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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report November 30, 1995
(Date of earliest event reported)
REPUBLIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-9787 73-1105145
-------- ------ ----------
(State or other (Commission File (I.R.S. Employer
jurisdiction Number) Identification
of incorporation) No.)
200 East Las Olas Blvd.
Suite 1400
Ft. Lauderdale, Florida 33301
(Address of principal executive offices)
Registrant's telephone number, including area code (305) 627-6000
REPUBLIC WASTE INDUSTRIES, INC.
(Former name of registrant as specified in its charter)
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With respect to each contract, agreement or other document referred to herein
and filed with the Securities and Exchange Commission (the "Commission") as an
exhibit to this report, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
ITEM 2. ACQUISITIONS OF ASSETS.
ACQUISITION OF J.C. DUNCAN COMPANY, INC. AND AFFILIATES. On November 30, 1995,
Republic Industries, Inc., a Delaware corporation formerly known as Republic
Waste Industries, Inc. (the "Company"), acquired all of the outstanding shares
of J.C. Duncan Company, Inc., a Texas corporation, and of several related
companies affiliated by common ownership and management with J.C. Duncan
Company, Inc. (collectively, the "Duncan Companies"), through a series of
merger transactions (the "Duncan Mergers"), in which several wholly-owned
subsidiaries of the Company merged with and into the Duncan Companies, and all
of the issued and outstanding shares of each of the Duncan Companies were
exchanged for an aggregate of 5,256,055 shares of common stock, $0.01 par value
per share, issued by the Company to the stockholders of the Duncan Companies.
The Merger Agreement for the Duncan Mergers was described in, and was filed as
Exhibit 2.2 to, the Current Report on Form 8-K dated October 31, 1995 by the
Company, which is incorporated herein by reference for all purposes. The
Duncan Mergers are being accounted for as pooling of interests business
combinations.
ACQUISITION OF GARBAGE DISPOSAL SERVICE, INC. On November 30, 1995, the
Company acquired all of the outstanding shares of Garbage Disposal Service,
Inc., a North Carolina corporation ("GDS"), through a merger transaction (the
"GDS Merger"), in which a wholly-owned subsidiary of the Company merged with
and into GDS, and all of the issued and outstanding shares of GDS were exchanged
for an aggregate of 3,003,000 shares of common stock, $0.01 par value per
share, issued by the Company to the stockholders of GDS, Lee G. Brown and Mina
Brown McLean. The Merger Agreement for the GDS Merger was described in, and
was filed as Exhibit 2.1 to, the Current Report on Form 8-K dated October 31,
1995 by the Company, which is incorporated herein by reference for all
purposes. The GDS Merger is being accounted for as a pooling of interests
business combination.
ITEM 5. OTHER EVENTS.
ACQUISITION OF FENNELL CONTAINER COMPANY, INC. AND AFFILIATES. On November 30,
1995, the Company acquired all of the outstanding shares of Fennell Container
Company, Inc., a South Carolina corporation, and of several related companies
affiliated by common ownership and management with Fennell Container Company,
Inc. (collectively, the "Fennell Companies"), through a series of merger
transactions (the "Fennell Mergers"), in which several wholly-owned
subsidiaries of the Company merged with and into the Fennell Companies, and all
of the issued and outstanding shares of each of the Fennell Companies were
exchanged for an aggregate of 3,111,111 shares of common stock, $0.01 par value
per share, issued by the Company to the stockholders of the Fennell Companies.
The Merger Agreement for the Fennell Mergers was described in, and was filed as
Exhibit 2.3 to, the Current Report on Form 8-K dated October 31, 1995 by the
Company, which is incorporated herein by reference for all purposes. The
Fennell Mergers are being accounted for as pooling of interests business
combinations.
ACQUISITION OF SCOTT SECURITY SYSTEMS. On November 30, 1995, the Company
acquired all of the outstanding shares of Cana First Corporation, a Florida
corporation doing business as Scott Security Systems, and of several related
companies affiliated by common ownership and management with Cana First
Corporation (collectively, the "Scott Companies"), through a series of merger
transactions (the "Scott Mergers"), in which several wholly-owned subsidiaries
of the Company merged with and into the Scott Companies, and all of the issued
and outstanding shares of each of the Scott Companies were exchanged for an
aggregate of 1,567,818 shares of common stock, $0.01 par value per share, issued
by the Company to the stockholders of the Scott Companies. The Scott Mergers
are being accounted for as pooling of interests business combinations.
REPORTING OF CERTAIN FINANCIAL INFORMATION FOR REGISTRATION STATEMENT AND OTHER
PURPOSES. The Company is filing as part of this Current Report on Form 8-K/A
the following audited consolidated financial statements which have been
restated to reflect the merger with Kertz Security Systems II, Inc. and Kertz
Security Systems, Inc. which was accounted for under the pooling of interests
method of accounting and audited supplemental consolidated financial statements
which have been retroactively adjusted to reflect the mergers with United Waste
Service, Inc., Southland Environmental Services, Inc., the Duncan Companies,
GDS, the Fennell Companies and the Scott Companies which were accounted for
under the pooling of interests method of accounting and are hereby incorporated
into the Company's Registration Statements on Form S-3, file numbers 33-61649,
33-62489 and 33-63735, and on Form S-8, file number 33-93742:
<TABLE>
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REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets as of December 31, 1994 and 1993 (Restated) . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993 and 1992 (Restated) . . . . 5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1993 and
1992 (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 (Restated) . . . . 7
Notes to Consolidated Financial Statements (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Supplemental Consolidated Balance Sheets as of September 30, 1995 (unaudited) and December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Supplemental Consolidated Statements of Operations for the Nine Months Ended September 30, 1995
and 1994 (unaudited) and the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . 28
Supplemental Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Supplemental Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995
and 1994 (unaudited) and the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . 30
Notes to Supplemental Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following financial statements of businesses acquired are included
herein pursuant to Item 7(a):
<TABLE>
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UNITED WASTE SERVICE, INC.
Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994 and 1993 . . . . . . . . . . 50
Statements of Income for the Nine Months Ended June 30, 1995 and 1994 (unaudited)
and the Years Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 52
Statements of Changes in Stockholders' Deficiency for the Years Ended September 30, 1994 and 1993 . 53
Statements of Cash Flows for the Nine Months Ended June 30, 1995 and 1994 (unaudited)
and the Years Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 54
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . 60
Combined Balance Sheets as of September 30, 1995 (unaudited) and June 30, 1995 and 1994 . . . . . . 61
Combined Statements of Income and Retained Earnings for the Three Months Ended September 30,
1995 and 1994 (unaudited) and the Years Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . 62
Combined Statements of Cash Flows for the Three Months Ended September 30, 1995 and 1994
(unaudited) and the Years Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 63
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
GARBAGE DISPOSAL SERVICE, INC.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994 . . . . . . . . . . . . . . . 74
Statements of Operations and Retained Earnings for the Nine Months Ended June 30, 1995 and
1994 (unaudited) and the Year Ended September 30, 1994 . . . . . . . . . . . . . . . . . . . . . 76
Statements of Cash Flows for the Nine Months Ended June 30, 1995 and 1994 (unaudited)
and the Year Ended September 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
FENNELL CONTAINER CO., INC. AND AFFILIATES
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Combined Balance Sheets as of September 30, 1995 (unaudited) and December 31, 1994 . . . . . . . . 87
Combined Statements of Income and Retained Earnings for the Nine Months Ended September 30,
1995 and 1994 (unaudited) and the Year Ended December 31, 1994 . . . . . . . . . . . . . . . . . 89
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994
(unaudited) and the Year Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . 90
Notes to Combined Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
CANA FIRST CORPORATION d/b/a SCOTT SECURITY SYSTEMS AND AFFILIATES
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . 99
Combined Balance Sheets as of September 30, 1995 (unaudited) and December 31, 1994 . . . . . . . . 100
Combined Statements of Operations for the Nine Months Ended September 30, 1995 and 1994
(unaudited) and the Year Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . 101
Combined Statements of Shareholders' Deficit for the Year Ended December 31, 1994 . . . . . . . . . 102
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994
(unaudited) and the Year Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . 103
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
</TABLE>
(b) Pro Forma Financial Information.
The following pro forma financial information is included herein
pursuant to Item 7(b):
<TABLE>
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Unaudited Condensed Consolidated Pro Forma Financial Statements . . . . . . . . . . . . . . . . . . 109
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Nine Months Ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Year Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements . . . . . . . . . . . . . . 112
</TABLE>
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set
forth elsewhere herein.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Republic Industries, Inc.:
We have audited the accompanying consolidated balance sheets (restated)
of Republic Industries, Inc. (a Delaware corporation, formerly Republic Waste
Industries, Inc.) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity and cash
flows (all restated) for each of the three years in the period ended December
31, 1994. 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
Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1, the consolidated financial statements of
Republic Industries, Inc. for each of the three years in the period ended
December 31, 1994, have been restated to give recognition to the merger with
Kertz Security Systems II, Inc. and Kertz Security Systems, Inc. on August 28,
1995, which was accounted for as a pooling of interests.
We have also audited the accompanying supplemental consolidated
balance sheets of Republic Industries, Inc. and subsidiaries as of December
31, 1994 and 1993, and the related supplemental consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1994. These supplemental consolidated
statements give retroactive effect to the mergers with United Waste Service,
Inc. on October 11, 1995; Southland Environmental Services, Inc. on October 17,
1995; and Garbage Disposal Service, Inc.; J.C. Duncan Company, Inc. and
affiliates; Fennell Container Company, Inc. and affiliates and Scott Security
Systems and affiliates all on November 30, 1995, all of which have been
accounted for as poolings of interests as described in Note 1 to the
supplemental consolidated financial statements. These supplemental financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental 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 supplemental consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Republic Industries, Inc. and subsidiaries as of December 31, 1994
and 1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, after giving retroactive
effect to the mergers with United Waste Service, Inc. on October 11, 1995;
Southland Environmental Services, Inc. on October 17, 1995; and Garbage
Disposal Service, Inc.; J.C. Duncan Company, Inc. and affiliates; Fennell
Container Company, Inc. and affiliates and Scott Security Systems and
affiliates all on November 30, 1995, as described in Note 1 to the supplemental
consolidated financial statements, all in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
December 19, 1995.
3
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REPUBLIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (RESTATED)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1993
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ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 3,084 $ 3,822
Accounts receivable, less allowance for doubtful accounts of
$445 and $469, respectively . . . . . . . . . . . . . . . . . . . 8,004 6,158
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135 1,161
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 3,053 3,056
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TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . 15,276 14,197
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 86,902 84,299
Goodwill, net of accumulated amortization of $710 and
$481, respectively . . . . . . . . . . . . . . . . . . . . . . . . 11,307 6,946
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . 20,292 16,872
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145 1,360
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TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 134,922 $ 123,674
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,614 $ 2,949
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 4,553 3,287
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 661
Current maturities of long-term debt . . . . . . . . . . . . . . . 1,571 1,753
Current portion of accrued environmental and landfill costs . . . . 1,404 1,715
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 160 351
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TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 11,696 10,716
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . 15,152 14,512
Accrued environmental and landfill costs, net of current portion . . . . . . 8,244 8,757
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,272 11,344
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TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . 46,364 45,329
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COMMITMENTS AND CONTINGENCIES (Note 9) . . . . . . . . . . . . . . . . . . . - -
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 per share; 5,000,000 shares
authorized; none issued . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, par value $0.01 per share; 100,000,000 shares
authorized; 28,275,731, and 28,438,388
issued, respectively . . . . . . . . . . . . . . . . . . . . . . . 283 284
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 104,312 105,154
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (15,364) (26,420)
Notes receivable arising from stock purchase agreements . . . . . . (673) (673)
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TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . 88,558 78,345
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $ 134,922 $ 123,674
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
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<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,709 $ 56,817 $ 48,979
Expenses:
Cost of operations . . . . . . . . . . . . . . . . 37,692 33,237 28,808
Selling, general and administrative . . . . . . . 14,314 16,107 14,725
Restructuring and unusual charges . . . . . . . . - 10,040 2,250
Other (income) expense:
Interest and other income . . . . . . . . . . . . (154) (167) (2,452)
Interest expense . . . . . . . . . . . . . . . . . 1,198 733 518
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53,050 59,950 43,849
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Income (loss) from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . 8,659 (3,133) 5,130
Income tax provision . . . . . . . . . . . . . . . . . . . 53 208 253
-------- -------- ----------
Income (loss) from continuing operations . . . . . . . . . 8,606 (3,341) 4,877
Discontinued operations:
Income (loss) from discontinued operations, net of
income tax benefit of
$0, $210 and $123, respectively . . . . . . . . . 2,684 (14,579) (1,117)
Loss on disposition . . . . . . . . . . . . . . . . - - (17,563)
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2,684 (14,579) (18,680)
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Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 11,290 $(17,920) $ (13,803)
======== ======== ==========
Earnings (loss) per common and common equivalent
share:
Continuing operations . . . . . . . . . . . . . . $ 0.30 $ (0.12) $ 0.18
Discontinued operations . . . . . . . . . . . . . 0.10 (0.51) (0.68)
-------- -------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ 0.40 $ (0.63) $ (0.50)
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
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REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (RESTATED)
(In thousands)
<TABLE>
<CAPTION>
Notes
Receivable
Arising
Retained From
Additional Earnings Stock
Common Paid-In (Accumulated Purchase
Stock Capital Deficit) Agreements
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 . . . . . . $ 258 $ 89,938 $ 7,225 $ (698)
Exercise of MGD warrants, net
of expenses. . . . . . . . . . . . . 20 10,980 - -
Exercise of stock options and
related tax benefits . . . . . . . . 1 1,745 - -
Shares issued for business
acquisitions . . . . . . . . . . . . 5 2,959 - -
Contributions of property. . . . . . . - 178 - -
Collections on notes receivable . . . - - - 25
Foreign currency translation
adjustment . . . . . . . . . . . . . - - (983) -
Other . . . . . . . . . . . . . . . . - (105) - -
Net loss . . . . . . . . . . . . . . . - - (13,803) -
------ --------- -------- -------
BALANCE AT DECEMBER 31, 1992 . . . . . . 284 105,695 (7,561) (673)
Cancellation of shares held in
escrow issued for an
acquisition . . . . . . . . . . . . (1) (944) - -
Shares issued for contingent
consideration. . . . . . . . . . . . 1 265 - -
Distributions to former shareholders
of acquired companies . . . . . . . - - (467) -
Foreign currency translation
adjustment . . . . . . . . . . . . . - - (472) -
Other . . . . . . . . . . . . . . . . - 138 - -
Net loss . . . . . . . . . . . . . . . - - (17,920) -
------ --------- -------- -------
BALANCE AT DECEMBER 31, 1993 . . . . . . 284 105,154 (26,420) (673)
Shares issued for contingent
consideration, net of shares returned
in settlement. . . . . . . . . . . . 2 (2) - -
Purchases of treasury stock . . . . . (3) (853) - -
Distributions to former shareholders
of acquired companies . . . . . . . - - (252) -
Foreign currency translation
adjustment . . . . . . . . . . . . . - - 18 -
Other . . . . . . . . . . . . . . . . - 13 - -
Net income . . . . . . . . . . . . . . - - 11,290 -
------ --------- -------- -------
BALANCE AT DECEMBER 31, 1994 . . . . . . $ 283 $ 104,312 $(15,364) $ (673)
====== ========= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
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REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Income (loss) from continuing operations . . . . . . . $ 8,606 $(3,341) $ 4,877
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing operations:
Restructuring and unusual charges . . . . . . . . . . - 10,040 -
Depreciation, depletion and amortization . . . . . . 4,960 4,142 2,944
Provision for doubtful accounts . . . . . . . . . . . 174 371 161
Provision for accrued environmental and landfill costs 377 215 76
(Gain) loss on the sale of equipment . . . . . . . . (247) 5 (769)
Gain on sale of marketable securities . . . . . . . . - - (2,000)
Changes in assets and liabilities, net of
effects from business acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . (235) (838) (748)
Prepaid expenses and other assets . . . . . . . . . 182 (1,565) (112)
Accounts payable and accrued liabilities . . . . . (584) (2,625) 698
Income taxes payable . . . . . . . . . . . . . . . (191) (688) 1,585
Other liabilities . . . . . . . . . . . . . . . . . (944) 1,147 (886)
------- ------- -------
Net cash provided by continuing operations . . . . 12,098 6,863 5,826
------- ------- -------
CASH USED IN DISCONTINUED OPERATIONS. . . . . . . . . . . (736) (4,360) (17,610)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired . . . . . (4,059) (5,664) (2,899)
Purchases of property and equipment . . . . . . . . . . (5,935) (4,330) (10,818)
Proceeds from the sale of equipment . . . . . . . . . . 585 132 1,010
Purchases of marketable securities . . . . . . . . . . - - (7,554)
Proceeds from the sale of marketable securities . . . . - - 9,554
------- ------- -------
Net cash used in investing activities . . . . . . . . . (9,409) (9,862) (10,707)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt and notes payable . . . . . (7,456) (7,592) (14,580)
Proceeds from long-term debt and notes payable . . . . 5,873 16,229 13,313
Purchases of treasury stock . . . . . . . . . . . . . . (856) - -
Distributions to former shareholders of acquired
businesses . . . . . . . . . . . . . . . . . . . . . (252) (467) -
Payments of debt issuance costs . . . . . . . . . . . . - (494) -
Proceeds from issuances of common stock . . . . . . . . - - 11,466
Payments of common stock issuance costs . . . . . . . . - - (78)
Payments received on notes receivable arising from
stock purchase agreements. . . . . . . . . . . . . . - - 648
------- ------- -------
Net cash provided by (used in) financing activities . . (2,691) 7,676 10,769
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . (738) 317 (11,722)
CASH AND CASH EQUIVALENTS:
Beginning of year . . . . . . . . . . . . . . . . . . . 3,822 3,505 15,227
------- ------- -------
End of year . . . . . . . . . . . . . . . . . . . . . . $ 3,084 $ 3,822 $ 3,505
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 1,064 $ 588 $ 497
Income taxes . . . . . . . . . . . . . . . . . . . . . $ 424 $ 312 $ 557
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases of $281 and $487 were financed in the years ended December
31, 1993 and 1992, respectively, by borrowings and capitalized lease
obligations. Additionally, property of $178 was contributed to the Company
in the year ended December 31, 1992.
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 8
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of Republic Industries, Inc. (formerly Republic
Waste Industries, Inc.) and its wholly-owned subsidiaries ("Republic" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated. In 1994, the Board of Directors authorized management to pursue a
plan to distribute its hazardous waste services segment, Republic Environmental
Systems, Inc. ("RESI"), to Republic stockholders. In February 1995, the Board
of Directors approved this distribution to Republic stockholders. Accordingly,
as discussed in Note 2, this segment has been accounted for as a discontinued
operation and the accompanying consolidated financial statements for all
periods presented have been restated to report separately the net assets and
operating results of these discontinued operations.
The accompanying consolidated financial statements include the
financial position and results of operations of Kertz Security Systems II, Inc.
and Kertz Security Systems, Inc. (collectively, "Kertz"), with which the
Company merged in August 1995. This transaction was accounted for under the
pooling-of-interests method of accounting and, accordingly, the accompanying
consolidated financial statements have been restated as if the Company and
Kertz had operated as one entity since inception. See Note 3, Business
Combinations, for a further discussion of this transaction.
REVENUE RECOGNITION. The Company recognizes revenue as services
are provided.
8
<PAGE> 9
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
MARKETABLE SECURITIES. The Company purchases marketable securities
for investment purposes which are recorded at the lower of cost or market. The
Company includes gains and losses incurred in connection with marketable
securities in interest and other income. In 1992, the Company realized gains
on marketable securities purchased and subsequently sold during the year. The
Company currently holds no equity securities as defined under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
OTHER CURRENT ASSETS. Inventories consisting principally of equipment
parts, compost materials and supplies are valued under a method which
approximates the lower of cost (first-in, first-out) or market. At December
31, 1994 and 1993, other current assets included inventories of $2,056,000 and
$1,769,000, respectively.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in current operations.
The Company revises the estimated useful lives of property and
equipment acquired through its business acquisitions as of the effective date
of the acquisition 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, five to fifteen
years for vehicles 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,
and these costs are also depleted based on consumed airspace. No general and
administrative costs are capitalized as landfills and landfill improvements.
ACCRUED LIABILITIES. The Company provides accruals for estimated
insurance claims for the self-funded portion of its insurance plans. At
December 31, 1994 and 1993, insurance claims reserves of $926,000 and $665,000,
respectively, were included in accrued liabilities.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS. Accrued environmental and
landfill costs include landfill site closure and post-closure costs. Landfill
site closure and post-closure costs include costs to be incurred for final
closure of the landfills and costs for providing required post-closure
monitoring and maintenance of landfills. These costs are accrued based on
consumed airspace. 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. Environmental costs are accrued by the Company through
a charge to income in the appropriate period for known and anticipated
environmental liabilities.
INCOME TAXES. The Company accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes," which the Company adopted in
1992, the effect of which was not material. Accordingly, deferred income taxes
have been provided to show the effect of temporary differences between the
recognition of revenues 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.
GOODWILL. Goodwill is amortized over the lesser of the estimated life
or forty years, on a straight-line basis. Amortization expense related to
goodwill and other intangible assets was $423,000, $244,000 and $142,000 in
1994, 1993 and 1992, respectively.
9
<PAGE> 10
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
The Company continually evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful life of
goodwill and other long-lived assets or whether the remaining balance of
goodwill should be evaluated for possible impairment. The Company uses an
estimate of the related undiscounted net income over the remaining life of
goodwill in measuring whether the goodwill is recoverable.
ACCOUNTING FOR ACQUISITIONS. At the time the Company acquires a
business to be accounted for as a purchase, the Company allocates the purchase
price to assets and liabilities based on its best estimate of the fair value of
each asset and liability. For a one-year period subsequent to the acquisition
date, the estimates are refined if additional facts become known regarding
contingencies that existed at the date of acquisition. At the end of the
one-year period following the date of acquisition, the estimates are finalized
and no other entries are made to purchase accounting.
Acquisitions accounted for under the pooling-of-interests method of
accounting are included retroactively in the Company's financial statements as
if the companies had operated as one entity since inception.
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, and other non-cash transactions are
excluded from the statements of cash flows.
FOREIGN CURRENCY TRANSLATION. All asset and liability accounts of
foreign subsidiaries are translated to U.S. dollars at the rate of exchange in
effect at the balance sheet date. All income statement accounts of foreign
subsidiaries are translated at average exchange rates during the year.
Resulting translation adjustments arising from these translations are charged
or credited directly to stockholders' equity. Gain or loss on foreign currency
transactions are included in income as incurred. There was no material effect
on foreign cash balances of foreign currency translations in 1994 and 1993.
All of the Company's foreign subsidiaries are a part of the hazardous waste
services segment of the Company. In connection with the spin-off of the
hazardous waste services segment, as discussed in Note 2, this segment of the
Company's business has been accounted for as a discontinued operation.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The book values of cash, trade
accounts receivable, trade accounts payable and financial instruments included
in other current assets and other assets approximate their fair values
principally because of the short-term maturities of these instruments. The
fair value of the Company's long-term debt is estimated based on the current
rates offered to the Company for debt of similar terms and maturities. Under
this method the Company's fair value of long-term debt was not significantly
different than the stated value at December 31, 1994 and 1993.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying consolidated balance sheets. The Company's management believes
that the likelihood of performance under these financial instruments is
minimal and expects no material losses to occur in connection with these
financial instruments.
CONCENTRATIONS OF CREDIT RISK. Concentrations of credit risk with
respect to trade receivables are limited due to the wide variety of customers
and markets into which the Company's services are provided, as well as their
dispersion across many different geographic areas. As a result, as of December
31, 1994, the Company does not consider itself to have any significant
concentrations of credit risk.
2. DISCONTINUED OPERATIONS
SPIN-OFF OF THE HAZARDOUS WASTE SERVICES SEGMENT IN 1994. In July
1994, the Company announced the contemplation of a plan to exit the hazardous
waste services segment of the environmental industry, and in October 1994, the
Board of Directors authorized management to pursue such plan, subject to final
approval from the Board of Directors and the resolution of certain legal
10
<PAGE> 11
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
and financial requirements. The plan provides for the combination of the
Company's hazardous waste services operations in its wholly-owned subsidiary,
RESI, and the distribution of the stock of RESI to the stockholders of record
of Republic (the "Distribution"). On April 26, 1995, Republic stockholders
received one share of common stock of RESI for every five shares of the
Company's common stock, $.01 par value per share ("Common Stock"), owned on
April 21, 1995 in connection with the spin-off of RESI. Approximately 5,400,000
RESI shares were distributed to the Company's stockholders. RESI's common stock
commenced trading on the Nasdaq National Market on April 27, 1995 under the
trading symbol "RESI." The Company has had no direct ownership interest in RESI
since the Distribution.
The hazardous waste services segment of the Company's business has
been accounted for as a discontinued operation and, accordingly, the
accompanying consolidated financial statements of the Company have been
restated to report separately the net assets and operating results of these
discontinued operations. A summary of the net assets of this segment is as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
------- -------
<S> <C> <C>
Current assets . . . . . . . . . . . $13,595 $14,735
Non-current assets . . . . . . . . . 26,347 34,783
------- -------
Total assets . . . . . . . . . . 39,942 49,518
------- -------
Current liabilities . . . . . . . . . 13,040 14,465
Non-current liabilities . . . . . . . 6,610 18,181
------- -------
Total liabilities . . . . . . . 19,650 32,646
------- -------
Net assets of discontinued operations $20,292 $16,872
======= =======
</TABLE>
A summary of the operating results of the Company's hazardous waste
services segment is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . $ 46,599 $ 61,617 $ 74,668
Expenses:
Cost of operations . . . . . . . . . . . . . . . . . 33,377 47,028 54,634
Selling, general and administrative . . . . . . . . 10,349 13,480 15,141
Restructuring and unusual charges . . . . . . . . . 8,484 14,906 577
-------- --------- --------
Operating income (loss) . . . . . . . . . . . . . . . . ( 5,611) (13,797) 4,316
Other expense, net of other income . . . . . . . . . . 353 992 1,327
-------- --------- --------
Income (loss) before extraordinary
gain and income taxes . . . . . . . . . . . . . . . ( 5,964) ( 14,789) 2,989
Income tax provision (benefit) . . . . . . . . . . . . ( 3,092) ( 210) 1,442
-------- --------- --------
Income (loss) before extraordinary gain . . . . . . . . ( 2,872) ( 14,579) 1,547
Extraordinary gain on conversion of debt, net of income
tax provision of $3,092 . . . . . . . . . . . . . . 5,556 - -
-------- --------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 2,684 $ (14,579) $ 1,547
======== ========= ========
</TABLE>
11
<PAGE> 12
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
In connection with the Distribution, the Company has entered into the
Distribution Agreement with RESI which sets forth the terms of the
Distribution. Under this agreement, Republic contributed the intercompany
balance to RESI's equity at the date of the Distribution. In April 1995,
Republic contributed approximately $2,500,000 to RESI to repay certain
indebtedness of RESI and to provide working capital to RESI. Additionally, the
Company reclassified approximately $36,300,000 to retained earnings from
additional paid-in capital in 1995 to effect the spin-off under Delaware law.
As a result of these transactions, the Company's equity at the date of the
Distribution was reduced by approximately $23,000,000.
The Company has also entered into various agreements with RESI which
govern certain matters between the two parties such as ongoing corporate
services to be provided by the Company to RESI, insurance coverage for RESI for
a certain period after the date of the Distribution, treatment of various tax
matters for periods through the date of the Distribution, responsibility for
any adjustments as a result of audit by any taxing authority and
indemnification between both parties. Republic has agreed to continue to
provide certain corporate services, including insurance, administration, human
resources management, financial reporting and tax, legal and environmental
engineering services to RESI after the Distribution until terminated by either
party. The Corporate Services Agreement is expected to be terminated by the
end of 1995. During 1994, 1993 and 1992, the Company allocated expenses for
these services to RESI totaling $851,000, $839,000 and $739,000, respectively,
on a basis that approximated the cost of actual services provided.
Since 1992, RESI has participated in the Company's combined risk
management programs for property and casualty insurance and will continue to do
so until the expiration of the Company's existing policies in June 1995. In
1994, 1993 and 1992, the Company charged RESI for annual premiums and reported
losses of $1,678,000, $1,745,000 and $1,116,000, respectively. RESI has agreed
to indemnify the Company against increases in current losses and any future
losses incurred in connection with RESI's participation in these programs.
SALE OF DEMOLITION AND EXCAVATION SUBSIDIARY IN 1992. In 1992, the
Company sold its demolition and excavation subsidiary, Republic Environmental
Services, Inc. ("RES Demolition") and recorded a non-cash loss on disposition
of $17,600,000. This segment of the Company's business was accounted for as
a discontinued operation and, accordingly, the Company's consolidated financial
statements report separately the operating results of these discontinued
operations through the date of sale in 1992. In 1992, revenues and net loss of
the discontinued operations of RES Demolition were $2,900,000 and $2,700,000,
respectively.
3. BUSINESS COMBINATIONS
In August 1995, the Company merged with Kertz. Under the terms of the
agreement, the Company issued 1,090,000 shares of Common Stock in exchange for
all of the outstanding shares of common stock of Kertz. The transaction was
accounted for under the pooling-of-interests method of accounting and,
accordingly, the accompanying consolidated financial statements have been
restated as if the Company and Kertz had operated as one entity since
inception. Kertz provides electronic security monitoring and maintenance
predominately in the South Florida, Tampa and Orlando areas.
Details of the results of operations of the previously separate
companies for the periods prior to the combination are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue:
The Company . . . . . . . $ 48,766 $ 41,095 $ 35,341
Kertz . . . . . . . . . . 12,943 15,722 13,638
-------- -------- --------
$ 61,709 $ 56,817 $ 48,979
======== ======== ========
Net income (loss):
The Company . . . . . . . $ 11,187 $(18,484) $(14,004)
Kertz . . . . . . . . . . 103 564 201
-------- -------- --------
$ 11,290 $(17,920) $(13,803)
======== ======== ========
</TABLE>
From January 1, 1992 through December 31, 1994, the Company acquired
six businesses, all of which were accounted for under the purchase method of
accounting with the exception of RESI [formerly known as Stout Environmental,
Inc. ("Stout")], which was accounted for as a pooling-of-interests. The
businesses accounted for under the purchase method of accounting were acquired
for a combination of cash and shares of the Company's Common Stock. The value
of the Common Stock reflects the market value of the Company's Common Stock at
the closing of each acquisition, adjusted to account for restrictions common to
unregistered securities and for registration rights, if applicable. The final
determination of the cost of certain of the Company's acquisitions is subject
to the resolution of certain contingencies, primarily the determination of
contingent consideration payable as described in Note 9. The operating results
of the acquired businesses accounted for under the purchase method of
accounting have been included in the consolidated financial statements from the
dates of acquisition.
The following table sets forth the purchase price of the Company's
acquisitions accounted for under the purchase method of accounting (in
thousands):
12
<PAGE> 13
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Cash (net of cash
acquired) . . . . . . . $ 4,059 $ 5,664 $ 2,899
Common stock (including
contingent consideration
earned) . . . . . . . . 105 266 2,964
------- ------- --------
$ 4,164 $ 5,930 $ 5,863
======= ======= ========
</TABLE>
The following describes each of the acquisitions completed by the
Company in 1994:
LAUGHLIN ENVIRONMENTAL, INC. In February 1994, the Company acquired
Laughlin Environmental, Inc. ("Laughlin"), located in the Houston, Texas area.
Laughlin provides environmental services on a contract basis and serves to
complement the Company's special waste landfill located in the Dallas, Texas
area. Additionally, Laughlin internalized a portion of its operating costs in
1994 through the acquisition of the assets of a subcontractor.
WASTE HANDLING SYSTEMS, INC. In October 1994, the Company acquired
Waste Handling Systems, Inc. ("Waste Handling") which is located in Rutherford
County, North Carolina, approximately 75 miles west of Charlotte. Waste
Handling is a collection operation adjacent to the Company's existing landfill
and collection operation in southwest North Carolina and services collection
routes in a 30 mile radius of Forest City, North Carolina through the
transportation of municipal solid waste.
MIDWEST SANITATION SERVICE, INC. In November 1994, the Company
acquired Midwest Sanitation Service, Inc. ("Midwest"). Midwest is a landfill
and collection operation which was the largest private hauler in North Dakota.
As discussed in Note 9, the Company also paid additional consideration
to the sellers of previously completed acquisitions for the attainment of
certain earnings levels as specified in the respective acquisition agreements.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS. The Company's unaudited
pro forma consolidated results of operations for 1994, 1993 and 1992 shown
below are presented assuming that the Company's business combinations had been
consummated January 1, 1992 (in thousands):
13
<PAGE> 14
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue as reported . . . . . . . . . . . . . . . . . . . $ 61,709 $ 56,817 $ 48,979
Revenue of businesses acquired . . . . . . . . . . . . . 2,890 10,389 6,808
-------- -------- --------
Pro forma revenue . . . . . . . . . . . . . . . . . . . . $ 64,599 $ 67,206 $ 55,787
======== ======== ========
Income (loss) from continuing operations as reported . . $ 8,606 $ (3,341) $ 4,877
Net income of businesses acquired . . . . . . . . . . . . 97 353 443
Pro forma adjustments (A) . . . . . . . . . . . . . . . . 126 (11) 113
-------- -------- --------
Pro forma income (loss) from continuing operations . . . $ 8,829 $ (2,999) $ 5,433
======== ======== ========
Earnings (loss) per common and common equivalent
share from continuing operations as reported . . . . . $ 0.30 $ (0.12) $ 0.18
Effect of businesses acquired and pro forma adjustments . 0.01 0.01 0.02
-------- -------- --------
Pro forma earnings (loss) per common and common
equivalent share from continuing operations . . . . . . $ 0.31 $ (0.11) $ 0.20
======== ======== ========
Weighted average common and common equivalent
shares as reported . . . . . . . . . . . . . . . . . . 28,507 28,598 27,441
Effect of shares issued for business acquisitions . . . . - - 349
-------- -------- --------
Pro forma weighted average common and common
equivalent shares . . . . . . . . . . . . . . . . . . . 28,507 28,598 27,790
======== ======== ========
</TABLE>
(A) Pro forma adjustments include: (i) depreciation expense resulting from the
additional value assigned to acquired assets computed in accordance with the
Company's accounting policies; (ii) contractual reductions of former owners'
and officers' salaries and (iii) adjustments to the income tax provision to
reflect the Company's effective tax rate.
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of January 1, 1992.
4. RESTRUCTURING AND UNUSUAL CHARGES
In the fourth quarter of 1993, the Company recorded restructuring and
unusual charges of $10,000,000 based on the Company's reevaluation of each of
its solid waste operations. As a result of this reevaluation, the Company
decided to close one of its facilities due to low waste volumes and abandon
its permitting effort at another facility because of limited market opportunity
in that area and delays in the permitting process. In accordance with industry
standards, the Company provides for closure and post-closure over the life of a
facility. Accordingly, the Company fully provided for these costs on the
closed facility. The provision for closure and post-closure and the write-off
of property and equipment and accumulated permitting costs associated with
these facilities totaled $6,600,000. In conjunction with the reevaluation,
the Company also decided to terminate certain contracts and employees. Costs
related to employee relocations and terminations and other contract
terminations totaled $1,200,000. In addition, the Company also reevaluated
its exposure related to litigation and environmental matters and provided
additional accruals aggregating $2,200,000 for the costs to defend or settle
certain litigation and environmental matters.
14
<PAGE> 15
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
In March 1992, the Company acquired Stout in a merger transaction
accounted for in accordance with the pooling-of-interests method. In
connection with the merger, the Company incurred substantial legal, accounting,
consulting and financing costs aggregating $2,200,000, which was recorded as
an unusual charge.
5. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The computation of weighted average common and common equivalent
shares used in the calculation of earnings (loss) per share, as restated, is
shown below (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Common shares outstanding . . . . . . . . . . . . . . . . . 28,276 28,438 28,371
Effect of using weighted average common shares
outstanding during the year . . . . . . . . . . . . . . . - - (1,116)
Common shares issuable under options, warrants and earn-out
agreements . . . . . . . . . . . . . . . . . . . . . . . . 82 160 186
Weighted average effect of treasury stock purchases . . . . 149 - -
------ ------ ------
Weighted average common and common equivalent shares . . . 28,507 28,598 27,441
====== ====== ======
</TABLE>
The difference between shares for primary and fully diluted earnings
(loss) per common and common equivalent share was not significant for the
periods presented.
6. PROPERTY AND EQUIPMENT
A summary of property and equipment, as restated, is shown below
(in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1993
-------- --------
<S> <C> <C>
Land, landfills and improvements. . . . . . . . . . . $ 80,601 $ 77,562
Vehicles and equipment . . . . . . . . . . . . . . . 15,340 13,108
Buildings and improvements . . . . . . . . . . . . . 3,158 1,656
Furniture and fixtures . . . . . . . . . . . . . . . 746 672
-------- --------
99,845 92,998
Less accumulated depreciation and depletion . . . (12,943) (8,699)
-------- --------
$ 86,902 $ 84,299
======== ========
</TABLE>
7. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
The Company owns and operates nine solid waste landfills in the United
States. The Company is responsible for closure and post-closure monitoring and
maintenance costs at these landfills which are currently operating. Closure
and post-closure costs are provided in accordance with Subtitle D regulations.
Estimated aggregate closure and post-closure costs are to be fully accrued for
these landfills at the time that such facilities cease to accept waste and are
closed. Considering existing accruals at the end of 1994, approximately
$7,600,000 of such costs are to be expensed over the remaining lives of these
facilities. Included with the accrued costs associated with landfills at
December 31, 1994 is $179,000 related to post-closure activities at a closed
solid waste landfill formerly owned by the Company.
15
<PAGE> 16
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
As discussed in Note 9, the Company is involved in litigation and is
subject to ongoing environmental investigations by certain regulatory agencies,
as well as other claims and disputes that could result in additional litigation
which are in the normal course of business.
For a discussion of the Company's significant accounting policies
related to these environmental and landfill costs, see Note 1 - "Summary of
Significant Accounting Policies - Accrued Environmental and Landfill Costs".
8. NOTES PAYABLE AND LONG-TERM DEBT
SHORT-TERM BORROWINGS AND NOTES PAYABLE. Notes payable at December
31, 1994 and 1993 consisted primarily of short-term insurance premium
financing.
LONG-TERM DEBT. Long-term debt, as restated, consists of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1993
------ ------
<S> <C> <C>
Revolving credit facility, secured by the stock of the
Company's subsidiaries, interest payable quarterly, at
prime or at a Eurodollar rate plus 1.5% (8.3% as of
December 31, 1994), due September 1996 . . . . . . . . $12,600 $12,200
Notes to banks and financial institutions, secured by
equipment and other assets, interest ranging from 7.0% to
12.9% (weighted average interest rate of 7.2% as of
December 31, 1994), payable monthly through 1998 . . . 1,305 1,914
Other notes, secured by equipment and
other assets, interest ranging from 4.0% to 11.5% (weighted
average interest rate of 6.0% as of December 31, 1994),
payable monthly through 2004 . . . . . . . . . . . . . 2,818 2,151
------- -------
16,723 16,265
Less current maturities . . . . . . . . . . . . . . . . (1,571) (1,753)
------- -------
$15,152 $14,512
======= =======
</TABLE>
In September 1993, the Company entered into a revolving credit
facility agreement with a U.S. commercial bank in the amount of $25,000,000,
which includes a line of credit with $10,000,000 available for standby letters
of credit. At December 31, 1994, the Company had standby letters of credit of
$5,591,000 outstanding under this facility and $6,809,000 available under the
revolving credit facility. In 1995, the Company extended the due date from
September 1996 to December 1997 and increased the availability under this
facility to $35,000,000. The credit agreement requires the Company, among
other restrictions, to meet certain financial ratios and places certain
limitations on dividend payments and other borrowing. As of December 31, 1994,
the Company was in compliance with all covenants under the credit agreement.
In connection with the equity investment and private placement
transactions, as discussed in Note 15, Subsequent Events, the Company received
approximately $232,000,000 in cash during the three months ended September 30,
1995. The Company used a portion of these proceeds to repay all outstanding
borrowings under the revolving credit facility totaling approximately
$15,500,000 plus interest expense in August 1995. In December 1995, the
Company entered into a credit agreement (the "Credit Agreement") with certain
banks pursuant to which such banks have agreed to advance the Company on an
unsecured basis an aggregate of $250,000,000 for a term of 36 months.
Outstanding advances, if any, are payable at the expiration of the 36-month
term. The Credit Agreement requires, among other items, that the Company
maintain certain financial ratios and comply with certain financial covenants.
Interest is payable monthly and generally determined using either a competitive
bid feature or a LIBOR based rate. The Credit Agreement replaces the 1993
revolving credit arrangement among the Company and certain other banks.
16
<PAGE> 17
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
At December 31, 1994, aggregate maturities of long-term debt, as
restated, were as follows (in thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . $ 1,571
1996 . . . . . . . . . . . . . . . . . . 13,156
1997 . . . . . . . . . . . . . . . . . . 677
1998 . . . . . . . . . . . . . . . . . . 591
1999 . . . . . . . . . . . . . . . . . . 316
Thereafter . . . . . . . . . . . . . . . 412
-------
$16,723
=======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS. On May 3, 1991, the Company filed an action
against G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in
the United States District Court for the Central District of California (the
"Court"). The Company requested a declaratory judgment that it did not
anticipatorily breach a merger agreement (the "Merger Agreement") between the
Company and GI and that the Merger Agreement had been properly terminated. The
Company also sought to recover $600,000 from GI, plus interest and costs, with
respect to a certain financial guaranty provided by Republic in 1990 for the
benefit of GI. In response to the Company's action, GI filed a counterclaim
alleging that the Company breached the Merger Agreement and that it had
suffered damages in excess of $16,000,000. In August 1993, the Court
rendered a ruling in favor of Republic and found that GI did not meet its
burden in proving that it could have performed its obligations under the Merger
Agreement. GI appealed that decision in September 1993. In March 1995, the
United States Court of Appeals for the Ninth Circuit (the "Court of Appeals")
vacated the August 1993 decision and remanded the case back to the Court for a
hearing on damages. The Company filed a motion for reconsideration and
suggestion of en banc consideration with the Court of Appeals in an effort to
restore the original ruling denying GI's claim. On May 12, 1995, the Court of
Appeals denied the motion and suggestion. The Company has filed a petition
for writ of certiorari with the United States Supreme Court, which was denied.
The Court has commenced proceedings that may lead to a trial on damages.
Subsequent to the Company's seeking recovery from GI for the guaranty,
GI filed for protection under Chapter 11 of the Bankruptcy Code. The Company
is a secured creditor and anticipates a complete recovery of the $600,000, plus
interest and costs, including attorneys' fees.
On November 9, 1992, A&B Investors, Inc. ("A&B") filed an action
against the Company in the District Court of Harris County, Texas alleging,
among other claims, breach of contract and securities fraud. On July 14, 1995,
this matter was resolved in an out-of-court settlement which did not have a
material effect on the Company's results of operations or consolidated
financial position.
Western Waste Industries, Inc. ("Western") filed an action against the
Company and others on July 20, 1990 for various causes of action including
interference with business relations and seeks $24,000,000 in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case is currently scheduled for trial in January 1996.
While the results of the legal proceedings described above and other
proceedings which arose in the normal course of business cannot be predicted
with certainty, management believes that losses, if any, resulting from the
ultimate resolution of these matters will not have a material adverse effect on
the Company's results of operations or consolidated financial position.
17
<PAGE> 18
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
ENVIRONMENTAL MATTERS. The Company's solid waste and environmental
services activities are conducted in the context of a developing and changing
statutory and regulatory framework, aggressive government enforcement and a
highly visible political environment. 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.
In 1992, the Company received notices from Imperial County, California
(the "County") and the California Department of Toxic Substances Control
("DTSC") that spent filter elements (the "Filters") from geothermal power
plants, which had been deposited at the Company's Imperial Landfill for
approximately five years, were classified as hazardous waste under California
environmental regulations. Under United States EPA regulations, the Filters
are not deemed hazardous waste as they are associated with the production of
geothermal energy.
In February 1993, the DTSC denied the Company's October 1992 request
to classify the Filters as "special waste" under California regulations.
DTSC's denial indicated that the Filters met all technical and analytical
requirements for reclassification as a special waste, but that a procedural
requirement related to the timing of the reclassification request was not met.
The Company is currently conducting active discussions with all appropriate
California regulatory agencies in order to seek a variance under California
regulations which will reclassify the Filters as a special waste, irrespective
of the reclassification application submittal timing issue, and allow the
Filters to be left in the landfill. If this occurs, the state, regional and
local regulatory agencies may nevertheless require that the affected area of
the landfill be capped and that the affected area accept no additional waste.
A decision on the reclassification issue is expected by Spring of 1996. In the
event that the variance is not granted, the Regional Water Quality Control
Board and Integrated Waste Management Board will determine what remedial
measures must be taken based on the Filters' classification as a California
hazardous waste. One of those measures could include the removal of the
Filters or the closure of a portion of the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses the Company incurs associated with
the resolution of this matter, including loss of airspace at the landfill, in
the United States District Court for the Southern District of California,
alleging claims for CERCLA response costs recovery and intentional
misrepresentation among other claims. The Company seeks to recover actual
expenses and punitive damages. Discovery and regulatory studies are
proceeding. The Company believes it will prevail, but no amounts have been
accrued for any recovery of damages.
Although it is possible that losses exceeding amounts already recorded
may be incurred upon the ultimate resolution of the environmental matters
described above, management believes that such losses, if any, will not have a
material adverse effect on the Company's consolidated results of operations or
consolidated financial position.
OPERATING LEASE COMMITMENTS. The Company and its subsidiaries lease
portions of their premises and certain equipment under various operating lease
agreements. At December 31, 1994, total minimum rental commitments becoming
payable under all operating leases, as restated, are as follows (in thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . $ 562
1996 . . . . . . . . . . . . . . . . . . . . . . . $ 470
1997 . . . . . . . . . . . . . . . . . . . . . . . $ 338
1998 . . . . . . . . . . . . . . . . . . . . . . . $ 104
1999 . . . . . . . . . . . . . . . . . . . . . . . $ 53
Thereafter . . . . . . . . . . . . . . . . . . . . $ 27
</TABLE>
18
<PAGE> 19
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
Total rental expense incurred under operating leases was $653,000, $544,000 and
$468,000 in 1994, 1993 and 1992, respectively.
POSTRETIREMENT BENEFITS. The Company does not provide postretirement
or postemployment benefits to its employees and, accordingly, has not reflected
any cost arising from the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Effective January 1, 1994, the Company
instituted a defined contribution 401(k) savings plan for employees meeting
certain employment requirements. Under the plan, the Company may, at
its discretion, match a portion of employee contributions based on the
profitability and growth of the Company. No contributions under this plan were
made by the Company in 1994.
CONTINGENT CONSIDERATION. In certain of the business acquisitions
accounted for as purchases, the Company has agreed to issue contingent
consideration in the form of additional shares of the Company's common stock
and, in some cases, additional cash to the sellers of those businesses based on
the attainment of certain earnings levels and other contingencies. During the
years ended December 31, 1994, 1993 and 1992, the Company has issued
approximately 29,000, 160,000 and 186,000 shares of common stock and paid
$623,000, $432,000 and $40,000, respectively, for the attainment of such
earnings levels. These amounts have been capitalized as additional purchase
price. The maximum contingent consideration to be earned over the next
eight years as of December 31, 1994 consists of approximately 406,000 shares of
the Company's common stock and $412,000. Under the terms of an acquisition
agreement, the Company has agreed to pay additional consideration to the former
owners of a landfill site of a maximum of $2,500,000 upon the expansion of the
landfill airspace by up to 2,500,000 cubic yards.
OTHER MATTERS. At December 31, 1994, the Company had made cash
deposits into escrow accounts which total $735,000 in connection with landfill
closure and certain other obligations, of which $656,000 was included in cash
and cash equivalents and $79,000 was included in other assets. Additionally,
the Company has bonding facilities for the issuance of payment, performance and
bid bonds, of which $1,684,000 in bonds were outstanding at December 31, 1994.
The Company also has facilities available for the issuance of standby letters
of credit, of which $3,980,000 in letters of credit were outstanding at
December 31, 1994.
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK. The Company has 5,000,000 authorized shares of
preferred stock, $.01 par value per share, none of which are issued or
outstanding. The Board of Directors has the authority to issue the preferred
stock in one or more series and to establish the rights, preferences and
dividends.
TREASURY STOCK. In October 1993, the Board of Directors authorized
the Company to repurchase up to 1,300,000 shares of its outstanding Common
Stock, through October 1994, as deemed appropriate by management. Through
October 1994, 281,000 shares were repurchased for an aggregate value of
$856,000. In October 1994, the Board of Directors authorized management to
continue the repurchase program and to repurchase up to an additional 1,300,000
shares of its outstanding Common Stock, through October 1995. The
repurchasing of shares was intended to achieve a more favorable balance between
the market supply of the shares and market demand, as well as take advantage of
the relatively low price of the Company's Common Stock. Repurchases have been
effected at prevailing market prices from time to time on the open market. The
repurchased shares represent additions to treasury stock. In October 1994, the
Board of Directors authorized the retirement of the 281,000 shares held in
treasury, which were retired in the fourth quarter of 1994. In December 1994,
28,993 shares of the Company's Common Stock were returned to the Company in a
settlement with a former owner of one of its
19
<PAGE> 20
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
subsidiaries. These shares represented additions to treasury stock and were
subsequently retired in December 1994. The Company's stock repurchase program
expired in October 1995 and the Company does not currently plan to repurchase
any additional Common Stock.
1991 STOCK OPTION PLAN. In October 1991, the Board of Directors
approved a stock option plan (the "1991 Plan"), which was subsequently
approved by the Company's stockholders at the 1992 Annual Meeting of
Stockholders, under which employees and officers of the Company or any of its
subsidiaries or parent corporations and members of the Board of Directors of
the Company may be awarded options to purchase common shares. A maximum of
5,000,000 common shares, less shares issued or purchased pursuant to the 1990
Stock Option and Stock Purchase Plan (the "1990 Plan") as discussed below, have
been reserved for issuance to participants in the 1991 Plan in the form of
stock options. The option price under the 1991 Plan is to be determined by the
Board of Directors but shall not be less than the fair market value of the
common shares on the date the stock option is granted. Options are subject to
adjustment upon certain changes in the capital structure of the Company, such
as a stock dividend, stock split or other similar events.
1990 STOCK OPTION AND STOCK PURCHASE PLAN. In April 1990, the Board
of Directors approved a stock option and stock purchase plan for certain key
employees, directors, consultants and advisors. A maximum of 2,500,000 shares
of Common Stock were reserved for issuance to participants in the plan in the
form of either stock options or stock purchases, as determined by the
Compensation Committee. Options granted under the plan expire ten years from
the date of grant and vest over varying periods as determined by the
Compensation Committee. During the year ended December 31, 1990, 700,000
shares were purchased at $2.50 to $4.50 per share. When shares were purchased
under the 1990 Plan, the participant paid the par value of the shares in cash,
and issued a nonrecourse promissory note to the Company for the balance of the
purchase price. These promissory notes along with interest are due ten years
from the date of issuance and are collateralized by the shares purchased.
During 1992, the Company received payment of $648,000 on notes receivable
arising from stock purchase agreements pursuant to the 1990 Plan. The 1990
Plan has been replaced by the 1991 Plan, as discussed above.
Activity under the Company's 1990 and 1991 stock option plans during
each of the two years in the period ended December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1990 Plan 1991 Plan Total Option Price
--------- --------- ----- ------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992 . . . . . . . 598,000 348,500 946,500 $2.50-$14.50
Granted . . . . . . . . . . . . . . . . . . 100,000 401,900 501,900 $4.00-$12.50
Cancelled . . . . . . . . . . . . . . . . . -- (331,900) (331,900) $7.25-$10.63
------- --------- ---------
Outstanding at December 31, 1993 . . . . . . . 698,000 418,500 1,116,500 $2.50-$14.50
Granted . . . . . . . . . . . . . . . . . . -- 176,000 176,000 $2.69-$ 3.38
Cancelled . . . . . . . . . . . . . . . . . (50,000) (130,500) (180,500) $2.69-$10.63
------- --------- ---------
Outstanding at December 31, 1994 . . . . . . . 648,000 464,000 1,112,000 $2.50-$14.50
======= ========= =========
Exercisable at December 31, 1994 . . . . . . . 648,000 113,450 761,450 $9.92(A)
======= ========= =========
Available for future grant at December 31, 1993 763,000 2,081,500 2,844,500
Cancelled . . . . . . . . . . . . . . . . . 50,000 130,500 180,500
Granted . . . . . . . . . . . . . . . . . . -- (176,000) (176,000)
-------- --------- ---------
Available for future grant at December 31, 1994 813,000 2,036,000 2,849,000
======== ========= =========
</TABLE>
___________________________________
(A) Represents the weighted average option price of options exercisable at
December 31, 1994.
20
<PAGE> 21
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (RESTATED)
COMMON STOCK WARRANTS. The Company has awarded warrants to purchase
shares of Common Stock to certain executive officers, directors, employees and
affiliates as additional incentive to continue in the service of the Company.
The warrants vest at 20% per year and are exercisable, with respect to each
portion vested, for a period of four years following such vesting. Activity
involving Common Stock warrants during each of the two years ended December 31,
1994 are summarized as follows:
<TABLE>
<CAPTION>
Exercise
Warrants Price Expiration Date
------------ ------------- ---------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1992 . . . 6,480,750 $6.00-$12.75 June 1993-May 2001
Issued . . . . . . . . . . . . . . . 515,000 $4.00 December 2000
Expired . . . . . . . . . . . . . . (4,915,000) $6.50-$12.75 -
----------
Outstanding at December 31, 1993 . . . 2,080,750 $4.00-$12.75 August 1995-December 2000
Issued . . . . . . . . . . . . . . . 200,000 $2.69 May 2003
----------
Outstanding at December 31, 1994 . . . 2,280,750 $2.69-$12.75 August 1995-May 2003
==========
Exercisable at December 31, 1994 . . . 1,250,750 $7.61(A)
==========
</TABLE>
___________________________
(A) Represents the weighted average exercise price of warrants exercisable at
December 31, 1994.
11. INCOME TAXES
The Company files a consolidated federal income tax return which
includes the operations of all acquired businesses for periods subsequent to
the dates of the acquisitions. Acquired companies each file a "short-period"
federal tax return through their respective acquisition dates. Kertz elected
Subchapter S corporation status for income tax reporting purposes on July 1,
1993. For purposes of these consolidated financial statements, federal and
state income taxes have been provided as if Kertz had filed Subchapter C
corporation tax returns for the pre-acquisition periods, and the current income
tax expense is reflected as an increase to additional paid-in capital. The
Subchapter S corporation status of Kertz was terminated effective with the
closing date of the acquisition.
The components of the income tax provision related to continuing
operations, as restated, are shown below (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . $ 194 $ 342 $ 2,266
State . . . . . . . . . . . . . . . . . . . . 253 141 127
------- -------- -------
447 483 2,393
Federal deferred . . . . . . . . . . . . . . . . 2,811 (1,517) (602)
Tax reserve adjustments . . . . . . . . . . . . (1,963) - (1,538)
Change in valuation allowance . . . . . . . . . (1,242) 1,242 -
------- -------- -------
Income tax provision . . . . . . . . . . . . . . $ 53 $ 208 $ 253
======= ======== =======
</TABLE>
In addition to the above, the Company recorded an income tax benefit
of $210,000 and $123,000 in 1993 and 1992, respectively, related to its
discontinued operations.
In 1992, the Company changed its method of accounting for income taxes
from the method required under SFAS No. 96 to the method required under SFAS
No. 109. Since the approach under both statements is similar, there was no
significant income effect of the change on the recording of income taxes.
Under SFAS No. 109, deferred tax assets or liabilities at the end of each
period are determined by applying the current tax rate to the difference
between the financial reporting and income tax basis of assets and liabilities.
21
<PAGE> 22
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
Net operating loss ("NOL") carryforwards are recognized under SFAS No.
109 unless it is "more likely than not" that they will not be realized. In
1993, the Company recorded a $1,242,000 valuation allowance related to the
realization of deferred tax assets generated as a result of the 1993
restructuring and unusual charges. This valuation allowance was recorded due
to the uncertainty surrounding the future utilization of such deferred tax
assets. In 1994, the valuation allowance was eliminated based on the expected
realization of such deferred tax assets.
In the years immediately following an acquisition, the Company
provides income taxes at the statutory income tax rate applied to pre-tax
income. As part of its tax planning to reduce effective tax rates and cash
outlays for taxes, the Company employs a number of strategies such as combining
entities to reduce state income taxes, claiming tax credits not previously
claimed and recapturing taxes previously paid by acquired companies. At such
time as these reductions in the Company's deferred tax liabilities are
determined to be realizable, the impact of the reduction is recorded as tax
reserve adjustments in the tax provision.
A reconciliation of the statutory federal income tax rate to the
Company's effective tax rate as reported in the accompanying consolidated
statements of operations, as restated, is shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . 34.0% (34.0)% 34.0%
Amortization of goodwill . . . . . . . . . . . 1.1 3.0 1.0
State income taxes, net of federal benefit . . 2.1 3.6 0.3
Tax reserve adjustments . . . . . . . . . . . . (22.7) - (30.0)
Change in valuation allowance . . . . . . . . . (14.3) 33.2 -
Other, net . . . . . . . . . . . . . . . . . . 0.4 0.8 (0.4)
----- ----- -----
Effective tax rate . . . . . . . . . . . . . 0.6% 6.6% 4.9%
===== ===== =====
</TABLE>
22
<PAGE> 23
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
Components of the net deferred income tax liability, as restated, are
shown below (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1993
---- ----
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis . . . . . . . . . $19,940 $20,400
Book capitalization of costs expensed for tax . . . . . - 31
------- -------
19,940 20,431
------- -------
Deferred income tax assets:
Net operating losses . . . . . . . . . . . . . . . . . (5,185) (5,890)
Accrued environmental and landfill costs . . . . . . . (2,761) (3,054)
Accruals not currently deductible . . . . . . . . . . . (722) (1,385)
------- -------
(8,668) (10,329)
------- -------
11,272 10,102
Valuation allowance . . . . . . . . . . . . . . . . . . . . - 1,242
------- -------
Net deferred income tax liability . . . . . . . . . . . . . $11,272 $11,344
======= =======
</TABLE>
At December 31, 1994, the Company had available U.S. NOL carryforwards
of approximately $15,249,000 which expire $7,994,000, $6,342,000 and $913,000
in the years 2006, 2007 and 2008, respectively.
12. RELATED PARTY TRANSACTIONS
The Company has entered into an agreement to lease office space for
one of its subsidiaries with the former owner of this subsidiary who is a
current officer of this subsidiary. The Company also utilizes companies
affiliated with former owners of acquired businesses who are current officers
of the Company's subsidiaries for hauling and other services. Aggregate
payments for leases and such services were $132,000, $1,139,000 and $827,000 in
1994, 1993 and 1992, respectively. In September 1993, the Company internalized
a portion of these hauling services through the acquisition of substantially
all of the assets of a hauling company owned by an officer of a subsidiary of
the Company for $370,000 cash.
23
<PAGE> 24
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
13. OPERATIONS BY INDUSTRY SEGMENT
The following tables present information, as restated, regarding the
Company's different industry segments based on the historical operations of the
Company (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
Revenue
Solid waste services . . . . . . . . . . . . . $ 48,766 $ 41,095 $ 35,341
Electronic security services . . . . . . . . . 12,943 15,722 13,638
--------- ---------- ----------
$ 61,709 $ 56,817 $ 48,979
========= ========== ==========
Operating income (loss)
Solid waste services . . . . . . . . . . . . . $ 9,490 $ (3,179) $ 2,840
Electronic security services . . . . . . . . . 213 612 356
Interest and other income (expense), net . . . . . . . (1,044) (566) 1,934
--------- ---------- ---------
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . $ 8,659 $ (3,133) $ 5,130
========= ========== =========
Depreciation, depletion and amortization
Solid waste services . . . . . . . . . . . . . $ 4,748 $ 3,940 $ 2,822
Electronic security services . . . . . . . . . 212 202 122
--------- ---------- ---------
$ 4,960 $ 4,142 $ 2,944
========= ========== =========
Capital expenditures
Solid waste services . . . . . . . . . . . . . $ 5,452 $ 3,701 $ 10,414
Electronic security services . . . . . . . . . 483 629 404
--------- ---------- ---------
$ 5,935 $ 4,330 $ 10,818
========= ========== =========
Identifiable assets
Solid waste services . . . . . . . . . . . . . $ 112,149 $ 104,364 $ 99,574
Electronic security services . . . . . . . . . 2,481 2,438 1,639
--------- ---------- ---------
Total identifiable assets . . . . . . . . . . . 114,630 106,802 101,213
Net assets of discontinued operations . . . . . . . . . 20,292 16,872 28,533
--------- ---------- ---------
Total assets . . . . . . . . . . . . . . . . . $ 134,922 $ 123,674 $ 129,746
========= ========== =========
</TABLE>
24
<PAGE> 25
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter, as restated, for 1994 and 1993.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue 1994 $ 14,544 $16,234 $15,006 $ 15,925
1993 $ 12,933 $14,967 $14,462 $ 14,455
Gross profit 1994 $ 5,964 $ 6,090 $ 5,761 $ 6,202
1993 $ 5,520 $ 6,205 $ 6,002 $ 5,853
Income (loss) from 1994 $ 1,439 $ 2,572 $ 3,067 $ 1,528
continuing operations 1993 $ 1,139 $ 1,385 $ 1,694 $ (7,559)(a)
Net income (loss) 1994 $ 1,293 $ 3,399 $ 4,055 $ 2,543
1993 $ 668 $ 1,280 $ 2,092 $(21,960)
Earnings (loss) per share from 1994 $ 0.05 $ 0.09 $ 0.11 $ 0.05
continuing operations 1993 $ 0.04 $ 0.05 $ 0.06 $ (0.27)(a)
</TABLE>
____________
(a) As discussed in Note 4, restructuring and unusual charges of $10,000,000
were recorded by the Company in the fourth quarter of 1993 to reorganize
its operations.
15. SUBSEQUENT EVENTS
EQUITY INVESTMENT BY H. WAYNE HUIZENGA AND ASSOCIATES, WESTBURY
(BERMUDA) LTD. AND HARRIS W. HUDSON. On May 21, 1995, the Company agreed to
issue and sell in aggregate 8,350,000 shares of Common Stock and warrants to
purchase an additional 16,700,000 shares of Common Stock to Mr. H. Wayne
Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled by Mr.
Michael G. DeGroote, then Chairman of the Board, President and Chief Executive
Officer of Republic) and Mr. Harris W. Hudson, and certain of their assigns for
an aggregate purchase price of $37,500,000. The warrants are exercisable at
prices ranging from $4.50 to $7.00 per share effective August 3, 1995. In July
1995, the Company agreed to sell an additional 1,000,000 shares of Common Stock
each to Mr. Huizenga and Mr. John J. Melk for $13.25 per share for aggregate
proceeds of $26,500,000. These transactions were completed on August 3, 1995.
On August 3, 1995, in connection with the equity investment, Mr.
Huizenga was elected Chairman of the Board of Directors and Chief Executive
Officer of Republic and Mr. DeGroote, former Chairman of the Board, President
and Chief Executive Officer of the Company, was elected Vice Chairman of the
Board. Additionally, Mr. Hudson was appointed as President of the Company and
as a member of the Board of Directors.
25
<PAGE> 26
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (CONTINUED)
PRIVATE PLACEMENT TRANSACTIONS. In July 1995, the Company sold
5,400,000 shares of Common Stock in a private placement transaction for $13.25
per share, resulting in net proceeds of approximately $69,000,000 after
deducting expenses, fees and commissions. In September 1995, the Company sold
5,000,000 shares of Common Stock in an additional private placement transaction
for $20.25 per share resulting in net proceeds of approximately $99,000,000
after deducting expenses, fees and commissions.
As a result of the transactions discussed above, the Company received
approximately $232,000,000 in cash during the three months ended September 30,
1995. The Company used a portion of these proceeds to repay all outstanding
borrowings under its revolving line of credit facility and debt of Hudson
Management Corporation and Envirocycle, Inc. (collectively, "HMC") and Kertz
during the same period.
ACQUISITION OF HUDSON MANAGEMENT CORPORATION AND ENVIROCYCLE, INC.
In August 1995, the Company issued 8,000,000 shares of Common Stock in exchange
for all of the outstanding shares of common stock of HMC, which was owned by Mr.
Hudson. HMC, as the third largest solid waste management company in Florida,
provides solid waste collection and recycling services to commercial,
industrial and residential customers. The acquisition was accounted for
under the purchase method of accounting. Subsequent to the acquisition, the
Company repaid substantially all of the outstanding debt of HMC which totaled
approximately $11,000,000.
ACQUISITION OF UNITED WASTE SERVICE, INC. In October 1995, the Company
acquired all of the outstanding common stock of United Waste Service, Inc.
("United") in exchange for 1,500,000 shares of Common stock. United provides
solid waste collection, transfer and recycling services in the Atlanta, Georgia
metropolitan area. This acquisition will be accounted for under the
pooling-of-interests method of accounting.
ACQUISITION OF SOUTHLAND ENVIRONMENTAL SERVICES, INC. In October
1995, the Company acquired all of the outstanding common stock of Southland
Environmental Services, Inc. ("Southland") in exchange for 2,600,000 shares of
Common Stock. Southland provides solid waste collection services in the
Northeast Florida area and owns a transfer station, a construction and
demolition landfill and provides composting and recycling services. This
acquisition was accounted for under the pooling-of-interests method of
accounting.
ACQUISITION OF J.C. DUNCAN COMPANY, INC. In November 1995, the Company
acquired all of the outstanding common stock of J.C. Duncan Company, Inc. and
affiliates (collectively, "Duncan") in exchange for 5,256,055 shares of Common
Stock. Duncan provides solid waste collection and recycling services in the the
Dallas-Fort Worth metropolitan area and throughout west Texas, and also operates
two landfills. This acquisition will be accounted for under the
pooling-of-interests method of accounting.
ACQUISITION OF GARBAGE DISPOSAL SERVICE, INC. In November 1995, the
Company issued 3,003,000 shares of Common Stock in exchange for all of the
outstanding common stock of Garbage Disposal Service, Inc. ("GDS") which
provides solid waste collection and recycling services throughout western North
Carolina. This acquisition will be accounted for under the
pooling-of-interests method of accounting.
ACQUISITION OF FENNELL CONTAINER CO., INC. In November 1995, the
Company acquired all of the outstanding common stock of Fennell Container Co.,
Inc. and affiliates (collectively, "Fennell") in exchange for 3,111,111 shares
of Common Stock. Fennell is a full-service solid waste management company,
providing waste collection, recycling and environmental services in and around
Charleston and Greenville, South Carolina. Additionally, Fennell owns a
landfill which is in the final stages of construction and is scheduled to begin
accepting waste under its new permit in early 1996. This acquisition will be
accounted for under the pooling-of-interests method of accounting.
ACQUISITION OF SCOTT SECURITY SYSTEMS. In November 1995, the Company
issued 1,567,818 shares of Common Stock in exchange for all of the outstanding
common stock of Scott Security Systems and affiliates (collectively "Scott").
Scott is an electronic security alarm company, providing monitoring and
maintenance in Jacksonville, Orlando and Tallahassee, Florida, as well as other
metropolitan areas in the southeastern U.S., including Charlotte, North
Carolina, Savannah, Georgia and Nashville, Tennessee. This acquisition will be
accounted for under the pooling-of-interests method of accounting.
26
<PAGE> 27
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
---------------------------
September 30,
1995 1994 1993
----------- ---------- ----------
ASSETS (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $216,102 $ 10,031 $ 9,290
Accounts receivable, less allowance for doubtful accounts of
$1,996 (unaudited), $1,055 and $1,016, respectively. . . . . . . . 33,134 21,610 17,434
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,563 2,559 2,710
Current portion of deferred installation costs. . . . . . . . . . . . 4,732 2,360 1,535
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 6,955 5,043 4,748
-------- -------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . 264,486 41,603 35,717
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 175,313 134,506 126,107
Goodwill, net of accumulated amortization of $3,608 (unaudited), $3,212
and $2,219,respectively . . . . . . . . . . . . . . . . . . . . . 91,464 15,605 9,910
Deferred installation costs, net of current portion . . . . . . . . . . . . . 27,157 21,833 8,512
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . - 20,292 16,872
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,920 8,526 6,755
-------- -------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $569,340 $242,365 $203,873
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,454 $ 11,777 $ 10,366
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 20,026 9,675 6,076
Current portion of deferred revenue . . . . . . . . . . . . . . . . . 22,462 12,255 5,853
Current maturities of long-term debt and notes payable . . . . . . . 11,520 10,097 9,913
Current portion of accrued environmental and landfill costs . . . . 1,008 1,404 1,715
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 1,570 1,281 568
-------- -------- --------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 74,040 46,489 34,491
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . 42,166 43,991 41,596
Deferred revenue, net of current portion. . . . . . . . . . . . . . . . . . . 17,030 20,353 10,913
Accrued environmental and landfill costs, net of current portion . . . . . . 6,612 8,244 8,757
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,907 11,510 11,444
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,103 1,948 367
-------- -------- --------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . 156,858 132,535 107,568
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 9) . . . . . . . . . . . . . . . . . . . - - -
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 per share; 5,000,000 shares
authorized; none issued . . . . . . . . . . . . . . . . . . . . . . - - -
Common stock, par value $0.01 per share; 350,000,000, 100,000,000 and
100,000,000 shares authorized, respectively; 75,059,040 (unaudited),
45,313,715, and 45,476,372 issued, respectively . . . . . . . . . . 750 453 454
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 383,425 105,586 104,674
Retained earnings (accumulated deficit) . . . . . . . . . . . . . . . 28,307 4,464 (8,150)
Notes receivable arising from stock purchase agreements . . . . . . - (673) (673)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . 412,482 109,830 96,305
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $569,340 $242,365 $203,873
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
27
<PAGE> 28
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
----------------------- -------------------------------------
1995 1994 1994 1993 1992
---------- --------- -------- -------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185,207 $ 140,988 $187,111 $154,301 $ 134,440
Expenses:
Cost of operations . . . . . . . . . . . . . . . . 123,805 94,304 123,877 104,720 92,092
Selling, general and administrative . . . . . . . 40,549 30,716 41,730 38,854 31,796
Restructuring and unusual charges . . . . . . . . - - - 10,040 2,250
Other (income) expense:
Interest and other income . . . . . . . . . . . . (2,710) (784) (989) (712) (3,075)
Interest expense . . . . . . . . . . . . . . . . . 3,951 2,852 4,222 2,685 2,329
--------- --------- -------- -------- ----------
165,595 127,088 168,840 155,587 125,392
--------- --------- -------- -------- ----------
Income (loss) from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . 19,612 13,900 18,271 (1,286) 9,048
Income tax provision . . . . . . . . . . . . . . . . . . . 6,985 2,822 3,839 1,187 2,086
--------- --------- -------- -------- ----------
Income (loss) from continuing operations . . . . . . . . . 12,627 11,078 14,432 (2,473) 6,962
--------- --------- -------- -------- ----------
Discontinued operations:
Income (loss) from discontinued operations, net of
income tax benefit of $298 (unaudited), $0
(unaudited), $0, $210 and $123, respectively . . 508 1,669 2,684 (14,579) (1,117)
Loss on disposition . . . . . . . . . . . . . . . . - - - - (17,563)
--------- --------- -------- -------- ----------
508 1,669 2,684 (14,579) (18,680)
--------- --------- -------- -------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 13,135 $ 12,747 $ 17,116 $(17,052) $ (11,718)
========= ========= ======== ======== ==========
Primary earnings (loss) per common and common equivalent
share:
Continuing operations . . . . . . . . . . . . . . $ 0.24 $ 0.24 $ 0.32 $ (0.05) $ 0.16
Discontinued operations . . . . . . . . . . . . . 0.01 0.04 0.06 (0.32) (0.42)
--------- --------- -------- -------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . $ 0.25 $ 0.28 $ 0.38 $ (0.37) $ (0.26)
========= ========= ======== ======== ==========
Fully diluted earnings (loss) per common and
common equivalent share:
Continuing operations . . . . . . . . . . . . . . . $ 0.23 $ 0.24 $ 0.32 $ (0.05) $ 0.16
Discontinued operations . . . . . . . . . . . . . . 0.01 0.04 0.06 (0.32) (0.42)
--------- --------- -------- -------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . $ 0.24 $ 0.28 $ 0.38 $ (0.37) $ (0.26)
========= ========= ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
28
<PAGE> 29
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Notes
Receivable
Arising
Retained From
Additional Earnings Stock
Common Paid-In (Accumulated Purchase
Stock Capital Deficit) Agreements
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 . . . . . . . . . $ 428 $ 85,550 $ 27,222 $ (698)
Exercise of MGD warrants, net
of expenses. . . . . . . . . . . . . . . . 20 10,980 - -
Exercise of stock options and
related tax benefits . . . . . . . . . . . 1 1,745 - -
Shares issued for business
acquisitions . . . . . . . . . . . . . . . 5 2,959 - -
Contributions to capital from pooled
entities . . . . . . . . . . . . . . . . . - 864 50 -
Distributions to former shareholders
of acquired companies . . . . . . . . . . - - (2,173) -
Collections on notes receivable . . . . . . - - - 25
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . - - (983) -
Capital contributions equal to the current
income taxes of S-Corporations . . . . . . - 365 - -
Net loss . . . . . . . . . . . . . . . . . . - - (11,718) -
------ --------- -------- -------
BALANCE AT DECEMBER 31, 1992 . . . . . . . . . 454 102,463 12,398 (673)
Cancellation of shares held in
escrow issued for an
acquisition . . . . . . . . . . . . . . . (1) (944) - -
Shares issued for contingent
consideration. . . . . . . . . . . . . . . 1 265 - -
Contributions to capital from pooled
entities . . . . . . . . . . . . . . . . . - 2,060 - -
Distributions to former shareholders
of acquired companies . . . . . . . . . . - - (3,078) -
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . - - (472) -
Capital contributions equal to the current
income taxes of S-Corporations . . . . . . - 830 54 -
Net loss . . . . . . . . . . . . . . . . . . - - (17,052) -
------ --------- -------- -------
BALANCE AT DECEMBER 31, 1993 . . . . . . . . . 454 104,674 (8,150) (673)
Shares issued for contingent
consideration, net of shares returned
in settlement. . . . . . . . . . . . . . . 2 (2) - -
Purchases and retirements
of treasury stock . . . . . . . . . . . . (3) (853) - -
Contributions to capital from pooled
entities . . . . . . . . . . . . . . . . . - 586 - -
Distributions to former shareholders
of acquired companies . . . . . . . . . . - - (4,520) -
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . - - 18 -
Capital contributions equal to the current
income taxes of S-Corporations . . . . . . - 1,181 - -
Net income . . . . . . . . . . . . . . . . . - - 17,116 -
------ --------- -------- -------
BALANCE AT DECEMBER 31, 1994 . . . . . . . . . $ 453 $ 105,586 $ 4,464 $ (673)
====== ========= ======== =======
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
29
<PAGE> 30
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
----------------------- ------------------------------------
1995 1994 1994 1993 1992
-------- -------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Income (loss) from continuing operations . . . . . . . . . $ 12,627 $ 11,078 $ 14,432 $ (1,549) $ 6,962
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing operations:
Restructuring and unusual charges . . . . . . . . . . . . - - - 10,040 -
Depreciation, depletion and amortization . . . . . . . . 13,893 10,865 14,764 12,634 10,377
Provision for doubtful accounts . . . . . . . . . . . . . 679 448 315 480 487
Provision for accrued environmental and landfill costs. . 255 308 377 215 76
Gain on the sale of equipment . . . . . . . . . . . . . . (347) (240) (285) (148) (1,047)
Gain on sale of marketable securities . . . . . . . . . . - - - - (2,000)
Changes in assets and liabilities, net of
effects from business acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . (4,804) (2,070) (2,997) (2,434) (3,153)
Prepaid expenses and other assets . . . . . . . . . . . (2,979) (707) (395) (2,307) (273)
Accounts payable and accrued liabilities . . . . . . . 4,525 1,225 2,263 (52) 2,158
Income taxes payable . . . . . . . . . . . . . . . . . (659) 212 712 (772) 1,906
Other liabilities . . . . . . . . . . . . . . . . . . . 2,238 546 301 595 (329)
-------- -------- -------- -------- --------
Net cash provided by continuing operations . . . . . . 25,428 21,665 29,487 16,702 15,164
-------- -------- -------- -------- --------
CASH PROVIDED BY (USED BY) DISCONTINUED OPERATIONS. . . . . . (261) 1,279 (736) (4,360) (17,610)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired . . . . . . . (6,099) (1,493) (4,776) (5,664) (4,003)
Purchases of property and equipment . . . . . . . . . . . . (25,935) (18,434) (22,656) (13,103) (21,109)
Proceeds from the sale of equipment . . . . . . . . . . . . 1,175 1,305 1,439 994 1,369
Capitalized installation costs . . . . . . . . . . . . . . (7,696) (9,669) (14,146) (7,768) (1,611)
Other investments . . . . . . . . . . . . . . . . . . . . . (1,013) 84 (819) (2,233) 91
Purchases of marketable securities . . . . . . . . . . . . - - - - (7,554)
Proceeds from the sale of marketable securities . . . . . . - - - - 9,554
-------- -------- -------- -------- --------
Net cash used in investing activities . . . . . . . . . . . (39,568) (28,207) (40,958) (27,774) (23,263)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants. . . . . . . . . . . 6,333 - - - -
Capital contribution to Republic Environmental
Systems, Inc. . . . . . . . . . . . . . . . . . . . . . (2,520) - - - -
Payments of long-term debt and notes payable . . . . . . . (40,110) (12,746) (16,474) (14,552) (21,195)
Proceeds from long-term debt and notes payable . . . . . . 21,838 13,024 19,453 21,414 22,549
Proceeds from financing arrangements . . . . . . . . . . . 5,276 11,707 15,729 11,153 1,588
Purchases of treasury stock . . . . . . . . . . . . . . . . (222) (856) (856) - -
Contributions to capital from pooled entities . . . . . . . 283 353 301 964 686
Distributions to former shareholders of acquired
businesses . . . . . . . . . . . . . . . . . . . . . . . (3,127) (4,291) (5,205) (2,933) (1,942)
Payments of debt issuance costs . . . . . . . . . . . . . . - - - (494) -
Sales of common stock . . . . . . . . . . . . . . . . . . . 232,048 - - - 11,466
Payments of common stock issuance costs . . . . . . . . . . - - - - (78)
Payments received on notes receivable arising from
stock purchase agreements. . . . . . . . . . . . . . . . 673 - - - 648
-------- -------- -------- -------- --------
Net cash provided by financing activities . . . . . . . . . 220,472 7,191 12,948 15,552 13,722
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . 206,071 1,928 741 120 (11,987)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . . 10,031 9,290 9,290 9,170 21,157
-------- -------- -------- -------- --------
End of period . . . . . . . . . . . . . . . . . . . . . . . $216,102 $ 11,218 $ 10,031 $ 9,290 $ 9,170
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,815 $ 2,236 $ 4,152 $ 2,422 $ 3,002
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 3,590 $ 2,004 $ 2,278 $ 1,260 $ 1,507
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases of $1,443, $1,867 and $2,873 were financed in the
years ended December 31, 1994, 1993 and 1992, respectively, by
borrowings and capitalized lease obligations.
The accompanying notes are an integral part of these supplemental
consolidated financial statements.
30
<PAGE> 31
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying supplemental
consolidated financial statements include the accounts of Republic Industries,
Inc. (formerly Republic Waste Industries, Inc.) and its wholly-owned
subsidiaries ("Republic" or the "Company"). All significant intercompany
accounts and transactions have been eliminated. In 1994, the Board of
Directors authorized management to pursue a plan to distribute its hazardous
waste services segment, Republic Environmental Systems, Inc. ("RESI"), to
Republic stockholders. In February 1995, the Board of Directors approved this
distribution to Republic stockholders. Accordingly, as discussed in Note 2,
this segment has been accounted for as a discontinued operation and the
accompanying supplemental consolidated financial statements for all periods
presented have been restated to report separately the net assets and operating
results of these discontinued operations.
In the opinion of management, the unaudited supplemental consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the consolidated financial
position of the Company at September 30, 1995, and the consolidated results of
their operations and cash flows for the nine months ended September 30, 1995 and
1994.
The accompanying supplemental consolidated financial statements
include the financial position and results of operations of Kertz Security
Systems II, Inc. and Kertz Security Systems, Inc. (collectively, "Kertz"), with
which the Company merged in August 1995. This transaction was accounted for
under the pooling-of-interests method of accounting and, accordingly, the
accompanying supplemental consolidated financial statements have been restated
as if the Company and Kertz had operated as one entity since inception. See
Note 3, Business Combinations, for a further discussion of this transaction.
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS. The accompanying
supplemental consolidated financial statements give retroactive effect to the
mergers with United Waste Service, Inc. ("United") and Southland Environmental
Services, Inc. ("Southland"), which took place in October 1995, and J.C. Duncan
Company, Inc. and affiliates ("Duncan"), Garbage Disposal Service, Inc.
("GDS"), Fennell Container Co., Inc. and affiliates ("Fennell") and Scott
Security Systems and affiliates ("Scott"), which took place in November 1995.
These transactions were accounted for under the pooling of interests method of
accounting. See Note 3, Business Combinations, for further discussion of these
transactions.
For the years ended December 31, 1994, 1993 and 1992, United,
Southland, and GDS were consolidated for their fiscal years ended on September
30. In connection with the United, Southland and GDS mergers, effective
January 1, 1995, the Company has changed the year ends of United, Southland and
GDS to conform with that of the Company. The results of operations for United,
Southland and GDS for the three months ended December 31, 1994 have been
reported as a direct credit to the Company's retained earnings. Such amount
was not material to the supplemental consolidated financial position and
results of operations of the Company.
REVENUE RECOGNITION. The Company recognizes revenue as services are
provided.
31
<PAGE> 32
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARKETABLE SECURITIES. The Company purchases marketable securities
for investment purposes which are recorded at the lower of cost or market. The
Company includes gains and losses incurred in connection with marketable
securities in interest and other income. In 1992, the Company realized gains
on marketable securities purchased and subsequently sold during the year. The
Company currently holds no equity securities as defined under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
OTHER CURRENT ASSETS. Inventories consisting principally of equipment
parts, compost materials and supplies are valued under a method which
approximates the lower of cost (first-in, first-out) or market. At December
31, 1994 and 1993, other current assets included inventories of $3,360,000 and
$3,252,000, respectively.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in current operations.
The Company revises the estimated useful lives of property and
equipment acquired through its business acquisitions as of the effective date
of the acquisition 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 vehicles 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,
and these costs are also depleted based on consumed airspace. No general and
administrative costs are capitalized as landfills and landfill improvements.
ACCRUED LIABILITIES. The Company provides accruals for estimated
insurance claims for the self-funded portion of its insurance plans. At
December 31, 1994 and 1993, insurance claims reserves of $1,009,000 and
$701,000, respectively, were included in accrued liabilities.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS. Accrued environmental and
landfill costs include landfill site closure and post-closure costs. Landfill
site closure and post-closure costs include costs to be incurred for final
closure of the landfills and costs for providing required post-closure
monitoring and maintenance of landfills. These costs are accrued based on
consumed airspace. 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. Environmental costs are accrued by the Company through
a charge to income in the appropriate period for known and anticipated
environmental liabilities.
INCOME TAXES. The Company accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes," which the Company adopted in
1992, the effect of which was not material. Accordingly, deferred income taxes
have been provided to show the effect of temporary differences between the
recognition of revenues 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.
GOODWILL. Goodwill is amortized over the lesser of the estimated life
or forty years, on a straight-line basis. Amortization expense related to
goodwill and other intangible assets was $1,252,000, $939,000 and $701,000 in
1994, 1993 and 1992, respectively.
DEFERRED INSTALLATION COSTS. Deferred installation costs represent
capitalized direct labor and material costs associated with new monitoring
contracts installed by the Company.
The costs are amortized based on an estimated customer life determined
by the historical attrition rates. The amortization method applies the
attrition rate (converted to an estimated useful life) to the entire net book
value of the account base at the beginning of each period adjusted for
additions and divestitures during the period. These costs are being amortized
over periods ranging from eight to twelve years.
32
<PAGE> 33
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company continually evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful life of
goodwill and other long-lived assets or whether the remaining balance of
goodwill should be evaluated for possible impairment. The Company uses an
estimate of the related undiscounted net income over the remaining life of
goodwill in measuring whether the goodwill is recoverable.
ACCOUNTING FOR ACQUISITIONS. At the time the Company acquires a
business to be accounted for as a purchase, the Company allocates the purchase
price to assets and liabilities based on its best estimate of the fair value of
each asset and liability. For a one-year period subsequent to the acquisition
date, the estimates are refined if additional facts become known regarding
contingencies that existed at the date of acquisition. At the end of the
one-year period following the date of acquisition, the estimates are finalized
and no other entries are made to purchase accounting.
Acquisitions accounted for under the pooling-of-interests method of
accounting are included retroactively in the Company's financial statements as
if the companies had operated as one entity since inception.
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, and other non-cash transactions are
excluded from the statements of cash flows.
FOREIGN CURRENCY TRANSLATION. All asset and liability accounts of
foreign subsidiaries are translated to U.S. dollars at the rate of exchange in
effect at the balance sheet date. All income statement accounts of foreign
subsidiaries are translated at average exchange rates during the year.
Resulting translation adjustments arising from these translations are charged
or credited directly to stockholders' equity. Gain or loss on foreign currency
transactions are included in income as incurred. There was no material effect
on foreign cash balances of foreign currency translations in 1994 and 1993.
All of the Company's foreign subsidiaries are a part of the hazardous waste
services segment of the Company. In connection with the spin-off of the
hazardous waste services segment, as discussed in Note 2, this segment of the
Company's business has been accounted for as a discontinued operation.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The book values of cash, trade
accounts receivable, trade accounts payable and financial instruments included
in other current assets and other assets approximate their fair values
principally because of the short-term maturities of these instruments. The
fair value of the Company's long-term debt is estimated based on the current
rates offered to the Company for debt of similar terms and maturities. Under
this method the Company's fair value of long-term debt was not significantly
different than the stated value at December 31, 1994 and 1993.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying supplemental consolidated balance sheets. The Company's
management believes that the likelihood of performance under these financial
instruments is minimal and expects no material losses to occur in connection
with these financial instruments.
CONCENTRATIONS OF CREDIT RISK. Concentrations of credit risk with
respect to trade receivables are limited due to the wide variety of customers
and markets into which the Company's services are provided, as well as their
dispersion across many different geographic areas. As a result, as of December
31, 1994, the Company does not consider itself to have any significant
concentrations of credit risk.
2. DISCONTINUED OPERATIONS
SPIN-OFF OF THE HAZARDOUS WASTE SERVICES SEGMENT IN 1994. In July
1994, the Company announced the contemplation of a plan to exit the hazardous
waste services segment of the environmental industry, and in October 1994, the
Board of Directors authorized management to pursue such plan, subject to final
approval from the Board of Directors and the resolution of certain legal
33
<PAGE> 34
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and financial requirements. The plan provides for the combination of the
Company's hazardous waste services operations in its wholly-owned subsidiary,
RESI, and the distribution of the stock of RESI to the stockholders of record
of Republic (the "Distribution"). On April 26, 1995, Republic stockholders
received one share of common stock of RESI for every five shares of Common
Stock of Republic owned on April 21, 1995 in connection with the spin-off of
RESI. Approximately 5,400,000 RESI shares were distributed to the Company's
stockholders. RESI's common stock commenced trading on the Nasdaq National
Market on April 27, 1995 under the trading symbol "RESI." The Company has had
no direct ownership interest in RESI since the Distribution.
The hazardous waste services segment of the Company's business has
been accounted for as a discontinued operation and, accordingly, the
accompanying supplemental consolidated financial statements of the Company have
been restated to report separately the net assets and operating results of
these discontinued operations. A summary of the net assets of this segment is
as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
------- -------
<S> <C> <C>
Current assets . . . . . . . . . . . $13,595 $14,735
Non-current assets . . . . . . . . . 26,347 34,783
------- -------
Total assets . . . . . . . . . . 39,942 49,518
------- -------
Current liabilities . . . . . . . . . 13,040 14,465
Non-current liabilities . . . . . . . 6,610 18,181
------- -------
Total liabilities . . . . . . . 19,650 32,646
------- -------
Net assets of discontinued operations $20,292 $16,872
======= =======
</TABLE>
A summary of the operating results of the Company's hazardous waste
services segment is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . $ 46,599 $ 61,617 $ 74,668
Expenses:
Cost of operations . . . . . . . . . . . . . . . . . 33,377 47,028 54,634
Selling, general and administrative . . . . . . . . 10,349 13,480 15,141
Restructuring and unusual charges . . . . . . . . . 8,484 14,906 577
-------- --------- --------
Operating income (loss) . . . . . . . . . . . . . . . . ( 5,611) (13,797) 4,316
Other expense, net of other income . . . . . . . . . . 353 992 1,327
-------- --------- --------
Income (loss) before extraordinary
gain and income taxes . . . . . . . . . . . . . . . ( 5,964) ( 14,789) 2,989
Income tax provision (benefit) . . . . . . . . . . . . ( 3,092) ( 210) 1,442
-------- --------- --------
Income (loss) before extraordinary gain . . . . . . . . ( 2,872) ( 14,579) 1,547
Extraordinary gain on conversion of debt, net of income
tax provision of $3,092 . . . . . . . . . . . . . . 5,556 - -
-------- --------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 2,684 $ (14,579) $ 1,547
======== ========= ========
</TABLE>
34
<PAGE> 35
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Distribution, the Company has entered into the
Distribution Agreement with RESI which sets forth the terms of the
Distribution. Under this agreement, Republic contributed the intercompany
balance to RESI's equity at the date of the Distribution. In April 1995,
Republic contributed approximately $2,500,000 to RESI to repay certain
indebtedness of RESI and to provide working capital to RESI. Additionally, the
Company reclassified approximately $36,300,000 to retained earnings from
additional paid-in capital in 1995 to effect the spin-off under Delaware law.
As a result of these transactions, the Company's equity at the date of the
Distribution was reduced by approximately $23,000,000.
The Company has also entered into various agreements with RESI which
govern certain matters between the two parties such as ongoing corporate
services to be provided by the Company to RESI, insurance coverage for RESI for
a certain period after the date of the Distribution, treatment of various tax
matters for periods through the date of the Distribution, responsibility for
any adjustments as a result of audit by any taxing authority and
indemnification between both parties. Republic has agreed to continue to
provide certain corporate services, including insurance, administration, human
resources management, financial reporting and tax, legal and environmental
engineering services to RESI after the Distribution until terminated by either
party. The Corporate Services Agreement is expected to be terminated by the
end of 1995. During 1994, 1993 and 1992, the Company allocated expenses for
these services to RESI totaling $851,000, $839,000 and $739,000, respectively,
on a basis that approximated the cost of actual services provided.
Since 1992, RESI has participated in the Company's combined risk
management programs for property and casualty insurance and will continue to do
so until the expiration of the Company's existing policies in June 1995. In
1994, 1993 and 1992, the Company charged RESI for annual premiums and reported
losses of $1,678,000, $1,745,000 and $1,116,000, respectively. RESI has agreed
to indemnify the Company against increases in current losses and any future
losses incurred in connection with RESI's participation in these programs.
SALE OF DEMOLITION AND EXCAVATION SUBSIDIARY IN 1992. In 1992, the
Company sold its demolition and excavation subsidiary, Republic Environmental
Services, Inc. ("RES Demolition") and recorded a non-cash loss on disposition
of $17,600,000. This segment of the Company's business was accounted
for as a discontinued operation and, accordingly, the Company's supplemental
consolidated financial statements report separately the operating results of
these discontinued operations through the date of sale in 1992. In 1992,
revenues and net loss of the discontinued operations of RES Demolition were
$2,900,000 and $2,700,000, respectively.
3. BUSINESS COMBINATIONS
In August 1995, the Company merged with Kertz. In October 1995, the
Company merged with United and Southland. In November 1995, the Company merged
with Duncan, GDS, Fennell and Scott. The Company issued 1,090,000 shares of the
Company's common stock, $.01 par value per share, ("Common Stock") in exchange
for all of the outstanding shares of common stock of Kertz, which provides
electronic security monitoring and maintenance predominantly in the South
Florida, Tampa and Orlando areas. The Company issued 1,500,000 shares of
Common Stock in exchange for all of the outstanding common stock of United
which provides solid waste collection, transfer and recycling services in the
Atlanta, Georgia metropolitan area. The Company issued 2,600,000 shares of
Common Stock in exchange for all of the outstanding common stock of Southland
which provides solid waste collection services in the Northeast Florida area.
The Company issued 5,256,055 shares of Common Stock in exchange for all of the
outstanding common stock of Duncan which provides solid waste collection and
recycling services in the Dallas-Fort Worth metropolitan area and throughout
west Texas and also operates two landfills. The Company issued 3,003,000
shares of Common Stock in exchange for all of the outstanding common stock of
GDS which provides solid waste collection and recycling services throughout
western North Carolina. The Company issued 3,111,111 shares of Common Stock in
exchange for all of the outstanding common stock of Fennell which is a
full-service solid waste management company, providing services in and around
Charleston and Greenville, South Carolina and also owns a landfill. The
Company issued 1,567,818 shares of Common Stock in exchange for all of the
outstanding common stock of Scott which is an electronic security alarm
company, providing monitoring and maintenance services in Jacksonville, Orlando
and Tallahassee, Florida, and other metropolitan areas in the southeastern
United States, including Charlotte, North Carolina, Savannah, Georgia and
Nashville, Tennessee. These transactions were accounted for under the
pooling-of-interests method of accounting and, accordingly, the accompanying
supplemental consolidated financial statements have been retroactively adjusted
as if Kertz, United, Southland, Duncan, GDS, Fennell and Scott (the
"Pooled Entities") and the Company had operated as one entity since inception.
These supplemental consolidated financial statements will be the same as the
restated statements that will be issued after post-merger operating results
have been published.
Details of the results of operations of the Company and the Pooled
Entities for the periods prior to the combinations are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------- ------------------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
The Company . . . . . . . $ 55,945 $ 36,307 $ 48,766 $ 41,095 $ 35,341
Pooled entities . . . . . 129,262 104,681 138,345 113,206 99,099
-------- -------- -------- -------- --------
$185,207 $140,988 $187,111 $154,301 $134,440
======== ======== ======== ======== ========
Net income (loss):
The Company . . . . . . . $ 7,134 $ 8,117 $ 11,187 $(18,484) $(14,004)
Pooled entities . . . . . 6,001 4,630 5,929 1,432 2,286
-------- -------- -------- -------- --------
$ 13,135 $ 12,747 $ 17,116 $(17,052) $(11,718)
======== ======== ======== ======== ========
</TABLE>
From January 1, 1992 through December 31, 1994, the Company
acquired seven businesses, all of which were accounted for under the purchase
method of accounting. The businesses accounted for under the purchase method
of accounting were acquired for a combination of cash and shares of the
Company's Common Stock. The value of the Common Stock reflects the market
value of the Company's Common Stock at the closing of each acquisition,
adjusted to account for restrictions common to unregistered securities and
for registration rights, if applicable. The final determination of the cost
of certain of the Company's acquisitions is subject to the resolution of
certain contingencies, primarily the determination of contingent consideration
payable as described in Note 9. The operating results of the acquired
businesses accounted for under the purchase method of accounting have been
included in the supplemental consolidated financial statements from the dates
of acquisition. The pro forma effect of these acquisitions is not material to
the supplemental consolidated results of operations for all periods presented.
In August 1995, the Company acquired all of the outstanding shares of
common stock of Hudson Management Corporation and Envirocycle, Inc.
(collectively, "HMC"). The purchase price paid by the Company was approximately
$72,800,000 and consisted of 8,000,000 shares of Common Stock. HMC, as the
third largest solid waste managment company in Florida, provides solid waste
collection and recycling services to commercial, industrial and residential
customers. This acquisition, as well as several other minor business
combinations in 1995, has been accounted for under the purchase method of
accounting and, accordingly, is included in the Company's supplemental
consolidated financial statements from the date of acquisition.
The Company's consolidated results of operations on an unaudited pro
forma basis assuming the acquisition of HMC had occurred at the beginning of
each of the periods presented are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . $218,408 $235,114
======== ========
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . $ 21,254 $ 21,277
======== ========
Net income . . . . . . . . . . . . . . . . . . . . . . $ 13,612 $ 16,169
======== ========
Fully diluted earnings per common and common
equivalent share . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.30
======== ========
Pro forma weighted average common and common
equivalent shares . . . . . . . . . . . . . . . . . . 62,909 53,545
======== ========
</TABLE>
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of January 1, 1992.
The following table sets forth the purchase price of the Company's
acquisitions accounted for under the purchase method of accounting (in
thousands):
35
<PAGE> 36
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- -----------------------------------
1995 1994 1994 1993 1992
------- ------ ------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash (net of cash
acquired) . . . . . . . $ 6,099 $1,493 $ 4,776 $ 5,664 $ 4,003
Common stock (including
contingent consideration
earned) . . . . . . . . 72,800 - 105 266 2,964
------- ------ ------- ------- --------
$78,899 $1,493 $ 4,881 $ 5,930 $ 6,967
======= ====== ======= ======= ========
</TABLE>
As discussed in Note 9, the Company also paid additional consideration
to the sellers of previously completed acquisitions for the attainment of
certain earnings levels as specified in the respective acquisition agreements.
36
<PAGE> 37
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRUCTURING AND UNUSUAL CHARGES
In the fourth quarter of 1993, the Company recorded restructuring and
unusual charges of $10,000,000 based on the Company's reevaluation of each of
its solid waste operations. As a result of this reevaluation, the Company
decided to close one of its facilities due to low waste volumes and abandon
its permitting effort at another facility because of limited market opportunity
in that area and delays in the permitting process. In accordance with industry
standards, the Company provides for closure and post-closure over the life of a
facility. Accordingly, the Company fully provided for these costs on the
closed facility. The provision for closure and post-closure and the write-off
of property and equipment and accumulated permitting costs associated with
these facilities totaled $6,600,000. In conjunction with the reevaluation, the
Company also decided to terminate certain contracts and employees. Costs
related to employee relocations and terminations and other contract
terminations totaled $1,200,000. In addition, the Company also reevaluated its
exposure related to litigation and environmental matters and provided
additional accruals aggregating $2,200,000 for the costs to defend or settle
certain litigation and environmental matters.
37
<PAGE> 38
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In March 1992, the Company acquired Stout Environmental, Inc. in a
merger transaction accounted for in accordance with the pooling-of-interests
method. In connection with the merger, the Company incurred substantial legal,
accounting, consulting and financing costs aggregating $2,200,000, which was
recorded as an unusual charge.
5. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is based on the
combined weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise or conversion
of warrants and options. In computing earnings per common and common equivalent
share, the Company currently utilizes the modified treasury stock method and in
the prior year used the treasury stock method. When using the modified treasury
stock method, the proceeds from the assumed exercise of all warrants and options
are assumed to be applied to first purchase 20% of the outstanding common stock,
then to reduce outstanding indebtedness and the remaining proceeds are assumed
to be invested in U.S. government securities or commercial paper.
The computation of weighted average common and common equivalent
shares used in the calculation of primary and fully diluted earnings per share
are shown below:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------- ---------------------------------
1995 1994 1994 1993 1992
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Primary:
Common shares outstanding . . . . . . . . . . . . . . . . . 75,059 45,343 45,314 45,476 45,409
Common equivalent shares . . . . . . . . . . . . . . . . . 20,546 60 82 160 186
Weighted average treasury shares purchased . . . . . . . . (4,115) - 149 - -
Effect of using weighted average common and common
equivalent shares outstanding . . . . . . . . . . . . . . (38,553) 160 - - (1,116)
------- ------ ------ ------ ------
52,937 45,563 45,545 45,636 44,479
======= ====== ====== ====== ======
Fully diluted:
Common shares outstanding . . . . . . . . . . . . . . . . . 75,059 45,343 45,314 45,476 45,409
Common equivalent shares . . . . . . . . . . . . . . . . . 21,008 60 82 160 186
Weighted average treasury shares purchased . . . . . . . . (2,651) - 149 - -
Effect of using weighted average common and common
equivalent shares outstanding . . . . . . . . . . . . . . (38,507) 160 - - (1,116)
------- ------ ------ ------ ------
54,909 45,563 45,545 45,636 44,479
======= ====== ====== ====== ======
</TABLE>
6. PROPERTY AND EQUIPMENT
A summary of property and equipment is shown below (in thousands):
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------
1995 1994 1993
------------ -------- --------
(Unaudited)
<S> <C> <C> <C>
Land, landfills and improvements. . . . . . . . . . . $ 89,551 $ 84,864 $ 81,601
Vehicles and equipment . . . . . . . . . . . . . . . 139,290 95,760 81,035
Buildings and improvements . . . . . . . . . . . . . 20,564 16,174 16,586
Furniture and fixtures . . . . . . . . . . . . . . . 7,386 6,496 5,634
-------- -------- --------
256,791 203,294 184,856
Less accumulated depreciation and depletion . . . (81,478) (68,788) (58,749)
-------- -------- --------
$175,313 $134,506 $126,107
======== ======== ========
</TABLE>
7. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
The Company owns and operates twelve solid waste landfills in the
United States. The Company is responsible for closure and post-closure
monitoring and maintenance costs at these landfills which are currently
operating. Closure and post-closure costs are provided in accordance with
Subtitle D regulations. Estimated aggregate closure and post-closure costs are
to be fully accrued for these landfills at the time that such facilities cease
to accept waste and are closed. Considering existing accruals at the end of
1994, approximately $7,600,000 of such costs are to be expensed over the
remaining lives of these facilities. Included with the accrued costs
associated with landfills at December 31, 1994 is $179,000 related to
post-closure activities at a closed solid waste landfill formerly owned by the
Company.
38
<PAGE> 39
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As discussed in Note 9, the Company is involved in litigation and is
subject to ongoing environmental investigations by certain regulatory agencies,
as well as other claims and disputes that could result in additional litigation
which are in the normal course of business.
For a discussion of the Company's significant accounting policies
related to these environmental and landfill costs, see Note 1 - "Summary of
Significant Accounting Policies - Accrued Environmental and Landfill Costs".
8. NOTES PAYABLE AND LONG-TERM DEBT
SHORT-TERM BORROWINGS AND NOTES PAYABLE. Notes payable at December
31, 1994 and 1993 consisted primarily of short-term insurance premium
financing.
LONG-TERM DEBT. Long-term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------
1995 1994 1993
------------- ------ ------
<S> <C> <C> <C>
Revolving credit facility, secured by the stock of the
Company's subsidiaries, interest payable quarterly, at
prime or at a Eurodollar rate plus 1.5% (8.3% as of
December 31, 1994), due September 1996 . . . . . . . . $ - $12,600 $12,200
Notes to banks and financial institutions, secured by
equipment and other assets, interest ranging from 6.0% to
12.9% (weighted average interest rate of 7.2% as of
December 31, 1994), payable monthly through 2003 . . . 34,825 28,815 21,742
Notes payable to former stockholders of acquired
companies, secured by common stock of the acquired
companies, interest at 9.5%, payable monthly
through 2004 . . . . . . . . . . . . . . . . . . . . . 7,267 6,058 6,114
Other notes, secured by equipment and
other assets, interest ranging from 4.0% to 16.93% (weighted
average interest rate of 6.0% as of December 31, 1994),
payable monthly through 2011 . . . . . . . . . . . . . 11,594 6,615 11,453
--------- ------- -------
53,686 54,088 51,509
Less current maturities . . . . . . . . . . . . . . . . (11,520) (10,097) (9,913)
--------- ------- -------
$ 42,166 $43,991 $41,596
========= ======= =======
</TABLE>
In September 1993, the Company entered into a revolving credit
facility agreement with a U.S. commercial bank in the amount of $25,000,000,
which includes a line of credit with $10,000,000 available for standby letters
of credit. At December 31, 1994, the Company had standby letters of credit of
$5,591,000 outstanding under this facility and $6,809,000 available under the
revolving credit facility. In 1995, the Company extended the due date from
September 1996 to December 1997 and increased the availability under this
facility to $35,000,000. The credit agreement requires the Company, among
other restrictions, to meet certain financial ratios and places certain
limitations on dividend payments and other borrowings. As of December 31, 1994,
the Company was in compliance with all covenants under the credit agreement.
In connection with the equity investment and private placement
transactions, as discussed in Note 10, Stockholders' Equity, the Company
received approximately $232,000,000 in cash during the three months ended
September 30, 1995. The Company used a portion of these proceeds to repay all
outstanding borrowings under the revolving credit facility totaling
approximately $15,500,000 plus interest expense in August 1995. In December
1995, the Company entered into a credit agreement (the "Credit Agreement") with
certain banks pursuant to which such banks have agreed to advance the Company
on an unsecured basis an aggregate of $250,000,000 for a term of 36 months.
Outstanding advances, if any, are payable at the expiration of the 36-month
term. The Credit Agreement requires, among other items, that the Company
maintain certain financial ratios and comply with certain financial covenants.
Interest is payable monthly and generally determined using either a competitive
bid feature or a LIBOR based rate. The Credit Agreement replaces the 1993
revolving credit arrangement among the Company and certain other banks.
39
<PAGE> 40
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1994, aggregate maturities of long-term debt were as
follows (in thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . $10,097
1996 . . . . . . . . . . . . . . . . . . 19,934
1997 . . . . . . . . . . . . . . . . . . 7,354
1998 . . . . . . . . . . . . . . . . . . 5,046
1999 . . . . . . . . . . . . . . . . . . 2,762
Thereafter . . . . . . . . . . . . . . . 8,895
-------
$54,088
=======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS. On May 3, 1991, the Company filed an action against
G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the
United States District Court for the Central District of California (the
"Court"). The Company requested a declaratory judgment that it did not
anticipatorily breach a merger agreement (the "Merger Agreement") between the
Company and GI and that the Merger Agreement had been properly terminated. The
Company also sought to recover $600,000 from GI, plus interest and costs, with
respect to a certain financial guaranty provided by Republic in 1990 for the
benefit of GI. In response to the Company's action, GI filed a counterclaim
alleging that the Company breached the Merger Agreement and that it had
suffered damages in excess of $16,000,000. In August 1993, the Court
rendered a ruling in favor of Republic and found that GI did not meet its
burden in proving that it could have performed its obligations under the Merger
Agreement. GI appealed that decision in September 1993. In March 1995, the
United States Court of Appeals for the Ninth Circuit (the "Court of Appeals")
vacated the August 1993 decision and remanded the case back to the Court for a
hearing on damages. The Company filed a motion for reconsideration and
suggestion of en banc consideration with the Court of Appeals in an effort to
restore the original ruling denying GI's claim. On May 12, 1995, the Court of
Appeals denied the motion and suggestion. The Company filed a petition for
writ of certiorari with the United States Supreme Court, which was denied. The
Court has commenced proceedings that may lead to a trial on damages.
Subsequent to the Company's seeking recovery from GI for the guaranty,
GI filed for protection under Chapter 11 of the Bankruptcy Code. The Company
is a secured creditor and anticipates a complete recovery of the $600,000, plus
interest and costs, including attorneys' fees.
On November 9, 1992, A&B Investors, Inc. ("A&B") filed an action
against the Company in the District Court of Harris County, Texas alleging,
among other claims, breach of contract and securities fraud. On July 14, 1995,
this matter was resolved in an out-of-court settlement which did not have a
material effect on the Company's supplemental consolidated results of
operations or financial position.
Western Waste Industries, Inc. ("Western") filed an action against the
Company and others on July 20, 1990 for various causes of action including
interference with business relations and seeks $24,000,000 in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case is currently scheduled for trial in January 1996.
While the results of the legal proceedings described above and other
proceedings which arose in the normal course of business cannot be predicted
with certainty, management believes that losses, if any, resulting from the
ultimate resolution of these matters will not have a material adverse effect on
the Company's supplemental consolidated results of operations or financial
position.
40
<PAGE> 41
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL MATTERS. The Company's solid waste and environmental
services activities are conducted in the context of a developing and changing
statutory and regulatory framework, aggressive government enforcement and a
highly visible political environment. 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.
In 1992, the Company received notices from Imperial County, California
(the "County") and the California Department of Toxic Substances Control
("DTSC") that spent filter elements (the "Filters") from geothermal power
plants, which had been deposited at the Company's Imperial Landfill for
approximately five years, were classified as hazardous waste under California
environmental regulations. Under United States EPA regulations, the Filters
are not deemed hazardous waste as they are associated with the production of
geothermal energy.
In February 1993, the DTSC denied the Company's October 1992 request
to classify the Filters as "special waste" under California regulations.
DTSC's denial indicated that the Filters met all technical and analytical
requirements for reclassification as a special waste, but that a procedural
requirement related to the timing of the reclassification request was not met.
The Company is currently conducting active discussions with all appropriate
California regulatory agencies in order to seek a variance under California
regulations which will reclassify the Filters as a special waste, irrespective
of the reclassification application submittal timing issue, and allow the
Filters to be left in the landfill. If this occurs, the state, regional and
local regulatory agencies may nevertheless require that the affected area of
the landfill be capped and that the affected area accept no additional waste. A
decision on the reclassification issue is expected by the Spring of 1996. In
the event that the variance is not granted, the Regional Water Quality Control
Board and Integrated Waste Management Board will determine what remedial
measures must be taken based on the Filters' classification as a California
hazardous waste. One of those measures could include the removal of the
Filters or the closure of a portion of the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses the Company incurs associated with
the resolution of this matter, including loss of airspace at the landfill, in
the United States District Court for the Southern District of California,
alleging claims for CERCLA response costs recovery and intentional
misrepresentation among other claims. The Company seeks to recover actual
expenses and punitive damages. Discovery and regulatory studies are
proceeding. The Company believes it will prevail, but no amounts have been
accrued for any recovery of damages.
Although it is possible that losses exceeding amounts already recorded
may be incurred upon the ultimate resolution of the environmental matters
described above, management believes that such losses, if any, will not have a
material adverse effect on the Company's supplemental consolidated results of
operations or financial position.
OPERATING LEASE COMMITMENTS. The Company and its subsidiaries lease
portions of their premises and certain equipment under various operating lease
agreements. At December 31, 1994, total minimum rental commitments becoming
payable under all operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . $2,492
1996 . . . . . . . . . . . . . . . . . . . . . . . $2,293
1997 . . . . . . . . . . . . . . . . . . . . . . . $1,400
1998 . . . . . . . . . . . . . . . . . . . . . . . $ 528
1999 . . . . . . . . . . . . . . . . . . . . . . . $ 197
Thereafter . . . . . . . . . . . . . . . . . . . . $ 261
</TABLE>
41
<PAGE> 42
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total rental expense incurred under operating leases was $3,318,000, $2,344,000
and $1,736,000 in 1994, 1993 and 1992, respectively.
POSTRETIREMENT BENEFITS. The Company does not provide postretirement
or postemployment benefits to its employees and, accordingly, has not reflected
any cost arising from the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Effective January 1, 1994, the Company
instituted a defined contribution 401(k) savings plan for employees meeting
certain employment requirements. Under the plan, the Company may, at
its discretion, match a portion of employee contributions based on the
profitability and growth of the Company. No contributions under this plan were
made by the Company in 1994.
CONTINGENT CONSIDERATION. In certain of the business acquisitions
accounted for as purchases, the Company has agreed to issue contingent
consideration in the form of additional shares of the Company's common stock
and, in some cases, additional cash to the sellers of those businesses based on
the attainment of certain earnings levels and other contingencies. During the
years ended December 31, 1994, 1993 and 1992, the Company has issued
approximately 29,000, 160,000 and 186,000 shares of common stock and paid
$623,000, $432,000 and $40,000, respectively, for the attainment of such
earnings levels. These amounts have been capitalized as additional purchase
price. The maximum contingent consideration to be earned over the next
eight years as of December 31, 1994 consists of approximately 406,000 shares of
the Company's common stock and $412,000. Under the terms of an acquisition
agreement, the Company has agreed to pay additional consideration to the former
owners of a landfill site of a maximum of $2,500,000 upon the expansion of the
landfill airspace by up to 2,500,000 cubic yards.
OTHER MATTERS. At December 31, 1994, the Company had made cash
deposits into escrow accounts which total $735,000 in connection with landfill
closure and certain other obligations, of which $656,000 was included in cash
and cash equivalents and $79,000 was included in other assets. Additionally,
the Company has bonding facilities for the issuance of payment, performance and
bid bonds, of which $3,945,000 in bonds were outstanding at December 31, 1994.
The Company also has facilities available for the issuance of standby letters
of credit, of which $4,027,000 in letters of credit were outstanding at
December 31, 1994.
10. STOCKHOLDERS' EQUITY
EQUITY INVESTMENT BY H. WAYNE HUIZENGA AND ASSOCIATES, WESTBURY
(BERMUDA) LTD. AND HARRIS W. HUDSON. On May 21, 1995, the Company agreed to
issue and sell in aggregate 8,350,000 shares of Common Stock and warrants to
purchase an additional 16,700,000 shares of Common Stock to Mr. H. Wayne
Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled by Mr.
Michael G. DeGroote, then Chairman of the Board, President and Chief Executive
Officer of Republic) and Mr. Harris W. Hudson, and certain of their assigns for
an aggregate purchase price of $37,500,000. The warrants are exercisable at
prices ranging from $4.50 to $7.00 per share effective August 3, 1995. In July
1995, the Company agreed to sell an additional 1,000,000 shares of Common Stock
each to Mr. Huizenga and Mr. John J. Melk for $13.25 per share for aggregate
proceeds of $26,500,000. These transactions were completed on August 3, 1995.
On August 3, 1995, in connection with the equity investment, Mr.
Huizenga was elected Chairman of the Board of Directors and Chief Executive
Officer of Republic and Mr. DeGroote, former Chairman of the Board, President
and Chief Executive Officer of the Company, was elected Vice Chairman of the
Board. Additionally, Mr. Hudson was appointed as President of the Company and
as a member of the Board of Directors.
PRIVATE PLACEMENT TRANSACTIONS. In July 1995, the Company sold
5,400,000 shares of Common Stock in a private placement transaction for $13.25
per share, resulting in net proceeds of approximately $69,000,000 after
deducting expenses, fees and commissions. In September 1995, the Company sold
5,000,000 shares of Common Stock in an additional private placement transaction
for $20.25 per share resulting in net proceeds of approximately $99,000,000
after deducting expenses, fees and commissions.
As a result of the transactions discussed above, the Company received
approximately $232,000,000 in cash during the three months ended September 30,
1995. The Company used a portion of these proceeds to repay all outstanding
borrowings under its revolving line of credit facility and debt of the Pooled
Entities.
PREFERRED STOCK. The Company has 5,000,000 authorized shares of
preferred stock, $.01 par value per share, none of which are issued or
outstanding. The Board of Directors has the authority to issue the preferred
stock in one or more series and to establish the rights, preferences and
dividends.
TREASURY STOCK. In October 1993, the Board of Directors authorized
the Company to repurchase up to 1,300,000 shares of its outstanding
Common Stock, through October 1994, as deemed appropriate by management.
Through October 1994, 281,000 shares were repurchased for an aggregate value
of $856,000. In October 1994, the Board of Directors authorized management to
continue the repurchase program and to repurchase up to an additional
1,300,000 shares of its outstanding Common Stock, through October 1995.
The repurchasing of shares is intended to achieve a more favorable balance
between the market supply of the shares and market demand, as well as take
advantage of the relatively low price of the Company's Common Stock.
Repurchases have been effected at prevailing market prices from time to time
on the open market. The repurchased shares represent additions to treasury
stock. In October 1994, the Board of Directors authorized the retirement of
the 281,000 shares held in treasury, which were retired in the fourth quarter
of 1994. In December 1994, 28,993 shares of the Company's Common Stock were
returned to the Company in a settlement with a former owner of one of its
42
<PAGE> 43
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subsidiaries. These shares represented additions to treasury stock and were
subsequently retired in December 1994. The Company's stock repurchase program
expires in October 1995 and the Company does not currently plan to repurchase
any additional Common Stock.
1991 STOCK OPTION PLAN. In October 1991, the Board of Directors
approved a stock option plan (the "1991 Plan"), which was subsequently
approved by the Company's stockholders at the 1992 Annual Meeting of
Stockholders, under which employees and officers of the Company or any of its
subsidiaries or parent corporations and members of the Board of Directors of
the Company may be awarded options to purchase common shares. A maximum of
5,000,000 common shares, less shares issued or purchased pursuant to the 1990
Stock Option and Stock Purchase Plan (the "1990 Plan") as discussed below, have
been reserved for issuance to participants in the 1991 Plan in the form of
stock options. The option price under the 1991 Plan is to be determined by the
Board of Directors but shall not be less than the fair market value of the
common shares on the date the stock option is granted. Options are subject to
adjustment upon certain changes in the capital structure of the Company, such
as a stock dividend, stock split or other similar events.
1990 STOCK OPTION AND STOCK PURCHASE PLAN. In April 1990, the Board
of Directors approved a stock option and stock purchase plan for certain key
employees, directors, consultants and advisors. A maximum of 2,500,000 shares
of Common Stock were reserved for issuance to participants in the plan in the
form of either stock options or stock purchases, as determined by the
Compensation Committee. Options granted under the plan expire ten years from
the date of grant and vest over varying periods as determined by the
Compensation Committee. During the year ended December 31, 1990, 700,000
shares were purchased at $2.50 to $4.50 per share. When shares were purchased
under the 1990 Plan, the participant paid the par value of the shares in cash,
and issued a nonrecourse promissory note to the Company for the balance of the
purchase price. These promissory notes along with interest are due ten years
from the date of issuance and are collateralized by the shares purchased.
During 1992, the Company received payment of $648,000 on notes receivable
arising from stock purchase agreements pursuant to the 1990 Plan. The 1990
Plan has been replaced by the 1991 Plan, as discussed above.
Activity under the Company's 1990 and 1991 stock option plans during
each of the two years in the period ended December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1990 Plan 1991 Plan Total Option Price
--------- --------- ----- ------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992 . . . . . . . 598,000 348,500 946,500 $2.50-$14.50
Granted . . . . . . . . . . . . . . . . . . 100,000 401,900 501,900 $4.00-$12.50
Cancelled . . . . . . . . . . . . . . . . . - (331,900) (331,900) $7.25-$10.63
------- --------- ---------
Outstanding at December 31, 1993 . . . . . . . 698,000 418,500 1,116,500 $2.50-$14.50
Granted . . . . . . . . . . . . . . . . . . - 176,000 176,000 $2.69-$ 3.38
Cancelled . . . . . . . . . . . . . . . . . (50,000) (130,500) (180,500) $2.69-$10.63
------- --------- ---------
Outstanding at December 31, 1994 . . . . . . . 648,000 464,000 1,112,000 $2.50-$14.50
======= ========= =========
Exercisable at December 31, 1994 . . . . . . . 648,000 113,450 761,450 $9.92(A)
======= ========= =========
Available for future grant at December 31, 1993 763,000 2,081,500 2,844,500
Cancelled . . . . . . . . . . . . . . . . . 50,000 130,500 180,500
Granted . . . . . . . . . . . . . . . . . . - (176,000) (176,000)
-------- --------- ---------
Available for future grant at December 31, 1994 813,000 2,036,000 2,849,000
======== ========= =========
</TABLE>
___________________________________
(A) Represents the weighted average option price of options exercisable at
December 31, 1994.
43
<PAGE> 44
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMON STOCK WARRANTS. The Company has awarded warrants to purchase
shares of Common Stock to certain executive officers, directors, employees and
affiliates as additional incentive to continue in the service of the Company.
The warrants vest at 20% per year and are exercisable, with respect to each
portion vested, for a period of four years following such vesting. Activity
involving Common Stock warrants during each of the two years ended December 31,
1994 are summarized as follows:
<TABLE>
<CAPTION>
Exercise
Warrants Price Expiration Date
------------ ------------- ---------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1992 . . . 6,480,750 $6.00-$12.75 June 1993-May 2001
Issued . . . . . . . . . . . . . . . 515,000 $4.00 December 2000
Expired . . . . . . . . . . . . . . (4,915,000) $6.50-$12.75 -
----------
Outstanding at December 31, 1993 . . . 2,080,750 $4.00-$12.75 August 1995-December 2000
Issued . . . . . . . . . . . . . . . 200,000 $2.69 May 2003
----------
Outstanding at December 31, 1994 . . . 2,280,750 $2.69-$12.75 August 1995-May 2003
==========
Exercisable at December 31, 1994 . . . 1,250,750 $7.61(A)
==========
</TABLE>
___________________________
(A) Represents the weighted average exercise price of warrants exercisable at
December 31, 1994.
11. INCOME TAXES
The Company files a consolidated federal income tax return which
includes the operations of the Pooled Entities for periods subsequent to the
dates of the acquisitions. The Pooled Entities each file a "short-period"
federal tax return through their respective acquisition dates. Certain of the
Pooled Entities were subchapter S corporations for income tax purposes prior to
their acquisition by the Company. For purposes of these supplemental
consolidated financial statements, federal and state income taxes have been
provided as if these companies had filed subchapter C corporation tax returns
for the pre-acquisition periods, and the current income tax expense is reflected
as an increase to additional paid-in capital. The Subchapter S corporation
status of these companies was terminated effective with the closing date of the
acquisitions.
The components of the income tax provision related to continuing
operations are shown below (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . $ 3,973 $ 1,664 $ 3,798
State . . . . . . . . . . . . . . . . . . . . 618 279 311
------- -------- -------
4,591 1,943 4,109
Federal deferred . . . . . . . . . . . . . . . . 2,453 (1,998) (485)
Tax reserve adjustments . . . . . . . . . . . . (1,963) - (1,538)
Change in valuation allowance . . . . . . . . . (1,242) 1,242 -
------- -------- -------
Income tax provision . . . . . . . . . . . . . . $ 3,839 $ 1,187 $ 2,086
======= ======== =======
</TABLE>
In addition to the above, the Company recorded an income tax benefit
of $210,000 and $123,000 in 1993 and 1992, respectively, related to its
discontinued operations.
In 1992, the Company changed its method of accounting for income taxes
from the method required under SFAS No. 96 to the method required under SFAS
No. 109. Since the approach under both statements is similar, there was no
significant income effect of the change on the recording of income taxes.
Under SFAS No. 109, deferred tax assets or liabilities at the end of each
period are determined by applying the current tax rate to the difference
between the financial reporting and income tax basis of assets and liabilities.
44
<PAGE> 45
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net operating loss ("NOL") carryforwards are recognized under SFAS No.
109 unless it is "more likely than not" that they will not be realized. In
1993, the Company recorded a $1,242,000 valuation allowance related to the
realization of deferred tax assets generated as a result of the 1993
restructuring and unusual charges. This valuation allowance was recorded due
to the uncertainty surrounding the future utilization of such deferred tax
assets. In 1994, the valuation allowance was eliminated based on the expected
realization of such deferred tax assets.
In the years immediately following an acquisition, the Company
provides income taxes at the statutory income tax rate applied to pre-tax
income. As part of its tax planning to reduce effective tax rates and cash
outlays for taxes, the Company employs a number of strategies such as combining
entities to reduce state income taxes, claiming tax credits not previously
claimed and recapturing taxes previously paid by acquired companies. At such
time as these reductions in the Company's deferred tax liabilities are
determined to be realizable, the impact of the reduction is recorded as tax
reserve adjustments in the tax provision. The Company's unaudited income tax
provision for the first quarter of 1995 was offset by such adjustments. The
Company's unaudited income tax provision for the nine months ended September
30, 1994 was partially offset by reductions in valuation allowance, as well as
tax reserve adjustments.
A reconciliation of the statutory federal income tax rate to the
Company's effective tax rate as reported in the accompanying supplemental
consolidated statements of operations is shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . 34.0% (34.0)% 34.0%
Amortization of goodwill . . . . . . . . . . . .5 11.6 .5
State income taxes, net of federal benefit . . 3.0 30.6 3.1
Tax reserve adjustments . . . . . . . . . . . . (10.7) (24.9) (16.6)
Change in valuation allowance . . . . . . . . . (6.2) 151.1 -
Other, net . . . . . . . . . . . . . . . . . . .4 (42.1) 2.1
----- ----- -----
Effective tax rate . . . . . . . . . . . . . 21.0% 92.3% 23.1%
===== ===== =====
</TABLE>
45
<PAGE> 46
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of the net deferred income tax liability are shown below
(in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1993
---- ----
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis . . . . . . . . . $22,930 $22,617
Deferred costs . . . . . . . . . . . . . . . . . . . . 8,954 3,753
------- -------
31,884 26,370
------- -------
Deferred income tax assets:
Net operating losses . . . . . . . . . . . . . . . . . (5,186) (5,890)
Deferred revenue . . . . . . . . . . . . . . . . . . . (11,240) (5,420)
Accrued environmental and landfill costs . . . . . . . (2,761) (3,054)
Accruals not currently deductible . . . . . . . . . . . (1,187) (1,804)
------- -------
(20,374) (16,168)
------- -------
Valuation allowance . . . . . . . . . . . . . . . . . . . . -- 1,242
------- -------
Net deferred income tax liability . . . . . . . . . . . . . $11,510 $11,444
======= =======
</TABLE>
At December 31, 1994, the Company had available U.S. NOL carryforwards
of approximately $15,249,000 which expire $7,994,000, $6,342,000 and $913,000
in the years 2006, 2007 and 2008, respectively.
12. RELATED PARTY TRANSACTIONS
The Company has entered into an agreement to lease office space for
one of its subsidiaries with the former owner of this subsidiary who is a
current officer of this subsidiary. The Company also utilizes companies
affiliated with former owners of acquired businesses who are current officers
of the Company's subsidiaries for hauling and other services. Aggregate
payments for leases and such services were $132,000, $1,139,000 and $827,000 in
1994, 1993 and 1992, respectively. In September 1993, the Company internalized
a portion of these hauling services through the acquisition of substantially
all of the assets of a hauling company owned by an officer of a subsidiary of
the Company for $370,000 cash.
46
<PAGE> 47
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OPERATIONS BY INDUSTRY SEGMENT
The following tables present information regarding the Company's
different industry segments based on the historical operations of the Company
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
Revenue
Solid waste services . . . . . . . . . . . . . $161,237 $133,711 $117,497
Electronic security services . . . . . . . . . 25,874 20,590 16,943
-------- -------- --------
$187,111 $154,301 $134,440
======== ======== ========
Operating income (loss)
Solid waste services . . . . . . . . . . . . . $ 22,661 $ 3,376 $ 7,859
Electronic security services . . . . . . . . . (1,157) (2,689) 443
Interest and other income (expense), net . . . . . . . (3,233) (1,973) 746
-------- -------- --------
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . $ 18,271 $ (1,286) $ 9,048
======== ======== ========
Depreciation, depletion and amortization
Solid waste services . . . . . . . . . . . . . $ 14,161 $ 12,229 $ 10,178
Electronic security services . . . . . . . . . 603 405 199
-------- -------- --------
$ 14,764 $ 12,634 $ 10,377
======== ======== ========
Capital expenditures
Solid waste services . . . . . . . . . . . . . $ 22,031 $ 12,098 $ 20,592
Electronic security services . . . . . . . . . 625 1,005 517
-------- -------- --------
$ 22,656 $ 13,103 $ 21,109
======== ======== ========
Identifiable assets
Solid waste services . . . . . . . . . . . . . $193,079 $172,248 $160,134
Electronic security services . . . . . . . . . 28,994 14,753 4,524
-------- -------- --------
Total identifiable assets . . . . . . . . . . . 222,073 187,001 164,658
Net assets of discontinued operations . . . . . . . . . 20,292 16,872 28,533
-------- -------- --------
Total assets . . . . . . . . . . . . . . . . . $242,365 $203,873 $193,191
======== ======== ========
</TABLE>
47
<PAGE> 48
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Supplemental
Consolidated Statements of Operations by quarter for 1994 and 1993.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue 1994 $ 42,189 $ 46,483 $ 48,047 $ 50,392
1993 $ 35,465 $ 38,720 $ 40,243 $ 39,873
Gross profit 1994 $ 14,085 $ 14,771 $ 16,731 $ 17,647
1993 $ 11,068 $ 12,632 $ 13,297 $ 12,584
Income (loss) from 1994 $ 2,252 $ 3,681 $ 4,459 $ 4,040
continuing operations 1993 $ 1,389 $ 2,294 $ 2,265 $ (8,421)(a)
Net income (loss) 1994 $ 2,106 $ 4,508 $ 5,447 $ 5,055
1993 $ 918 $ 2,189 $ 2,663 $(22,822)
Earnings (loss) per share from 1994 $ 0.05 $ 0.08 $ 0.10 $ 0.09
continuing operations 1993 $ 0.03 $ 0.05 $ 0.05 $ (0.18)(a)
</TABLE>
____________
(a) As discussed in Note 4, restructuring and unusual charges of $10,000,000
were recorded by the Company in the fourth quarter of 1993 to reorganize
its operations.
48
<PAGE> 49
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
United Waste Service, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of United Waste Service, Inc.
as of September 30, 1994 and 1993, and the related statements of income,
changes in stockholders' deficiency, and cash flows for the years then ended.
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 audits 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 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 United Waste Service, Inc. as
of September 30, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
JONES AND KOLB
Atlanta, Georgia
November 4, 1994
49
<PAGE> 50
UNITED WASTE SERVICE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
June 30, ----------------------------
1995 1994 1993
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash, including money market
funds and certificate of
deposit of $182,482 and
$394,344 at September 30,
1994 and 1993, respectively . . . $ - $ 372,582 $ 533,145
Accounts receivable, net of
allowance for doubtful
accounts of $19,400 and
$21,640 at September 30,
1994 and 1993, respectively . . . 1,931,327 1,656,838 1,431,345
Receivable from officers (Note 4). . . 66,392 50,531 13,300
Other receivables (Note 2) . . . . . . 97,430 105,784 139,910
Prepaid expenses . . . . . . . . . . . 87,053 96,168 175,985
Federal income tax deposit . . . . . . 90,733 54,848 31,001
Other current assets . . . . . . . . . 33,345 36,408 22,470
----------- ------------ ------------
Total current assets . . . . 2,306,280 2,373,159 2,347,156
----------- ----------- -----------
PROPERTY AND EQUIPMENT, At cost
(Note 3):
Containers . . . . . . . . . . . . . . 5,148,477 4,619,094 4,335,309
Trucks and equipment . . . . . . . . . 6,267,665 5,474,903 4,663,185
Machinery and equipment. . . . . . . . 238,124 153,521 141,891
Furniture and fixtures . . . . . . . . 485,163 375,105 267,686
Leasehold improvements . . . . . . . . 171,474 158,244 71,290
----------- ----------- ------------
Total . . . . . . . . . . . . . . 12,310,903 10,780,867 9,479,361
Less accumulated depreciation . . 6,372,474 6,051,391 5,512,422
----------- ----------- -----------
Property and equipment, net. 5,938,429 4,729,476 3,966,939
----------- ----------- -----------
OTHER ASSETS - Excess of cost over
fair value of net tangible assets
acquired, net of accumulated
amortization of $277,086 and
$242,086 at September 30,
1994 and 1993, respectively . . . . . 1,830,325 1,122,913 1,157,913
----------- ----------- -----------
TOTAL . . . . . . . . . $10,075,034 $ 8,225,548 $ 7,472,008
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
50
<PAGE> 51
UNITED WASTE SERVICE, INC.
BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
September 30,
June 30, ----------------------------
1995 1994 1993
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of notes
payable (Note 3) . . . . . . . . . . . $ 1,121,925 $ 441,613 $ 203,824
Accounts payable . . . . . . . . . . . . . 1,026,579 622,438 949,225
Accrued expenses . . . . . . . . . . . . . 419,157 498,409 250,234
Deferred sales . . . . . . . . . . . . . 549,102 332,004 331,526
----------- ----------- -----------
Total current liabilities . . . 3,116,763 1,894,464 1,734,809
----------- ----------- -----------
LONG-TERM LIABILITIES - Notes
payable, net of current
portion (Note 3) . . . . . . . . . . . . . 8,077,145 7,661,671 7,624,850
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 4 and 6)
STOCKHOLDERS' DEFICIENCY (Note 3):
Common stock, $1 stated value,
10,000 shares authorized; 6,011 shares
issued and 311 shares
outstanding in 1994; 6,007
shares issued and 307 shares
outstanding in 1993. . . . . . . . . . 6,032 6,011 6,007
Paid-in capital . . . . . . . . . . . . 845,085 505,405 452,896
Retained earnings . . . . . . . . . . . . 4,400,009 4,527,997 4,023,446
----------- ----------- -----------
5,251,126 5,039,413 4,482,349
Less treasury stock - 5,700
shares of common stock
at cost (Note 4) . . . . . . . . . . (6,370,000) (6,370,000) (6,370,000)
----------- ----------- -----------
Total stockholders'
deficiency . . . . . . . . . (1,118,874) (1,330,587) (1,887,651)
----------- ----------- -----------
TOTAL . . . . . . . . . . . $10,075,034 $ 8,225,548 $ 7,472,008
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
51
<PAGE> 52
UNITED WASTE SERVICE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended June 30, Year Ended September 30,
--------------------------- ----------------------------
1995 1994 1994 1993
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . $11,504,150 $10,111,624 $13,759,979 $12,728,722
COST OF OPERATIONS . . . . . . . . . . 8,942,053 7,592,431 10,386,367 9,173,812
----------- ----------- ----------- -----------
GROSS PROFIT . . . . . . . . . . . . . 2,562,097 2,519,193 3,373,612 3,554,910
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 4) . . . . . . . . 2,438,004 2,128,003 2,738,615 2,431,091
----------- ----------- ----------- -----------
OPERATING INCOME . . . . . . . . . . . 124,093 391,190 634,997 1,123,819
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . 8,168 6,402 8,726 3,418
Royalties . . . . . . . . . . . 867,077 809,457 1,137,283 183,178
Interest expense (Note 3) . . . . (560,580) (531,451) (713,066) (673,416)
Gain on sale of assets . . . . . 122,305 82,524 81,575 59,550
Miscellaneous . . . . . . . . . . 3,320 3,200 4,826 8,991
----------- ----------- ----------- -----------
Total other income (expense) 440,290 370,132 519,344 (418,279)
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . $ 564,383 $ 761,322 $ 1,154,341 $ 705,540
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
52
<PAGE> 53
UNITED WASTE SERVICE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
------------
NUMBER STATED PAID-IN RETAINED TREASURY
OF SHARES VALUE CAPITAL EARNINGS STOCK TOTAL
--------- ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1992 . . . . . . . . . 600 $ 600 $381,725 $3,853,056 $(6,370,000) $(2,134,619)
Net income . . . . . . . . . . . . - - - 705,540 - 705,540
Ten-for-one stock split . . . . . . 5,400 5,400 (5,400) - - -
Issuance of common
stock . . . . . . . . . . . . 7 7 76,571 - - 76,578
Stockholders' distributions . . . .
- - - (535,150) - (535,150)
----- ------ -------- ---------- ----------- ----------
Balance,
September 30, 1993 . . . . . . . . . 6,007 6,007 452,896 4,023,446 (6,370,000) (1,887,651)
Net income . . . . . . . . . . . . - - - 1,154,341 - 1,154,341
Issuance of common
stock . . . . . . . . . . . . 4 4 52,509 - - 52,513
Stockholders' distributions . . . . - - - (649,790) - (649,790)
----- ------ --------- ---------- ----------- ----------
Balance,
September 30, 1994 . . . . . . . . 6,011 $6,011 $505,405 $4,527,997 $(6,370,000) $(1,330,587)
===== ====== ======== ========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
53
<PAGE> 54
UNITED WASTE SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended June 30, Year Ended September 30,
-------------------------- --------------------------
1995 1994 1994 1993
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers
and others . . . . . . . . . . . . . . . $11,060,549 $10,076,243 $ 13,626,441 $ 12,690,336
Cash paid to suppliers and
employees . . . . . . . . . . . . . . . (9,820,749) (9,438,210) (12,018,526) (10,134,860)
Interest received . . . . . . . . . . . . . 8,722 7,182 8,726 3,418
Dividends received . . . . . . . . . . . . . - - 1,113 1,008
Royalties received . . . . . . . . . . . . . 875,431 716,469 1,047,548 167,129
Interest paid . . . . . . . . . . . . . . . (550,787) (465,734) (707,092) (672,784)
Income taxes (paid) refunded . . . . . . . . (3,383) 138,321 (23,847) 459
----------- ----------- ------------- ------------
Net cash provided by
operating activities . . . . . . 1,569,783 1,034,271 1,934,363 2,054,706
----------- ----------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment . . . . . . . . . . . . . . . (2,103,696) (1,302,723) (1,774,862) (1,934,189)
Purchase of intangibles . . . . . . . . . . . (735,577) - - -
Loans and advances to officers . . . . . . . (22,202) (91,500) (91,500) -
Repayment of loans and advances to officers . 6,341 2,348 54,269 26,699
Proceeds from sale of assets . . . . . . . . 169,652 90,248 92,347 128,717
----------- ----------- ------------- ------------
Net cash used by investing
activities . . . . . . . . . . . (2,685,482) (1,301,627) (1,719,746) (1,778,773)
----------- ----------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable . . . . . . . . . 2,323,437 592,024 591,551 1,154,000
Payment of notes payable . . . . . . . . . . (1,227,651) (211,973) (316,941) (457,782)
Distributions to stockholders . . . . . . . . (692,370) (332,927) (649,790) (535,150)
Proceeds from issuance of common stock. . . . 339,701 - - -
----------- ----------- ------------- ------------
Net cash (used) provided by
financing activities . . . . . . . 743,117 47,124 (375,180) 161,068
----------- ----------- ------------- ------------
NET (DECREASE) INCREASE IN CASH . . . . . . . . (372,582) (220,232) (160,563) 437,001
Cash at beginning of year . . . . . . . . . . . . 372,582 533,145 533,145 96,144
----------- ----------- ------------- ------------
Cash at end of year . . . . . . . . . . . . . . . $ - $ 312,913 $ 372,582 $ 533,145
=========== =========== ============= ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
54
<PAGE> 55
UNITED WASTE SERVICE, INC.
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Nine Months Ended June 30, Year Ended September 30,
-------------------------- ---------------------------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $ 564,383 $ 761,321 $ 1,154,341 $ 705,540
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation . . . . . . . . . . . . . . . 847,397 725,539 1,001,553 850,892
Amortization . . . . . . . . . . . . . . . 28,165 26,250 35,000 35,001
Gain on sale of assets . . . . . . . . . . (122,305) (82,524) (81,575) (59,550)
Issuance of common stock
as compensation . . . . . . . . . . . - - 52,513 76,578
Increase in accounts receivable . . . . . . (274,490) (85,335) (225,493) (59,284)
Decrease (increase) in other receivables . 8,354 14,325 34,126 (11,045)
Decrease (increase) in prepaid
expenses . . . . . . . . . . . . . . . 9,115 125,470 79,817 (15,019)
(Increase) decrease in federal tax
deposit . . . . . . . . . . . . . . . (35,885) (23,837) (23,847) 459
Increase in other current
assets . . . . . . . . . . . . . . . (13,873) 14,010 (13,938) (17,307)
(Decrease) increase in accounts payable . . 404,141 (590,535) (326,787) 323,456
Increase in accrued expenses. . . . . . . . (62,317) 167,525 248,175 151,526
Increase in deferred sales . . . . . . . . 217,098 (17,938) 478 73,459
---------- ---------- -------------- -----------
Net cash provided by
operating activities . . . . . $1,569,783 $1,034,271 $ 1,934,363 $ 2,054,706
========== ========== ============== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES:
Common stock issued as
compensation . . . . . . . . . . . . . . . $ - $ - $ 52,513 $ 76,578
========== ========== ============== ===========
Notes payable paid directly
with the issuance of new
note . . . . . . . . . . . . . . . . . . $ - $ - $ - $ 1,330,000
========== ========== ============== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
55
<PAGE> 56
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. United Waste Service, Inc., a Georgia corporation formed November
17, 1970, provides waste disposal services to commercial customers, primarily
in the Atlanta metropolitan area.
B. During the year ended September 30, 1993, the Company changed
from the direct write-off method to the allowance method of accounting for
accounts receivable deemed to be uncollectible.
C. Property and equipment are recorded at cost and depreciated over
their estimated useful lives using the straight-line method. Estimated useful
lives are as follows:
<TABLE>
<CAPTION>
ASSET CATEGORY ESTIMATED USEFUL LIVES
-------------- ----------------------
<S> <C>
Containers . . . . . . . . . . . . . . . . . . . . . . 7 years
Trucks and equipment . . . . . . . . . . . . . . . . . 5 to 7 years
Machinery and equipment . . . . . . . . . . . . . . . 5 years
Furniture and fixtures . . . . . . . . . . . . . . . . 5 years
Leasehold improvements . . . . . . . . . . . . . . . . 5 years
</TABLE>
Depreciation expense for the years ended September 30, 1994 and 1993,
respectively, was $1,001,553 and $850,892.
D. The excess of cost over fair market value of net tangible assets
acquired consists of goodwill which is amortized using the straight-line
method over forty years.
E. The Company recognizes revenues when the services are rendered.
Revenues billed prior to the performance of services are deferred and recorded
as income in the period in which the related services are rendered. Royalties
included in other income consist of amounts received in connection with a prior
year sale of the Company's interest in a waste disposal site.
F. The Company has elected S Corporation status for federal and
state income tax purposes, and the stockholders have consented to report the
taxable income of the Company on their individual income tax returns. As a
result, no federal or state income tax is imposed on the Company and,
accordingly, the financial statements do not reflect a provision for income
taxes.
G. For purposes of cash flow presentation, the Company considers
currency on hand, demand deposits and certificates of deposit with financial
institutions to be cash equivalents.
Continued
56
<PAGE> 57
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
H. At September 30, 1994, the Company has cash and cash equivalents
of $853,367, including outstanding checks deposited in one institution which
exceeds the $100,000 federally insured limit.
I. Certain amounts in the 1993 financial statements have been
reclassified to conform to the current year presentation.
2. OTHER RECEIVABLES:
Included in other receivables at September 30, 1993, is approximately
$124,000 due from the Georgia Underground Storage Tank Clean-Up Trust Fund
which is for reimbursement of costs incurred in the clean-up of a fuel leak.
The fund required the Company to pay for the first $10,000 of clean-up expense
which has been recorded as an expense in the year ended September 30, 1993.
The Company was reimbursed the amount receivable in the year ended September
30, 1994.
3. NOTES PAYABLE:
The following is a summary of notes payable:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Note payable to former stockholder, payable
monthly at $27,160 including interest at 9.5%
through November 2004, collateralized by
Company stock . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,111,116 $3,139,968
Note payable to former stockholder, payable
monthly at $25,730 including interest at 9.5%
through November 2004, collateralized by
Company stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,947,372 2,974,706
Note payable to bank, payable monthly at
$41,738 including interest at 6.46%, matures
June 1, 1999, collateralized by equipment and
personal guarantees of the shareholders (see Note 6) . . . . . . . 2,044,796 1,714,000
---------- ----------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 8,103,284 7,828,674
Less current portion . . . . . . . . . . . . . . . . . . . . 441,613 203,824
---------- ----------
Long-term debt, net of
current portion . . . . . . . . . . . . . . . . . . . . . $7,661,671 $7,624,850
========== ==========
</TABLE>
Continued
57
<PAGE> 58
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
Scheduled maturities of notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
<S> <C>
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 441,613
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 473,049
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 506,749
September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 542,919
September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 456,984
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,681,970
</TABLE>
In addition, the Company has a $47,148 standby letter of credit for
worker's compensation claims which matures June 1, 1995 and has a fee of 75
basis points for the number of days outstanding. There was no amount due on
the letter of credit at September 30, 1994 or 1993.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS:
The Company leases facilities and equipment from entities owned or
administered by officers of the Company. Required monthly payments under the
terms of the leases are $60,000 through December 31, 1994 and $55,000 from
January 1, 1995 through December 31, 1996. Rental expense totaled $630,000 and
$600,000 for the years ended September 30, 1994 and 1993, respectively.
The future minimum lease payments under these operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
<S> <C>
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . $ 675,000
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . $ 660,000
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . $ 165,000
</TABLE>
On October 1, 1989, the Company redeemed 370 shares of its common
stock in exchange for notes totaling $6,290,000, which are payable to the
former majority stockholders (see Note 3).
As of September 30, 1994 and 1993, respectively, the Company had
loans due from officers of $50,531 and $13,300.
Continued
58
<PAGE> 59
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
5. PROFIT SHARING PLAN:
The Company has a cash or deferred profit sharing plan in accordance
with Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate in the plan after completion of one year of service and
attainment of 21 years of age.
Participants in the plan may make salary reduction contributions to
the plan in an amount not to exceed 15% of taxable compensation or $9,240 (or
such other amount as limited by the Internal Revenue Code) during any plan
year. The Company may make, at the discretion of its Board of Directors, a
matching contribution to the plan. During 1994 and 1993, the Company
contributions to the plan totaled $104,536 and $45,081, respectively.
6. CONTINGENCIES:
The note payable to the bank is cross collateralized and cross
defaulted with loans made by the bank to companies with common ownership. In
the event that any of these related companies defaulted on such loans, which
totaled $2,460,833 at September 30, 1994, the Company would be liable for the
amount due.
7. SUBSEQUENT EVENT (Unaudited):
In October 1995, all of the outstanding common stock of the Company
was sold to Republic Industries, Inc. ("Republic") in exchange for 1,500,000
shares of its common stock. Subsequent to this sale, the Company operates as
a wholly-owned subsidiary of Republic.
59
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Boards of Directors and Stockholders
J. C. DUNCAN COMPANY, INC. AND AFFILIATES
We have audited the accompanying combined balance sheets of J. C. DUNCAN
COMPANY, INC. AND AFFILIATES (affiliated through common ownership and common
management) as of June 30, 1995 and 1994, and the related combined statements
of income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Companies' 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 combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of J. C. DUNCAN
COMPANY, INC. AND AFFILIATES as of June 30, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
HENDRIX SUTTON & ASSOCIATES
A Limited Liability Partnership
Arlington, Texas
September 7, 1995 (except as to Note 14
which is as of November 11, 1995)
60
<PAGE> 61
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30,
September 30, ----------------------
1995 1995 1994
------- ------- -------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . $ 3,695 $ 4,263 $ 3,344
Accounts receivable, less allowance
for doubtful accounts of $177
(unaudited), $134 and $78 . . . . . . . . . . 3,377 3,005 2,481
Due from affiliates. . . . . . . . . . . . . . . 197 114 126
Investments. . . . . . . . . . . . . . . . . . . 119 119 -
Refundable income taxes. . . . . . . . . . . . . 667 158 56
Prepaid insurance and other expenses . . . . . . 808 1,312 1,048
Inventories of tires and repair supplies . . . . 402 656 599
------- ------- -------
Total current assets . . . . . . . . . . . 9,265 9,627 7,654
------- ------- -------
Property and equipment, net . . . . . . . . . . . . 14,892 13,430 11,984
------- ------- -------
Other assets:
Investments. . . . . . . . . . . . . . . . . . . 1,674 1,724 1,867
Cash value of life insurance . . . . . . . . . . 1,592 1,480 980
Advances to affiliates . . . . . . . . . . . . . 1,127 1,146 1,208
Intangibles, net . . . . . . . . . . . . . . . . 878 904 658
Notes receivable . . . . . . . . . . . . . . . . 652 656 1,054
Deferred tax benefit . . . . . . . . . . . . . . 254 254 282
Other. . . . . . . . . . . . . . . . . . . . . . 82 25 41
------- ------- -------
Total other assets . . . . . . . . . . . . 6,259 6,189 6,090
------- ------- -------
$30,416 $29,246 $25,728
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt . . . . . . $ 1,423 $ 1,684 $ 1,416
Accounts payable . . . . . . . . . . . . . . . . 2,041 2,767 2,080
Accrued liabilities. . . . . . . . . . . . . . . 3,561 1,508 989
Income taxes payable . . . . . . . . . . . . . . - 352 406
Customer deposits . . . . . . . . . . . . . . . 795 767 715
Deferred income taxes. . . . . . . . . . . . . . 175 172 145
------- ------- -------
Total current liabilities 7,995 7,250 5,751
------- ------- -------
Other liabilities:
Long-term debt, less current maturities. . . . . 5,116 3,830 4,471
Deferred compensation. . . . . . . . . . . . . . 534 522 430
Deferred income taxes. . . . . . . . . . . . . . 237 171 139
------- ------- -------
Total other liabilities. . . . . . . . . . 5,887 4,523 5,040
------- ------- -------
Commitments and contingencies (Notes 8 and 13)
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . 58 58 58
Retained earnings. . . . . . . . . . . . . . . . 16,476 17,415 14,879
------- ------- -------
Total stockholders' equity . . . . . . . . 16,534 17,473 14,937
------- ------- -------
$30,416 $29,246 $25,728
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
61
<PAGE> 62
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
--------------------- --------------------
1995 1994 1995 1994
------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Operating revenues. . . . . . . . . . . . $ 9,559 $ 8,486 $34,323 $30,136
------- ------- ------- -------
Costs and expenses:
Operating . . . . . . . . . . . . . . . 6,275 5,337 20,832 19,441
General and administrative. . . . . . . 1,683 1,223 6,164 4,816
Depreciation and amortization . . . . . 912 702 2,908 2,379
Contribution to profit sharing plan . . 61 45 246 173
Merger costs . . . . . . . . . . . . . 2,047 - - -
------- ------- ------- -------
Total costs and expenses. . . . 10,978 7,307 30,150 26,809
------- ------- ------- -------
Operating income . . . . . . . . . . . . (1,419) 1,179 4,173 3,327
Other income (expense):
Gain on disposal of assets. . . . . . . 16 25 112 59
Interest expense. . . . . . . . . . . . (118) (84) (416) (205)
Interest and other income . . . . . . . 108 88 461 212
------- ------- ------- -------
Income (loss) before income taxes
(benefit) . . . . . . . . . . . . . . (1,413) 1,208 4,330 3,393
Income taxes (benefit) . . . . . . . . . (474) 492 1,794 1,266
------- ------- ------- -------
Net income (loss) . . . . . . . . . . . . (939) 716 2,536 2,127
Retained earnings at beginning of period. 17,415 14,879 14,879 12,752
------- ------- ------- -------
Retained earnings at end of period. . . . $16,476 $15,595 $17,415 $14,879
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
62
<PAGE> 63
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
---------------- -------------------
1995 1994 1995 1994
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . $ (939) $ 716 $2,536 $2,127
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . 912 702 2,908 2,379
Gain on disposal of assets . . . . . . . . . . (16) (25) (112) (59)
Deferred compensation . . . . . . . . . . . . 12 36 92 76
Deferred income tax provision (benefit). . . . 69 10 87 (26)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . (372) 631 (524) (821)
Refundable income taxes. . . . . . . . . . . (509) 56 (102) 206
Prepaid insurance and other expenses . . . . 504 42 (264) 301
Inventories . . . . . . . . . . . . . . . . 254 4 (57) (11)
Cash value of life insurance and other assets (163) (860) (522) (550)
Accounts payable . . . . . . . . . . . . . . (726) (583) 687 (243)
Accrued liabilities. . . . . . . . . . . . . 2,053 (223) 519 (80)
Income taxes payable . . . . . . . . . . . . (352) (30) (54) 328
Customer deposits. . . . . . . . . . . . . . 28 10 52 55
------ ----- ------ ------
Net cash provided by operating activities. 755 486 5,246 3,682
------ ----- ------ ------
Cash flows from investing activities:
Acquisitions of property and equipment . . . . . (2,369) (1,019) (4,503) (4,616)
Acquisitions of intangibles. . . . . . . . . . . - (68) (297) (658)
Proceeds from sales of property and equipment. . 31 25 350 214
Decrease (increase) in investments . . . . . . . 50 (146) 24 (27)
Decrease (increase) in advances to affiliates. . (64) (740) 74 (151)
Decrease (increase) in notes receivable. . . . . 4 1,054 398 (962)
------ ------ ------ ------
Net cash used by investing activities. . (2,348) (894) (3,954) (6,200)
------ ------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of notes payable. . . . . 1,646 557 1,570 3,983
Reductions in notes payable. . . . . . . . . . . (621) (636) (1,943) (1,326)
------ ------ ------ ------
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . 1,025 (79) (373) 2,657
------ ------ ------ ------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . (568) (487) 919 139
Cash and cash equivalents at beginning of period . 4,263 3,344 3,344 3,205
------ ------ ------ ------
Cash and cash equivalents at end of period . . . . $3,695 $2,857 $4,263 $3,344
====== ====== ====== ======
Supplemental cash flow information
cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . $ 317 $ 462 $1,862 $ 724
====== ====== ====== ======
Interest . . . . . . . . . . . . . . . . . . . $ 118 $ 84 $ 403 $ 166
====== ====== ====== ======
Noncash investing and financing activities:
Property and equipment acquired with debt. . . . $ - $ - $ - $ 984
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
63
<PAGE> 64
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL AND PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of J. C.
Duncan Company, Inc.; its wholly-owned subsidiary, Arlington Disposal Company,
Inc.; Grand Prairie Disposal Company, Inc.; Trashaway Services, Inc.; Tos-It
Service Company, Inc.; Wes Tex Waste Services, Inc.; Pantego Service Company;
and E & E Truck Leasing; (collectively, the "Companies") which are affiliated
through common ownership and common management. All of the Companies are
corporations with the exceptions of Pantego Service Company and E & E Truck
Leasing which are partnerships. The financial position and results of
operations of the partnerships are not significant to the combined financial
position and combined results of operations of the Companies. All material
intercompany balances and transactions have been eliminated in combination.
In the opinion of management, the unaudited combined financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the combined financial position of the Companies at
September 30, 1995, and the combined results of their operations and their cash
flows for the three months ended September 30, 1995 and 1994.
The Companies provide solid waste collection and recycling services to
commercial, industrial and residential customers located in the state of Texas.
In addition, the Companies operate two sanitary landfills.
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS
Financial instruments which are potentially subject to concentrations of credit
risk consist principally of cash, cash equivalents, marketable securities, and
accounts and notes receivable. Cash and cash equivalents are placed with high
credit quality financial institutions to minimize risk. Marketable securities
consist of high credit quality or insured debt instruments. Notes receivable
are secured by equipment. Accounts receivable in certain instances are secured
by customer deposits. The Companies continually evaluate the collectibility of
accounts and notes receivable and maintain allowances for potential credit
losses.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates used in
preparing the accompanying combined financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short term investments purchased with a
maturity of three months or less.
(Continued)
64
<PAGE> 65
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENTS
Investments include marketable securities and other investments. Investments
in marketable securities consist of debt securities which are scheduled to
mature at various dates from June 1996 through February 1998. The securities
are classified as "held to maturity" securities and are carried at amortized
cost which approximates market. Other investments are carried at cost.
INVENTORIES
Inventories consist of tires and repair supplies and are carried at the lower
of cost or market. Cost is determined by the weighted average method.
PREPAID INSURANCE
Insurance premiums incurred are capitalized and amortized on a straight-line
basis over the term of the related insurance policy. Retroactive adjustments
to premiums incurred in previous years are recorded as additions or reductions
to insurance expense in the period the Companies receive notice of the
adjustment.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line and accelerated methods. The cost of maintenance and repairs is
charged to income as incurred; significant renewals and betterments are
capitalized.
INTANGIBLE ASSETS
Intangible assets consist of the cost in excess of fair value of net tangible
assets of acquired businesses (goodwill) and noncompete agreements. Intangible
assets are amortized using the straight line method over their estimated useful
lives or the terms of the related agreements. The Companies continually
evaluate whether events and circumstances have occurred that may warrant
revision of the estimated useful lives of intangible assets or whether the
remaining balance of intangible assets should be evaluated for possible
impairment. No provision for any impairment of intangibles has been charged to
operations.
INCOME TAXES
The Companies utilize the asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Provision for income taxes (benefit) is the
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
(Continued)
65
<PAGE> 66
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
2 - REVENUES
The Companies' revenues are earned primarily through contracts with
municipalities. The contracts generally provide for the Companies to bill
residential services directly to the municipality and commercial and industrial
services directly to the customer. The contracts allow the Companies to bill
for services rendered on a monthly basis.
Revenues from major municipality customers accounted for the following
percentages of combined operating revenues for the years ended June 30:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Municipality A 19% 18%
Municipality B 7% 10%
</TABLE>
Municipalities accounting for 10 percent or more of combined accounts
receivable at June 30, 1995 or 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Municipality A 4% 10%
Municipality B 11% 11%
</TABLE>
3 - BUSINESS ACQUISITION
During the year ended June 30, 1994, the Companies acquired a business
providing waste collection services in west Texas for approximately $2,102,000.
The acquisition was financed with the proceeds from the issuance of notes
payable. The acquisition was accounted for using the purchase method of
accounting and, accordingly, allocation of the purchase price to the net assets
acquired was based on estimated fair market values. The assets acquired
included property and equipment of approximately $1,440,000 and goodwill of
$662,000. The results of operations of the business acquired have been
included in the combined financial statements of the Companies since the date
of the acquisition. The pro forma effect of this acquisition is not material
to the combined financial statements.
4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
Depreciable
1995 1994 Lives
------- ------- ----------------
<S> <C> <C> <C>
Land $ 867 $ 876
Building and improvements 5,990 6,004 5 to 30 years
Landfill improvements 384 - Life of Landfill
Service vehicles 17,788 16,002 5 to 7 years
Containers 8,715 7,634 8 to 12 years
Office equipment and other 2,544 2,293 3 to 7 years
------- -------
36,288 32,809
Less accumulated depreciation (22,858) (20,825)
------- -------
$13,430 $11,984
======= =======
</TABLE>
(Continued)
66
<PAGE> 67
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
4 - PROPERTY AND EQUIPMENT (Continued)
Depreciation for the years ended June 30, 1995 and 1994 amounted to
approximately $2,819,000 and $2,263,000, respectively.
During the period from July 1, 1995 through September 7, 1995, the Companies
purchased additional service vehicles at a cost of approximately $1,572,000.
5 - RELATED PARTY TRANSACTIONS
Amounts due from affiliates consist primarily of unsecured advances to certain
shareholders and employees of the Companies. Collections on these advances are
not anticipated during the year ending June 30, 1996.
The Companies purchase containers from an affiliated company. Such purchases
amounted to approximately $856,000 and $1,118,000 for the years ended June 30,
1995 and 1994, respectively.
6 - INTANGIBLES
Intangible assets consist of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
Estimated
1995 1994 Useful Lives
---- ---- ------------
<S> <C> <C> <C>
Goodwill. . . . . . . . . . . . $662 $662 40 years
Noncompete agreements . . . . . 297 - 3-5 years
---- ----
959 662
Less accumulated amortization . (55) (4)
---- ----
$904 $658
==== ====
</TABLE>
Amortization of intangibles for the years ended June 30, 1995 and 1994,
amounted to approximately $51,000 and $4,000, respectively.
7 - NOTE RECEIVABLE
Note receivable at June 30, 1995 and 1994, consists of advances due from a
commercial enterprise. The advances and accrued interest at 10 percent are to
be repaid from future profits of the enterprise. The advances and any accrued
interest mature on January 20, 2004, and are secured by equipment.
The Companies have guaranteed the future rent obligations of the commercial
enterprise. Such future rent obligations amount to $236,000 at June 30, 1995.
(Continued)
67
<PAGE> 68
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
8 - LONG TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Notes payable to banks, principal of approximately $34,000
plus interest at the banks' prime rate (9% at June 30, 1995)
payable monthly, maturing at various dates through December
2000, collateralized by equipment and guaranteed by certain
stockholders of the Companies. . . . . . . . . . . . . . . . . . . $1,417 $1,663
Notes payable to bank, principal and interest at 7% to 7.5%
payable in monthly installments of $35,800, maturing at various
dates through May 2001, collateralized by equipment and
guaranteed by certain stockholders of the Companies. . . . . . . . 1,734 2,491
Notes payable to bank consisting of partial advances on term
loans totaling $2,423,245 which were fully funded subsequent to
June 30, 1995, requiring monthly principal payments of $23,750
to $49,185 and interest at the bank's Eurodollar rate (5.8% at
June 30, 1995) plus 2.25% until maturity on July 12, 2000,
collateralized by equipment and guaranteed by a stockholder of
the Companies . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353 1,081
</TABLE>
(Continued)
68
<PAGE> 69
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
8 - LONG TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Notes payable to bank, principal of $12,100 and interest
at the bank's Eurodollar rate plus 2.25% payable monthly,
maturing at various dates through May 2000, collateralized
by accounts receivable and certain equipment and guaranteed
by certain stockholders of the Companies. . . . . . . . . . . . $ 690 $ -
Note obligation paid subsequent to June 30, 1995. . . . . . . . 228 -
Other notes payable . . . . . . . . . . . . . . . . . . . . . . 92 652
------ ------
5,514 5,887
Less current maturities . . . . . . . . . . . . . . . . . . . . (1,684) (1,416)
------ ------
$3,830 $4,471
====== ======
</TABLE>
Maturities of long term debt, assuming full funding of the term loans had
occurred as of June 30, 1995, are as follows (in thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . .$ 1,695
1997 . . . . . . . . . . . . . . . . . . . . . 1,460
1998 . . . . . . . . . . . . . . . . . . . . . 1,367
1999 . . . . . . . . . . . . . . . . . . . . . 1,063
2000 . . . . . . . . . . . . . . . . . . . . . 686
</TABLE>
9 - STOCKHOLDERS' EQUITY
Common stock consists of the following authorized, issued and outstanding
shares as of June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Shares Shares Issued
Authorized and Outstanding Par Value Amount
---------- --------------- --------- ------
<S> <C> <C> <C> <C>
J.C. Duncan Company, Inc. and subsidiary. . 500 375.5 $100 $37,550
Grand Prairie Disposal Company, Inc.. . . . 10,000 300 $ 10 3,000
Trashaway Services, Inc. . . . . . . . . . 100,000 16,000 $ 1 16,000
Tos-It Service Company, Inc . . . . . . . . 1,000 760 No Par 760
Wes Tex Waste Services, Inc.. . . . . . . . 1,000 1,000 $ 1 1,000
-------
$58,310
=======
</TABLE>
(Continued)
69
<PAGE> 70
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
10 - INCOME TAXES
Provision for income taxes consists of the following for the years ended June
30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current tax provision:
Federal. . . . . . . . . $1,457 $1,099
State. . . . . . . . . . 250 193
------ ------
1,707 1,292
------ ------
Deferred tax provision
(benefit):
Federal. . . . . . . . . 77 (23)
State. . . . . . . . . . 10 (3)
------ ------
87 (26)
------ ------
$1,794 $1,266
====== ======
</TABLE>
Following is a reconciliation of the statutory federal income tax rate to the
actual tax rate of the Companies for the years ended June 30:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Statutory federal income tax rate. . . . . . 34.0% 34.0%
State income taxes, net of federal benefit . 3.8 3.5
Change in deferred tax valuation allowance . 3.0 1.9
Tax exempt income. . . . . . . . . . . . . . (0.6) (1.0)
Other. . . . . . . . . . . . . . . . . . . . 1.2 (1.1)
---- ----
Effective tax rate . . . . . . . . . . . 41.4% 37.3%
==== ====
</TABLE>
At June 30, 1995, one of the affiliates has net operating loss carryforwards
for tax purposes totaling approximately $777,000 which expire in the years 2009
and 2010.
Components of the net deferred income tax liability are as follows (in
thousands):
<TABLE>
1995 1994
------ ------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis. . . . . . . $(282) $(165)
Book basis in inventories over tax basis . . . . . (216) (200)
----- -----
(498) (365)
----- -----
Deferred income tax assets:
Nondeductible allowances for doubtful accounts . . 276 272
Nondeductible accrued vacation . . . . . . . . . . 73 72
Nondeductible deferred compensation. . . . . . . . 60 19
Net operating loss carryforwards . . . . . . . . . 129 65
Valuation allowance. . . . . . . . . . . . . . . . (129) (65)
----- -----
409 363
----- -----
$ (89) $ (2)
===== =====
</TABLE>
(Continued)
70
<PAGE> 71
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
11 - COMPENSATION CONTRACTS
The Companies have entered into individual agreements with certain officers and
employees to provide benefits upon retirement, disability or death of the
individual. The agreements require the Companies to pay benefits equal to the
cash surrender value accumulated in the life insurance policy purchased by the
Companies on the individual. The retirement and disability benefits and any
earnings are payable over a 15 year period commencing one month after the date
of retirement or disability. The agreements further provide the Companies will
commence payments of an annual set amount to the individual's designated
beneficiary within twelve months from the date of death of the individual.
Payments are limited to the proceeds of the life insurance policy purchased on
the individual and earnings on such proceeds. The accumulated cash surrender
values in the life insurance policies are included in cash value of life
insurance and the amounts due under the agreements are included in deferred
compensation in the accompanying combined balance sheets.
12 - EMPLOYEE BENEFIT PLANS
The Companies have a profit sharing plan covering employees which meet certain
length of service requirements. Contributions to the plan are made at the
discretion of the Companies' Boards of Directors. The plan also allows
eligible employees to make contributions to their account pursuant to a salary
reduction agreement.
The Companies have adopted a maximum premium group health insurance plan. The
plan calls for the Companies to pay approximately $21 per employee each month
to a third party administrator. Such payment is used to purchase stop loss
insurance, group life insurance, and pay the fees of the third party
administrator who processes all claims. The Companies are then responsible for
paying all claims up to the stop loss limits which amount to $100,000 per year
per individual or an aggregate amount equal to a maximum premium amount per
employee per year. The Companies have provided for the estimate of their claims
liability under the plan which management believes is adequate to cover claims
incurred as of June 30, 1995 and 1994.
13 - CONTINGENCIES
The Companies are subject to extensive and evolving federal, state and local
environmental laws and regulations. These laws and regulations have been
enacted in response to technological advances and increased concern over
environmental issues. These regulations are administered by the Environmental
Protection Agency ("EPA") and various other federal, state and local
environmental, transportation, health and safety agencies. The Companies have
not experienced any significant regulatory problems in the past and believe
that they are in substantial compliance with all applicable rules and
regulations. Future environmental liabilities, if any, would be recorded in
the period in which they become probable and can be reasonably estimated.
(Continued)
71
<PAGE> 72
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Continued)
13 - CONTINGENCIES (Continued)
The sanitary landfills operated by the Companies are subject to the EPA's
"Subtitle (D) Regulations". These regulations provide minimum design,
construction and operating standards for virtually all landfills in the United
States. The Subtitle (D) Regulations require every landfill to utilize the
"best available technology" with respect to cell preparation and lining,
leachate collection and treatment and ground water monitoring. In addition,
adequate financial assurances must be provided to cover closure costs and
post-closure monitoring costs for a period of up to thirty years after the
landfill is closed. As a result of the above described requirements, the
Companies have future financial obligations with regard to closure costs and
post-closure monitoring costs associated with the disposal sites they operate.
The Companies will accrue their portion of the estimated costs as airspace
subject to the Subtitle (D) Regulations is consumed. As of June 30, 1995, the
Companies have not consumed any airspace subject to Subtitle (D) Regulations.
Accordingly, the accompanying financial statements do not include any provision
for esimated costs relating to these future obligations.
The Companies are involved in certain legal actions and claims, the outcome of
which, in the opinion of management based on advice of legal counsel, will not
have a material impact on the combined financial position of the Companies.
Also, see Note 7.
14 - MERGER AGREEMENT
On November 11, 1995, the Companies entered into a merger agreement with
Republic Industries, Inc. ("Republic") whereby Republic will acquire all
of the outstanding stock of the Companies for 5,256,055 shares of Republic
common stock. The merger agreement is subject to approval by Republic's
stockholders and regulatory agencies and other customary closing conditions.
The business combination will be accounted for utilizing the
pooling-of-interests method.
72
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Garbage Disposal Service, Inc.
Hickory, North Carolina
We have audited the accompanying balance sheet of Garbage Disposal Service,
Inc. as of September 30, 1994, and the related statements of operations and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Garbage Disposal Service, Inc.
as of September 30, 1994, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
FARRIS, COOKE & ASSOCIATES, P.A.
Charlotte, North Carolina
November 22, 1994
73
<PAGE> 74
GARBAGE DISPOSAL SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash (Note A) . . . . . . . . . . . . . . . . . $ 1,654,793 $ 498,954
Accounts receivable:
Trade (net of allowance for doubtful
accounts of $150,200 and $57,000
respectively) (Note A) . . . . . . . . . . . 3,668,516 2,439,183
Officers and employees (Note B) . . . . . . . 190,626 24,361
Inventories (Note A). . . . . . . . . . . . . . 256,727 221,980
Prepaid expenses. . . . . . . . . . . . . . . . 213,843 29,745
----------- -----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . 5,984,505 3,214,223
----------- -----------
PROPERTY, PLANT, MACHINERY AND EQUIPMENT
(Notes A, F and H):
Land and land improvements. . . . . . . . . . . 552,303 546,849
Leasehold improvements. . . . . . . . . . . . . 614,491 525,180
Containers, compactors and balers . . . . . . . 9,522,337 5,823,955
Trucks, loaders and motor vehicles. . . . . . . 8,626,318 5,025,902
Office and shop equipment . . . . . . . . . . . 1,105,647 936,702
Recycling plant equipment . . . . . . . . . . . 1,902,277 1,924,592
Recycling plant . . . . . . . . . . . . . . . . 1,068,837 1,068,837
Facilities building and land. . . . . . . . . . 2,556,983 -
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 25,949,193 15,852,017
Less allowance for depreciation . . . . . . . . (9,962,302) (7,599,443)
----------- -----------
PROPERTY, PLANT, MACHINERY AND EQUIPMENT,
NET. . . . . . . . . . . . . . . . . . . . . . . 15,986,891 8,252,574
----------- -----------
OTHER ASSETS:
Investments . . . . . . . . . . . . . . . . . . 27,200 27,200
Note receivable from stockholder - officer
(Note B) . . . . . . . . . . . . . . . . . . . 43,965 43,965
Cash surrender value of life insurance, net
(Note C) . . . . . . . . . . . . . . . . . . . 272,864 232,259
Intangible assets, net (Note D) . . . . . . . . 1,241,938 18,865
Loan costs, net (Note E). . . . . . . . . . . . 17,719 18,562
Other assets. . . . . . . . . . . . . . . . . . 1,005 3,500
Deferred tax asset (Notes A and K). . . . . . . 297,600 151,600
----------- -----------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . 1,902,291 495,951
----------- -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . $23,873,687 $11,962,748
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
74
<PAGE> 75
GARBAGE DISPOSAL SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
(Notes F and G) . . . . . . . . . . . . . . . $ 2,999,646 $ 1,657,700
Capital lease obligation (Note H). . . . . . . 142,320 16,200
Accounts payable . . . . . . . . . . . . . . . 1,824,791 1,040,949
Accrued compensation . . . . . . . . . . . . . 525,996 248,916
Accrued retirement plan expense (Note I) . . . 3,134 19,547
Other accrued expenses and liabilities . . . . 206,336 331,706
Income taxes payable . . . . . . . . . . . . . 1,020,704 253,000
----------- -----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 6,722,927 3,568,018
LONG-TERM DEBT (Notes F and G). . . . . . . . . . 9,149,507 3,508,948
CAPITAL LEASE OBLIGATION (Note H) . . . . . . . . 34,231 28,029
DEFERRED INCOME TAXES (Notes A and K) . . . . . . 2,076,480 1,126,600
----------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . 17,983,145 8,231,595
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes A, G and J)
STOCKHOLDERS' EQUITY: (Note G)
Preferred stock:
Class A, nonvoting, noncumulative,
$100 par value, 4,000 shares authorized,
3,500 issued and outstanding . . . . . . . . 350,000 350,000
Class B, nonvoting, noncumulative,
$100 par value, 1,000 shares authorized,
640 issued and outstanding . . . . . . . . . 64,000 64,000
Class C, voting, noncumulative,
$100 par value, 500 shares authorized,
420 issued and outstanding . . . . . . . . . 42,000 42,000
Nonvoting, common stock, $1 par value,
350,000 shares authorized, 279,000
shares issued and outstanding. . . . . . . . 279,000 279,000
Retained earnings. . . . . . . . . . . . . . . 5,155,542 2,996,153
----------- -----------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . 5,890,542 3,731,153
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,873,687 $11,962,748
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
75
<PAGE> 76
GARBAGE DISPOSAL SERVICE, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1995 1994 Year Ended September 30, 1994
-------- -------- -----------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
OPERATING INCOME . . . . . . . . . . . . $21,012,452 $15,715,138 $21,917,806
DIRECT OPERATING EXPENSES (Note J) . . . $13,015,463 $10,782,585 $14,427,207
DEPRECIATION EXPENSE (Note A). . . . . . 933,845 13,949,308 916,350 11,698,935 1,147,406 15,574,613
----------- ----------- ----------- ----------- ----------- -----------
GROSS MARGIN . . . . . . . . . . . . . . 7,063,144 4,016,203 6,343,193
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Notes I and J). . . . . . . . 2,967,481 2,075,832 3,793,358
DEPRECIATION EXPENSE (Note A). . . . . . 100,170 91,950 128,997
AMORTIZATION EXPENSE (Notes D and E) . . 13,404 3,081,055 28,514 2,196,296 48,614 3,970,969
----------- ----------- ----------- ----------- ----------- -----------
OPERATING PROFIT . . . . . . . . . . . . 3,982,089 1,819,907 2,372,224
OTHER INCOME (EXPENSES):
Other income . . . . . . . . . . . . 258,500 22,801 202,300
Interest expense. . . . . . . . . . . (451,950) (193,450) (455,053) (432,252) (608,744) (406,444)
----------- ----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES . . . . . . . 3,788,639 1,387,655 1,965,780
PROVISION FOR INCOME TAXES
(Notes A and K)
Current . . . . . . . . . . . . . . . 1,238,250 285,333 400,405
Deferred. . . . . . . . . . . . . . . 391,000 1,629,250 274,100 559,433 392,100 792,505
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . 2,159,389 828,222 1,173,275
RETAINED EARNINGS, BEGINNING . . . . . . 2,996,153 1,822,878 1,822,878
----------- ----------- -----------
RETAINED EARNINGS, ENDING. . . . . . . . $ 5,155,542 $ 2,651,100 $ 2,996,153
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
76
<PAGE> 77
GARBAGE DISPOSAL SERVICE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
Year Ended
Nine Months Ended June 30, September 30,
1995 1994 1994
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,159,389 $ 828,222 $ 1,173,275
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 1,047,323 1,036,814 1,325,017
Increase in cash surrender value of
life insurance . . . . . . . . . . . . . . . . . . . . . . . . (40,605) - (38,339)
(Gain) loss on disposal of machinery and equipment. . . . . . . (14,481) 49,388 124,316
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 411,880 (180) 392,500
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (655,210) (395,402) (485,996)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (34,747) (59,568) (3,429)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . (184,098) 54,248 10,202
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 2,494 (59,664) 6,918
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . . . . 48,888 (286,295) (433,842)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 118,481 (62,397) 356,643
Income taxes payable. . . . . . . . . . . . . . . . . . . . . 727,272 431,425 221,478
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . 3,586,586 1,536,591 2,648,743
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, machinery
and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . (1,888,669) (571,305) (1,012,876)
Proceeds from sale of machinery and equipment . . . . . . . . . . 79,169 85,001 289,915
Business combinations . . . . . . . . . . . . . . . . . . . . . . (401,473) - -
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . . . . . . (2,210,973) (486,304) (722,961)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . 1,100,000 311,527 406,305
Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . (1,306,498) (1,495,322) (2,042,374)
Payments on capital lease obligations . . . . . . . . . . . . . . (13,276) (10,023) (15,376)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . . . . . . (219,774) (1,193,818) (1,651,445)
----------- ----------- -----------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . 1,155,839 (143,531) 274,337
CASH, BEGINNING. . . . . . . . . . . . . . . . . . . . . . . . . . . 498,954 224,617 224,617
----------- ----------- -----------
CASH, ENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,654,793 $ 81,086 $ 498,954
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 439,608 $ 471,845 $ 624,443
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . 490,098 128,008 218,727
Noncash investing and financing activities:
Debt and capital lease obligations incurred
in purchase of machinery and equipment . . . . . . . . . . . . . 170,810 107,075 227,262
Debt incurred in business combinations. . . . . . . . . . . . . . 2,005,000 - -
</TABLE>
The accompanying notes are an integral part of these statements.
77
<PAGE> 78
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1994
A. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
The Company is primarily engaged in the collection and transportation
of commercial and residential non-hazardous waste products and the
collection and processing of recyclable materials. The Company grants
unsecured trade credit to customers, substantially all of whom are
located in the Southeastern United States. The Company's cash is
subject to risk of loss for the amounts in excess of the Federal
Deposit Insurance Corporation's ("FDIC") depositor insurance limits.
INVENTORIES
Inventories, consisting of repair parts and fuel for the Company's
trucks and recyclable materials held for resale are valued at the
lower of cost (first-in, first-out method) or market. Market is
computed based on current market rate less selling expenses.
PROPERTY, PLANT, MACHINERY AND EQUIPMENT
Property, plant, machinery and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial
reporting purposes, based on the estimated useful lives of the assets
as follows:
<TABLE>
<S> <C>
Land improvements . . . . . . . . 15 years
Leasehold improvements. . . . . . 10 - 40 years
Containers, compactors and
balers . . . . . . . . . . . . . 7 - 10 years
Trucks, loaders and motor
vehicles . . . . . . . . . . . . 3 - 7 years
Office and shop equipment . . . . 5 - 8 years
Recycling plant equipment . . . . 10 - 20 years
Recycling plant . . . . . . . . . 30 years
</TABLE>
The containers, compactors and balers represent property provided to
customers as part of their service contracts and have an allowance for
depreciation at September 30, 1994 of approximately $2,899,000.
78
<PAGE> 79
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
YEAR ENDED SEPTEMBER 30, 1994
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income
tax purposes. The differences relate primarily to depreciable assets
(use of different depreciation methods and lives for financial
statement and income tax purposes), use of the allowance method for
uncollectible accounts receivable, and alternative minimum tax
credits. The deferred tax assets and liabilities represent the future
tax consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
B. ACCOUNTS AND NOTE RECEIVABLE FROM STOCKHOLDER - OFFICER
At September 30, 1994, the Company has $3,300 of accounts receivable
from a stockholder - officer which represents accrued interest on a
10% demand note receivable.
C. LIFE INSURANCE
As of September 30, 1994, the Company is the beneficiary of life
insurance policies on certain officers and stockholders, with face
values aggregating $3,025,000. The cash surrender value of these
policies totals $176,185, net of policy loans. In addition, the
Company has an interest in other policies limited to the cash
surrender value in the amount of $56,074, resulting in total net cash
surrender value of $232,259.
D. INTANGIBLE ASSETS
Since 1985, the Company has acquired customer lists and covenants not
to compete, when purchasing existing businesses, at a cost of
$697,900. The lists and covenants are being amortized over 60 months.
At September 30, 1994, accumulated amortization of such assets was
$679,035.
E. LOAN COSTS
The Company incurred loan costs of $22,500 to obtain a loan from the
Small Business Administration. The loan costs are being amortized
over the life of the loan (20 years) with accumulated amortization
totalling $3,938 at September 30, 1994.
79
<PAGE> 80
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
YEAR ENDED SEPTEMBER 30, 1994
F. LONG-TERM DEBT
The Company has the following long-term debt outstanding at September
30, 1994:
Various notes payable, $3,810 monthly including
interest at 6.9% to 8.71% through August
1999, collateralized by certain vehicles . . . . . . . $ 125,761
Note payable to a bank, $28,750 monthly
including interest at prime plus 1%,
minimum of 7% through March 1998, collater-
alized by certain vehicles and equipment
and a stockholder's personal guarantee . . . . . . . 1,016,376
Note payable to a bank, $2,350 monthly
plus interest at prime plus .50% through
July 1995, collateralized by various
machinery and equipment and a stockholder's
personal guarantee . . . . . . . . . . . . . . . . . 21,150
Note payable to a finance company, $56,333
monthly including interest at 9.11% through
May 1996, collateralized by certain vehicles
and other related equipment, certain
equipment and a stockholder's personal
guarantee . . . . . . . . . . . . . . . . . . . . . . . 1,041,643
Notes payable to a bank, $1,041 monthly
including interest at 7.85% through April
1997, collateralized by a certain vehicle
and a stockholder's personal guarantee . . . . . . . 48,098
Note payable to a bank, $3,039 monthly
plus interest at prime plus .50% through
September 1997, collateralized by certain
vehicles and other related equipment
and a stockholder's personal guarantee . . . . . . . 109,408
Note payable to a bank, $1,975 monthly
including interest at prime plus .50%
through May 1999, collateralized by certain
vehicles . . . . . . . . . . . . . . . . . . . . . . . 116,841
Notes payable to a bank, $849 monthly
including interest at 10.5% through August 1997,
collateralized by certain vehicles . . . . . . . . . . 8,487
Notes payable to a bank, $1,117 monthly
including interest at 8.5% through August
1997, collateralized by certain vehicles and
a stockholder's personal guarantee . . . . . . . . . . 34,502
80
<PAGE> 81
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
YEAR ENDED SEPTEMBER 30, 1994
Notes payable to a bank, $1,677 monthly
including interest at 6.9% to 7.9% through
August 1997, collateralized by certain autos
and trucks and a stockholder's personal
guarantee . . . . . . . . . . . . . . . . . . . . . . . 47,982
Note payable to a bank, $10,380 monthly
including interest at 9% through September
1996, collateralized by certain vehicles and
equipment and a stockholder's personal
guarantee . . . . . . . . . . . . . . . . . . . . . . . 219,654
Note payable to a bank, $21,885 monthly
including interest at prime plus .50% through
February 2001, collateralized by a first deed
of trust and a stockholder's personal
guarantee . . . . . . . . . . . . . . . . . . . . . . . 987,675
Note payable to a governmental agency,
$7,088 monthly including fees and interest
at 8.952% through March 2011, collateralized
by a second deed of trust and a stockholder's
personal guarantee . . . . . . . . . . . . . . . . . . 691,792
Notes payable to a finance company, $40,735
monthly including interest at 9.0% to 10.52%
through March 1999, collateralized by certain
vehicles and other related equipment,
certain equipment and a stockholder's
personal guarantee . . . . . . . . . . . . . . . . . . 339,236
Notes payable to a bank, $1,289 monthly
including interest at 6.9% to 8% through
May 1998, collateralized by certain
autos and trucks and a stockholder's
personal guarantee . . . . . . . . . . . . . . . . . . 42,426
Note payable to a bank, $4,060 monthly
including interest at prime plus 1% through
March 1999, collateralized by certain
equipment . . . . . . . . . . . . . . . . . . . . . . . 183,814
Various notes payable to finance companies,
$4,104 monthly including interest at 7% to
8.9% through October 1997, collateralized by
certain vehicles and a stockholder's
personal guarantee . . . . . . . . . . . . . . . . . . 131,803
----------
5,166,648
Less current maturities . . . . . . . . . . . . . . . 1,657,700
----------
Long-term debt . . . . . . . . . . . . . . . . . . . . $3,508,948
----------
81
<PAGE> 82
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
YEAR ENDED SEPTEMBER 30, 1994
Maturities of long-term debt for the years ending September
30 are as follows:
<TABLE>
<S> <C>
1995 . . . . . . . . . . . $1,657,700
1996 . . . . . . . . . . . 1,396,540
1997 . . . . . . . . . . . 806,622
1998 . . . . . . . . . . . 535,379
1999 . . . . . . . . . . . 195,617
Thereafter . . . . . . . . . . . 574,790
----------
$5,166,648
==========
</TABLE>
G. LOAN RESTRICTIONS
The various loan agreements contain certain restrictive covenants
which require the Company to meet certain minimum financial statement
requirements and restrict certain types of transactions, including the
payment of dividends to its stockholders. The Company also has a life
insurance policy on a stockholder - officer with a face value of
$2,000,000 with a bank as the beneficiary.
Subsequent to year-end, the bank has waived any violations of these
restrictive covenants through September 30, 1995.
H. CAPITAL LEASE OBLIGATION
The Company leases shop equipment and has included on the balance
sheet equipment with a capitalized cost of $86,881 and a related
allowance for depreciation of $19,217.
The following is a schedule of future minimum payments required under
the lease.
Years Ended September 30,
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . $ 19,217
1996 . . . . . . . . . . . . . . . 14,103
1997 . . . . . . . . . . . . . . . 10,561
1998 . . . . . . . . . . . . . . . 6,592
----------
Total minimum lease payments . . . . . 50,473
Less amount representing
interest . . . . . . . . . . . . . . . 6,244
----------
Present value of minimum lease
payments . . . . . . . . . . . . . . . 44,229
Less current portion of capital
lease obligation . . . . . . . . . . . 16,200
----------
Noncurrent portion of capital
lease obligation . . . . . . . . . . . $ 28,029
==========
</TABLE>
82
<PAGE> 83
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
YEAR ENDED SEPTEMBER 30, 1994
I. RETIREMENT SAVINGS PLAN
The Company has a retirement savings plan for its employees. All
employees over 20 years of age who meet the entry service requirements
are eligible.
Contributions to the plan are determined on an annual basis. The
Company's minimum liability is one-half of an employee's contribution,
not to exceed a certain percentage of compensation as defined by the
trustees of the plan.
Total contributions to the plan for the year ended September 30, 1994
were $65,045. Eligible employees are vested in the Company's
contributions to the plan as follows:
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
0-2 0
3 20
4 40
5 60
6 80
7 100
</TABLE>
The Company may terminate the plan at will, with the assets of the
plan reverting to the employees.
J. RELATED PARTY TRANSACTIONS AND COMMITMENTS
The Company leases its premises from two stockholders under a lease
which expires in September 1999 with a monthly rent of $4,333.
The Company leases its Morganton location from a stockholder under a
48 month lease agreement which expires in 1998 with an option to renew
for two additional periods of four years each. The rent under the
lease is $6,500 per month.
The Company leases its Boone location from a stockholder under a 120
month lease agreement which expires in 2002. The rental under the
lease is $6,500 a month.
The Company leases its Atlanta facility under a lease with a
stockholder which expires in 1998. The monthly rent under the lease
is $22,200.
The Company leases certain equipment and vehicles from an affiliated
company under 36 month leases which expire in 1996 and 1997. The
monthly rentals under these leases total $16,700.
The Company leases certain equipment under leases with unrelated
parties which are for terms of 36 to 60 months and expire by 1998.
The monthly rentals under these leases total $3,193 per month.
83
<PAGE> 84
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
YEAR ENDED SEPTEMBER 30, 1994
The Company leases certain vehicles under leases with unrelated
parties which are for 36 to 60 months and expire by 1999. The monthly
rentals under these leases total $19,567 per month.
Rental expense for the year ended September 30, 1994 under the
aforementioned leases and other incidental leases was $966,784.
Future obligations over the terms of these leases at September 30,
1994 are as follows:
<TABLE>
<S> <C>
1995 . . . . . . . . $978,000
1996 . . . . . . . . 938,000
1997 . . . . . . . . 689,000
1998 . . . . . . . . 376,000
1999 . . . . . . . . 144,000
Thereafter . . . . . 234,000
----------
$3,359,000
==========
</TABLE>
K. INCOME TAXES
Income tax is reconciled to the Company's actual income tax expense
for the year ended September 30, 1994 as follows:
<TABLE>
<CAPTION>
Percent of
Pretax
Amount Income
----------- ----------
<S> <C> <C>
Federal income at
statutory rate . . . . . . . $ 975,405 49.6 %
Benefit of AMT credits. . . . (347,000) (17.7)%
State tax expense . . . . . . 160,300 8.2 %
Non-deductible expenses . . . 3,800 .2 %
----------- -----
Total income tax
(benefit) expense . . . . . $ 792,505 40.3 %
=========== =====
Income tax expense consists of
the following components:
Current . . . . . . . . . . . $ 400,405
Deferred . . . . . . . . . . 392,100
-----------
Total income tax expense . .
$ 792,505
===========
</TABLE>
84
<PAGE> 85
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
YEAR ENDED SEPTEMBER 30, 1994
The Company's total deferred tax liabilities, deferred tax assets, and
deferred tax asset valuation allowances have been presented in the
Company's financial statements as follows:
<TABLE>
<S> <C>
Total current deferred tax assets . . . . . . . . . . $ 151,600
Less valuation allowance . . . . . . . . . . . . . . -
----------
Net current deferred tax asset . . . . . . . . . . . $ 151,600
==========
Total noncurrent deferred income tax
liability . . . . . . . . . . . . . . . . . . . . . $1,126,600
==========
</TABLE>
For tax return purposes, the Company has approximately $115,000 of
alternative minimum tax credits available to reduce future tax
liabilities with no expiration date.
L. MAJOR CUSTOMER
The Company had sales to a major customer of its Georgia recycling
division of approximately $3,100,000, or 14% of total sales, for the
year ended September 30, 1994.
M. SUBSEQUENT EVENT (Unaudited)
In November 1995, all of the outstanding common stock of the Company
was sold to Republic Industries, Inc. ("Republic") in exchange for
3,003,000 shares of its common stock. Subsequent to this sale, the
Company operates as a wholly-owned subsidiary of Republic.
85
<PAGE> 86
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
of the Fennell Companies
We have audited the accompanying combined balance sheet of the Fennell
Companies as of December 31, 1994, and the related combined statements of
income, retained earnings, and cash flows for the year then ended. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Fennell
Companies as of December 31, 1994, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
GAMBLE, GIVENS & MOODY P.A.
Charleston, South Carolina
November 20, 1995
86
<PAGE> 87
THE FENNELL COMPANIES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . $ 1,222,595 $ 1,397,166
Marketable securities . . . . . . . . . . . . . . . - 252,868
Accounts receivable (net of allowance of $285,966
and $200,856 respectively). . . . . . . . . . . . 3,551,571 2,996,903
Notes receivable - current . . . . . . . . . . . . . 183,078 91,735
Prepaid expenses . . . . . . . . . . . . . . . . . . 69,438 537,918
Due from related parties . . . . . . . . . . . . . . 9,091 26,577
Interest receivable. . . . . . . . . . . . . . . . . - 4,685
Other current assets . . . . . . . . . . . . . . . . 23,835 87,198
Due from stockholder . . . . . . . . . . . . . . . . 58,109 -
---------- ------------
TOTAL CURRENT ASSETS 5,117,717 5,395,050
FIXED ASSETS
Land . . . . . . . . . . . . . . . . . . . . . . . . 967,806 372,336
Truck and equipment. . . . . . . . . . . . . . . . . 13,817,463 12,384,976
Tankers . . . . . . . . . . . . . . . . . . . . . . 226,726 225,274
Automobiles. . . . . . . . . . . . . . . . . . . . . 203,554 237,260
Containers . . . . . . . . . . . . . . . . . . . . . 6,457,754 5,876,370
Office and communications equipment. . . . . . . . . 1,093,885 895,031
Building . . . . . . . . . . . . . . . . . . . . . . 976,486 966,847
Leasehold improvements . . . . . . . . . . . . . . . 1,236,809 1,024,696
Shop equipment . . . . . . . . . . . . . . . . . . . 244,927 188,799
---------- ------------
25,225,410 22,171,589
Less accumulated depreciation . . . . . . . . . . 15,015,260 13,496,282
---------- ------------
NET FIXED ASSETS 10,210,150 8,675,307
OTHER ASSETS
Investments. . . . . . . . . . . . . . . . . . . . . 123,750 -
Deposits . . . . . . . . . . . . . . . . . . . . . . 8,533 124,059
Loans to officers for life insurance premiums. . . . 691,337 608,747
Marketable securities. . . . . . . . . . . . . . . . 88,350 80,987
Intangible assets (net of accumulated
amortization of $1,189,482 and
$889,294 respectively) . . . . . . . . . . . . . . 1,054,222 1,329,410
Organization costs . . . . . . . . . . . . . . . . . 4,877 -
---------- ------------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . 1,971,069 2,143,203
----------- ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . $17,298,936 $16,213,560
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE> 88
THE FENNELL COMPANIES
COMBINED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt. . . . . $ 2,375,683 $ 2,475,014
Accounts payable . . . . . . . . . . . . . 2,028,472 1,503,951
Accrued salaries and payroll taxes . . . . 321,588 166,710
Due to related companies . . . . . . . . . 712 79,448
Other current liabilities. . . . . . . . . 300,317 306,588
Due to stockholders. . . . . . . . . . . . 62,859 -
5,089,631 4,531,711
TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES
Long-term debt . . . . . . . . . . . . . . 5,977,506 6,027,248
------------ ------------
TOTAL LIABILITIES . . . . . . . . . . 11,067,137 10,558,959
STOCKHOLDERS' EQUITY
Common stock (Fennell Container - $1 par
value, 100,000 shares authorized, 55,000
shares issued and outstanding) . . . . . 55,000 55,000
Common stock (Fenn-Vac - $10 par value,
10,000 shares authorized, 900 shares
issued and outstanding). . . . . . . . . 9,000 9,000
Common stock (Fennell Waste - $100 par
value, 2,500 shares authorized, 2,450
shares issued and outstanding) . . . . . 242,500 245,000
Common Stock ($100 par value 100,000
shares authorized, 250 shares issued and
outstanding) . . . . . . . . . . . . . . 25,000 -
Owners equity - George W. Fennell. . . . . 504,086 372,336
Additional paid-in capital . . . . . . . . 567 567
Retained earnings. . . . . . . . . . . . . 5,406,473 4,990,888
Net unrealized (loss) on marketable
securities . . . . . . . . . . . . . . . (10,827) (18,190)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . 6,231,799 5,654,601
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $ 17,298,936 $ 16,213,560
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE> 89
THE FENNELL COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------------- Year Ended
1995 1994 December 31, 1994
------------ ------------ -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE . . . . . . . . . . . $ 19,150,076 $ 16,257,391 $ 22,043,328
EXPENSES
Operating . . . . . . . . . . . . . . 12,095,319 9,842,456 13,322,807
Selling and general and
administrative. . . . . . . . . . . 3,815,433 3,028,127 3,857,549
Depreciation and amortization . . . . 1,817,075 1,603,204 2,639,987
Provision for bad debt. . . . . . . . 285,966 288,925 94,820
Profit sharing. . . . . . . . . . . . - - 178,422
------------ ------------ ------------
TOTAL OPERATING EXPENSES. . . . . . 18,013,793 14,762,712 20,093,585
------------ ------------ ------------
OPERATING INCOME. . . . . . . . . 1,136,283 1,494,679 1,949,743
OTHER INCOME (EXPENSE)
Minority interest income. . . . . . . 3,104 - -
Interest income . . . . . . . . . . . 89,106 34,606 56,199
Dividend income . . . . . . . . . . . - 1,380 1,860
Other income. . . . . . . . . . . . . 159,390 217,953 68,397
Interest expense. . . . . . . . . . . (528,236) (405,532) (548,794)
Gain on sale of assets. . . . . . . . 53,336 39,108 41,792
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE). . . . (223,300) (112,485) (380,546)
------------ ------------ ------------
NET INCOME. . . . . . . . . . . . . . . 912,983 1,382,194 1,569,197
RETAINED EARNINGS BEGINNING OF YEAR . . 4,990,888 4,112,253 4,112,253
DISTRIBUTIONS TO STOCKHOLDERS . . . . . (493,011) (168,420) (690,562)
STOCK RETIREMENT. . . . . . . . . . . . (4,387) - -
------------ ------------ ------------
RETAINED EARNINGS, END OF YEAR. . . . . $ 5,406,073 $ 5,326,027 $ 4,990,888
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE> 90
THE FENNELL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months ended
September 30,
------------------------------------------ Year ended
1995 1994 December 31, 1994
------------ ------------ -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from
customers. . . . . . . . . . . . $ 18,298,719 $ 15,673,130 $ 21,419,818
Interest and dividends
received . . . . . . . . . . . . 93,791 35,986 49,901
Other receipts . . . . . . . . . . 159,390 217,953 60,810
Cash paid to suppliers
and employees. . . . . . . . . . (14,569,106) (11,762,776) (16,626,870)
Interest paid. . . . . . . . . . . (528,236) (405,532) (559,461)
Reimbursements from
related companies. . . . . . . . - - 36,936
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES . . . . $ 3,454,558 $ 3,758,761 $ 4,381,134
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investment
securities . . . . . . . . . . . 252,868 - -
Purchase of investment
securities . . . . . . . . . . . - - (249,395)
Received from
stockholders . . . . . . . . . . 62,859 19,289 52,192
Payments received on
notes receivable . . . . . . . . - 18,433 3,450
Cash payments for
purchase of fixed
assets . . . . . . . . . . . . . (2,883,411) (3,993,957) (4,816,622)
Loans to officers for
life insurance
premiums . . . . . . . . . . . . (82,590) - (95,383)
Deposits . . . . . . . . . . . . . - (48,942) (105,287)
Cash proceeds from
sale of fixed
assets . . . . . . . . . . . . . 71,804 109,307 89,566
Additions to notes
receivable . . . . . . . . . . . (91,343) (6,500) (6,500)
Advances to
shareholders . . . . . . . . . . (58,109) - -
Purchase of
minority interest. . . . . . . . (15,359) - -
Organizational
costs. . . . . . . . . . . . . . (4,877) - -
------------ ------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES . . . . (2,748,158) (3,902,370) (5,127,979)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance
of stock . . . . . . . . . . . . 25,000 - -
Proceeds from issuance
of long-term debt. . . . . . . . 1,851,343 3,051,754 4,136,008
Principal payments on
long-term debt . . . . . . . . . (2,375,416) (1,808,499) (2,451,563)
Distributions to
stockholders . . . . . . . . . . (375,011) (168,420) (690,562)
Stock redemption . . . . . . . . . (6,887) - -
------------ ------------ ------------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES . . . . . . . . . (880,971) 1,074,835 993,883
------------ ------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . (174,571) 931,226 247,038
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR. . . . . . . . . 1,397,166 1,150,128 1,150,128
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR. . . . . . . . . . . . $ 1,222,595 $ 2,081,354 $ 1,397,166
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE> 91
THE FENNELL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months ended September 30, Year ended
1995 1994 December 31, 1994
---------- ---------- -----------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 912,983 $1,382,194 $1,569,197
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debt . . . . . . . . . . . . . . . $ 285,966 $ 288,925 $ 94,820
Depreciation . . . . . . . . . . . . . . . . . . . . 1,827,853 1,585,394 2,216,245
Amortization . . . . . . . . . . . . . . . . . . . . 275,188 306,735 423,743
Income from minority interest. . . . . . . . . . . . (3,104) - -
(Gain) on sale of assets . . . . . . . . . . . . . . (53,336) (39,108) (41,792)
(Increases) decreases in assets:
Accounts receivable. . . . . . . . . . . . . . . . (851,357) (873,186) (702,991)
Prepaid expenses . . . . . . . . . . . . . . . . . 397,685 236,755 (69,001)
Interest receivable. . . . . . . . . . . . . . . . 4,685 - (4,685)
Other current assets . . . . . . . . . . . . . . . 70,860 5,957 (63,479)
Due from related companies . . . . . . . . . . . . (61,250) 9,338 17,146
Increases (decreases) in liabilities:
Accounts payable . . . . . . . . . . . . . . . . . 615,612 920,941 814,683
Accrued salaries and payroll taxes . . . . . . . . 154,878 147,168 29,543
Due to related companies . . . . . . . . . . . . . - - 100,398
Other current liabilities. . . . . . . . . . . . . (122,105) (212,352) (2,693)
---------- ---------- ----------
TOTAL ADJUSTMENTS. . . . . . . . . . . . . . . . . . 2,541,575 2,376,567 2,811,937
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . $3,454,558 $3,758,761 $4,381,134
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of business assets by assumption of debt
as described in note X . . . . . . . . . . . . . . $ - $1,500,000 $1,500,000
Increase in value of marketable securities . . . . . $ 7,363 $ 7,751 $ 775
Decrease in value of marketable securities . . . . . $ - $ - $ -
Land purchased by shareholder included
in combined balance sheet. . . . . . . . . . . . . $ 131,750 $ - $ -
Land purchased by issuing a mortgage . . . . . . . . $ 375,000 $ - $ -
Equipment on which the company had a deposit
was transformed to a new company in exchange
for a minority interest ownership in the company . $ 105,287 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
91
<PAGE> 92
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Fennell Container Co., Inc., Fenn-Vac, Inc. and Fennell Waste
Systems, Inc. (the "Fennell Companies") are separate but related companies
controlled by George W. Fennell and under common management which have agreed
to merge with Republic Industries, Inc. (See Note XII.) This summary of
significant accounting policies of the Fennell Companies is to assist in
understanding the combined financial statements. The combined financial
statements and notes are the representation of the companies' management, who
is responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the combined financial statements.
COMBINATION POLICY - The accompanying combined financial statements include the
accounts of the following companies:
<TABLE>
<CAPTION>
NAME LOCATION BUSINESS ACTIVITY
---- -------- -----------------
<S> <C> <C>
Fennell Container Co., Inc. Charleston, SC Waste collection, hauling and
recycling
Fennell Waste Systems, Inc. Greer, SC Waste collection and hauling
Fenn-Vac, Inc. Charleston, SC Containment, clean-up and
hauling of hazardous and
non-hazardous waste
</TABLE>
All significant intercompany transactions have been eliminated in the
combination.
The companies grant credit to customers and, generally, no collateral is
required.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the
companies consider all short-term debt securities purchased with an original
maturity of three months or less to be cash equivalents.
FIXED ASSETS - Fixed assets are stated at cost. Depreciation has been provided
by using straight-line or declining balance methods for financial reporting
purposes and accelerated cost recovery methods for federal income tax purposes.
Assets are depreciated over their estimated useful lives.
92
<PAGE> 93
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
INCOME TAXES - The companies, with the consent of their shareholders, have
elected under the Internal Revenue Code to be S corporations. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the corporation's taxable income. Therefore, no
provision or liability for federal and state income taxes has been included in
the combined financial statements.
INTANGIBLE ASSETS - Intangible assets consist of values assigned to contract
rights ($1,218,704), the excess of cost over the assigned value of net assets
acquired ($130,000), and non-compete covenants ($870,000).
Intangibles are being amortized on a straight-line basis over their estimated
useful lives: seven years for contract rights; six years for the excess of
cost over value of net assets acquired; and the periods of the covenants for
such covenants.
II. MARKETABLE SECURITIES
Marketable securities held as available for sale are recorded at fair value.
Realized gains and losses are recorded in the statement of income and retained
earnings in the period they are earned. Unrealized gains and losses are
recognized as a component of stockholders' equity.
Cost and fair value of marketable debt and equity securities at December 31,
1994 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ---------------- Fair
Cost Gains (Losses) Value
--------- ----- -------- -----
<S> <C> <C> <C> <C>
Available for Sale:
Equity Securities $ 99,177 - - ($18,190) $ 80,987
U.S. Government 505,271 - - - - 505,271
--------- ------- -------- ---------
$ 604,448 - - ($18,190) $ 586,258
--------- ------- -------- ---------
</TABLE>
The fair values are included in the accompanying balance sheet under the
following captions:
<TABLE>
<S> <C>
Cash and cash equivalents $ 252,403
Marketable securities - current 252,868
Marketable securities - other assets 80,987
---------
$ 586,258
---------
</TABLE>
U.S. Government securities mature in 1995. The change in net unrealized
holding losses on securities available for sale in the amount of $775 has been
charged to stockholders' equity for the year ended December 31, 1994.
93
<PAGE> 94
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
III. DEPOSIT
Fenn-Vac, Inc. has a $105,287 deposit on equipment that was not in service at
year end.
IV. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<S> <C>
Unsecured notes from various
employees with interest rates and
monthly payments ranging from 10% to
12% and $25 to $100, respectively. $ 6,550
Unsecured note from ECO Services,
Inc. (a related company) with interest of
5.5 % payable annually and principal
payable on demand after July 2, 1995. 85,185
----------
Notes receivable - current $ 91,735
----------
</TABLE>
V. LONG-TERM DEBT
Long-term notes payable consist of the following:
<TABLE>
<S> <C>
Notes payable in monthly installments
totaling $266,659 as of December 31,
1994 including interest ranging from
6% to 9.5%, collateralized by certain
property and equipment. $ 8,502,262
Less current portion 2,475,014
-----------
Long-term debt $ 6,027,248
-----------
</TABLE>
94
<PAGE> 95
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C>
1995 $ 2,475,014
1996 2,113,492
1997 1,750,170
1998 1,448,383
1999 715,203
------------
$ 8,502,262
------------
</TABLE>
The companies have loan commitments totaling $ 2,500,000 from NationsBank of
which $297,965 was unused at December 31, 1994. Loans with varying interest
rates are made for the purchase of equipment and the loans are collateralized
by the equipment. These are annual commitments and expire in April 1995.
The loan agreements with the bank include various covenants typical to such
agreements, including meeting certain financial benchmarks, limits on capital
spending, and prohibitions against additional debt, pledges of assets, and
changes in ownership and management. Additionally, Fennell Container Co., Inc.
and certain stockholders have guaranteed substantially all indebtedness.
VI. PROFIT- SHARING PLAN
The companies have qualified contributory profit-sharing plans for all eligible
employees. The plans provide for contributions by the companies in amounts
determined annually at the discretion of the stockholders. Contributions
totaled $172,000 for the year.
VII. RELATED PARTY TRANSACTIONS
Related parties for financial statement purposes at December 31, 1994 include
Fenn-E-Let, Inc., ECO Services, Inc. and ECO Services of S.C., Inc. which are
owned in part by certain shareholders of the Fennell Companies.
A. Fennell Container Co., Inc. manages ECO Services of S.C., Inc.
$102,946 is included in operating revenues for this service.
B. Fennell Container Co., Inc. holds a note from ECO Services, Inc.,
(See note IV.)
C. Fennell Container Co., Inc. maintains a bank account for a medical
benefit plan covering the employees of the Fennell Companies and
Fenn-E-Let, Inc. (See note VIII.)
95
<PAGE> 96
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
D. There are no repayment terms or interest provisions for the
receivables from or payables to related companies. Management
anticipates settlement of these accounts within a 12 month period.
E. Included in long-term debt are unsecured notes payable to a
stockholder. These notes bear interest at 7.5% to 7.75% and have
monthly payments of $26,566 including interest. Balances of the
notes at December 31, 1994 are $852,720.
F. Fennell Container Co., Inc. has made interest free loans to the
Irrevocable Trust of George W. Fennell for the purpose of paying life
insurance policy premiums. The loans are collateralized by an
assignment of the life insurance policies.
G. Fenn-Vac, Inc. has made interest free loans to its stockholders to
pay the premiums on life insurance policies. These policies are to be
used to finance certain provisions of buy-sell agreements upon the
death of any officer. The loans are collateralized by assignments for
the policies.
VIII. CONTINGENCIES
The Fennell Companies, in conjunction with Fenn-E-Let, Inc., have an employee
medical benefit plan to self-insure employees. Each company is liable for
$15,000 per individual employee with total aggregate expenses for all
companies, including Fenn-E-Let, Inc., not to exceed $400,000 annually.
Amounts above such expenses are covered by stop-loss insurance. All employees
are covered and are required to contribute $15 to $35 per week, depending on
coverage. Expenses incurred under this plan were $313,046 for 1994. Fennell
Container Co., Inc. maintains the bank account for this plan and the account
balance of $91,062 is included in cash and cash equivalents. Receivables and
liabilities relating to this bank account from Fenn-E-Let, Inc. are included in
"Due From / To Related Companies".
Fennell Container Co., Inc. has guaranteed loans from NationsBank to
Fenn-E-Let, Inc. The outstanding balance of the loans as of December 31, 1994
is $181,285.
Russell E. Perkins, Jr., a former 11.11% shareholder in Fenn-Vac, Inc. and a
former 7% shareholder in Fennell Waste Systems, Inc. has asserted a claim
against the Companies and the shareholders in connection with the proposed
merger (Note XII). Randall Cook, a former 2% shareholder in Fennell Waste
Systems, Inc. has asserted a similar claim on similar grounds. No amounts have
been asserted with either claim.
96
<PAGE> 97
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
IX. CONCENTRATIONS OF CREDIT RISK
At December 31, 1994, the carrying amount of the companies' bank deposits was
$1,138,036 and the bank balance was $1,082,294. Of the bank balance, $300,000
was covered by FDIC insurance and $782,294 was uninsured.
X. PURCHASE OF BUSINESS ASSETS
On March 31, 1994, Fennell Container Co., Inc. purchased the assets of SCA
Services of South Carolina, Inc., a wholly owned subsidiary of Waste Management
of North America, Inc. The purchase price was allocated as follows:
<TABLE>
<S> <C>
Equipment $ 900,000
Contracts 750,000
Goodwill 100,000
Non-compete covenant 250,000
Fees and associated costs 10,345
-------------
$ 2,010,345
-------------
Bank note $ 1,500,000
Credit from seller for prepaids and pro rata accounts 4,480
Cash outlay 505,865
-------------
$ 2,010,345
-------------
</TABLE>
The statement of income and retained earnings and cash flows for the year ended
December 31, 1994 include the operations of this business from March 31, 1994
through December 31, 1994.
97
<PAGE> 98
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
XI. RECONCILIATION OF RETAINED EARNINGS
<TABLE>
<S> <C>
Accumulated Adjustments Accounts
Balance, January 1, 1994 $ 1,011,679
Taxable income 1,157,195
Nondeductible expenses (66,184)
Distribution to stockholders (690,562)
------------
Balance, December 31, 1994 1,412,128
------------
Accumulated Earnings and Profits, December 31, 1994 3,432,794
------------
Tax Temporary Adjustments
Balance, January 1, 1994 (244,803)
Net additions (reductions) 390,769
------------
Balance, December 31, 1994 145,966
------------
Retained Earnings, December 31, 1994 $ 4,990,888
------------
</TABLE>
XII. SUBSEQUENT EVENT
On November 13, 1995, the stockholders of the Fennell Companies entered into a
merger agreement with Republic Industries, Inc. ("Republic"). Under this
agreement, the stockholders will exchange their interest in the Fennell
Companies for stock in Republic and the Fennell Companies will survive as
wholly owned subsidiaries of Republic. It is proposed that this merger, when
consummated, will be accounted for under the pooling-of-interests method of
accounting.
98
<PAGE> 99
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Cana First Corporation d/b/a Scott Security Systems and affiliates:
We have audited the accompanying combined balance sheet of Cana First
Corporation d/b/a Scott Security Systems; Scott Alarm of Birmingham, Inc.;
Scott Alarm of Charlotte, Inc.; Scott Alarm of Cocoa, Inc.; Scott Alarm of Fort
Myers, Inc.; Scott Alarm of Gainesville, Inc.; Scott Alarm of Jensen Beach,
Inc.; Scott Alarm of Lakeland, Inc.; Scott Alarm of Nashville, Inc.; Scott
Alarm of Orlando, Inc.; Scott Alarm of Sarasota, Inc.; Scott Alarm of Savannah,
Inc.; Scott Alarm of St. Augustine, Inc.; Scott Alarm of Tallahassee, Inc.;
Scott Alarm of Tampa Bay, Inc.; Scott Alarm of West Palm Beach, Inc.; and TATS
Corporation of Jax d/b/a Scott Alarm Home Office (collectively, "Scott Security
Systems"; all Florida corporations affiliated through common ownership) as of
December 31, 1994, and the related combined statements of operations,
shareholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scott Security Systems as of
December 31, 1994, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
November 30, 1995.
99
<PAGE> 100
SCOTT SECURITY SYSTEMS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
ASSETS
------ (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 752,932 $ 453,723
Accounts receivable, net of allowance for doubtful accounts of $115,462
(unaudited) and $60,550, respectively. . . . . . . . . . . . . . . . . . 706,786 723,320
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,527 215,935
Current portion of deferred installation costs . . . . . . . . . . . . . . 4,732,174 2,359,976
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,139 21,977
----------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 6,581,558 3,774,931
----------- ------------
PROPERTY AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . . . . . . . 493,040 401,878
----------- ------------
OTHER ASSETS:
Deferred installation costs . . . . . . . . . . . . . . . . . . . . . . . 27,157,083 21,832,849
Intangible asset, net of accumulated amortization of $ 308,593 (unaudited)
and $212,462, respectively . . . . . . . . . . . . . . . . . . . . . . . 332,279 428,410
Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . 309,968
Security deposits and other. . . . . . . . . . . . . . . . . . . . . . . . 92,376 75,032
----------- ------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . 27,581,738 22,646,259
----------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,656,336 $ 26,823,068
=========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 946,405 $ 1,908,370
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,267,303 1,236,147
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,491 378,477
Due to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,254 25,704
Current portion of deferred revenue . . . . . . . . . . . . . . . . . . . 18,623,322 10,024,746
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . 259,484 27,006
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,451 -
----------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 21,628,710 13,600,450
----------- ------------
LONG-TERM LIABILITIES:
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,030,162 20,352,888
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . 2,291,660 115,289
Net deferred income tax liability . . . . . . . . . . . . . . . . . . . . 52,411 -
----------- ------------
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . 19,374,233 20,468,177
----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' DEFICIT (Note 6):
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,590 17,590
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 1,215,091 1,215,091
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (7,579,288) (8,478,240)
----------- ------------
Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . (6,346,607) (7,245,559)
----------- ------------
Total liabilities and shareholders' deficit . . . . . . . . . . . . $34,656,336 $ 26,823,068
=========== ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
100
<PAGE> 101
SCOTT SECURITY SYSTEMS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
Nine Months Ended September 30, December 31,
------------------------------- ------------
1995 1994 1994
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
INSTALLATION, MONITORING AND SERVICE REVENUE . . . . . . $15,372,432 $ 8,614,598 $ 12,930,773
INSTALLATION, MONITORING AND SERVICE COST OF SALES . . . 4,152,222 3,845,170 5,249,521
----------- ----------- ------------
Gross margin . . . . . . . . . . . . . . . . 11,220,210 4,769,428 7,681,252
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . . . . . 8,613,238 6,356,475 9,051,505
----------- ----------- ------------
Income (loss) from operations . . . . . . . . 2,606,972 (1,587,047) (1,370,253)
INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . 227,800 27,207 34,749
----------- ----------- ------------
Income (loss) before income tax provision . . 2,379,172 (1,614,254) (1,405,002)
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . 317,684 193,223 310,861
----------- ----------- ------------
Net income (loss) . . . . . . . . . . . . . . 2,061,488 (1,807,477) (1,715,863)
UNAUDITED PRO FORMA ADJUSTMENT TO REFLECT THE PROVISION
(BENEFIT) ON INCOME TAXES ON S-CORPORATION EARNINGS
(LOSSES) (Note 1) . . . . . . . . . . . . . . . . 633,985 (838,925) (872,862)
----------- ----------- ------------
Unaudited pro forma net income (loss)
(Note 1) . . . . . . . . . . . . . . . . . $ 1,427,503 $ (968,552) $ (843,001)
=========== =========== ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
101
<PAGE> 102
SCOTT SECURITY SYSTEMS
COMBINED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 . . . . . $12,100 $ 688,941 $ (4,448,887) $ (3,747,846)
Issuances of common stock . . . . 5,490 526,150 - 531,640
Net loss . . . . . . . . . . . . - - (1,715,863) (1,715,863)
Shareholder distributions . . . . - - (2,313,490) (2,313,490)
------- ---------- ------------ ------------
BALANCE, December 31, 1994 . . . . $17,590 $1,215,091 $ (8,478,240) $ (7,245,559)
======= ========== ============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
102
<PAGE> 103
SCOTT SECURITY SYSTEMS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------- Year Ended
1995 1994 December 31, 1994
-------------- -------------- -----------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 2,061,488 $ (1,807,477) $ (1,715,863)
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization . . . . . . . . . . . . . 200,508 251,494 391,729
Provision for doubtful accounts . . . . . . . . . . . . 54,912 34,869 46,624
Deferred income tax provision . . . . . . . . . . . . . 362,379 131,423 290,287
Changes in assets and liabilities:
Increase in accounts receivable . . . . . . . . . . (38,378) (121,936) (227,300)
Decrease in inventory . . . . . . . . . . . . . . . 62,408 205,312 179,240
Increase in security deposits and other . . . . . . (231,508) (157,906) (12,087)
Increase in accounts payable and accrued expenses . (639,236) 880,818 1,561,527
Increase in customer deposits . . . . . . . . . . . (133,986) 32,215 147,768
-------------- -------------- --------------
Net cash provided by (used in) operating activities . . . 1,698,587 (551,188) 661,925
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . . . (195,539) (125,322) (142,101)
Capitalized installation costs . . . . . . . . . . . . . . . . . (7,696,433) (9,669,498) (14,145,961)
-------------- -------------- --------------
Net cash used in investing activities. . . . . . . . . . . (7,891,972) (9,794,820) (14,288,062)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . . . . . . . - 300,000 300,000
Proceeds from borrowings from shareholders . . . . . . . . . . . 2,379,279 - 25,704
Proceeds from financing arrangements . . . . . . . . . . . . . . 5,275,851 11,707,285 15,729,016
Repayment of long-term debt . . . . . . . . . . . . . . . . . . - (13,123) (68,163)
Shareholder distributions . . . . . . . . . . . . . . . . . . (1,162,536) (1,525,621) (2,313,490)
-------------- -------------- --------------
Net cash provided by financing activities . . . . . . . . 6,492,594 10,468,541 13,673,067
-------------- -------------- --------------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . 299,209 122,533 46,930
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 453,723 406,793 406,793
-------------- -------------- --------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 752,932 $ 529,326 $ 453,723
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 202,705 $ 62,856 $ 78,719
============== ============== ==============
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 6,682 $ 6,682
============== ============== ==============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
103
<PAGE> 104
SCOTT SECURITY SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of Combination-
The combined financial statements include the accounts of Cana First
Corporation d/b/a Scott Security Systems; Scott Alarm of Birmingham, Inc.;
Scott Alarm of Charlotte, Inc.; Scott Alarm of Cocoa, Inc.; Scott Alarm of Fort
Myers, Inc.; Scott Alarm of Gainesville, Inc.; Scott Alarm of Jensen Beach,
Inc.; Scott Alarm of Lakeland, Inc.; Scott Alarm of Nashville, Inc.; Scott
Alarm of Orlando, Inc.; Scott Alarm of Sarasota, Inc.; Scott Alarm of Savannah,
Inc.; Scott Alarm of St. Augustine, Inc.; Scott Alarm of Tallahassee, Inc.;
Scott Alarm of Tampa Bay, Inc.; Scott Alarm of West Palm Beach, Inc.; and TATS
Corporation of Jax d/b/a Scott Alarm Home Office (collectively, "Scott Security
Systems" or the "Companies"), which are affiliated through common ownership.
All material intercompany transactions between the Companies have been
eliminated.
In the opinion of management, the unaudited combined financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the combined financial position of the Companies at
September 30, 1995, and the combined results of their operations and cash flows
for the nine months ended September 30, 1995 and 1994.
(b) Revenue Recognition-
The Companies install, monitor and service security alarm systems sold under
monitoring agreements with a three year base term. Upon installation, the
Companies generally sell their interest in the initial three year base term of
the monitoring agreements to a third party finance company on a non-recourse
basis after 30 days from the time of the sale. The Companies retain the
obligation to provide monitoring services over the three year term. The
Companies' interest in the customer accounts transfers back to the Companies
upon voluntary customer renewal after the expiration of the three year base
term. Installation, monitoring and service revenue under the monitoring
agreements are recognized as earned over the life of the contract.
(c) Allowance for Doubtful Accounts-
Amounts determined to be uncollectible by management are provided for in the
financial statements in the period in which such determination is made.
(d) Inventories-
Inventories consist primarily of parts used in installation and servicing.
Inventories are stated at the lower of cost or market, with cost being
determined using the specific identification method.
(e) Property and Equipment-
Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods for all major asset classes utilizing the following useful
lives:
<TABLE>
<S> <C>
Computers and office equipment . . . . . . . . . 5 years
Vehicles . . . . . . . . . . . . . . . . . . . . 5 years
Furniture and fixtures . . . . . . . . . . . . . 7 years
Building improvements . . . . . . . . . . . . . 10-15 years
</TABLE>
Repairs and maintenance costs are expensed as incurred.
104
<PAGE> 105
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
Depreciation and amortization expense on property and equipment was
approximately $264,000 in 1994.
(f) Deferred Installation Costs-
The Companies install, monitor and service security alarm systems sold under
monitoring agreements with a three year base term. The direct cost of
equipment, commissions and labor associated with system installations are
deferred and amortized as a cost of sales on a straight-line basis over the
estimated customer life of eight years.
(g) Income Taxes-
With the exception of Cana First Corporation, the Companies have elected
S-Corporation status (the "S-Corp. Companies") for income tax reporting
purposes. Accordingly, income or loss and the related differences that arise
in the recording of income and expense items for financial reporting and income
tax reporting purposes are included in the individual tax returns of the
shareholders of the S-Corp. Companies. The unaudited pro forma adjustment to
reflect income taxes on S-Corporation earnings included in the accompanying
combined statement of income is for informational purposes only. Such
unaudited pro forma income taxes have been provided to yield an overall
estimated pro forma income tax rate of 40 percent.
Cana First Corporation, a C-Corporation since its inception, accounts for
income taxes in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". Accordingly, deferred income
taxes have been provided for the effect of temporary differences between the
income tax bases of assets and liabilities and their reported amounts on the
combined financial statements (see Note 4).
For the nine months ended September 30, 1995 and 1994, income taxes have been
provided based upon Cana First Corporation's anticipated effective annual
income tax rate.
Upon closing of the merger transactions described in Note 7, the S-Corp.
Companies will no longer be eligible for S-Corporation status. At that time,
deferred income taxes will be recorded in accordance with SFAS No. 109.
Although the ultimate amount is not presently determinable, if deferred taxes
were recorded at September 30, 1995, the accumulated deficit would be reduced
by approximately $1,600,000 (unaudited).
(h) Intangible Assets-
Intangible assets reflect the fair value of the right granted by the majority
shareholder to certain new Companies which were opened to conduct business
under the Scott Security Systems name in exchange for common stock issued to
such majority shareholder. The right allows each new Company to utilize the
services and resources related to the product name. The intangible asset for
each Company is valued utilizing the estimated fair value of equity shares
issued. The intangible assets are being amortized over a period of five years.
Amortization expense for intangible assets was approximately $128,000 in 1994.
105
<PAGE> 106
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(2) PROPERTY AND EQUIPMENT, net:
Property and equipment, net, as of December 31, 1994, consist of the following:
<TABLE>
<S> <C>
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 396,046
Computers and office equipment . . . . . . . . . . . . . . . . . 203,004
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . 170,176
Building improvements . . . . . . . . . . . . . . . . . . . . . 81,413
----------
850,639
Less: Accumulated depreciation and amortization . . . . . . . (448,761)
----------
$ 401,878
==========
</TABLE>
(3) LONG-TERM DEBT:
At December 31, 1994, the Company had the following long-term indebtedness
outstanding:
<TABLE>
<S> <C>
Capital lease obligation to the Cit Group dated
November 12, 1993, at an interest rate of
8.99%, payable in monthly installments of $1,066,
due November 12, 2008, collateralized by certain
property and equipment of the Companies. . . . . . . . . . . . $ 101,353
Other office equipment and vehicle capital lease
obligations dated 1991-1994, at interest rates
of 8.00% to 16.93%, payable monthly, maturing
through May 1999, collateralized by certain office
equipment and vehicles of the Companies. . . . . . . . . . . . 40,942
----------
142,295
Less: current portion . . . . . . . . . . . . . . . . . . . . . (27,006)
----------
$ 115,289
==========
</TABLE>
The carrying value of the equipment purchased under the capital leases
approximates the amount of the lease obligations (see Note 5).
(4) INCOME TAXES:
The components of the income tax provision, which primarily represents federal
taxes, are as follows (in thousands):
<TABLE>
<S> <C>
Current . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,574
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . 290,287
----------
$ 310,861
==========
</TABLE>
106
<PAGE> 107
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
A reconciliation of income taxes at the statutory federal income tax rate
to the Companies' actual income tax provision as reported in the accompanying
combined statement of operations is shown below:
<TABLE>
<S> <C>
Federal income tax benefit at statutory rate of 34% . . . . . . $(477,701)
Tax effect of S Corporation losses, net . . . . . . . . . . . . . 735,740
State income taxes and other . . . . . . . . . . . . . . . . . . 52,822
---------
Actual income tax provision . . . . . . . . . . . . . . . $ 310,861
=========
Components of the net deferred income tax asset as of December 31, 1994 are shown below:
Deferred income tax assets:
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . $ 2,430,210
Allowance for doubtful accounts . . . . . . . . . . . . . . 8,726
-----------
2,438,936
Deferred income tax liability:
Deferred installation costs . . . . . . . . . . . . . . . . (2,128,968)
-----------
Net deferred income tax asset . . . . . . . . . . . . . . . . . $ 309,968
===========
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES:
The Company has entered into capital leases for office equipment, vehicles, and
other assets and has leased other vehicles and office equipment under operating
leases. Future minimum lease payments with respect to leases in effect at
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1995 . . . . . . . . . . . . . . . . . . . . . $ 40,067 $ 178,469
1996 . . . . . . . . . . . . . . . . . . . . . 21,723 165,348
1997 . . . . . . . . . . . . . . . . . . . . . 17,283 125,090
1998 . . . . . . . . . . . . . . . . . . . . . 15,523 42,548
1999 and thereafter . . . . . . . . . . . . . 127,960 -
--------- ---------
222,556 511,455
Less: amount representing interest . . . . . (80,261) -
--------- ---------
$ 142,295 $ 511,455
========= =========
</TABLE>
Rent expense under operating leases totaled $349,562 in 1994.
The Companies are involved in certain legal actions and claims arising in the
ordinary course of business. Based on the advice of legal counsel, it is the
opinion of management that such litigation and claims will be resolved without
a material impact on the Companies' combined financial position or results of
operations.
107
<PAGE> 108
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(6) SHAREHOLDERS' DEFICIT:
Common stock consists of the following authorized, issued and outstanding
shares as of December 31, 1994:
<TABLE>
<CAPTION>
Shares Issued
Shares and
Company Authorized Outstanding Par Value Amount
------- ---------- ------------- --------- ------
<S> <C> <C> <C> <C>
Cana First Corporation d/b/a Scott
Security Systems . . . . . . . . . . . . . . . . 20,000 10,000 $.10 $ 1,000
Scott Alarm of Birmingham, Inc. . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Charlotte, Inc. . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Cocoa, Inc. . . . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Fort Myers, Inc. . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Gainesville, Inc. . . . . . . . . . . 100,000 20,000 .10 2,000
Scott Alarm of Jensen Beach, Inc. . . . . . . . . . 100,000 14,900 .10 1,490
Scott Alarm of Lakeland, Inc. . . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Nashville, Inc. . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Orlando, Inc. . . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Sarasota, Inc. . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Savannah, Inc. . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of St. Augustine, Inc. . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Tallahassee, Inc. . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of Tampa Bay, Inc. . . . . . . . . . . . 100,000 10,000 .10 1,000
Scott Alarm of West Palm Beach, Inc. . . . . . . . . 100,000 10,000 .10 1,000
TATS Corporation of Jax d/b/a
Scott Alarm Home Office . . . . . . . . . . . . 100,000 1,000 .10 100
--------- ------- --------
1,620,000 175,900 $ 17,590
========= ======= ========
</TABLE>
(7) SUBSEQUENT EVENTS:
In August 1995, certain of the Companies executed promissory notes totaling
approximately $2,406,000 with a major supplier to provide working capital.
Principal payments are due monthly beginning January 1996 through December
1998, at one to five percent of the original principal balance. Interest is at
prime plus 2.5 percent, payable quarterly.
On November 30, 1995, the Companies merged with Republic Industries, Inc.
("Republic"), pursuant to a merger agreement, whereby Republic acquired all of
the outstanding capital stock of the Companies in exchange for approximately
1.6 million shares of Republic common stock.
108
<PAGE> 109
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., AND SUBSIDIARIES AND
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.
The following unaudited condensed consolidated pro forma financial statements
include the supplemental consolidated financial statements of Republic
Industries, Inc. and subsidiaries (the "Company") which include the results of
operations of the following entities: United Waste Service, Inc. ("United")
and Southland Environmental Services, Inc. ("Southland"), with which the
Company merged in October 1995; and J.C. Duncan Company, Inc. ("Duncan"),
Garbage Disposal Service, Inc. ("GDS"), Fennell Container Company, Inc.
("Fennell") and Scott Security Systems ("Scott"), with which the Company merged
in November 1995. These transactions have been accounted for under the pooling
of interests method of accounting and, accordingly, the Company's supplemental
consolidated financial statements have been retroactively adjusted as if the
Company and United, Southland, Duncan, GDS, Fennell and Scott had operated as
one entity since inception.
The following unaudited condensed consolidated pro forma statements of
operations for the nine months ended September 30, 1995 and the year ended
December 31, 1994 present the pro forma results of continuing operations of the
Company as if the acquisition of Hudson Management Corporation and subsidiaries
and Envirocycle, Inc. ("HMC") had been consummated at the beginning of the
periods presented. The statements of operations also contain proforma
adjustments related to a series of equity transactions involving the sale of
common stock and warrants (the "Equity Transactions") as if the Equity
Transactions had occurred at the beginning of the periods presented. These
unaudited pro forma condensed consolidated financial statements should be read
in conjunction with the respective historical and supplemental consolidated
financial statements and notes thereto of the Company, HMC, United, Southland,
Duncan, GDS, Fennell and Scott.
The unaudited pro forma income from continuing operations per common and
common equivalent share is based on the combined weighted average number of
common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of warrants and options.
Unless otherwise presented, the difference between primary and fully diluted
earnings per share is not significant. In computing the unaudited pro forma
income from continuing operations per common and common equivalent share, the
Company utilizes the modified treasury stock method. When using the modified
treasury stock method, the proceeds from the assumed exercise of all warrants
and options are assumed to be applied to first purchase 20% of the outstanding
common stock, then to reduce outstanding indebtedness and the remaining
proceeds are assumed to be invested in U.S. government securities or commercial
paper. The increase to income from continuing operations, net of tax, from
such interest savings and interest income was $0 for the nine months ended
September 30, 1995 and approximately $1,509,000 for the year ended December 31,
1994.
The unaudited condensed consolidated pro forma financial statements were
prepared utilizing the accounting policies of the respective entities as
outlined in their historical financial statements except as described in the
accompanying notes. The acquisition of HMC was accounted for under the
purchase method of accounting. Accordingly, the unaudited condensed
consolidated pro forma financial statements reflect the Company's preliminary
allocation of purchase price of HMC which will be subject to further
adjustments as the Company finalizes the allocation of the purchase price in
accordance with generally accepted accounting principles. The unaudited pro
forma condensed consolidated results of operations do not necessarily reflect
actual results which would have occurred if the acquisition or Equity
Transactions had taken place on the assumed dates, nor are they necessarily
indicative of the results of future combined operations.
109
<PAGE> 110
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES AND
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE ---------------------
COMPANY HMC COMBINED DR. CR. PRO FORMA
-------- ------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . $ 185,207 $33,201 $218,408 $218,408
Expenses:
Cost of operations. . . . . . . . . . . . 123,805 21,772 145,577 $1,004(a) $ 289(b) 146,292
Selling, general and
administrative. . . . . . . . . . . . . 40,549 9,298 49,847 447(c) 49,400
Other (income) expense:
Interest and other income . . . . . . . . (2,710) - (2,710) (2,710)
Interest expense. . . . . . . . . . . . . 3,951 489 4,440 4,440(d) -
--------- ------- -------- ------ ------ --------
165,595 31,559 197,154 1,004 5,176 192,982
--------- ------- -------- ------ ------ --------
Income from continuing operations
before income taxes . . . . . . . . . . . 19,612 1,642 21,254 1,004 5,176 25,426
Income tax provision . . . . . . . . . . . . 6,985 657 7,642 1,553(e) 9,195
--------- ------- -------- ------ ------ --------
Income from continuing operations. . . . . . $ 12,627 $ 985 $ 13,612 $2,557 $5,176 $ 16,231
========= ======= ======== ====== ====== ========
Primary:
Earnings per share from continuing
operations. . . . . . . . . . . . . . . $ 0.24 $ 0.21
========= ========
Weighted average common and common
equivalent shares outstanding . . . . . 52,937 75,883
========= ========
Fully Diluted:
Earnings per share from continuing
operations. . . . . . . . . . . . . . . $ 0.23 $ 0.20
========= ========
Weighted average common and common
equivalent shares outstanding . . . . . 54,909 81,799
========= ========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
110
<PAGE> 111
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES AND
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE ---------------------
COMPANY HMC COMBINED DR. CR. PRO FORMA
-------- ------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ $ 187,111 $48,003 $235,114 $ 235,114
Expenses:
Cost of operations.................. 123,877 35,048 158,925 $ 1,722 (a) $ 494 (b) 160,153
Selling, general and
administrative.................... 41,730 9,444 51,174 1,787 (c) 49,387
Other (income) expense:
Interest and other income........... (989) - (989) (989)
Interest expense.................... 4,222 505 4,727 4,727 (d) --
--------- ------- -------- ------- ------ ---------
168,840 44,997 213,837 1,722 7,008 208,551
--------- ------- -------- ------- ------ ---------
Income from continuing operations
before income taxes................. 18,271 3,006 21,277 1,722 7,008 26,563
Income tax provision................... 3,839 1,269 5,108 1,882 (e) 6,990
--------- ------- -------- ------- ------ ---------
Income from continuing operations...... $ 14,432 $ 1,737 $ 16,169 $ 3,604 $7,008 $ 19,573
========= ======= ======== ======= ====== =========
Earnings per share from continuing
operations.......................... $ 0.32 $ 0.31
========= =========
Weighted average common and common
equivalent shares outstanding....... 45,545 68,814
========= =========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
111
<PAGE> 112
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
(a) Represents a net adjustment related to the elimination of the historical amortization of
intangible assets and the recording of amortization, on a straight-line basis, on the intangible
assets resulting from the preliminary purchase price allocation of HMC. Intangible assets
resulting from the purchase of HMC are being amortized over a 40 year life which approximates
the estimated useful life.
(b) Represents a reduction to depreciation expense resulting from the revision of estimated lives of
acquired property and equipment of HMC to conform with the Company's policies.
(c) Represents the contractual reduction of salary and benefits of the sellers of HMC.
(d) Represents the assumed interest savings on the payoff of all existing indebtedness of the
Company and HMC with the proceeds from the Equity Transactions.
(e) Represents the incremental change in the combined entity's provision for income taxes as a
result of the pre-tax earnings of HMC and all pro forma adjustments as described above.
</TABLE>
112
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC INDUSTRIES, INC.
Date: December 22, 1995 By: /s/ Gregory K. Fairbanks
------------------------
Gregory K. Fairbanks,
Chief Financial Officer and
Executive Vice President
113
<PAGE> 114
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- -------- -------
<S> <C>
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Jones and Kolb
23.3* Consent of Hendrix Sutton & Associates LLP
23.4* Consent of Farris, Cook and Associates
23.5* Consent of Gamble, Givens & Moody P.A.
</TABLE>
- ----------
* Filed herewith.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K/A, into the previously
filed Registration Statements of Republic Industries, Inc. on Forms S-3
(Registration Nos. 33-61649, 33-62489 and 33-63735) and S-8 (Registration No.
33-93742).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
December 19, 1995.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated November 4, 1994 on the Financial Statements
of United Waste Service, Inc. included in this Form 8-K/A into Republic
Industries, Inc.'s previously filed Registration Statements on Forms S-3
(Registration Nos. 33-61649, 33-62489 and 33-63735) and S-8 (Registration No.
33-93742).
JONES AND KOLB
Atanta, Georgia
December 20, 1995.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated September 7, 1995 (except as to Note 14 which
is as of November 11, 1995) on the Combined Financial Statements of J. C.
Duncan Company, Inc. and affiliates included in this Form 8-K/A into Republic
Industries, Inc.'s previously filed Registration Statements on Forms S-3
(Registration Nos. 33-61649, 33-62489 and 33-63735) and S-8 (Registration No.
33-93742).
HENDRIX SUTTON & ASSOCIATES LLP
Arlington, Texas,
December 20, 1995.
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated November 22, 1994 on the Financial Statements
of Garbage Disposal Service, Inc. included in this Form 8-K/A into Republic
Industries, Inc.'s previously filed Registration Statements on Forms S-3
(Registration Nos. 33-61649, 33-62489 and 33-63735) and S-8 (Registration No.
33-93742).
FARRIS, COOK AND ASSOCIATES P.A.
Charlotte, North Carolina,
December 20, 1995
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated November 20, 1995 on the Combined Financial
Statements of Fennell Container Co., Inc. and affiliates included in this Form
8-K/A into Republic Industries, Inc.'s previously filed Registration Statements
on Forms S-3 (Registration Nos. 33-61649, 33-62489 and 33-63735) and S-8
(Registration No. 33-93742).
GAMBLE, GIVENS & MOODY P.A.
North Charleston, South Carolina,
December 20, 1995
