is a professional sports stadium in South Florida that
is owned and controlled by Mr. Huizenga. One of our subsidiaries collected solid
waste from, and leased roll-off waste containers to, Pro Player Stadium pursuant
to standard agreements under which Pro Player Stadium paid an aggregate of
approximately $219,000 in 1998. We continue to provide these services on the
same terms. In September 1998, one of our subsidiaries began collecting solid
waste from the National Car Rental Center, an arena in Broward County, Florida
which is operated by a subsidiary of Florida Panthers Holdings, Inc. Mr.
Huizenga is the Chairman, and Mr. Hudson is a director, of this company.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of (a) 50,000,000 shares of preferred
stock and (b) 750,000,000 shares of common stock. 250,000,000 shares of common
stock are Class A common stock, 125,000,000 shares of common stock are Class B
common stock, and 375,000,000 shares of common stock may be designated by our
board of directors as either Class A common stock or Class B common stock prior
to issuance. As of April 5, 1999, there were 175,412,500 shares of Class A
common stock outstanding, of which 112,162,500 were owned by Republic
Industries. There were also 20,000,000 shares of Class A common stock reserved
for issuance under our Stock Incentive Plan. As of the date of this prospectus
there are no shares of Class B common stock or preferred stock outstanding. All
of the shares of Class A common stock that Republic Industries is selling
through this prospectus are validly issued, fully paid and nonassessable.
Although we are summarizing the terms of our stock below, for a more complete
description, please see our certificate of incorporation and our bylaws which we
have filed with the Securities and Exchange Commission.
We intend to amend our certificate of incorporation to eliminate the
classifications of our common stock, subject to stockholder approval, at our
annual meeting in May 1999.
COMMON STOCK
Voting. The Class A common stock and Class B common stock are identical in
all respects, except 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 on all matters submitted to a vote of the stockholders, including the
election of directors. Except as otherwise required by law or provided in any
resolution adopted by our board of directors with respect to any series of
preferred stock, the holders of common stock will possess all voting power.
Generally, all matters to be voted on by stockholders must be approved by a
majority (or, in the case of election of directors, by a plurality) of the votes
entitled to be cast by all shares of Class A common stock and Class B common
stock that are present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any preferred
stock. Except as otherwise provided by law, and subject to any voting rights
granted holders of any preferred stock, amendments to our certificate of
incorporation generally must be approved by a majority of the votes entitled to
be cast by all outstanding shares of Class A common stock and Class B common
stock, voting together as a single class. However, amendments to our certificate
of incorporation that would alter or change the powers, preferences or special
rights of the Class A common stock or Class B common stock so as to adversely
affect them must also be approved by a majority of the outstanding shares of the
class that is adversely affected by such amendment, voting as a separate class.
Our certificate of incorporation does not provide for cumulative voting in the
election of directors.
Dividends. Subject to any preferential rights of any outstanding series of
preferred stock that our board of directors may create, the holders of shares of
Class A common stock and Class B common stock will be entitled to the cash
dividends that our board of directors may declare from available funds.
Dividends are not required to be declared on either class of stock, except that
holders of shares of Class A common stock are entitled to receive an equal pro
rata share of any amounts received by holders of shares of Class B common stock.
In addition, if our board of directors declares a stock dividend, holders of
Class A common stock can receive their dividend only in shares of Class A common
stock while holders of Class B common stock can receive their dividend either in
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shares of Class A common stock or in shares of Class B common stock, as the
board of directors determines. Neither the shares of Class A common stock nor
the shares of Class B common stock may be reclassified, subdivided or combined
unless such reclassification, subdivision or combination occurs simultaneously
and in the same proportion for each class. See "Dividend Policy."
Liquidation. Subject to any preferential rights of any outstanding series
of preferred stock created from time to time by the board of directors, upon
liquidation, dissolution or winding up of our company, the holders of shares of
Class A common stock and Class B common stock will be entitled to receive pro
rata all assets available for distribution.
Other Rights. If we merge or consolidate with or into another company and
shares of our common stock are converted into or exchangeable for shares of
stock, other securities or property, including cash, all holders of our common
stock, regardless of class, will be entitled to receive the same kind and amount
of shares of stock and other securities and property, including cash.
PREFERRED STOCK
Our certificate of incorporation authorizes our board of directors to
establish one or more series of preferred stock and to determine, with respect
to any series of preferred stock, the terms and rights of such series,
including:
- the designation of the series,
- the number of shares of the series, which number our board of directors
may, except where otherwise provided in the applicable certificate of
designation, increase or decrease, but not below the number of shares
thereof then outstanding,
- whether dividends, if any, will be cumulative or noncumulative, and, in
the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative,
- the rate of any dividends, or method of determining such dividends,
payable to the holders of the shares of such series, any conditions upon
which such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable,
- the redemption rights and price or prices, if any, for shares of the
series,
- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series,
- the amounts payable on and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of our corporate affairs,
- whether the shares of the series will be convertible or exchangeable into
shares of any other class or series, or any other security, that we or
any other corporation issues, and, if so, the specification of such other
class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates as
of which such shares will be convertible or exchangeable and all other
terms and conditions upon which such conversion or exchange may be made,
- restrictions on the issuance of shares of the same series or of any other
class or series,
- the voting rights, if any, of the holders of the shares of the series and
- any other relative rights, preferences and limitations of such series.
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We believe that the ability of our board of directors to issue one or more
series of preferred stock provides our company with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs that might arise. The authorized shares of preferred stock, as well as
shares of common stock, will be available for issuance without further action by
our stockholders, unless such action is required by applicable law or the rules
of any stock exchange or automated quotation system on which our securities may
be listed or traded. Subject to exceptions, the New York Stock Exchange
currently requires stockholder approval as a prerequisite to listing shares in
several instances, including where the present or potential issuance of shares
could result in an increase in the number of shares of common stock or voting
securities outstanding by at least 20%. If the approval of our stockholders is
not required for the issuance of shares of preferred stock or common stock, our
board of directors may determine not to seek stockholder approval.
Although our board of directors has no intention at the present time of
doing so, it could issue a series of preferred stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. Our board of directors will make any determination to
issue such shares based on its judgment as to the best interests of our company
and our stockholders. The board of directors, in so acting, could issue
preferred stock having terms that could discourage an acquisition attempt
through which an acquirer may be able to change the composition of the board of
directors, including a tender offer or other transaction that some, or a
majority, of our stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then current
market price of such stock.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporation Law provides that, subject
to certain exceptions specified therein, an "interested stockholder" of a
Delaware corporation shall not engage in any business combination, including
mergers or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period following the date
that the stockholder becomes an interested stockholder unless: (1) prior to that
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (2) upon completion of the transaction which resulted in
the stockholder becoming an "interested stockholder," the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares), or (3) on or
subsequent to that date, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two thirds of the outstanding
voting stock which is not owned by the interested stockholder. Except as
otherwise specified in Section 203 of the law governing Delaware corporations,
an interested stockholder is defined to include (1) any person that is the owner
of 15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the date of determination and (2) the affiliates and
associates of any such person.
Under some circumstances, this Delaware law makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. We have not elected to
be exempt from these restrictions. However, Republic Industries and its
affiliates are excluded from the definition of "interested stockholder" under
the terms of this Delaware law. Consequently, persons interested in acquiring
our company may be encouraged to negotiate in advance with our board of
directors, since the stockholder approval requirement would be
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avoided if a majority of the directors then in office approves either the
business combination or the transaction which results in any such person
becoming an interested stockholder. These provisions also may have the effect of
preventing changes in our management. It is possible that these provisions could
make it more difficult to accomplish transactions which our stockholders may
otherwise deem to be in their best interests.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Our certificate of incorporation provides that a director will not be
personally liable to our company or our stockholders for monetary damages for a
breach of his or her fiduciary duty as a director, except, if required by
Delaware law, for liability:
(1) for any breach of the director's duty of loyalty to our company or our
stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
(3) under the provision of the Delaware law that concerns unlawful payments
of dividends, stock purchases or redemptions, or
(4) for any transaction from which the director derived an improper
personal benefit.
Neither the amendment nor repeal of this provision will eliminate or reduce
the effect it would have on any matter occurring, or any cause of action, suit
or claim that, but for that provision, would accrue or arise prior to the
amendment or repeal of the provision.
While our certificate of incorporation provides our directors with
protection from awards for monetary damages for breaches of their duty of care,
it does not eliminate the duty. Accordingly, our certificate of incorporation
has no effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care.
Our certificate of incorporation provides that each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom that
person is the legal representative, is or was a director or officer of our
company or is or was serving at the request of our company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of the proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, will be
indemnified and held harmless by our company to the fullest extent authorized by
Delaware law, against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. This right to indemnification
includes the right to have our company pay the expenses incurred in defending
any such proceeding in advance of its final disposition, subject to the
provisions of Delaware law. These rights are not exclusive of any other right
which any person may have or thereafter acquire under any statute, provision of
our certificate of incorporation, our bylaws, agreement, vote of stockholders or
disinterested directors or otherwise. No repeal or modification of this
provision will in any way diminish or adversely affect the rights of any
director, officer, employee or agent of our company thereunder in respect of any
occurrence or matter arising prior to the repeal or modification of the
provision. Our certificate of incorporation also specifically authorizes our
company to maintain insurance and to grant similar indemnification rights to our
employees or agents.
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At present, there is no pending or threatened litigation or proceeding
involving any director or officer, employee or agent of our company where such
indemnification will be required or permitted.
TRANSFER AGENT AND REGISTRAR
First Union National Bank is the transfer agent and registrar for our Class
A common stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, we had outstanding 175,412,500 shares of
our Class A common stock. Of these shares, the 100,000,000 shares of our Class A
common stock sold in the offering, 112,162,500 shares if the underwriters
exercise their over-allotment option in full, and the 63,250,000 shares of our
Class A common stock sold in connection with our initial public offering will be
freely tradeable without restriction under the Securities Act, except for any
such shares which may be acquired by one of our "affiliates," as that term is
defined in Rule 144 promulgated under the Securities Act.
Following the closing date of the offering, Republic Industries will own
12,162,500 shares of our Class A common stock which will constitute 6.9% of the
outstanding shares of our Class A common stock. If the underwriters exercise
their over-allotment options in full, Republic Industries will not own any
shares of our Class A common stock. The shares of our common stock owned by
Republic Industries are deemed "restricted securities" as defined in Rule 144,
and may not be sold other than through registration under the Securities Act or
pursuant to an exemption from the regulations thereunder, including exceptions
provided by Rule 144. Subject to applicable law and to the contractual
restriction with the underwriters described below, Republic Industries may sell
any and all of the shares of our common stock it owns after the completion of
the offering.
Persons who may be deemed affiliates generally include individuals or
entities that control, are controlled by, or are under common control with, our
company and may include our directors and certain of our officers as well as our
significant stockholders, if any. Persons who are affiliates will be permitted
to sell the shares of our common stock that are issued in the offering only
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act, including
exemptions provided by Rule 144.
In general, under Rule 144 as currently in effect, a person or persons,
whose shares are aggregated, who has beneficially owned "restricted securities"
for at least one year may, under certain circumstances, resell within any
three-month period, that number of shares as does not exceed the greater of one
percent of the then-outstanding shares of our Class A common stock or the
average weekly trading volume of our Class A common stock during the four
calendar weeks prior to such resale. Rule 144 also permits, under certain
circumstances, the resale of shares without any quantity limitation by a person
who has satisfied a two-year holding period and who is not, and has not been for
the preceding three months, one of our affiliates. In addition, holding periods
of successive non-affiliated owners are aggregated for purposes of determining
compliance with these one- and two-year holding period requirements.
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We, our executive officers and directors and Republic Industries have
agreed, with certain exceptions, without the prior written consent of Merrill
Lynch on behalf of the underwriters for a period of 90 days after the date of
this prospectus, not to directly or indirectly
- offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, lend or otherwise dispose
of or transfer any shares of our Class A common stock or securities
convertible into or exchangeable or exercisable for or repayable
with Class A common stock, whether now owned or later acquired by
the person executing the agreement or with respect to which the
person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities
Act relating to any shares of our Class A common stock or
- enter into any swap or other agreement that transfers, in whole or
in part, the economic consequence of ownership of our Class A common
stock whether any such swap or transaction is to be settled by
delivery of our Class A common stock or other securities, in cash or
otherwise;
provided that we may at any time and from time to time (1) issue shares of our
Class A common stock to third parties as consideration for our acquisition from
such third parties of non-hazardous solid waste businesses and (2) grant options
to purchase shares of our Class A common stock under our 1998 Stock Incentive
Plan, in each case without the prior consent of Merrill Lynch. See
"Underwriting."
In addition, we expect to file in 1999 a registration statement under the
Securities Act to register 20.0 million shares of our Class A common stock which
are reserved for issuance under the 1998 Stock Incentive Plan. Shares issued
under the 1998 Stock Incentive Plan after the effective date of that
registration statement, other than shares issued to our affiliates, generally
will be freely tradeable without restriction or further registration under the
Securities Act. At the date of this prospectus, options to purchase
approximately 12.6 million shares of our Class A common stock are outstanding
under the 1998 Stock Incentive Plan. In addition, we may also from time to time
file registration statements covering the issuance and/or resale of shares of
Class A common stock which may be issued in potential future acquisitions.
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
We discuss below the United States federal income and estate tax
consequences of the ownership and disposition of Class A common stock applicable
to non-U.S. holders. In general, a "non-U.S. holder" is any holder of Class A
common stock other than
(a) a citizen or resident of the United States,
(b) a corporation or partnership created or organized in the United States
or under the laws of the United States or of any state, other than any
partnership treated as foreign under U.S. Treasury regulations,
(c) an estate, whose income the Federal government may include in gross
income for United States federal income tax purposes regardless of its
source or
(d) in general, a trust, if a court within the United States may exercise
primary supervision over the administration of the trust, and one or
more United States persons have authority to control all substantial
decisions of the trust.
We provide this discussion based on current law and for general information
only. This discussion does not address aspects of United States federal taxation
other than income and estate taxation, and does not address all aspects of
income and estate taxation. This discussion also does not consider any specific
facts or circumstances that may apply to a particular non-U.S. holder, including
certain U.S. expatriates. ACCORDINGLY, WE URGE OFFEREES OF OUR COMMON STOCK TO
CONSULT THEIR TAX ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND
NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF
SHARES OF OUR COMMON STOCK.
The government may consider an individual, subject to exceptions, a
resident alien, as opposed to a non-resident alien, by virtue of the
individual's presence in the United States for at least 31 days in the calendar
year and for an aggregate of at least 183 days during a three-year period ending
in the current calendar year. The days counted for this purpose are all of the
days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year. In addition to the "substantial presence test" described in the
immediately preceding sentence, the federal government will treat an alien as a
resident alien if he or she meets a lawful permanent residence test, referred to
as a "green card" test, or elects treatment as a U.S. resident and meets the
substantial presence test in the immediately following year. Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
In general, dividends paid to a non-U.S. holder will be subject to United
States withholding tax at a 30% rate, or a lower rate prescribed by an
applicable tax treaty, unless the dividends relate either to a trade or business
carried on by the non-U.S. holder within the United States, or are from a
permanent establishment or, in the case of an individual, a "fixed base" in the
United States maintained by the non-U.S. holder if income tax treaties apply.
United States withholding tax will generally not apply to dividends connected
with such a United States trade or business or attributable to such a United
States permanent establishment or fixed base if the non-U.S. holder files the
appropriate IRS form with the payor of the dividend. The form, under U.S.
Treasury regulations generally effective for payments made after December 31,
1999, will require the non-U.S. holder to provide a U.S. taxpayer identification
number. United States federal income tax, on a net income basis, will generally
apply to these dividends in the same manner as if the non-U.S. holder were a
resident of the United States. An additional branch profits tax may apply to a
non-U.S. holder that is a corporation. If so, it will apply at a rate of 30%, or
such lower rate as may be specified by an
63
<PAGE> 66
applicable treaty. To determine the applicability of a tax treaty providing for
a lower rate of withholding, dividends paid to an address in a foreign country
are presumed under United States Treasury regulations that are currently
effective to be paid to a resident of that country absent knowledge to the
contrary. Under regulations generally effective for dividend payments after
December 31, 1999, however, a non-U.S. holder of Class A common stock who wishes
to claim the benefit of an applicable treaty rate generally must satisfy
applicable certification and other requirements. In addition under these new
regulations, in the case of common stock held by a foreign partnership, (1) the
certification requirement will generally apply to the partners of the
partnership and (2) the partnership must provide certain information, including
a United States taxpayer identification number. These new regulations also
provide look-through rules for tiered partnerships. Lastly, the new regulations
generally would require non-U.S. holders to file an IRS Form W-8 to obtain the
benefit of any applicable tax treaty providing for a lower rate of U.S.
withholding tax on dividends. A non-U.S. holder that is eligible for a reduced
rate of U.S. withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
IRS.
SALE OF CLASS A COMMON STOCK
In general, United States federal income tax will not apply to a non-U.S.
holder on any gain the stockholder realizes upon his disposition of shares of
Class A common stock unless:
(a) the gain is from a trade or business carried on by the non-U.S. holder
within the United States or, alternatively, if tax treaties apply, is
from a permanent establishment in the United States maintained by the
non-U.S. holder, and in either case, the branch profits tax discussed
above may also apply if the non-U.S. holder is a corporation;
(b) the non-U.S. holder is an individual who holds shares of Class A common
stock as a capital asset and is present in the United States for 183
days or more in the taxable year of disposition, and either (1) such
individual has a "tax home," as defined for United States federal
income tax purposes, in the United States, unless the gain from the
disposition is attributable to an office or fixed place of business
maintained by such non-U.S. holder in a foreign country and the
individual actually pays a foreign income tax equal to at least 10% of
the gain derived from such disposition, or (2) the gain is attributable
to an office or other fixed place of business maintained by such
individual in the United States; if these rules cause a non-U.S. holder
to be subject to U.S. federal income tax on the gain on the
disposition, the non-U.S. holder's net gains will be subject to tax at
a 30% rate, unless a tax treaty reduces or eliminates the tax; or
(c) We are or have been a United States real property holding corporation
for U.S. federal income tax purposes at any time within the shorter of
the five-year period preceding the disposition or the non-U.S. holder's
holding period. In general, we will be treated as a U.S. real property
holding corporation if the fair market value of our U.S. real property
interests equals or exceeds 50% of the total fair market value of our
U.S. real property interests plus other assets used or held in our
business. We have not determined whether we are a U.S. real property
holding corporation. There is a possibility that we are, or will
become, such a corporation. Even if we are or were to become a U.S.
real property holding corporation, U.S. federal income tax generally
would not apply to gains realized upon a disposition of Class A common
stock by a non-U.S. holder which did not directly or indirectly own
more than 5% of the Class A common stock at any time during that
period, if the Class A common stock had been regularly traded on an
established securities market at any time during the calendar year of
the disposition. Because the rules relating to the definition of a
64
<PAGE> 67
more than 5% stockholder are complex, and may include situations where
stock is owned by related or affiliated parties, non-U.S. holders who
believe they may directly or indirectly own more than 5% of our Class A
common stock are especially urged to consult their own tax advisors.
ESTATE TAX
Unless an applicable estate tax treaty provides otherwise, U.S. federal
estate tax law may require an individual, who is not a citizen or resident of
the United States at the time of death, to include any Class A common stock he
owns, or the federal estate tax law deems him to own, in his gross estate for
U.S. federal estate tax purposes.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to and the tax withheld with respect to each non-U.S. holder.
These reporting requirements apply regardless of whether an applicable tax
treaty reduced or eliminated the withholding. Copies of this information also
may be made available under the provisions of a specific treaty or agreement
with the tax authorities in the country in which the non-U.S. holder resides or
is established.
Under the U.S. Treasury regulations currently effective, United States
backup withholding tax, which generally applies at the rate of 31% on certain
payments to persons that fail to furnish the information required under the
United States information reporting requirements and information reporting
requirements, other than those discussed above, generally will not apply to
dividends paid on Class A common stock to a non-U.S. holder at an address
outside of United States. Backup withholding and information reporting generally
will apply to dividends paid on shares of Class A common stock to a non-U.S.
holder at an address in the United States, if such holder fails to establish an
exemption or to provide certain other information to the payor. Under the
regulations generally effective for dividend payments after December 31, 1999,
however, a non-U.S. holder of Class A common stock that fails to certify its
non-U.S. holder status according to the requirements of those regulations may be
subject to United States backup withholding on payments of dividends.
Information reporting and backup withholding requirements will apply to the
payment of proceeds from the disposition of Class A common stock to or through a
United States office of a broker unless the owner, under penalties of perjury,
certifies, among other things, such owner's status as a non-U.S. holder or
otherwise establishes an exemption. These requirements generally will not apply
to the payment of proceeds from the disposition of Class A common stock to or
through a non-U.S. office of a non-U.S. broker, except as noted below. Unless
the broker receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the owner is a non-U.S. holder, and the broker has no actual
knowledge to the contrary, information reporting, but, currently, not backup
withholding, will apply in the case of proceeds from a disposition of Class A
common stock paid to or through a non-U.S. office of a broker that is
- a United States person,
- a "controlled foreign corporation" for U.S. federal income tax purposes,
- a foreign person with 50% or more gross income derived from U.S. trade or
business over a particular time period, or
- for payments made after December 31, 1999, a partnership with some
connections to the United States.
65
<PAGE> 68
Non-U.S. holders should consult their own tax advisors regarding the
application of information reporting or back-up withholding in their particular
situation, including the availability of an exemption from such requirements and
the procedures for obtaining an exemption and the effect of the regulations
generally effective for dividend payments after December 31, 1999. Backup
withholding is not an additional tax. The IRS will refund or credit against the
non-U.S. holder's U.S. federal income tax liability any amounts withheld under
the backup withholding rules from a payment to a non-U.S. holder if the non-U.S.
holder furnishes the required information to the IRS.
66
<PAGE> 69
UNDERWRITING
GENERAL
We intend to offer our Class A common stock in the United States and Canada
through a number of U.S. underwriters as well as elsewhere through international
managers. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation are acting as joint book runners, and
along with Deutsche Bank Securities Inc., Bear, Stearns & Co. Inc., CIBC
Oppenheimer Corp., Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated and Salomon Smith Barney Inc. are U.S. representatives of each of
the U.S. underwriters named below. Subject to the terms and conditions set forth
in a U.S. purchase agreement among our company, Republic Industries and the U.S.
underwriters, and concurrently with the sale of 20,000,000 shares of Class A
common stock to the international managers, Republic Industries has agreed to
sell to the U.S. underwriters, and each of the U.S. underwriters severally and
not jointly has agreed to purchase from Republic Industries, the number of
shares of Class A common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
---------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Deutsche Bank Securities Inc. ..............................
Bear, Stearns & Co. Inc. ...................................
CIBC Oppenheimer Corp. .....................................
Credit Suisse First Boston Corporation......................
Morgan Stanley & Co. Incorporated...........................
Salomon Smith Barney Inc. ..................................
----------
Total ......................................... 80,000,000
==========
</TABLE>
We and Republic Industries have also entered into an international purchase
agreement with certain international managers outside the United States and
Canada for whom Merrill Lynch International and Donaldson, Lufkin & Jenrette
International are acting as joint book runners, and along with Deutsche Bank AG
London, Bear, Stearns International Limited, CIBC Oppenheimer Corp., Credit
Suisse First Boston (Europe) Limited, Morgan Stanley & Co. International Limited
and Salomon Smith Barney Inc. are lead managers. Subject to the terms and
conditions set forth in
67
<PAGE> 70
the international purchase agreement, and concurrently with the sale of
80,000,000 shares of Class A common stock to the U.S. underwriters pursuant to
the U.S. purchase agreement, Republic Industries has agreed to sell to the
international managers, and the international managers severally have agreed to
purchase from Republic Industries, an aggregate of 20,000,000 shares of Class A
common stock. The initial public offering price per share and the total
underwriting discount per share of Class A common stock are identical under the
U.S. purchase agreement and the international purchase agreement.
In the U.S. purchase agreement and the international purchase agreement,
the several U.S. underwriters and the several international managers,
respectively, have agreed, subject to the terms and conditions set forth in
those agreements, to purchase all of the shares of Class A common stock being
sold under the terms of each such agreement if any of the shares of Class A
common stock being sold under the terms of that agreement are purchased. In the
event of a default by an underwriter, the U.S. purchase agreement and the
international purchase agreement provide that, in certain circumstances, the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreements may be terminated. The closings with respect to the sale of
shares of Class A common stock to be purchased by the U.S. underwriters and the
international managers are conditioned upon one another.
We and Republic Industries have agreed to indemnify the U.S. underwriters
and the international managers against some liabilities, including some
liabilities under the Securities Act, or to contribute to payments the U.S.
underwriters and international managers may be required to make in respect of
those liabilities.
The shares of Class A common stock are being offered by the several
underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
underwriters and certain other conditions. The underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised Republic Industries that the U.S.
underwriters propose initially to offer the shares of Class A common stock to
the public at the initial public offering price set forth on the cover page of
this prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Class A common stock. The U.S. underwriters
may allow, and such dealers may reallow, a discount not in excess of $
per share of Class A common stock to certain other dealers. After the initial
public offering, the public offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by Republic Industries to the U.S. underwriters
and the international managers and the proceeds before expenses to Republic
Industries. This information is presented assuming either no exercise or full
exercise by the U.S. underwriters and the international managers of their over-
allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public Offering Price............................... $ $ $
Underwriting Discount............................... $ $ $
Proceeds, before expenses, to Republic Industries... $ $ $
</TABLE>
68
<PAGE> 71
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by Republic Industries.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our Class A common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our Class A common stock will not offer to sell or sell shares of our
Class A common stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or non-
Canadian persons, and the international managers and any dealer to whom they
sell shares of Class A common stock will not offer to sell or sell shares of
Class A common stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. or Canadian persons, except in the case of
transactions under the terms of the intersyndicate agreement.
OVER-ALLOTMENT OPTION
Republic Industries has granted an option to the U.S. underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 9,730,000 additional shares of our Class A common stock at the
public offering price set forth on the cover page of this prospectus, less the
underwriting discount. The U.S. underwriters may exercise this option solely to
cover over-allotments, if any, made on the sale of our Class A common stock
offered hereby. To the extent that the U.S. underwriters exercise this option,
each U.S. underwriter will be obligated, subject to certain conditions, to
purchase a number of additional shares of our Class A common stock proportionate
to such U.S. underwriter's initial amount reflected in the foregoing table.
Republic Industries also has granted an option to the international
managers, exercisable for 30 days after the date of this prospectus, to purchase
up to an aggregate of 2,432,500 additional shares of Class A common stock to
cover over-allotments, if any, on terms similar to those granted to the U.S.
underwriters.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors and Republic Industries have
agreed, with certain exceptions, without the prior written consent of Merrill
Lynch on behalf of the underwriters for a period of 90 days after the date of
this prospectus, not to directly or indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our Class A common stock or securities convertible
into or exchangeable or exercisable for or repayable with our Class A
common stock, whether now owned or later acquired by the person executing
the agreement or with respect to which the person executing the agreement
later acquires the power of disposition, or file a registration statement
under the Securities Act relating to any shares of our Class A common
stock or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our Class A common stock
whether any such swap or transaction
69
<PAGE> 72
is to be settled by delivery of our Class A common stock or other
securities, in cash or otherwise;
provided that we may at any time and from time to time (1) issue shares of our
Class A common stock to third parties as consideration for our acquisition from
such third parties of non-hazardous solid waste businesses and (2) grant options
to purchase shares of our Class A common stock under our 1998 Stock Incentive
Plan, in each case without the prior consent of Merrill Lynch.
NEW YORK STOCK EXCHANGE LISTING
Our Class A common stock is listed on the New York Stock Exchange under the
symbol "RSG."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our Class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase our Class A common
stock. As an exception to these rules, the U.S. representatives are permitted to
engage in transactions that stabilize the price of our Class A common stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of our Class A common stock.
If the underwriters create a short position in our Class A common stock in
connection with the offering, i.e., if they sell more shares of our Class A
common stock than are set forth on the cover page of this prospectus, the U.S.
representatives may reduce that short position by purchasing our Class A common
stock in the open market. The U.S. representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common stock. In addition,
neither our company nor any of the underwriters makes any representation that
the U.S. representatives or the lead managers will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
OTHER RELATIONSHIPS
Merrill Lynch, Donaldson, Lufkin & Jenrette Securities Corporation and
Deutsche Bank Securities Inc. were U.S. representatives of the underwriters in
our initial public offering in July 1998.
70
<PAGE> 73
LEGAL MATTERS
Some legal matters regarding the validity of the Class A common stock
offered under this prospectus will be passed upon on our behalf by Akerman,
Senterfitt & Eidson, P.A., Miami, Florida. Some attorneys employed by Akerman,
Senterfitt & Eidson, P.A. own shares of Class A common stock and shares of
Republic Industries common stock. Certain legal matters relating to the offering
will be passed upon for the underwriters by Fried, Frank, Harris, Shriver &
Jacobson (a partnership including professional corporations), New York, New
York.
EXPERTS
The consolidated financial statements and schedule for each of the three
years ended December 31, 1998, included in this prospectus and registration
statement, have been audited by Arthur Andersen LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act to register the shares of our
Class A common stock being offered by Republic Industries under this prospectus.
This prospectus does not contain all of the information in the registration
statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to our company
and the Class A common stock being offered, reference is made to the
registration statement, including its exhibits and the financial statements,
notes and schedules filed as a part thereof. Statements contained in this
prospectus regarding the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance reference
is made to the copy of the contract or other document filed as an exhibit to the
registration statement or other document, each statement being qualified in all
respects by the reference.
Our company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information, as well as the registration statement and its exhibits and
schedules, may be inspected, without charge, at the public reference facility
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Seven World Trade Center, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of the materials may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The materials can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005 or on the Commission's site on
the Internet at http://www.sec.gov.
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<PAGE> 74
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Operations for each of the Three
Years Ended December 31, 1998............................. F-4
Consolidated Statements of Stockholders' Equity for each of
the Three Years Ended
December 31, 1998......................................... F-5
Consolidated Statements of Cash Flows for each of the Three
Years Ended December 31, 1998............................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Republic Services, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Republic Services, 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.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 28, 1999, except with respect to the
matters discussed in Note 12, as to which
the date is March 2, 1999.
F-2
<PAGE> 76
REPUBLIC SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 556.6 $ --
Restricted cash........................................... 7.1 18.8
Accounts receivable, less allowance for doubtful accounts
of $22.1 and $13.6 at December 31, 1998 and 1997,
respectively........................................... 182.7 131.0
Prepaid expenses and other current assets................. 37.6 26.1
-------- --------
Total Current Assets.............................. 784.0 175.9
PROPERTY AND EQUIPMENT, NET................................. 1,096.1 801.8
INTANGIBLE AND OTHER ASSETS, NET............................ 932.0 370.3
-------- --------
$2,812.1 $1,348.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 64.7 $ 40.2
Accrued liabilities....................................... 146.2 57.6
Deferred revenue.......................................... 46.6 29.5
Due to Republic Industries................................ -- 266.1
Notes payable and current maturities of long-term debt.... 499.9 10.8
Other current liabilities................................. 26.4 19.9
-------- --------
Total Current Liabilities......................... 783.8 424.1
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 557.2 64.3
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS.................... 77.3 46.0
DEFERRED INCOME TAXES....................................... 71.4 47.5
OTHER LIABILITIES........................................... 23.3 15.3
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Investment by Republic Industries......................... -- 749.8
Preferred stock, par value $.01 per share; 50,000,000
shares authorized; none issued......................... -- --
Common stock:
Class A, par value $.01 per share; 250,000,000 shares
authorized; 79,724,417 and none issued and
outstanding, respectively............................. .8 --
Class B, par value $.01 per share; 125,000,000 shares
authorized; 95,688,083 shares issued and
outstanding........................................... 1.0 1.0
Additional paid-in capital................................ 1,203.5 --
Retained earnings......................................... 93.8 --
-------- --------
Total Stockholders' Equity........................ 1,299.1 750.8
-------- --------
$2,812.1 $1,348.0
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 77
REPUBLIC SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE..................................................... $1,369.1 $1,127.7 $ 953.3
EXPENSES:
Cost of operations........................................ 842.7 723.0 628.3
Depreciation, amortization and depletion.................. 106.3 86.1 75.3
Selling, general and administrative....................... 135.8 117.3 135.3
Restructuring and other charges........................... -- -- 8.8
-------- -------- --------
OPERATING INCOME............................................ 284.3 201.3 105.6
INTEREST EXPENSE............................................ (44.7) (25.9) (29.7)
INTEREST INCOME............................................. 1.5 4.9 11.7
OTHER INCOME (EXPENSE), NET................................. (.9) 1.8 2.2
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 240.2 182.1 89.8
PROVISION FOR INCOME TAXES.................................. 86.5 65.9 38.0
-------- -------- --------
NET INCOME.................................................. $ 153.7 $ 116.2 $ 51.8
======== ======== ========
BASIC AND DILUTED EARNINGS PER SHARE........................ $ 1.13 $ 1.21 $ .54
======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING............................................... 135.6 95.7 95.7
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 78
REPUBLIC SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
INVESTMENT COMMON STOCK ADDITIONAL
BY REPUBLIC ----------------- PAID-IN RETAINED
INDUSTRIES CLASS A CLASS B CAPITAL EARNINGS
----------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995..................... $ 371.2 $ -- $1.0 $ -- $ --
Net income..................................... 51.8 -- -- -- --
Business acquisitions contributed by Republic
Industries.................................. 79.7 -- -- -- --
Other.......................................... (9.2) -- -- -- --
--------- ---- ---- -------- -----
BALANCE AT DECEMBER 31, 1996..................... 493.5 -- 1.0 -- --
Net income..................................... 116.2 -- -- -- --
Business acquisitions contributed by Republic
Industries.................................. 148.4 -- -- -- --
Investment in Resources........................ (17.4) -- -- -- --
Other.......................................... 9.1 -- -- -- --
--------- ---- ---- -------- -----
BALANCE AT DECEMBER 31, 1997..................... 749.8 -- 1.0 -- --
Net income..................................... 59.9 -- -- -- 93.8
Business acquisitions contributed by Republic
Industries.................................. 128.3 -- -- -- --
Dividend to Republic Industries................ (2,000.0) -- -- -- --
Dividend from Resources........................ 437.3 -- -- -- --
Transfer to additional paid-in capital......... 624.7 -- -- (624.7) --
Issuance of Class A Common Stock to Republic
Industries.................................. -- .2 -- 395.2 --
Sale of Class A Common Stock................... -- .6 -- 1,433.0 --
--------- ---- ---- -------- -----
BALANCE AT DECEMBER 31, 1998..................... $ -- $ .8 $1.0 $1,203.5 $93.8
========= ==== ==== ======== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 79
REPUBLIC SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income................................................ $ 153.7 $ 116.2 $ 51.8
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and depletion of property
and equipment........................................ 88.6 76.1 66.6
Amortization of intangible assets...................... 17.7 10.0 8.7
Deferred tax provision................................. 19.2 36.5 3.2
Changes in assets and liabilities, net of effects from
business acquisitions:
Accounts receivable.................................. (41.8) (15.6) (16.4)
Prepaid expenses and other assets.................... (11.3) 17.4 7.0
Accounts payable and accrued liabilities............. (14.1) (26.7) (32.0)
Other liabilities.................................... 59.1 65.5 54.6
--------- --------- ---------
271.1 279.4 143.5
--------- --------- ---------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment....................... (193.0) (165.3) (146.9)
Cash used in acquisitions, net of cash acquired........... (425.2) 2.7 1.2
Other..................................................... 10.8 (5.5) (30.0)
--------- --------- ---------
(607.4) (168.1) (175.7)
--------- --------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from the sale of common stock.................... 1,433.6 -- --
Proceeds from notes payable and long-term debt............ 10.6 5.2 44.5
Payments of notes payable and long-term debt.............. (61.8) (100.2) (91.4)
Increase (decrease) in amounts due to Republic
Industries............................................. (1,469.5) (47.3) 166.9
Net proceeds from revolving credit facility............... 980.0 -- --
Other..................................................... -- 6.8 (99.7)
--------- --------- ---------
892.9 (135.5) 20.3
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 556.6 (24.2) (11.9)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ -- 24.2 36.1
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 556.6 $ -- $ 24.2
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 80
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of
Republic Services, Inc. and its subsidiaries (the "Company"). As of December 31,
1998, approximately 63.9% of the Company's common stock, par value $.01 per
share ("Common Stock," which is designated when issued as either "Class A Common
Stock" or "Class B Common Stock"), was owned by Republic Industries, Inc.
("Republic Industries"). The Company provides non-hazardous solid waste
collection and disposal services in the United States. All material intercompany
transactions have been eliminated.
The accompanying Consolidated Financial Statements exclude the accounts of
the Company's formerly wholly owned subsidiary, Republic Resources Company, Inc.
("Resources"), all of the common stock of which was distributed to Republic
Industries in June 1998. The Company and Resources have been in dissimilar
businesses, have been managed and financed historically as if they were
autonomous, have had no more than incidental common facilities and costs, have
been operated and financed autonomously after the distribution of Resources to
Republic Industries, and have no financial commitments, guarantees, or
contingent liabilities to each other following the distribution. Based on these
facts, the accounts of Resources have been excluded from the Company's
consolidated financial statements as the Company has elected to characterize the
distribution of Resources as resulting in a change in the reporting entity.
The accompanying Consolidated Financial Statements reflect the accounts of
the Company as a subsidiary of Republic Industries subject to corporate general
and administrative expense allocations or charges under the Services Agreement
as described in Note 10, Related Party Transactions. Such information does not
necessarily reflect the financial position or results of operations of the
Company as a separate, stand-alone entity.
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 historical share and per share data of the Company's Common Stock for
all periods included in the consolidated financial statements and the notes
thereto have been retroactively adjusted for the recapitalization of 100 shares
of the Company's common stock previously held by Republic Industries into
95,688,083 shares of Class B Common Stock in July 1998, as more fully described
in Note 6, Stockholders' Equity.
In May 1998, Republic Industries announced its intention to separate the
Company from Republic Industries (the "Separation"). Republic Industries also
announced its intention to distribute its remaining shares of Common Stock in
the Company as of the distribution date to Republic Industries' shareholders in
1999, subject to certain conditions and consents (the "Distribution"). The
Company and Republic Industries have entered into certain agreements providing
for the Separation and the Distribution, and the governing of various interim
and ongoing relationships between the companies. The Distribution was
conditioned, in part, on Republic Industries obtaining a private letter
F-7
<PAGE> 81
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ruling from the Internal Revenue Service ("IRS") to the effect that, among other
things, the Distribution will qualify as a tax-free distribution for federal
income tax purposes under Section 355 of the Internal Revenue Code of 1986, as
amended, in form and substance satisfactory to Republic Industries. In July 1998
Republic Industries filed its application for the private letter ruling with the
IRS. See also Note 12, Subsequent Events, for further information.
In July 1998, the Company completed an initial public offering of
approximately 63.2 million shares of its Class A Common Stock ("Initial Public
Offering") resulting in net proceeds of approximately $1.4 billion. In addition,
in July 1998 the Company repaid in full all remaining amounts due to Republic
Industries as of June 30, 1998 through the issuance of shares of Class A Common
Stock and through all of the proceeds from the Initial Public Offering.
Following the Initial Public Offering and the repayment of amounts due to
Republic Industries, approximately 63.9% of the outstanding shares of Class A
and Class B Common Stock which represents approximately 88.7% of the combined
voting power of all of the outstanding shares of the Class A and Class B Common
Stock were owned by Republic Industries.
The following unaudited pro forma consolidated statement of operations data
for the year ended December 31, 1998 has been prepared assuming the Initial
Public Offering and the repayment in full of the amounts due to Republic
Industries had occurred as of January 1, 1998:
<TABLE>
<S> <C>
Operating income............................................ $284.3
Interest expense............................................ (7.4)
Interest income............................................. 1.5
Other income (expense), net................................. (.9)
------
Income before income taxes.................................. 277.5
Provision for income taxes.................................. 99.9
------
Net income.................................................. $177.6
======
Basic and diluted earnings per share........................ $ 1.01
======
Weighted average common and common equivalent shares
outstanding............................................... 175.4
======
</TABLE>
The unaudited pro forma consolidated statement of operations data are
provided for informational purposes only and should not be construed to be
indicative of the Company's consolidated results of operations had the
transactions and events described above been consummated on the date assumed and
do not project the Company's results of operations for any future date or
period.
Certain reclassifications have been made to the prior period balance sheet
to conform to the current presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESTRICTED CASH
Restricted cash consists of amounts held in trust as a financial guaranty
of the Company's performance as well as funds restricted for capital
expenditures under certain debt facilities.
F-8
<PAGE> 82
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER CURRENT ASSETS
Other current assets consist primarily of inventories and short-term notes
receivable. Inventories totaled approximately $13.3 million and $11.7 million at
December 31, 1998 and 1997, respectively, and consist primarily of equipment
parts, compost materials and supplies that are valued under a method that
approximates the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while maintenance and repairs are
charged to expense as incurred. When property is retired or otherwise disposed
of, the related 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 business acquisitions to conform with its policies regarding
property and equipment. Depreciation is provided over the estimated useful lives
of the assets involved using the straight-line method. The estimated useful
lives are: twenty to forty years for buildings and improvements, three to
fifteen years for trucks and equipment, and five to ten years for furniture and
fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. All indirect landfill development costs are
expensed as incurred.
Interest costs are capitalized in connection with the construction of
landfill sites. Interest capitalized was $.8 million, $.8 million and $1.8
million for the years ended December 31, 1998, 1997 and 1996, respectively.
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Land, landfills and improvements............................ $ 586.2 $ 420.1
Furniture, fixtures, trucks and equipment................... 806.8 668.9
Buildings and improvements.................................. 176.1 126.6
-------- --------
1,569.1 1,215.6
Less: accumulated depreciation, amortization and
depletion................................................. (473.0) (413.8)
-------- --------
$1,096.1 $ 801.8
======== ========
</TABLE>
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of property and
equipment or whether the remaining balance of property and equipment should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the property and equipment in
measuring their recoverability.
F-9
<PAGE> 83
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired and other
intangible assets. The cost in excess of the fair value of net assets is
amortized over forty years on a straight-line basis. Other intangible assets
include values assigned to customer lists, long-term contracts and covenants not
to compete and are amortized generally over periods ranging from 5 to 25 years.
Accumulated amortization of intangible assets was $73.0 million and $57.9
million at December 31, 1998 and 1997, respectively.
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
measuring their recoverability.
ACCRUED LIABILITIES
A summary of accrued liabilities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1997
------ ------
<S> <C> <C>
Amounts due former owners of acquired businesses............ $ 26.7 $ --
Accrued payroll and benefits................................ 25.7 17.0
Accrued disposal costs...................................... 16.1 5.1
Accrued fees and taxes...................................... 12.7 5.4
Other....................................................... 65.0 30.1
------ ------
$146.2 $ 57.6
====== ======
</TABLE>
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
A summary of accrued environmental and landfill costs is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1998 1997
----- -----
<S> <C> <C>
Accrued landfill site closure/post-closure costs............ $73.4 $47.3
Accrued environmental costs................................. 9.5 8.6
----- -----
82.9 55.9
Less: current portion (included in other current
liabilities).............................................. (5.6) (9.9)
----- -----
$77.3 $46.0
===== =====
</TABLE>
Landfill site closure and post-closure costs include estimated costs to be
incurred for final closure of the landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. These costs are
accrued based on consumed airspace. Available airspace is generally based on
estimates of remaining permitted and likely to be permitted airspace developed
by independent engineers together with the Company's engineers and accounting
personnel utilizing information provided by aerial surveys of landfills which
are generally performed annually. These aerial surveys
F-10
<PAGE> 84
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
form the basis for the volume available for disposal. Accruals for closure and
post-closure costs totaled approximately $11.4 million, $7.9 million and $4.4
million during the years ended December 31, 1998, 1997 and 1996, respectively.
Estimated aggregate closure and post-closure costs will be fully accrued for
these landfills at the time that such facilities cease to accept waste and are
closed. At December 31, 1998, approximately $370.5 million of such costs are to
be expensed over the remaining lives of these facilities. The Company estimates
its future cost requirements for closure and post-closure monitoring and
maintenance for its solid waste facilities based on its interpretation of the
technical standards of the United States Environmental Protection Agency's
Subtitle D regulations. These estimates do not take into account discounts for
the present value of such total estimated costs. The Company periodically
reassesses such costs based on various methods and assumptions regarding
landfill airspace and the technical requirements of the Environmental Protection
Agency's Subtitle D regulations and adjusts such accruals accordingly.
In the normal course of business, the Company is subject to ongoing
environmental investigations by certain regulatory agencies, as well as other
claims and disputes that could result in litigation. Environmental costs are
accrued by the Company through a charge to income in the period such liabilities
become probable and can be reasonably estimated. No material amounts were
charged to expense during the years ended December 31, 1998, 1997 and 1996.
REVENUE RECOGNITION
Revenue consists primarily of collection fees from commercial, industrial,
residential and municipal customers and transfer and landfill disposal fees
charged to third parties. Collection, transfer and disposal, recycling and other
services accounted for approximately 78.7%, 10.1%, 3.1% and 8.1%, respectively,
of consolidated revenue for the year ended December 31, 1998. Advance billings
are recorded as deferred revenue and revenue is recognized over the period in
which services are provided. No one customer has individually accounted for more
than 10.0% of the Company's consolidated revenues in any of the past three
years.
INCOME TAXES
Effective with the Initial Public Offering on July 1, 1998, the Company is
no longer included in the consolidated federal income tax return of Republic
Industries. For the periods prior to the Initial Public Offering, all tax
amounts have been recorded as if the Company filed a separate federal tax
return. 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 in shareholders' equity. Pre-
F-11
<PAGE> 85
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition income taxes related to pooled S corporations recorded in the
consolidated financial statements were $0 million and $4.0 million during the
years ended December 31, 1997 and 1996, respectively.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the number of
common shares outstanding during the period after giving retroactive effect to
the recapitalization of the 100 shares of common stock held by Republic
Industries into 95,688,083 shares of Class B Common Stock. Diluted earnings per
share equals basic earnings per share for all periods presented since there was
substantially no dilutive effect of common share equivalents outstanding during
the periods presented. See Note 7, Stock Options, for further information
regarding stock options which could potentially dilute earnings per share in
future periods.
COMPREHENSIVE INCOME
The Company has no components of other comprehensive income. Accordingly,
net income equals comprehensive income for all periods presented.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents. The effect of
non-cash transactions related to business combinations, as discussed in Note 3,
Business Combinations, and other non-cash transactions are excluded from the
accompanying Consolidated Statements of Cash Flows.
The Company made interest payments on notes payable and long-term debt of
approximately $44.8 million, $25.1 million and $30.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively. The Company made income tax
payments of approximately $65.4 million, $29.4 million and $31.7 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash,
receivables, and accounts payable and accrued liabilities approximate fair value
due to the short maturity of these instruments. The carrying amounts of notes
payable and long-term debt approximate fair value because interest rates
generally are variable and, accordingly, approximate current market rates.
CONCENTRATION OF CREDIT RISK
The Company provides services to commercial, industrial, municipal and
residential customers in the United States. Concentrations of credit risk with
respect to trade receivables are limited due to the wide variety of customers
and markets in which services are provided as well as their dispersion across
many geographic areas in the United States. The Company performs ongoing credit
evaluations of its customers, but does not require collateral to support
customer receivables. The
F-12
<PAGE> 86
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.
3. BUSINESS COMBINATIONS
Republic Industries has acquired various businesses operating in the solid
waste services industry using cash and/or shares of its common stock ("Republic
Industries Common Stock"). These businesses were contributed by Republic
Industries to the Company subsequent to their acquisition. The Company has
applied the same accounting method used by Republic Industries in accounting for
business combinations.
Significant 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. Businesses acquired and accounted for under the purchase method
of accounting are included in the Consolidated Financial Statements from the
date of acquisition. The value of the Republic Industries Common Stock issued to
effect business combinations accounted for under the purchase method of
accounting is based on the average market price of Republic Industries Common
Stock over a five day period before and after the parties have reached agreement
on the purchase price and the proposed transaction has been publicly announced,
if applicable.
In September 1998, the Company entered into a definitive agreement with
Waste Management, Inc. ("Waste Management") to acquire certain assets. The
assets to be acquired include 16 landfills, 11 transfer stations and 136
collection routes across the United States as well as disposal agreements at
various Waste Management sites, and will be accounted for under the purchase
method of accounting. At December 31, 1998, closings had been completed for 6
landfills, 7 transfer stations and all 136 of the collection routes discussed
above, at a purchase price of approximately $200.8 million consisting of cash
and certain properties.
During the year ended 1998, Republic Industries acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Republic Industries in transactions accounted for under
the purchase method of accounting was $128.3 million, consisting of $60.3
million in cash and approximately 3.4 million shares of Republic Industries
Common Stock valued at $68.0 million. Subsequent to the Initial Public Offering,
the Company acquired various solid waste businesses. The aggregate purchase
price paid by the Company in transactions accounted for under the purchase
method of accounting was $450.5 million consisting of cash and certain
properties.
During the year ended December 31, 1997, Republic Industries acquired
various solid waste services businesses which were contributed to the Company.
The aggregate purchase price paid by Republic Industries in transactions
accounted for under the purchase method of accounting was $147.9 million
consisting of $11.5 million in cash and 5.7 million shares of Republic
Industries Common Stock valued at $136.4 million. In addition, Republic
Industries issued an aggregate of 34.1 million shares of Republic Industries
Common Stock in transactions accounted for under the pooling of interests method
of accounting. Included in the shares of Republic Industries Common Stock issued
in acquisitions accounted for under the pooling of interests method of
accounting are
F-13
<PAGE> 87
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately 0.3 million shares issued for acquisitions that were not material
individually or in the aggregate and, consequently, prior period financial
statements were not restated for such acquisitions.
During the year ended December 31, 1996, Republic Industries acquired
various solid waste services businesses which were contributed to the Company.
The aggregate purchase price paid by Republic Industries in transactions
accounted for under the purchase method of accounting was $87.6 million,
consisting of $16.9 million in cash and 6.6 million shares of Republic
Industries Common Stock valued at $70.7 million. In addition, Republic
Industries issued an aggregate of 40.0 million shares of Republic Industries
Common Stock in transactions accounted for under the pooling of interests method
of accounting. Included in the shares of Republic Industries Common Stock issued
in acquisitions accounted for under the pooling of interests method of
accounting are approximately 1.1 million shares issued for acquisitions that
were not material individually or in the aggregate and, consequently, prior
period financial statements were not restated for such acquisitions.
The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Property and equipment.................................. $ 180.3 $ 36.8 $ 71.8
Cost in excess of net assets acquired................... 572.4 149.1 73.6
Working capital deficit................................. (108.0) (18.0) (20.3)
Long-term debt assumed.................................. (51.7) (26.8) (27.1)
Other assets (liabilities).............................. (39.5) 4.6 (19.5)
Investment by Republic Industries....................... (128.3) (148.4) (79.7)
------- ------ ------
Cash used in acquisitions, net of cash acquired......... $ 425.2 $ (2.7) $ (1.2)
======= ====== ======
</TABLE>
The Company's unaudited pro forma consolidated results of operations
assuming acquisitions accounted for under the purchase method of accounting had
occurred at the beginning of the periods presented are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenue..................................................... $1,552.0 $1,392.9
Income from continuing operations........................... 155.5 116.1
Basic and diluted earnings per share........................ 1.15 1.21
Weighted average common and common equivalent shares
outstanding............................................... 135.6 95.7
</TABLE>
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of the beginning of the
periods presented.
F-14
<PAGE> 88
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
$1.0 billion unsecured revolving credit facility; interest
payable using LIBOR based rates (6.4% at December 31,
1998); $500.0 million matures July 1999 and $500.0 million
matures 2003.............................................. $ 980.0 $ --
Bonds payable under loan agreements with California
Pollution Control Financing Authority; interest at
prevailing market rates (4.3% and 5.0% at December 31,
1998 and 1997, respectively).............................. 42.0 43.1
Other notes; secured by real property, equipment and other
assets; interest rates ranging from 4% to 10%; maturing
through 2009.............................................. 35.1 32.0
------- -------
1,057.1 75.1
Less: current portion....................................... (499.9) (10.8)
------- -------
$ 557.2 $ 64.3
======= =======
</TABLE>
At December 31, 1998, aggregate maturities of notes payable and long-term
debt are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 499.9
2000........................................................ 7.0
2001........................................................ 4.5
2002........................................................ 4.0
2003........................................................ 503.5
Thereafter.................................................. 38.2
--------
$1,057.1
========
</TABLE>
The unsecured revolving credit facility and the loan agreements with the
California Pollution Control Financing Authority require the Company to maintain
certain financial ratios and comply with certain financial covenants. At
December 31, 1998, the Company was in compliance with the financial covenants
under these agreements.
5. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Current:
Federal................................................... $ 59.8 $20.9 $30.1
State..................................................... 7.5 8.5 4.7
Federal and state deferred.................................. 23.2 36.5 2.4
Change in valuation allowance............................... (4.0) -- 0.8
------ ----- -----
Provision for income taxes.................................. $ 86.5 $65.9 $38.0
====== ===== =====
</TABLE>
F-15
<PAGE> 89
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for the years ended December 31 is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Non-deductible expenses..................................... 1.3 1.5 2.6
State income taxes, net of federal benefit.................. 2.1 2.0 3.6
Other, net.................................................. (2.4) (2.3) 1.1
---- ---- ----
Effective income tax rate................................... 36.0% 36.2% 42.3%
==== ==== ====
</TABLE>
Components of the net deferred income tax liability in the accompanying
Consolidated Balance Sheets at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis..................... $ 95.7 $ 64.9
Deferred income tax assets:
Net operating losses and other carryforwards.............. -- (4.0)
Accruals not currently deductible......................... (33.0) (23.0)
Valuation allowance......................................... 8.7 9.6
------- -------
Net deferred income tax liability........................... $ 71.4 $ 47.5
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The Company has provided a valuation allowance to
offset a portion of the deferred tax assets due to uncertainty surrounding the
future realization of such deferred tax assets. The Company adjusts the
valuation allowance in the period management determines it is more likely than
not that deferred tax assets will or will not be realized.
6. STOCKHOLDERS' EQUITY
In April 1998, the Company declared a $2.0 billion dividend to Republic
Industries that it paid in the form of notes payable ("Company Notes"). Interest
expense on the Company Notes was $27.6 million for the year ended December 31,
1998.
In June 1998, the Company received a dividend of certain assets from
Resources totaling approximately $437.3 million (the "Resources Dividend"). In
June 1998, the Company prepaid a portion of the amounts outstanding under the
Company Notes totaling $565.4 million using the Resources Dividend, cash and
certain other assets.
In July 1998, the Company amended and restated its Certificate of
Incorporation to authorize capital stock consisting of (a) 50,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), and (b)
750,000,000 shares of Common Stock of which 250,000,000 shares have been
authorized as Class A Common Stock, 125,000,000 shares have been authorized as
Class B Common Stock and 375,000,000 shares may be designated by the Company's
Board of Directors as either Class A Common Stock or Class B Common Stock. In
addition, all 100 shares of common stock previously held by Republic Industries
were converted into 95,688,083 shares of Class B Common Stock. The Class A
Common Stock and Class B Common Stock are identical in all
F-16
<PAGE> 90
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respects, except 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
on all matters submitted to a vote of the stockholders, including the election
of directors. See also Note 12, Subsequent Events, for further information.
In July 1998, the Company repaid amounts due to Republic Industries
totaling $395.4 million through the issuance of approximately 16.5 million
shares of Class A Common Stock.
In July 1998, the Company completed the Initial Public Offering of
approximately 63.2 million shares of its Class A Common Stock resulting in net
proceeds of approximately $1.4 billion. All of the proceeds from the Initial
Public Offering were used to repay remaining amounts due under the Company
Notes.
7. STOCK OPTIONS
In July 1998, the Company adopted the 1998 Stock Incentive Plan ("Stock
Incentive Plan") to provide for grants of options to purchase shares of Class A
Common Stock to employees, non-employee directors and independent contractors of
the Company who are eligible to participate in the Stock Incentive Plan. Options
granted under the Stock Incentive Plan are non-qualified and are granted at a
price equal to the fair market value of the Company's Common Stock at the date
of grant. Generally, options granted will have a term of ten years from the date
of grant, and vest in increments of 25% per year over a four year period on the
yearly anniversary date of the grant. Options granted to non-employee directors
have a term of ten years and vest immediately at the date of grant. The Company
has reserved 20.0 million shares of Class A Common Stock for issuance pursuant
to options granted under the Stock Incentive Plan and Substitute Options (as
defined below). During 1998, options to acquire 573,000 shares of Class A Common
Stock were granted under the Stock Incentive Plan.
The following table summarizes information about the Company's outstanding
and exercisable stock options at December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- ------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE (YRS.) PRICE SHARES PRICE
- ----------------------- ------ ----------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$14.50-$18.75..................................... 473.0 9.85 $16.81 62.5 $18.06
$23.00-$25.69..................................... 100.0 9.51 $24.35 100.0 $24.35
----- -----
$14.50-$25.69..................................... 573.0 9.79 $18.12 162.5 $21.93
===== =====
</TABLE>
In January 1999, the Board of Directors approved additional grants of
options to acquire approximately 2.0 million shares of Class A Common Stock at
an exercise price of $18 7/16 per share.
Republic Industries has various stock option plans under which options to
acquire shares of Republic Industries Common Stock were granted to key employees
of the Company prior to the Initial Public Offering (the "Republic Industries
Stock Options"). Options granted under the plans are non-qualified and are
granted at a price equal to the fair market value of the Republic Industries
Common Stock at the date of grant. Generally, options granted will have a term
of ten years from the date of grant, and will vest in increments of 25% per year
over a four year period on the yearly anniversary of the grant date. As of
December 31, 1998, approximately 8.5 million Republic
F-17
<PAGE> 91
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Industries Stock Options held by employees of the Company were outstanding, 1.8
million of which were exercisable.
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. Had compensation cost for stock option
grants under the Republic Industries' stock option plans and the Company's Stock
Incentive Plan been determined pursuant to SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net income would have decreased
accordingly. Using the Black-Scholes option pricing model for all options
granted after December 31, 1995, the Company's pro forma net income 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............................ $ 132.7 $ 108.3 $ 47.6
Pro forma earnings per share.................... .98 1.13 .50
Pro forma weighted average fair value of
Republic Industries Stock Options granted..... 14.45 13.60 7.34
Pro forma weighted average fair value of the
Company's stock options granted............... 7.71 -- --
Risk free interest rates........................ 4.76% 5.74% 5.98%
Expected lives.................................. 5 years 5 years 5 years
Expected volatility............................. 40.0% 40.0% 40.0%
</TABLE>
Following such time as the Company is no longer a subsidiary of Republic
Industries (the "Stand-alone Date") the Company intends to issue substitute
options under the Company's Stock Incentive Plan (collectively "Substitute
Options") in substitution for grants of Republic Industries Stock Options under
Republic Industries' stock option plans as of the Stand-alone Date held by
individuals employed by the Company as of such date (the "Company Employees").
Such Substitute Options will provide for the purchase of a number of shares of
Class A Common Stock determined based on a ratio of average trading prices of
Republic Industries Common Stock and Class A Common Stock immediately prior to
the Stand-alone Date. It is not possible to specify how many shares of Class A
Common Stock will be subject to Substitute Options. It is expected that some
Republic Industries Stock Options consisting of stock options held by the
Company Employees will be exercised and that some will be forfeited, and that
additional Republic Industries Stock Options could be granted prior to the
Stand-alone Date. In addition, the remaining balance of unexercised Republic
Industries Stock Options will be converted into Substitute Options by reference
to the ratio described above, which will not be known until the Stand-alone
Date. See also Note 12, Subsequent Events, for further information.
8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to various general legal proceedings which have
arisen in the ordinary course of business. While the results of these matters
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.
F-18
<PAGE> 92
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE COMMITMENTS
The Company and its subsidiaries lease real property, equipment and
software under various operating leases with terms from one to twenty-five
years.
Future minimum lease obligations under noncancelable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1999........................................................ $2.5
2000........................................................ 2.3
2001........................................................ 1.5
2002........................................................ .9
2003........................................................ .8
Thereafter.................................................. .5
----
$8.5
====
</TABLE>
LIABILITY INSURANCE
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.
The Company's liabilities for unpaid and incurred but not reported claims
at December 31, 1998 was $16.9 million under its current risk management program
and $11.1 million under its previous risk management program with Republic
Industries (see Note 10, Related Party Transactions, for further information),
and are included in other current and other liabilities in the accompanying
Consolidated Balance Sheets. While the ultimate amount of claims incurred are
dependent on future developments, in management's opinion, recorded reserves are
adequate to cover the future payment of claims. However, it is reasonably
possible that recorded reserves may not be adequate to cover the future payment
of claims. Adjustments, if any, to estimates recorded resulting from ultimate
claim payments will be reflected in operations in the periods in which such
adjustments are known.
OTHER MATTERS
In the normal course of business, the Company is required to post
performance bonds, letters of credit, and/or cash deposits as a financial
guarantee of the Company's performance. To date, the Company has satisfied
financial responsibility requirements for regulatory agencies by making cash
deposits, obtaining bank letters of credit or by obtaining surety bonds. At
December 31, 1998, surety bonds and letters of credit totaling $380.3 million
expire through 2005.
The Company's business activities are conducted in the context of a
developing and changing statutory and regulatory framework. Governmental
regulation of the waste management industry requires the Company to obtain and
retain numerous governmental permits to conduct various aspects of its
operations. These permits are subject to revocation, modification or denial. The
costs and other capital expenditures which may be required to obtain or retain
the applicable permits or comply with applicable regulations could be
significant.
F-19
<PAGE> 93
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RESTRUCTURING AND OTHER CHARGES
During the year ended December 31, 1996, the Company recorded restructuring
and other charges of approximately $8.8 million. These costs included $5.3
million to close certain landfill operations, $1.0 million of asset write-offs
and $2.5 million of merger expenses associated with certain business
combinations accounted for under the pooling of interests method of accounting.
There are no remaining liabilities associated with the 1996 restructuring and
other charges as of December 31, 1997.
10. RELATED PARTY TRANSACTIONS
Amounts due to Republic Industries consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Due to Republic Corporate Management Company ("RCMC")....... $107.8
Notes payable to Resources.................................. 158.3
------
$266.1
======
</TABLE>
The following is an analysis of activity in the due to RCMC account for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period.............................. $107.8 $ 49.3 $86.3
Republic Industries overhead allocations.................... 7.5 10.2 8.4
Service Agreement fees...................................... 7.5 -- --
Insurance allocations....................................... 9.7 15.9 10.2
Self-insurance reserve allocations.......................... (9.8) (7.3) (4.8)
Intercompany purchases...................................... 42.4 13.8 12.0
Income taxes................................................ 24.0 28.7 23.4
Cash transfers.............................................. (49.6) (2.8) (86.2)
Repayment in shares of Class A Common Stock................. (139.5) -- --
------ ------ -----
Balance at end of period.................................... $ -- $107.8 $49.3
====== ====== =====
</TABLE>
Prior to the Initial Public Offering, due to RCMC included allocations of
various expenses from Republic Industries including general and administrative
expenses, risk management premiums, income taxes and other costs. Such
liabilities were non-interest bearing and had no specified repayment terms. In
July 1998, the Company repaid in full amounts due to RCMC as of June 30, 1998
through the issuance of approximately 5.8 million shares of Class A Common
Stock. Subsequent to the Initial Public Offering, due to RCMC consists primarily
of charges under the Services Agreement described below. Such amounts are
non-interest bearing and are repaid periodically using cash.
Prior to the Initial Public Offering, Republic Industries' corporate
general and administrative costs not specifically attributable to its operating
subsidiaries were allocated to the Company based upon the ratio of the Company's
invested capital to Republic Industries' consolidated invested capital. Such
allocations are included in the Company's selling, general and administrative
costs and were approximately $7.5 million, $10.2 million and $8.4 million for
the years ended December 31, 1998,
F-20
<PAGE> 94
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 and 1996, respectively. These amounts approximate management's estimate of
Republic Industries' corporate general and administrative costs required to
support the Company's operations. Management believes that the amounts allocated
to the Company are reasonable and are no less favorable to the Company than the
expenses the Company would have incurred to obtain such services on its own or
from unaffiliated third parties.
In June 1998, the Company and Republic Industries entered into a services
agreement (the "Services Agreement") pursuant to which Republic Industries
provides to the Company certain accounting, auditing, cash management, corporate
communications, corporate development, financial and treasury, human resources
and benefit plan administration, insurance and risk management, legal,
purchasing and tax services. In exchange for the provision of such services,
fees are payable by the Company to Republic Industries in the amount of $1.25
million per month, subject to review and adjustment from time to time as the
Company reduces the amount of services it obtains from Republic Industries.
Effective January 1, 1999, such fees payable by the Company to Republic
Industries have been reduced to $.9 million per month. The Company believes that
the fees for services provided under the Services Agreement are no less
favorable to the Company than could be obtained by the Company internally or
from unaffiliated third parties. Charges under the Services Agreement for the
year ended December 31, 1998 were $7.5 million and are included in selling,
general and administrative expenses.
Prior to the Initial Public Offering, the Company participated in Republic
Industries' combined risk management programs for property, casualty and general
liability insurance. The Company was charged for annual premiums of $9.7
million, $15.9 million and $10.2 million for the years ended December 31, 1998,
1997 and 1996, respectively.
Notes payable to Resources represent borrowings prior to the Initial Public
Offering under revolving credit facilities to fund the Company's operations and
to repay debt assumed in acquisitions. Borrowings under these facilities bear
interest at prime plus 50 basis points and are payable on demand. In July 1998,
the Company repaid the notes payable to Resources through the issuance of
approximately 10.7 million shares of Class A Common Stock. Interest expense on
notes payable to Resources was $9.7 million, $20.2 million and $18.8 million for
the years ended December 31, 1998, 1997 and 1996, respectively.
F-21
<PAGE> 95
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
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 $300.8 $335.9 $355.0 $377.4
1997 $263.2 $283.7 $287.6 $293.2
Operating income..................................... 1998 $ 59.0 $ 70.7 $ 75.3 $ 79.3
1997 $ 41.0 $ 47.1 $ 56.3 $ 56.9
Net income........................................... 1998 $ 34.8 $ 25.1 $ 46.2 $ 47.6
1997 $ 23.2 $ 25.9 $ 32.5 $ 34.6
Basic and diluted net income per share............... 1998 $ .36 $ .26 $ .26 $ .27
1997 $ .24 $ .27 $ .34 $ .36
Weighted average common and common equivalent shares
outstanding........................................ 1998 95.7 95.7 175.4 175.4
1997 95.7 95.7 95.7 95.7
</TABLE>
12. SUBSEQUENT EVENTS
In March 1999, the IRS advised Republic Industries in writing that the IRS
would not rule as requested on Republic Industries' application for a private
letter ruling regarding the proposed Distribution. In light of the IRS action,
Republic Industries converted all 95.7 million shares of Class B Common Stock
into 95.7 million shares of Class A Common Stock on March 2, 1999. The Company
is registering all 112.2 million shares of its Class A Common Stock owned by
Republic Industries for sale by Republic Industries.
Prior to the Initial Public Offering, employees of the Company were granted
stock options under Republic Industries' stock option plans. As of March 2,
1999, approximately 8.5 million Republic Industries options held by the
Company's employees were canceled, and the Company's Compensation Committee
granted replacement options on a one-for-one basis. The replacement options
retained the vesting and exercise rights of the original options, subject to
certain exercise limitations for individuals who signed stock option repricing
agreements with Republic Industries. The exercise price for individual
replacement options are priced such that the unrealized gain or loss on each
grant of Republic Industries stock options shall generally be maintained under
the replacement options. Compensation expense related to the granting of certain
replacement options at exercise prices below the fair market value of the common
stock at the date of grant is estimated to be approximately $3.5 million, and
will be recorded by the Company in the first quarter of 1999.
F-22
<PAGE> 96
(Photo of fleet of solid waste collection vehicles)
<PAGE> 97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
100,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
DEUTSCHE BANK SECURITIES
BEAR, STEARNS & CO. INC.
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission (the "Commission") registration fee and the
National Association of Securities Dealers' filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
THE
REGISTRANT
----------
<S> <C>
SEC registration fee........................................ $ 510,592
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... 392,569
Accounting fees and expenses................................ 100,000*
Legal fees and expenses..................................... 175,000*
Printing and engraving expenses............................. 600,000*
Miscellaneous fees and expenses............................. 50,000*
----------
Total....................................................... $1,858,661*
==========
</TABLE>
- -------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative, other
than an action by or in the right of the corporation, a "derivative action", if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if they had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses, including
attorneys' fees, incurred in connection with the defense or settlement of such
actions, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's bylaws, disinterested
director vote, stockholder vote, agreement or otherwise.
Our certificate of incorporation provides that each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a director or officer of our
company or is or was serving at our request as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, will be indemnified and held harmless by
us to the fullest extent authorized by Delaware law, as the same exists or may
hereafter be amended, against all expense, liability and loss reasonably
II-1
<PAGE> 99
incurred or suffered by such person in connection therewith. This right to
indemnification includes the right to have our company pay the expenses incurred
in defending a proceeding in advance of its final disposition, subject to the
provisions of Delaware law. These rights are not exclusive of any other right
which any person may have or later acquire under any statute, provision of our
certificate of incorporation, bylaws, agreement, vote of stockholders or
disinterested directors or otherwise. No repeal or modification of the provision
will in any way diminish or adversely affect the rights of any director,
officer, employee or agent of ours regarding any occurrence or matter arising
prior to any repeal or modification. Our certificate of incorporation also
specifically authorizes our company to maintain insurance and to grant similar
indemnification rights to our employees or agents.
Delaware law permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (1) any breach of the
director's duty of loyalty to the corporation or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) payments of unlawful dividends or unlawful stock
repurchases or redemptions, or (4) any transaction from which the director
derived an improper personal benefit.
Our certificate of incorporation provides that a director of our company
will not be personally liable to our company or our stockholders for monetary
damages for breach of fiduciary duty as a director, except, if required by
Delaware law as amended from time to time, for liability (1) for any breach of
the director's duty of loyalty to the our company or our stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware General
Corporation Law, which concerns unlawful payments of dividends, stock purchases
or redemptions, or (4) for any transaction from which the director derived an
improper personal benefit. Repeal of the provision will eliminate or reduce the
effect of the provision regarding any matter occurring, or any cause of action,
suit or claim that, but for the provision, would accrue or arise prior to such
amendment or repeal.
The form of purchase agreement filed as Exhibit 1.1 provides for
indemnification by the underwriters of our company, our directors and officers,
and by our company of the underwriters, for some liabilities, including
liabilities arising under the 1933 Act, and affords certain rights of
contribution.
The Separation and Distribution Agreement by and between our company and
Republic Industries will provide for indemnification by our company of Republic
Industries and its directors, officers and employees for certain liabilities,
including liabilities under the 1933 Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 1, 1998, we issued 16,474,417 shares of Class A common stock to
subsidiaries of Republic Industries in satisfaction of an aggregate of
approximately $395.4 million of intercompany payables and amounts due to such
subsidiaries, which amounts were included in amounts due to Republic Industries
in our unaudited condensed consolidated financial statements. We issued the
Class A common stock under an exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended.
II-2
<PAGE> 100
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
- --------- ----------------------
<C> <C> <S>
1.1** -- Form of Purchase Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
3.2 -- Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1998).
4.1 -- Form of the Company's Class A Common Stock Certificate
(incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-1/A, Amendment
No. 2, dated June 29, 1998).
4.2 -- Long Term Credit Agreement dated as of July 10, 1998 among
the Company, Bank of America National Trust and Savings
Association, as Administrative Agent, and the several
financial institutions party thereto (incorporated by
reference to Exhibit 4.1 of the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1998).
5.1** -- Opinion of Akerman, Senterfitt & Eidson, P.A. re: legality
of shares being registered.
10.1 -- Separation and Distribution Agreement dated as of June 30,
1998 by and between the Company and Republic Industries
(incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
10.2** -- Amended and Restated Employee Benefits Agreement dated as of
March 4, 1999 by and between the Company and Republic
Industries.
10.3 -- Services Agreement dated as of June 30, 1998 by and between
the Company and Republic Industries (incorporated by
reference to Exhibit 10.3 of the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1998).
10.4** -- Amendment to Services Agreement, dated as of March 4, 1999,
by and between the Company and Republic Industries.
10.5 -- Tax Indemnification and Allocation Agreement dated as of
June 30, 1998 by and between the Company and Republic
Industries (incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
10.6 -- 1998 Stock Incentive Plan (incorporated by reference to
Exhibit 10.5 of the Registrant's. Registration Statement on
Form S-1/A, Amendment No. 2, dated June 30, 1998).
10.7 -- Employment Agreement dated as of December 7, 1998 by and
between James E. O'Connor and the Company (incorporated by
reference to Exhibit 10.6 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.8 -- Employment Agreement dated as of January 11, 1999 by and
between James H. Cosman and the Company (incorporated by
reference to Exhibit 10.7 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.9 -- Asset Sale Agreement dated September 27, 1998 by and between
the Company and Waste Management, Inc., as amended, and the
supplemental agreements thereto (incorporated by reference
to Exhibits 2.1, 2.2 and 2.3 of the Registrant's Current
Report on Form 8-K dated February 16, 1999).
21.1** -- Subsidiaries of the Company.
23.1* -- Consent of Arthur Andersen LLP.
23.2** -- Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1).
24.1** -- Power of Attorney (included on the signature page of the
Registration Statement).
24.2** -- Power of Attorney for Ramon A. Rodriguez.
</TABLE>
- ---------------
* filed herewith
** previously filed
II-3
<PAGE> 101
(b) Financial Statement Schedule. The following financial statement
schedule is filed on page 54 herewith:
Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for Each of the Three Years Ended December 31, 1998.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Lauderdale, State of Florida, on April 6, 1999.
REPUBLIC SERVICES, INC.
By: /s/ HARRIS W. HUDSON
----------------------------------
Harris W. Hudson
Vice Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board April 6, 1999
- -----------------------------------------------------
H. Wayne Huizenga
/s/ HARRIS W. HUDSON Vice Chairman and April 6, 1999
- ----------------------------------------------------- Director
Harris W. Hudson
* Chief Executive Officer April 6, 1999
- ----------------------------------------------------- and Director (principal
James E. O'Connor executive officer)
* Senior Vice President and April 6, 1999
- ----------------------------------------------------- Chief Financial Officer
Tod C. Holmes (principal financial
officer and principal
accounting officer)
* Director April 6, 1999
- -----------------------------------------------------
John W. Croghan
* Director April 6, 1999
- -----------------------------------------------------
Ramon A. Rodriguez
* Director April 6, 1999
- -----------------------------------------------------
Allan C. Sorensen
*By: /s/ HARRIS W. HUDSON
-------------------------------------------------
Harris W. Hudson, by
power of attorney
</TABLE>
II-5
<PAGE> 103
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ON SCHEDULE
To Republic Services, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Republic Services, Inc. and
subsidiaries included in this registration statement and have issued our report
thereon dated January 28, 1999, except with respect to the matters discussed in
Note 12, as to which the date is March 2, 1999. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule included under Item 16(b) is the responsibility of the
Company's management and is presented for purposes 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 audit 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,
January 28, 1999, except with respect
to the matters discussed in Note 12, as
to which the date is March 2, 1999.
S-1
<PAGE> 104
REPUBLIC SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS ACCOUNTS BALANCE AT
BEGINNING CHARGED TO WRITTEN END
OF YEAR INCOME OFF OTHER(1) OF YEAR
---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
CLASSIFICATIONS
Allowance for doubtful accounts:
1998........................................ $13.6 $5.1 $(7.2) $10.6 $22.1
1997........................................ 8.3 4.1 (4.1) 5.3 13.6
1996........................................ 7.2 2.6 (2.5) 1.0 8.3
</TABLE>
- ---------------
(1) Allowance of acquired businesses.
S-2
<PAGE> 105
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1** -- Form of Purchase Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
3.2 -- Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1998).
4.1 -- Form of the Company's Class A Common Stock Certificate
(incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-1/A, Amendment
No. 2, dated June 29, 1998).
4.2 -- Long Term Credit Agreement dated as of July 10, 1998 among
the Company, Bank of America National Trust and Savings
Association, as Administrative Agent, and the several
financial institutions party thereto (incorporated by
reference to Exhibit 4.1 of the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1998).
5.1** -- Opinion of Akerman, Senterfitt & Eidson, P.A. re: legality
of shares being registered.
10.1 -- Separation and Distribution Agreement dated as of June 30,
1998 by and between the Company and Republic Industries
(incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
10.2** -- Amended and Restated Employee Benefits Agreement dated as of
March 4, 1999 by and between the Company and Republic
Industries.
10.3 -- Services Agreement dated as of June 30, 1998 by and between
the Company and Republic Industries (incorporated by
reference to Exhibit 10.3 of the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1998).
10.4** -- First Amendment to Services Agreement, dated as of March 4,
1999, by and between the Company and Republic Industries.
10.5 -- Tax Indemnification and Allocation Agreement dated as of
June 30, 1998 by and between the Company and Republic
Industries (incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
10.6 -- 1998 Stock Incentive Plan (incorporated by reference to
Exhibit 10.5 of the Registrant's. Registration Statement on
Form S-1/A, Amendment No. 2, dated June 30, 1998).
10.7 -- Employment Agreement dated as of December 7, 1998 by and
between James E. O'Connor and the Company (incorporated by
reference to Exhibit 10.7 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.8 -- Employment Agreement dated as of January 11, 1999 by and
between James H. Cosman and the Company (incorporated by
reference to Exhibit 10.7 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.9 -- Asset Sale Agreement dated September 27, 1998 by and between
the Company and Waste Management, Inc., as amended, and the
supplemental agreements thereto (incorporated by reference
to Exhibits 2.1, 2.2 and 2.3 of the Registrant's Current
Report on Form 8-K dated February 16, 1999).
21.1** -- Subsidiaries of the Company.
23.1* -- Consent of Arthur Andersen LLP.
23.2** -- Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1).
24.1** -- Power of Attorney (included on the signature page of the
Registration Statement).
24.2** -- Power of Attorney for Ramon A. Rodriguez.
</TABLE>
- ---------------
* filed herewith
** previously filed
<PAGE> 106
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 6, 1999
PROSPECTUS
100,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
-------------------------
Republic Industries, Inc., a stockholder of Republic Services, is selling
100,000,000 shares of Class A common stock. The international managers are
offering 20,000,000 shares outside the United States and Canada and the U.S.
underwriters are offering 80,000,000 shares in the United States and Canada.
The Class A common stock trades on The New York Stock Exchange under the
symbol "RSG." On April 5, 1999, the last sale price of the Class A common stock
as reported on the New York Stock Exchange was $16 3/16 per share.
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to Republic Industries.......... $ $
</TABLE>
The international managers may also purchase up to an additional 2,432,500
shares from Republic Industries, at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an aggregate
of an additional 9,730,000 shares from Republic Industries.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of Class A common stock will be ready for delivery in New York,
New York on or about , 1999.
-------------------------
MERRILL LYNCH INTERNATIONAL DONALDSON, LUFKIN & JENRETTE
DEUTSCHE BANK
BEAR, STEARNS INTERNATIONAL LIMITED
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY INTERNATIONAL
-------------------------
The date of this prospectus is , 1999.
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 5
Risk Factors................................................ 9
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Market and Market Prices of Common Stock.................... 13
Selected Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 26
Management.................................................. 40
Security Ownership of Selling Stockholder, Beneficial Owners
and Management............................................ 47
Intercompany Relationships and Related Transactions......... 49
Description of Capital Stock................................ 57
Shares Eligible for Future Sale............................. 61
Material United States Federal Tax Consequences for
Non-United States Holders................................. 63
Underwriting................................................ 67
Legal Matters............................................... 72
Experts..................................................... 72
Available Information....................................... 72
Index to Financial Statements............................... F-1
</TABLE>
-------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
3
<PAGE> 108
UNDERWRITING
GENERAL
We intend to offer our Class A common stock outside the United States and
Canada through a number of international managers and in the United States and
Canada through a number of U.S. underwriters. Merrill Lynch International and
Donaldson, Lufkin & Jenrette International are acting as joint book runners, and
along with Deutsche Bank AG London, Bear, Stearns International Limited, CIBC
Oppenheimer Corp., Credit Suisse First Boston (Europe) Limited, Morgan Stanley &
Co. International Limited and Salomon Smith Barney Inc. are lead managers for
each of the international managers named below. Subject to the terms and
conditions set forth in an international purchase agreement among our company,
Republic Industries and the international managers, and concurrently with the
sale of 80,000,000 shares of Class A common stock to the U.S. underwriters,
Republic Industries has agreed to sell to the international managers, and each
of the international managers severally and not jointly has agreed to purchase
from Republic Industries, the number of shares of Class A common stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGER SHARES
--------------------- ----------
<S> <C>
Merrill Lynch International.................................
Donaldson, Lufkin & Jenrette International..................
Deutsche Bank AG London.....................................
Bear, Stearns International Limited.........................
CIBC Oppenheimer Corp.......................................
Credit Suisse First Boston (Europe) Limited.................
Morgan Stanley & Co. International Limited..................
Salomon Smith Barney Inc. ..................................
----------
Total ......................................... 20,000,000
==========
</TABLE>
We and Republic Industries have also entered into a U.S. purchase agreement
with certain underwriters in the United States and Canada for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as joint book runners, and along with Deutsche
Bank Securities Inc., Bear, Stearns & Co. Inc., CIBC Oppenheimer Corp., Credit
Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated and Salomon
Smith Barney Inc. are U.S. representatives. Subject to the terms and conditions
set forth in the U.S. purchase agreement, and concurrently with the sale of
20,000,000 shares of Class A common stock to the international managers pursuant
to the International purchase agreement,
67
<PAGE> 109
Republic Industries has agreed to sell to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase from Republic Industries, an
aggregate of 80,000,000 shares of Class A common stock. The initial public
offering price per share and the total underwriting discount per share of Class
A common stock are identical under the international purchase agreement and the
U.S. purchase agreement.
In the international purchase agreement and the U.S. purchase agreement,
the several international managers and the several U.S. underwriters,
respectively, have agreed, subject to the terms and conditions set forth in
those agreements, to purchase all of the shares of Class A common stock being
sold under the terms of each such agreement if any of the shares of Class A
common stock being sold under the terms of that agreement are purchased. In the
event of a default by an underwriter, the U.S. purchase agreement and the
international purchase agreement provide that, in certain circumstances, the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreements may be terminated. The closings with respect to the sale of
shares of Class A common stock to be purchased by the international managers and
the U.S. underwriters are conditioned upon one another.
We and Republic Industries have agreed to indemnify the international
managers and the U.S. underwriters against certain liabilities, including
certain liabilities under the Securities Act, or to contribute to payments the
U.S. underwriters and the international managers may be required to make in
respect of those liabilities.
The shares of Class A common stock are being offered by the several
underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
underwriters and certain other conditions. The underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
COMMITMENTS AND DISCOUNTS
The lead managers have advised Republic Industries that the international
managers propose initially to offer the shares of Class A common stock to the
public at the initial public offering price set forth on the cover page of this
prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Class A common stock. The international managers may
allow, and such dealers may reallow, a discount not in excess of $ per
share of Class A common stock to certain other dealers. After the initial public
offering, the public offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by Republic Industries to the international
managers and the U.S. underwriters and the proceeds before expenses to Republic
Industries. This information is presented assuming either no exercise or full
exercise by the international managers and the U.S. underwriters of their over-
allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public Offering Price............................... $ $ $
Underwriting Discount............................... $ $ $
Proceeds, before expenses, to Republic Industries... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by Republic Industries.
68
<PAGE> 110
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the international managers and
the U.S. underwriters are permitted to sell shares of our Class A common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our Class A common stock will not offer to sell or sell shares of our
Class A common stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or non-
Canadian persons, and the international managers and any dealer to whom they
sell shares of Class A common stock will not offer to sell or sell shares of
Class A common stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. or Canadian persons, except in the case of
transactions under the terms of the intersyndicate agreement.
OVER-ALLOTMENT OPTION
Republic Industries has granted an option to the international managers,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 2,432,500 additional shares of our Class A common stock at the
public offering price set forth on the cover page of this prospectus, less the
underwriting discount. The international managers may exercise this option
solely to cover over-allotments, if any, made on the sale of our Class A common
stock offered hereby. To the extent that the international managers exercise
this option, each international manager will be obligated, subject to certain
conditions, to purchase a number of additional shares of our Class A common
stock proportionate to such international manager's initial amount reflected in
the foregoing table.
Republic Industries also has granted an option to the U.S. underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 9,730,000 additional shares of Class A common stock to cover
over-allotments, if any, on terms similar to those granted to the international
managers.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors and Republic Industries have
agreed, with certain exceptions, without the prior written consent of Merrill
Lynch on behalf of the underwriters for a period of 90 days after the date of
this prospectus, not to directly or indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our Class A common stock or securities convertible
into or exchangeable or exercisable for or repayable with our Class A
common stock, whether now owned or later acquired by the person executing
the agreement or with respect to which the person executing the agreement
later acquires the power of disposition, or file a registration statement
under the Securities Act relating to any shares of our Class A common
stock or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our Class A common stock
whether any such swap or transaction is to be settled by delivery of our
Class A common stock or other securities, in cash or otherwise;
69
<PAGE> 111
provided that we may at any time and from time to time (1) issue shares of our
Class A common stock to third parties as consideration for our acquisition from
such third parties of non-hazardous solid waste businesses and (2) grant options
to purchase shares of our Class A common stock under our 1998 Stock Incentive
Plan, in each case without the prior consent of Merrill Lynch.
NEW YORK STOCK EXCHANGE LISTING
Our Class A common stock is listed on the New York Stock Exchange under the
symbol "RSG."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our Class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase our Class A common
stock. As an exception to these rules, the U.S. representatives are permitted to
engage in transactions that stabilize the price of our Class A common stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of our Class A common stock.
If the underwriters create a short position in our Class A common stock in
connection with the offering, i.e., if they sell more shares of our Class A
common stock than are set forth on the cover page of this prospectus, the U.S.
representatives may reduce that short position by purchasing our Class A common
stock in the open market. The U.S. representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common stock. In addition,
neither our company nor any of the underwriters makes any representation that
the U.S. representatives or the lead managers will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
UK SELLING RESTRICTIONS
Each international manager has agreed that (1) it has not offered or sold
and, prior to the expiration of the period of six months from the closing date,
will not offer or sell any shares of Class A common stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (2) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Class A common stock in, from
or otherwise involving the United Kingdom; and (3) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issuance of Class A common stock to a person who is of
a kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1997 or is a person to whom
such document may otherwise lawfully be issued or passed on.
70
<PAGE> 112
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction, except in the
United States, that would permit a public offering of the shares of Class A
common stock, or the possession, circulation or distribution of this prospectus
or any other material relating to our company, Republic Industries or shares of
our Class A common stock in any jurisdiction where action for that purpose is
required. Accordingly, the shares of our Class A common stock may not be offered
or sold, directly or indirectly, and neither this prospectus nor any other
offering material or advertisements in connection with the shares of Class A
common stock may be distributed or published, in or from any country or
jurisdiction except in compliance with any applicable rules and regulations of
any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
OTHER RELATIONSHIPS
Merrill Lynch International, Deutsche Bank AG London and Donaldson, Lufkin
& Jenrette International acted as lead managers for the international managers
in our initial public offering in July 1998.
71
<PAGE> 113
LEGAL MATTERS
Some legal matters regarding the validity of the Class A common stock
offered under this prospectus will be passed upon on our behalf by Akerman,
Senterfitt & Eidson, P.A., Miami, Florida. Some attorneys employed by Akerman,
Senterfitt & Eidson, P.A. own shares of Class A common stock and shares of
Republic Industries common stock. Certain legal matters relating to the offering
will be passed upon for the underwriters by Fried, Frank, Harris, Shriver &
Jacobson (a partnership including professional corporations), New York, New
York.
EXPERTS
The consolidated financial statements and schedule for each of the three
years ended December 31, 1998, included in this prospectus and registration
statement, have been audited by Arthur Andersen LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act to register the shares of our
Class A common stock being offered by Republic Industries under this prospectus.
This prospectus does not contain all of the information in the registration
statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to our company
and the Class A common stock being offered, reference is made to the
registration statement, including its exhibits and the financial statements,
notes and schedules filed as a part thereof. Statements contained in this
prospectus regarding the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance reference
is made to the copy of the contract or other document filed as an exhibit to the
registration statement or other document, each statement being qualified in all
respects by the reference.
Our company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information, as well as the registration statement and its exhibits and
schedules, may be inspected, without charge, at the public reference facility
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Seven World Trade Center, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of the materials may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The materials can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005 or on the Commission's site on
the Internet at http://www.sec.gov.
72
<PAGE> 114
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
100,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
DEUTSCHE BANK
BEAR, STEARNS INTERNATIONAL LIMITED
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY INTERNATIONAL
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our reports (and to all references to our Firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
April 6, 1999.
