<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1995.
REGISTRATION NO. 33-63209
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
REPUBLIC WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
------------------------
4953
(Primary Standard Industrial Classification Code Number)
<TABLE>
<S> <C> <C>
DELAWARE 200 EAST LAS OLAS BLVD., 73-1105145
(STATE OR OTHER JURISDICTION STE. 1400 (I.R.S. EMPLOYER
OF INCORPORATION OR FORT LAUDERDALE, FLORIDA 33301 IDENTIFICATION NO.)
ORGANIZATION) (305) 761-8333
</TABLE>
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
------------------------
GREGORY K. FAIRBANKS Copy to:
Executive Vice President JONATHAN L. AWNER
Republic Waste Industries, Inc. AKERMAN, SENTERFITT & EIDSON, P.A.
200 East Las Olas Blvd., One Brickell Square
Suite 1400 801 Brickell Avenue
Ft. Lauderdale, Florida 33301 Suite 2400
(305) 761-8333 Miami, Florida 33131
(305) 374-5600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
REPUBLIC WASTE INDUSTRIES, INC.
(CROSS REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-1 LOCATION OR CAPTION
ITEM NUMBER AND CAPTION IN PROSPECTUS
-------------------------------------------- ------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Page of
Prospectus Inside Front Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Description of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters and Experts
11. Information with Respect to the Registrant Price Range of Common Stock and Dividend
Policy; Selected Consolidated Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Properties; Legal
and Administrative Proceedings;
Management; Executive Compensation;
Security Ownership of Certain Beneficial
Owners and Management; Certain
Relationships and Related Transactions;
Financial Statements.
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Not Applicable
</TABLE>
i
<PAGE> 3
PROSPECTUS
6,000,000 SHARES
(Republic Waste Industries, Inc. LOGO)
COMMON STOCK
---------------------
This Prospectus relates to an aggregate of 6,000,000 shares (the "Shares")
of common stock, par value $.01 per share ("Common Stock"), of Republic Waste
Industries, Inc., a Delaware corporation (the "Company"), which may be offered
and issued from time to time by the Company in connection with future
acquisitions of other businesses, properties or equity and/or debt securities in
business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus may also be used, with the Company's prior consent, by
persons or entities who have received or will receive such Shares in connection
with such acquisitions and who wish to offer and sell such Shares under
circumstances requiring or making desirable its use and by certain donees of
such persons or entities. See "Plan of Distribution."
The Company will receive no portion of the proceeds from the sale of the
Shares offered hereby and will bear certain expenses incident to their
registration. See "Use of Proceeds."
The Common Stock is traded on The Nasdaq Stock Market ("Nasdaq") under the
symbol "RWIN" and is listed on The Toronto Stock Exchange (the "Toronto
Exchange") and trades under the symbol "RWI." On September 29, 1995, the last
reported sales price for the Common Stock as reported by Nasdaq was $23.125 per
share.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
THE CAPTION "RISK FACTORS" LOCATED ON PAGE 5 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
October 11, 1995
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 10
Price Range of Common Stock and
Dividend Policy..................... 10
Selected Consolidated Financial
Data................................ 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 20
Properties............................ 29
Legal and Administrative
Proceedings......................... 29
Management............................ 32
Executive Compensation................ 36
Security Ownership of Certain
Beneficial Owners and Management.... 39
Certain Relationships and
Related Transactions................ 41
Description of Capital Stock.......... 42
Plan of Distribution.................. 42
Legal Matters and Experts............. 43
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and, in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy and information
statements and other information concerning the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's
regional offices located at Northwest Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and at Seven World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Commission at prescribed rates through its Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Common Stock is traded on Nasdaq and
listed on the Toronto Exchange. Information filed by the Company with Nasdaq and
the Toronto Exchange may be inspected at the offices of Nasdaq at 1735 K Street,
N.W., Washington, D.C. 20006 and at the offices of the Toronto Exchange at The
Exchange Tower, 2 First Canadian Place, Toronto, Ontario, Canada MX5 1J2.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Shares offered hereby
(including all amendments and supplements thereto, the "Registration
Statement"). This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto can be inspected and copied at the public
reference facilities and regional offices of the Commission and at the offices
of Nasdaq and the Toronto Exchange referred to above.
2
<PAGE> 5
PROSPECTUS SUMMARY
THE COMPANY
The Company, acting through its subsidiaries, primarily provides integrated
solid waste collection, disposal and recycling services to public and private
sector customers. The Company currently owns or operates nine solid waste
landfills with three located in Texas, two in California and one each in
Michigan, North Carolina, Indiana and North Dakota with approximately 1,143
permitted acres and total available permitted disposal capacity of approximately
43.7 million in-place cubic yards as of September 30, 1995. The Company also
currently owns fourteen collection companies providing collection service to
over 212,000 residential, commercial and industrial customers, primarily in
areas surrounding its landfill sites and in Florida. In addition, the Company
provides related environmental services including engineering, consulting and
analysis, remediation and other technical services. The Company, through certain
recently acquired subsidiaries, also is engaged in the electronic security
services business, which consists of the sale, installation, and maintenance of
electronic security systems for commercial and residential use as well as the
continuous electronic monitoring of installed security systems.
The Company's strategy is to act aggressively in growing as an integrated
solid waste management company by acquiring and integrating existing solid waste
collection, disposal and recycling businesses, and to expand its recently
acquired electronic security services business by internal growth and by making
additional acquisitions in that industry. Further, the Company currently
anticipates expanding its operations outside of solid waste management,
electronic security services and related lines of business. Management also
plans to augment its growth strategy by expanding its existing facilities and
increasing marketing efforts related to securing additional long-term contracts
and additional volumes at its existing operations.
See "Business -- Acquisitions".
On August 3, 1995, following a special meeting of the Company's
stockholders, the Company appointed a new management team consisting of H. Wayne
Huizenga as Chairman of the Board and Chief Executive Officer, Harris W. Hudson
as President and a Director, Gregory K. Fairbanks as an Executive Vice President
and Chief Financial Officer, and John J. Melk as a Director. Michael G.
DeGroote, former Chairman, Chief Executive Officer and President, was named Vice
Chairman of the Board, and Donald E. Koogler resigned as a Director but remains
as an Executive Vice President and Chief Operating Officer. This new management
team is implementing the aggressive growth strategy for the Company.
The Common Stock of the Company is traded on Nasdaq under the trading
symbol "RWIN," and is also listed on the Toronto Exchange and trades under the
symbol "RWI." The Company's principal executive offices are located at 200 East
Las Olas Boulevard, Suite 1400, Ft. Lauderdale, Florida 33301, and its telephone
number is (305) 761-8333.
RECENT DEVELOPMENTS
Private Placement Transaction. On September 7, 1995, the Company issued
and sold 5,000,000 shares of Common Stock in a private placement transaction for
$20.25 per share resulting in net proceeds of approximately $100 million after
deducting fees and commissions.
Acquisition of Kertz Security Systems. On August 28, 1995, the Company
issued 1,090,000 shares of Common Stock in exchange for all of the outstanding
shares of common stock of Kertz Security Systems II, Inc. and Kertz Security
Systems, Inc. (together, "Kertz"). Kertz provides electronic security monitoring
and maintenance to over 30,000 residential and commercial customers
predominantly in the South Florida, Tampa and Orlando areas.
Acquisition of Southland Environmental Services. On August 24, 1995, the
Company entered into a merger agreement for the acquisition of Southland
Environmental Services, Inc. ("Southland") in exchange for an aggregate of
2,600,000 shares of Common Stock, subject to pending regulatory approvals and
customary closing conditions. The acquisition of Southland is expected to close
in October 1995 and will be accounted for as a pooling of interests business
combination. Southland, through its subsidiaries, provides solid waste
collection services to over 70,000 residential, commercial and industrial
customers in and around Jacksonville, Florida, owns and operates a construction
and demolition landfill, and provides composting and recycling services.
3
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following Summary Consolidated Financial Data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company's Consolidated Financial Statements and Notes
thereto and other financial and pro forma information included elsewhere in this
Prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2), (3), (4), (6):
Revenue................................................ $29,919 $23,957 $48,766 $41,095 $35,341 $27,040 $15,776
Income (loss) from continuing operations before
income taxes(1)...................................... $ 5,376 $ 4,148 $ 8,503 $(3,695) $ 4,789 $ 4,799 $(1,552)
Income (loss) from continuing operations(1)............ $ 4,242 $ 4,148 $ 8,503 $(3,905) $ 4,676 $ 3,017 $ (931)
Earnings (loss) per common and common equivalent share
from continuing operations........................... $ 0.15 $ 0.15 $ 0.31 $ (0.14) $ 0.18 $ 0.16 $ (0.10)
Weighted average common and common equivalent shares... 28,929 27,470 27,417 27,508 26,351 19,245 9,132
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(2), (3), (4), (5), (6):
Working capital (deficiency)............................. $ 5,275 $ 4,136 $ 3,577 $ 1,867 $ 12,936 $(2,961)
Short-term debt, including current maturities of
long-term debt......................................... $ 1,254 $ 1,293 $ 1,776 $ 2,334 $ 2,499 $ 7,172
Long-term debt, net of current maturities................ $ 17,995 $ 14,926 $ 14,193 $ 2,575 $ 3,530 $ 6,906
Stockholders' equity..................................... $ 69,588 $ 87,969 $ 77,620 $ 97,255 $ 96,611 $41,263
Total assets............................................. $116,932 $132,441 $121,236 $128,107 $127,677 $67,873
</TABLE>
- ---------------
(1) Includes restructuring and unusual charges of $10,040,000, $2,250,000 and
$1,544,000 in 1993, 1992 and 1991, respectively. See Note 4 of Notes to
Consolidated Financial Statements included elsewhere in this Prospectus.
(2) In April 1995, the Company spun-off its hazardous waste services segment,
Republic Environmental Systems, Inc., to the Company's stockholders of
record as of April 21, 1995. Accordingly, this segment was accounted for as
a discontinued operation and the Company's Consolidated Financial Statements
for all periods presented have been restated to report separately the net
assets and operating results of these discontinued operations.
(3) In 1992, the Company acquired Stout Environmental, Inc. ("Stout") in a
merger transaction accounted for under the pooling-of-interests method of
accounting. Accordingly, the financial data presented above for periods
prior to that date has been restated as if the Company and Stout had
operated as one entity since inception.
(4) In 1992, the Company sold its demolition and excavation subsidiary and the
Consolidated Financial Statements were restated to reflect the demolition
and excavation operations as a discontinued operation for periods prior to
that date.
(5) On August 3, 1995, the Company issued and sold an aggregate of 8,350,000
shares of Common Stock and warrants to purchase an additional 16,700,000
shares of Common Stock to Mr. Huizenga, Westbury (Bermuda) Ltd (a company
controlled by Mr. DeGroote) and Mr. Hudson. Also on August 3, 1995, the
Company issued and sold an additional 1,000,000 shares of Common Stock each
to Mr. Huizenga and Mr. Melk. On July 24, 1995, the Company issued and sold
5,400,000 shares of Common Stock in a private placement transaction. On
September 7, 1995, the Company issued and sold 5,000,000 shares of Common
Stock in an additional private placement transaction. See the Company's
unaudited Condensed Consolidated Pro Forma Financial Statements included
elsewhere in this Prospectus.
(6) On August 3, 1995, the Company issued 8,000,000 shares of Common Stock in
exchange for all of the outstanding shares of common stock of Hudson
Management Corporation and Envirocycle, Inc. On August 28, 1995, the Company
issued 1,090,000 shares of its Common Stock in exchange for all of the
outstanding shares of common stock of Kertz. On August 24, 1995, the Company
entered into a definitive agreement to acquire all of the outstanding common
stock of Southland in exchange for 2,600,000 shares of Common Stock of the
Company. See the Company's unaudited Condensed Consolidated Pro Forma
Financial Statements included elsewhere in this Prospectus.
(7) No cash dividends were declared on the Company's Common Stock during the
periods presented. See "Price Range of Common Stock and Dividend Policy."
4
<PAGE> 7
RISK FACTORS
AN INVESTMENT IN THE SHARES BEING OFFERED HEREBY INVOLVES A SIGNIFICANT
DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, PROSPECTIVE PURCHASERS OF THE SHARES SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE COMPANY.
CONTROL OF THE COMPANY. H. Wayne Huizenga, Chairman of the Board and Chief
Executive Officer of the Company, Michael G. DeGroote, Vice Chairman of the
Board of the Company, Harris W. Hudson, a Director and the President of the
Company (and Mr. Huizenga's brother-in-law), and John J. Melk, a Director of the
Company, beneficially own 14,000,000, 16,750,000, 9,800,000, and 1,350,000
shares of Common Stock (including presently exercisable warrants and options for
an aggregate of 12,900,000 shares of Common Stock), respectively, as of
September 21, 1995, or an aggregate of 59.1% of the issued and outstanding
shares of Common Stock as of September 21, 1995 assuming all of such warrants
and options are exercised. Although there is no agreement among any of Messrs.
Huizenga, DeGroote, Hudson or Melk to vote together on any matters submitted to
a vote of the Company's stockholders, if Messrs. Huizenga, Hudson, DeGroote and
Melk vote together, they would have the ability to control the outcome of most
matters submitted to a vote of the Company's stockholders, especially with
respect to the election of directors.
DEPENDENCE ON KEY PERSONNEL. The Company believes that the experience and
success that its management team has had in operating and growing public and
private service companies, in general, and public and private companies in the
waste management industry, in particular, is important to the Company's future
success. However, there can be no assurance that its management team will have
the same success in operating and growing the Company as it has had with other
companies in the past. Furthermore, the Company has not entered into
non-competition agreements or employment agreements with any of Messrs.
Huizenga, Hudson or Gregory K. Fairbanks, the Company's Chief Financial Officer
and an Executive Vice President. The loss of the services of any of the members
of its management team, in general, or Mr. Huizenga in particular (whether such
loss is through resignation or otherwise), could have a material adverse effect
on the operations and future success of the Company.
POSSIBLE DEPRESSING EFFECT OF FUTURE SALES OF COMMON STOCK. Future sales
of the Shares or the perception that such sales could occur could adversely
affect the market price of the Common Stock. There can be no assurance as to
when, and how many of, the Shares will be sold and the effect such sales may
have on the market price of the Common Stock. On August 11, 1995, the Company
registered for sale, from time to time on a continuous basis under a shelf
registration statement, by certain selling stockholders an aggregate of
54,458,375 shares of Common Stock, of which 36,313,375 were issued and
outstanding and 18,145,000 were reserved for issuance pursuant to certain
outstanding options and warrants. On September 22, 1995, the Company registered
for sale, from time to time on a continuous basis under a shelf registration
statement, by certain selling stockholders an aggregate of 6,090,000 shares of
Common Stock. In addition, the Company has issued and intends to issue in the
future Common Stock and/or options or warrants to purchase Common Stock pursuant
to exemptions from registration available under the Securities Act in connection
with certain of its acquisitions. Such securities are subject to resale in
accordance with the Securities Act and the regulations promulgated thereunder.
As such restrictions lapse or if such shares are registered for sale to the
public, such securities may be sold into the public market. To facilitate the
issuance of Common Stock in making acquisitions, the Company is registering the
Shares hereunder. In the event of the issuance and subsequent resale of a
substantial number of shares of Common Stock, or a perception that such sales
could occur, there could be a material adverse effect on the prevailing market
price of the Common Stock.
DILUTION. The issuance of additional shares of Common Stock upon exercise
of outstanding and presently exercisable warrants, or upon the Company's
completion of any acquisitions and business combinations, may have a dilutive
effect on earnings per share and will have a dilutive effect on the voting
rights of the holders of Common Stock.
5
<PAGE> 8
ABSENCE OF OPERATING HISTORY IN POSSIBLE EXPANSION OF EXISTING
OPERATIONS. Management currently contemplates expanding the Company's
operations outside of solid waste management and related lines of business and,
in connection therewith, changing the name of the Company. On August 28, 1995,
the Company entered the electronic security services industry through the
acquisition of an existing business which provides electronic security services.
The Company has no history of operations in the electronic security services
industry or any industry other than solid waste management and related lines of
business. There can be no assurance that the Company will be successful in the
electronic security services industry or in any other industry which it enters.
There can be no assurance that the Company will enter into any additional
industries unrelated to the solid waste services industry or, if it does enter
into any such industries, that it will achieve the results anticipated by
management.
NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL. The Company's current business
strategy is to act aggressively in growing as an integrated solid waste
management company by acquiring and integrating existing solid waste companies
and recycling businesses, and to expand its recently acquired electronic
security services business by internal growth and by making additional
acquisitions in that industry. Further, the Company currently anticipates
expanding the Company's operations outside of solid waste management, electronic
security services and related lines of business. Although the Company has
substantially no debt and has approximately $206 million in cash available for
general corporate purposes, principally to finance acquisitions, the Company
believes that substantial additional capital will be necessary to fully
capitalize on acquisition and expansion opportunities that may become available
to the Company. Accordingly, the Company intends to replace the Company's
existing credit facility (which was reduced by the Company in the third quarter
of 1995 to a $10 million letter of credit facility and currently has
approximately $5.3 million of available borrowing capacity) with a substantially
larger credit facility. However, there can be no assurance that such additional
financing will be available, or, in the event that it is, that it will be
available on terms acceptable to the Company. In the event that such financing
is not available or is not available in the amounts or on terms currently
contemplated by management, the implementation of the Company's acquisition
strategy could be materially and adversely affected.
IMPEDIMENTS TO COMPLETING FUTURE ACQUISITIONS. The Company's acquisition
strategy depends on its ability to identify and acquire appropriate solid waste
collection operations and landfills, electronic security systems businesses, and
other unrelated service businesses, to integrate the acquired operations
effectively and to increase its market share. A number of the Company's
competitors for such acquisitions are larger, better known companies than the
Company with significantly greater financial resources. There can be no
assurance that the Company will be able to locate acquisition candidates in
markets or on terms the Company deems attractive, that any identified candidates
will be acquired, or that acquired operations will be effectively integrated to
realize expected efficiencies and economies of scale or prove profitable. The
completion of acquisitions requires the expenditure of sizeable amounts of
capital, and the intense competition among companies pursuing similar
acquisition strategies may increase capital requirements. The Company could be
forced to alter its strategy in the future if such candidates become unavailable
or too costly. As the Company continues to pursue its acquisition strategy in
the future, its financial position and results of operations may fluctuate
significantly from period to period.
RISKS ASSOCIATED WITH ACQUISITIONS. Although the Company investigates each
business that it acquires, there may be liabilities that the Company fails or is
unable to discover, including liabilities arising from non-compliance with
environmental laws by prior owners, and for which the Company, as a successor
owner, may be responsible. The Company seeks to minimize the impact of these
liabilities by obtaining indemnities and warranties from the seller which may be
supported by deferring payment of a portion of the purchase price. However,
these indemnities and warranties, if obtained, may not fully cover the
liabilities due to their limited scope, amounts, or duration, the financial
limitations of the indemnitor or warrantor, or other reasons.
ENVIRONMENTAL REGULATION. The collection and disposal of solid wastes,
operation of landfills and rendering of related environmental services are
subject to federal, state and local requirements which regulate health, safety,
the environment, zoning and land-use. Operating permits are generally required
for landfills and certain collection vehicles, and these permits are subject to
revocation, modification and
6
<PAGE> 9
renewal. Federal, state and local regulations vary, but generally govern
disposal activities and the location and use of facilities and also impose
restrictions to prohibit or minimize soil, air and water pollution. In
connection with landfills, it often may be necessary to expend considerable
time, effort and money to bring the Company's existing or acquired facilities
into compliance with applicable requirements and to obtain the permits and
approvals necessary to increase their capacity. In addition, governmental
authorities have the power to enforce compliance with these regulations and to
obtain injunctions or impose fines in the case of violations, including criminal
penalties. These regulations are administered by the United States Environmental
Protection Agency (the "EPA") and various other federal, state and local
environmental and health and safety agencies and authorities, including the
Occupational Safety and Health Administration of the United States Department of
Labor. Certain of the Company's waste disposal operations traverse state
boundaries. Although such operations currently constitute an immaterial portion
of the Company's business, their importance may increase as the Company
completes future acquisitions. Such operations could be adversely affected if
the federal government or a state in which a landfill is located limits or
prohibits, imposes discriminatory fees on or otherwise seeks to discourage the
disposal, within state boundaries, of waste collected outside of the state.
Subtitle D of the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), establishes a framework for regulating the storage, collection
and disposal of non-hazardous solid wastes. In the past, the Subtitle D
framework has left the regulation of non-hazardous waste storage, collection and
disposal largely to the states. However, in October 1991, the EPA promulgated a
final rule which imposes minimum federal comprehensive solid waste management
criteria and guidelines for disposal facilities and operations, including
location restrictions, facility design and operating criteria, closure and
post-closure requirements, financial assurance standards, groundwater monitoring
requirements and corrective action standards, many of which have not commonly
been in effect or enforced in connection with solid waste landfills. States are
required to revise their landfill regulations to meet these requirements.
Because some parts of the new regulations will be phased in over time, the full
effect of these regulations may not be felt for several years. However, other
than for groundwater monitoring and financial assurance requirements, all
provisions of the final rule became effective in October 1993. All of the
Company's planned landfill expansions or new landfill development projects have
been engineered to meet or exceed these requirements. Operating and design
criteria for existing operations have been modified to comply with these new
regulations. There can be no assurance that the EPA will not promulgate similar
regulations under Subtitle D in connection with the collection of non-hazardous
solid waste.
HAZARDOUS SUBSTANCES LIABILITY. The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("Superfund" or "CERCLA"),
has been interpreted by some courts to impose strict, joint and several
liability on current and former owners or operators of facilities at which there
has been a release or a threatened release of a "hazardous substance" and on
persons who generate, transport or arrange for the disposal of such substances
at the facility. Thousands of substances are defined as "hazardous" under CERCLA
and their presence, even in minute amounts, can result in substantial liability.
The statute provides for the remediation of contaminated facilities and imposes
costs on the responsible parties. The expense of conducting such a cleanup and
the damages can be very significant and, given the limitations in insurance
coverage for these risks, could have a material adverse impact on the Company's
business and financial condition. Notwithstanding its efforts to comply with
applicable regulations and to avoid transporting and receiving hazardous
substances, such substances may be present in waste collected by the Company or
disposed in its landfills, or in waste collected, transported or disposed in the
past by acquired companies. More than 20% of the sites on the EPA's National
Priorities List of Hazardous Waste Sites are solid waste landfills that
ostensibly never received any "hazardous wastes." The Company intends to
continue to focus on the non-hazardous waste disposal market and does not intend
to acquire or develop hazardous waste disposal operations. As used in this
Prospectus, "non-hazardous waste" means substances, including asbestos, that are
not defined as hazardous wastes under federal regulations.
LACK OF ENVIRONMENTAL LIABILITY INSURANCE. The majority of the Company's
facilities currently carry site-specific pollution legal liability insurance,
which may provide coverage under certain circumstances for pollution damage to
third parties. In addition, the Company has certain contractors' pollution
liability insurance and professional liability insurance, which may provide
coverage under certain
7
<PAGE> 10
circumstances for damage to third parties. However, both of these coverages are
restrictive in nature, as they are subject to certain exclusions and effective
dates, consistent with insurance industry requirements. In addition, such
coverage is subject to specific and aggregate limits which may not be sufficient
to cover claims, if they should arise. In certain prior years, consistent with
industry experience, the Company was not able to obtain broad pollution
insurance at reasonable costs and, therefore, carried only such coverage as was
required by regulatory permits. In addition, the extent of insurance coverage
under certain forms of policies has been the subject in recent years of
litigation in which insurance companies have, in some cases, successfully taken
the position that certain risks are not covered by such policies. If, in the
absence of such insurance, the Company were to incur liability for environmental
damages of sufficient magnitude, it could have a material adverse effect on the
Company's business and financial condition.
RISKS OF PENDING AND FUTURE LEGAL PROCEEDINGS. In addition to the costs of
complying with environmental regulations, waste management companies will
continue to be involved in legal proceedings in the ordinary course of business.
Government agencies may seek to impose fines on the Company for alleged failure
to comply with laws and regulations or to deny, revoke or impede the renewal of
the Company's permits and licenses. In addition, such governmental agencies, as
well as surrounding landowners, may claim the Company is liable for
environmental damage. Citizen's groups have become increasingly active in
challenging the grant or renewal of permits and licenses, and responding to such
challenges has further increased the costs associated with permitting new
facilities or expanding current facilities. A significant judgment against the
Company, the loss of a significant permit or license or the imposition of a
significant fine could have a material adverse effect on the Company's financial
condition. The Company is currently a party to various legal proceedings as well
as environmental proceedings which have arisen in the ordinary course of its
business. No assurance can be given with respect to the outcome of these legal
and environmental proceedings and the effect such outcomes may have on the
Company. Unfavorable resolution of any matter individually or in the aggregate
could adversely affect the results of operations for the quarterly periods in
which they are resolved.
SEASONALITY. The Company believes that its collection and landfill
operations can be adversely affected by protracted periods of inclement weather
which could delay the development of landfill capacity or the transfer of waste
and/or reduce the volume of waste generated. There can be no assurance that
protracted periods of inclement weather will not have a material adverse effect
on the Company's future results of operations.
COMPETITION IN THE SOLID WASTE INDUSTRY; LANDFILL ALTERNATIVES. The waste
industry is highly competitive. Entry into the industry and ongoing operations
within the industry require substantial technical, managerial and financial
resources. The non-hazardous waste industry is led by three large national waste
management companies and numerous regional and local companies, all of which
contribute to the high level of competition that characterizes the industry.
Some of these companies have significantly greater financial and operational
resources and more established market positions than the Company. In addition,
the Company must often compete with municipalities that maintain their own waste
collection and landfill operations and often have financial advantages due to
the availability of tax revenues and tax-exempt financing.
Further, alternatives to landfill disposal (such as recycling, composting
and waste-to-energy) are increasingly competing with landfills. There also has
been an increasing trend at the state and local levels to mandate waste
reduction at the source and to prohibit the disposal of certain types of wastes,
such as yard wastes, at landfills. This may result in the volume of waste going
to landfills being reduced in certain areas, which may affect the Company's
ability to operate its landfills at their full capacity and/or affect the prices
that can be charged for landfill disposal services. In addition, most of the
states in which the Company operates landfills have adopted plans or
requirements which set goals for specified percentages of certain solid waste
items to be recycled. To the extent these are not yet in place, these recycling
goals will be phased in over the next few years.
COMPETITION IN THE ELECTRONIC SECURITY SERVICE INDUSTRY. The security
alarm industry is highly competitive and highly fragmented. The Company's
electronic security systems
8
<PAGE> 11
business competes with five large national companies, as well as smaller
regional and local companies, in all of its operations. Furthermore, new
competitors are continuing to enter the industry and the Company may encounter
additional competition from such future industry entrants. Certain of the
Company's competitors have greater financial and other resources than the
Company. There can be no assurance that the Company will be able to compete
effectively in the future.
"FALSE" ALARM ORDINANCES. The Company believes that approximately 95% of
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false" alarms. Significant concern
has arisen in certain municipalities about this high incidence of "false"
alarms. This concern could cause a decrease in the likelihood or timeliness of
police response to alarm activations and thereby decrease the propensity of
consumers to purchase or maintain alarm monitoring services. Recently, a trend
has emerged on the part of local governmental authorities to consider or adopt
various measures aimed at reducing the number of "false" alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting "false" alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of "false" alarms, (ii)
imposing fines on alarm subscribers for "false" alarms, (iv) imposing
limitations on the number of times the police will respond to alarms at a
particular location after a specified number of "false" alarms, and/or (v)
requiring further verification of an alarm signal before the police will
respond. Enactment of such measures could adversely affect the Company's
electronic security services business and operations.
GEOGRAPHIC CONCENTRATION OF COMPANY'S ELECTRONIC SECURITY SYSTEMS BUSINESS;
RISKS OF POTENTIAL EXPANSION. The existing subscriber base of the Company's two
subsidiaries in the electronic security system business is geographically
concentrated in certain metropolitan areas of Florida. Accordingly, their
performance may be adversely affected by regional or local economic conditions,
regulation or other factors. The Company may from time to time make acquisitions
in regions outside of its current operating areas. In order for the Company to
expand successfully into a new area, the Company must obtain a sufficient
number, and density, of subscriber accounts in such area to support the
additional investment. There can be no assurance that an expansion into new
geographic areas would generate operating profits.
9
<PAGE> 12
USE OF PROCEEDS
This Prospectus relates solely to Shares being registered for issuance from
time to time in connection with future acquisitions of other business,
properties or equity and/or debt securities in business combination
transactions. The Company will not receive any proceeds from the sale of such
Shares but will pay all expenses related to the registration of the Shares.
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Company's Common Stock has been traded on Nasdaq under the symbol
"RWIN" since September 4, 1990. The following table sets forth, for the periods
indicated, the high and low closing sales prices for the Common Stock as quoted
on Nasdaq.
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ ------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
----------------------------- ---- ----- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
March 31..................... 4 1/1 3 1/8 3 9/16 2 3/4 5 3/8 4 1/2
June 30...................... 13 5/8 3 3/16 3 1/2 2 11/16 4 1/4 3 3/8
September 30................. 26 1/16 13 3 9/16 3 4 1/8 3 1/2
December 31.................. -- -- 4 3 1/4 3 7/8 2 13/16
</TABLE>
On September 29, 1995, the closing sales price of the Common Stock as
reported by Nasdaq was $23.125 per share. The number of record holders of the
Common Stock as of September 29, 1995, was 1,895.
The Company's Common Stock also has been listed on the Toronto Exchange
since November 21, 1991.
Since commencement of operations as a waste management and environmental
services company in December 1989, the Company has not declared or paid any
dividends on its Common Stock and the Board of Directors does not currently
anticipate paying dividends on its Common Stock at any time in the foreseeable
future. The payment of dividends on Common Stock is presently prohibited under
the terms of the Company's revolving credit facility.
10
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company's Consolidated Financial Statements and Notes
thereto and other financial and pro forma information included elsewhere in this
Prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2), (3), (4), (6):
Revenue................................................ $29,919 $23,957 $48,766 $41,095 $35,341 $27,040 $15,776
Income (loss) from continuing operations before
income taxes(1)...................................... $ 5,376 $ 4,148 $ 8,503 $(3,695) $ 4,789 $ 4,799 $(1,552)
Income (loss) from continuing operations(1)............ $ 4,242 $ 4,148 $ 8,503 $(3,905) $ 4,676 $ 3,017 $ (931)
Earnings (loss) per common and common equivalent share
from continuing operations........................... $ 0.15 $ 0.15 $ 0.31 $ (0.14) $ 0.18 $ 0.16 $ (0.10)
Weighted average common and common equivalent shares... 28,929 27,470 27,417 27,508 26,351 19,245 9,132
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(2), (3), (4), (5), (6):
Working capital (deficiency)............................. $ 5,275 $ 4,136 $ 3,577 $ 1,867 $ 12,936 $(2,961)
Short-term debt, including current maturities of
long-term debt......................................... $ 1,254 $ 1,293 $ 1,776 $ 2,334 $ 2,499 $ 7,172
Long-term debt, net of current maturities................ $ 17,995 $ 14,926 $ 14,193 $ 2,575 $ 3,530 $ 6,906
Stockholders' equity..................................... $ 69,588 $ 87,969 $ 77,620 $ 97,255 $ 96,611 $41,263
Total assets............................................. $116,932 $132,441 $121,236 $128,107 $127,677 $67,873
</TABLE>
- ---------------
(1) Includes restructuring and unusual charges of $10,040,000, $2,250,000 and
$1,544,000 in 1993, 1992 and 1991, respectively. See Note 4 of Notes to
Consolidated Financial Statements included elsewhere in this Prospectus.
(2) In April 1995, the Company spun-off its hazardous waste services segment,
Republic Environmental Systems, Inc., to the Company's stockholders of
record as of April 21, 1995. Accordingly, this segment was accounted for as
a discontinued operation and the Company's Consolidated Financial Statements
for all periods presented have been restated to report separately the net
assets and operating results of these discontinued operations.
(3) In 1992, the Company acquired Stout Environmental, Inc. ("Stout") in a
merger transaction accounted for under the pooling-of-interests method of
accounting. Accordingly, the financial data presented above for periods
prior to that date has been restated as if the Company and Stout had
operated as one entity since inception.
(4) In 1992, the Company sold its demolition and excavation subsidiary and the
Consolidated Financial Statements were restated to reflect the demolition
and excavation operations as a discontinued operation for periods prior to
that date.
(5) On August 3, 1995, the Company issued and sold an aggregate of 8,350,000
shares of Common Stock and warrants to purchase an additional 16,700,000
shares of Common Stock to Mr. Huizenga, Westbury (Bermuda) Ltd and Mr.
Hudson. Also on August 3, 1995, the Company issued and sold an additional
1,000,000 shares of Common Stock each to Mr. Huizenga and Mr. Melk. On July
24, 1995, the Company issued and sold 5,400,000 shares of Common Stock in a
private placement transaction. On September 7, 1995, the Company issued and
sold 5,000,000 shares of Common Stock in an additional private placement
transaction. See the Company's unaudited Condensed Consolidated Pro Forma
Financial Statements included elsewhere in this Prospectus.
(6) On August 3, 1995, the Company issued 8,000,000 shares of Common Stock in
exchange for all of the outstanding shares of common stock of Hudson
Management Corporation and Envirocycle, Inc. On August 28, 1995, the Company
issued 1,090,000 shares of its Common Stock in exchange for all of the
outstanding shares of common stock of Kertz. On August 24, 1995, the Company
entered into a definitive agreement to acquire all of the outstanding common
stock of Southland in exchange for 2,600,000 of Common Stock of the Company.
See the Company's unaudited Condensed Consolidated Pro Forma Financial
Statements included elsewhere in this Prospectus.
(7) No cash dividends were declared on the Company's Common Stock during the
periods presented. See "Price Range of Common Stock and Dividend Policy."
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
GENERAL
The Company will continue its strategy of growing as an integrated solid
waste management company by acquiring and integrating existing solid waste
collection, disposal and recycling businesses. Management anticipates focusing
on acquiring companies that are in markets which can utilize the Company's
existing landfill facilities, as well as in markets with attractive, stable
third party disposal rates. Further, management anticipates expanding the
Company's operations beyond solid waste and electronic security services into
other service industries, resulting in a more diversified service company.
Management intends to evaluate various types of service industries which are
capital intensive, fragmented and have relatively high profit margins, seek out
strategic acquisition opportunities in such industries and grow rapidly in such
industries through further acquisitions, consolidation and internal growth.
Management anticipates that the Company will make acquisitions in the future
through the issuance of Common Stock, with the proceeds from the equity
transactions consummated in the third quarter of 1995, or from borrowings under
a credit facility (see Liquidity and Capital Resources). Accordingly, management
contemplates that the Company will replace its existing credit facility with a
substantially larger credit facility, the proceeds from which will be used,
among other things, to make acquisitions and to expand the Company's existing
operations.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
In April 1995, the Company distributed the stock of its hazardous waste
services subsidiary to the Company's stockholders (see "-- Discontinued
Operations"). The following discussion excludes the operational activity and
results of the hazardous waste services segment of the Company, which has been
included in the accompanying Consolidated Financial Statements as discontinued
operations for the periods prior to the distribution.
The following table presents, for the periods indicated, the percentage
relationship which certain captioned items in the Company's unaudited Condensed
Consolidated Statements of Operations bear to total revenue and other pertinent
data:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenue....................................................... 100.0% 100.0% 100.0% 100.0%
Cost of operations............................................ 66.7 64.7 65.5 63.4
Selling, general and administrative expenses.................. 13.1 15.4 14.4 17.5
----- ----- ----- -----
Operating income.............................................. 20.2% 19.9% 20.1% 19.1%
===== ===== ===== =====
</TABLE>
REVENUE
Revenue increased 23.2% from $13.1 million in the second quarter of 1994 to
$16.2 million in the second quarter of 1995 due primarily to the acquisition of
businesses in late 1994 and early 1995, as well as increased volume at existing
operations. For the six months ended June 30, 1995, revenue increased 24.9% to
$29.9 million from $24.0 million in the first six months of 1994. This increase
was primarily due to the same factors.
COST OF OPERATIONS AND OPERATING INCOME
Cost of operations increased $2.3 million, or 27.0%, from $8.5 million in
the second quarter of 1994 to $10.8 million in the second quarter of 1995. As a
percentage of revenue, these costs were 66.7% and 64.7% in
12
<PAGE> 15
the second quarter of 1995 and 1994, respectively. The increase in cost of
operations as a percentage of revenue is attributable to the acquisition of
collection businesses in late 1994 and early 1995, which typically have slightly
higher operating costs than landfill operations. Cost of operations increased
28.9% from $15.2 million in the six month period ended June 30, 1994 to $19.6
million in the six month period ended June 30, 1995. As a percentage of revenue,
these costs increased from 63.4% in 1994 to 65.5% in 1995 as a result of the
acquisition of collection businesses, as discussed above.
Selling, general and administrative expenses increased slightly from $2.0
million in the second quarter of 1994 to $2.1 million in the second quarter of
1995. These expenses decreased from 15.4% to 13.1% of revenue in the second
quarter of 1994 and 1995, respectively, largely due to the Company's continued
commitment to reduce and control selling, general and administrative expenses by
implementing efficiencies and automation within the Company's administrative
functions and the increase in the Company's revenue.
For the six months ended June 30, 1995, selling, general and administrative
expenses increased to $4.3 million from $4.2 million in 1994 due primarily to
business acquisitions. As a percentage of revenue, these expenses decreased from
17.5% to 14.4% for the six months ended June 30, 1994 and 1995, respectively.
The Company constantly reviews its selling, general and administrative costs
throughout its businesses in an effort to maintain control of the level of
spending for such costs.
INTEREST EXPENSE
Interest expense increased from approximately $0.3 million in the second
quarter of 1994 to $0.4 million in the second quarter of 1995. For the six
months ended June 30, 1995, interest expense increased to approximately $0.8
million from approximately $0.5 million for the same period in 1994. These
increases are primarily attributable to increased borrowings to finance
acquisitions during late 1994 and early 1995, as well as a slight increase in
interest rates.
INCOME TAXES
As part of its tax planning to reduce cash outlays for taxes, the Company
employs a number of strategies such as combining entities to reduce state income
taxes and recapturing taxes previously paid by acquired companies, among others.
When the Company determines that deferred tax assets for which it had previously
recorded no benefit are realizable, the impact is recorded as "tax reserve
adjustments" in the tax provision. The Company's income tax provision for the
first quarter of 1995 was entirely offset by such adjustments and the Company's
income tax provision of 38% for the six months ended June 30, 1995 was reduced
to an effective tax rate of approximately 21% as a result. The Company's 38% tax
provision for the three and six month ended June 30, 1994 was entirely offset by
tax reserve adjustments and change in valuation allowance.
INCOME AND EARNINGS PER SHARE
Income from continuing operations decreased to $1.9 million, or $0.06 per
share, in the second quarter of 1995 from $2.4 million, or $0.09 per share, in
the second quarter of 1994. As discussed above, this decrease is a result of a
38.0% income tax provision in the 1995 period versus a zero effective tax rate
for the same period in 1994. For the six months ended June 30, 1995, income from
continuing operations increased slightly to $4.2 million, or $0.15 per share,
from $4.1 million, or $0.15 per share, in 1994. The 1994 period does not include
a tax provision for the first six months of 1994, as discussed above.
ENVIRONMENTAL AND LANDFILL MATTERS
The Company provides for accrued environmental and landfill costs which
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 U.S. Environmental Protection
Agency's Subtitle D regulations. These estimates do not take into account
discounts for the present value of such total estimated costs. The Company
13
<PAGE> 16
periodically reassesses its methods and assumptions used to estimate such
accruals for environmental and landfill costs and adjusts such accruals
accordingly. Such factors considered are changing regulatory requirements, the
effects of inflation, changes in operating climates in the regions in which the
Company's facilities are located and the expectations regarding costs of
securing environmental services.
DISCONTINUED OPERATIONS
In February 1995, the Board of Directors approved a plan for the
distribution of the stock of the Company's hazardous waste services subsidiary,
Republic Environmental Systems, Inc. ("RESI"), to the Company's stockholders of
record. On April 26, 1995, the Company's stockholders received one share of
RESI's common stock for every five shares of Common Stock owned on April 21,
1995 and approximately 5.4 million RESI shares were distributed to the Company's
stockholders (the "Distribution"). RESI's common stock commenced trading on
Nasdaq 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 for periods prior to the
Distribution. See "Discontinued Operations" under "Results of Operations" for
the three years ended December 31, 1994 and see Note 2 of Notes to Consolidated
Financial Statements included herein.
LIQUIDITY AND CAPITAL RESOURCES
On August 3, 1995, following a special meeting of the Company's
stockholders, the Company issued and sold an aggregate of 8,350,000 shares of
Common Stock and warrants to purchase an additional 16,700,000 shares of Common
Stock to Mr. Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled
by Mr. DeGroote) and Mr. Hudson, and certain of their assigns for an aggregate
purchase price of $37,575,000. The warrants are exercisable at prices ranging
from $4.50 to $7.00 per share for periods ranging from two to four years. Also
on August 3, 1995, the Company issued and sold an additional 1,000,000 shares of
Common Stock each to Mr. Huizenga and Mr. Melk for an aggregate purchase price
of $26,500,000 (collectively, the "Equity Investment").
On July 24, 1995, the Company issued and sold 5,400,000 shares of Common
Stock in a private placement transaction for $13.25 per share, less fees and
commissions, for net proceeds of approximately $70.2 million. On September 7,
1995, the Company issued and sold 5,000,000 shares of Common Stock in an
additional private placement transaction for $20.25 per share, less fees and
commissions, for net proceeds of approximately $100 million.
As a result of these transactions, the Company received approximately $234
million in cash in the third quarter of 1995. The Company used a portion of
these proceeds to repay certain borrowings, including debt of acquired
companies. As a result, the Company currently has cash on hand of approximately
$206 million for general corporate purposes.
The Company made capital expenditures of $3.5 million in the first six
months of 1995, which included funds for the expansion of landfill sites, fixed
assets for normal replacement and market development. Management anticipates
continuing making capital expenditures for the construction of new airspace,
upgrading existing equipment and facilities and complying with current and
proposed regulations during the remainder of 1995, and expects that these
expenditures may significantly exceed those made during the first six months due
to growth of the company and business acquisitions.
Cash flow from operations increased from $4.9 million in the first six
months of 1994 to $5.9 million in the first six months of 1995. The Company used
this operating cash flow in the first six months of 1995 to repay existing
indebtedness, repurchase common stock and make capital expenditures. The Company
has in the past made capital expenditures from cash on hand and operating cash
flow and anticipates continuing to do so in the remainder of 1995.
14
<PAGE> 17
At June 30, 1995, the Company's line of credit consisted of a $35.0 million
revolving line of credit facility which was bearing interest at the Eurodollar
Offered Rate plus 1.5% (8.25% as of June 30, 1995). The facility included a line
of credit with $10.0 million available for standby letters of credit. During the
third quarter of 1995, the Company reduced this facility to a $10.0 million
letter of credit facility, which currently has approximately $5.3 million of
available borrowing capacity. The Company intends to replace this facility with
a substantially larger revolving credit facility.
As previously discussed, the Company will continue to pursue acquisitions
in the solid waste, electronic security service and other selected service
industries and anticipates financing acquisitions with the proceeds from the
above-mentioned equity transactions as well as from the issuance of Common
Stock. Management believes that the Company currently has sufficient cash and
lines of credit to fund current operations and make acquisitions; however,
substantial additional capital may be necessary to fully implement the Company's
aggressive acquisition program.
In October 1994, the Board of Directors authorized the Company to continue
its stock repurchase program and to repurchase up to 1.3 million shares or 4.8%
of its outstanding Common Stock, through October 1995. Through September 1995,
65,000 shares were repurchased for an aggregate value of approximately $0.2
million and were subsequently retired. The Company's stock repurchase program
expires on October 31, 1995 and currently the Company does not plan to
repurchase additional common stock.
FINANCIAL CONDITION AT JUNE 30, 1995 COMPARED TO DECEMBER 31, 1994
The increase in goodwill from $11.3 million as of December 31, 1994 to
$13.0 million as of June 30, 1995 is attributable to the acquisition of a solid
waste collection company completed in the first quarter of 1995.
Net assets of discontinued operations decreased from $20.3 million as of
December 31, 1994 to zero as of June 30, 1995 due to the Distribution of the
hazardous waste services segment which was consummated in April 1995.
The increase in long-term debt, net of current maturities, from $14.9
million as of December 31, 1994 to $18.0 million as of June 30, 1995 is
primarily attributable to borrowings made under the Company's existing line of
credit to finance the acquisition of a solid waste company in the first quarter
of 1995.
Total stockholders' equity decreased from $88.0 million as of December 31,
1994 to $69.6 million as of June 30, 1994 primarily due to the Distribution of
the hazardous waste services segment in April 1995, offset by net income in the
first six months of 1995.
THREE YEARS ENDED DECEMBER 31, 1994
GENERAL
The Company is an integrated solid waste management company providing
collection, disposal and recycling services to the public and private sectors
and providing certain complementary environmental services, including
engineering and remediation. A major component of the Company's growth strategy
was the acquisition of existing solid waste landfills and, to a lesser extent,
collection, recycling and environmental services businesses which complement the
Company's existing facilities.
Revenue. The Company's revenue from landfill operations is comprised
primarily of tipping fees charged to third parties. The Company's revenue from
its collection operations consists of fees from residential, commercial and
industrial customers. Revenue from the Company's engineering and remediation
operations results from contracts which are generally awarded on a competitive
bid basis.
Expenses. Landfill cost of operations includes most daily operating
expenses, the legal and administrative costs of ongoing environmental
compliance, costs of capital for cell development and accruals for closure and
post-closure costs. Certain direct landfill development costs, such as
engineering, upgrading, cell construction and permitting costs, are capitalized
and depleted based on consumed airspace. All indirect landfill development
costs, such as executive salaries, general corporate overhead, public affairs
and other
15
<PAGE> 18
corporate services are expensed as incurred. Cost of operations for the
Company's collection operations is primarily variable and includes disposal,
labor, fuel and equipment maintenance costs. Cost of operations associated with
the engineering and remediation businesses includes primarily labor, costs of
subcontractors and supplies.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
In 1994, the Company pursued a plan to exit the hazardous waste services
segment of the environmental industry. The plan provided for the combination of
the Company's hazardous waste services operations in RESI and the distribution
of the stock of RESI to the Company's stockholders in 1995. The following
discussion excludes the operational activity and results of the hazardous waste
services segment of the Company, which has been included in the accompanying
Consolidated Financial Statements for all periods presented as discontinued
operations.
The following table presents, for the years indicated, the percentage
relationship which certain captioned items in the Company's Consolidated
Statements of Operations bear to total revenues and other pertinent data:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue...................................................... 100.0% 100.0% 100.0%
Cost of operations........................................... 63.1 61.8 64.3
Selling, general and administrative expenses................. 17.4 21.5 21.3
Restructuring and unusual charges............................ -- 24.4 6.4
------- ------- ------
Operating income............................................. 19.5% (7.7)% 8.0%
======= ======= ======
</TABLE>
Revenue
Revenue increased 18.7% from $41.1 million in 1993 to $48.8 million in 1994
due primarily to the acquisition of businesses, as well as internal growth and
selective price increases. Revenue increased 16.3% from $35.3 million in 1992 to
$41.1 million in 1993. This increase was primarily due to increased revenue
contributed by businesses acquired in the last half of 1992 and internal growth
reflecting price and volume increases.
Cost of Operations and Operating Income
Cost of operations increased $5.4 million, or 21.2%, from $25.4 million in
1993 to $30.8 million in 1994. As a percentage of revenue, these costs were
61.8% and 63.1% in 1993 and 1994, respectively. The increase in cost of
operations as a percentage of revenue is attributable to the acquisition of
collection businesses in 1994, which typically have slightly higher operating
costs than landfill operations. Cost of operations increased 11.9% from $22.7
million in 1992 to $25.4 million in 1993. As a percentage of revenue, these
costs decreased from 64.3% in 1992 to 61.8% in 1993 as a result of price
increases and the implementation of cost reduction measures.
Selling, general and administrative expenses decreased from $8.9 million in
1993 to $8.5 million in 1994, or 4.0%. These expenses decreased as a percentage
of revenue from 21.5% in 1993 to 17.4% in 1994, largely due to the Company's
continued commitment to reduce and control selling, general and administrative
expenses by implementing efficiencies and automation within the Company's
administrative functions. From 1992 to 1993, selling, general and administrative
expenses increased from $7.5 million to $8.9 million due primarily to business
acquisitions. As a percentage of revenue, these expenses were approximately 21%
for both periods. The Company constantly reviews its selling, general and
administrative costs throughout its businesses in an effort to maintain control
of the level of spending for such costs.
16
<PAGE> 19
Restructuring and Unusual Charges
In 1993, the Company recorded restructuring and unusual charges of $10.0
million based on the Company's reevaluation of its solid waste operations. As a
result of this reevaluation, the Company decided to terminate certain contracts,
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. The write-off of property and equipment
and accumulated permitting costs associated with these facilities were included
in these restructuring and unusual charges. 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. In addition, the Company also reevaluated its exposure related to
litigation and environmental matters and provided additional accruals for the
costs to defend or settle certain litigation and environmental matters. For
further discussion of the restructuring and unusual charges, see Note 4 of Notes
to Consolidated Financial Statements included elsewhere in this Prospectus.
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 $2.2 million, which were recorded as
an unusual charge.
Interest and Other Income
Interest and other income was approximately $0.1 million for both 1994 and
1993. From 1992 to 1993, interest and other income decreased from $2.4 million
to $0.1 million, respectively, primarily as a result of the gain on the sale of
certain marketable securities purchased and sold in 1992.
Interest Expense
Interest expense increased from approximately $0.7 million in 1993 to $1.1
million in 1994. This increase is primarily attributable to increased borrowings
to finance acquisitions during 1994. Interest expense as a percentage of revenue
remained constant from 1992 to 1993 at an average of approximately 1.5%.
Income Taxes
The Company's income tax provision for 1994 was partially offset by the
decrease in the valuation allowance related to the expected realization of
deferred tax assets generated as a result of restructuring and unusual charges
incurred in the fourth quarter of 1993. The valuation allowance was recorded in
1993 due to the uncertainty surrounding the future utilization of such deferred
tax assets. The additional decrease in the tax provision for 1994 was a result
of tax planning strategies employed by the Company, such as combining entities
to reduce state income taxes, claiming tax credits not previously claimed,
recapturing taxes previously paid by acquired companies and adjustments for the
resolution of tax matters in amounts more favorable than those originally
estimated. The Company's effective tax rate for 1993 and 1992 was 5.7% and 2.4%,
respectively.
The Company changed methods of accounting for income taxes as a result of
the adoption of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," in 1992. SFAS No. 109 requires a change in
accounting for income taxes to an asset and liability approach. The cumulative
effect of this change was immaterial as the Company had previously accounted for
income taxes in accordance with SFAS No. 96, "Accounting for Income Taxes,"
which was similar in approach.
17
<PAGE> 20
Income and Earnings Per Share
The following table sets forth certain components of income from continuing
operations and related earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Income (loss) from continuing operations:
Income from continuing operations before restructuring and
unusual charges.......................................... $ 8,503 $ 6,135 $ 6,926
Restructuring and unusual charges -- 10,040 2,250
------- ------- -------
Income (loss) from continuing operations.................... $ 8,503 $(3,905) $ 4,676
======= ======= =======
Earnings (loss) per share:
Income from continuing operations before restructuring and
unusual charges.......................................... $ 0.31 $ 0.22 $ 0.26
Restructuring and unusual charges........................... -- (0.36) (0.08)
------- ------- -------
Income (loss) from continuing operations.................... $ 0.31 $ (0.14) $ 0.18
======= ======= =======
Weighted average shares outstanding........................... 27,417 27,508 26,351
======= ======= =======
</TABLE>
Income from continuing operations before restructuring and unusual charges
increased considerably from $6.1 million in 1993 to $8.5 million in 1994.
Earnings per share from continuing operations before restructuring and unusual
charges increased to $0.31 in 1994 from $0.22 in 1993. These increases are
attributable to the increase in the Company's revenue and continued cost control
efforts. From 1992 to 1993, income from continuing operations before
restructuring and unusual charges decreased from $6.9 million, or $0.26 per
share, to $6.1 million, or $0.22 per share, due to the gain on the sale of
marketable securities purchased and sold in 1992. Excluding the gain on the sale
of marketable securities, earnings per share from continuing operations before
restructuring and unusual charges in 1992 was $0.18.
Environmental and Landfill Matters
The Company provides for accrued environmental and landfill costs which
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 U.S. 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.
The Company periodically reassesses its methods and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which the Company's facilities are located and the expectations
regarding costs of securing environmental services.
DISCONTINUED OPERATIONS
Spin-off of the hazardous waste services segment. 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 the plan, subject to final approval
from the Board of Directors and the resolution of certain legal and financial
requirements. The plan provided 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 the Company.
18
<PAGE> 21
In February 1995, the Board of Directors approved the plan of distribution,
and on April 26, 1995, the Company's stockholders received one share of RESI's
common stock for every five shares of Common Stock owned of record on April 21,
1995. Approximately 5.4 million RESI shares were distributed to stockholders of
the Company. 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 for all periods
presented have been restated to report separately the net assets and operating
results of these discontinued operations. For further discussion of the
Distribution, see Note 2 of Notes to Consolidated Financial Statements included
herein.
Sale of the demolition and excavation subsidiary in 1992. In 1992, the
Company sold its demolition and excavation subsidiary and recorded a non-cash
loss on disposition of $17.6 million. 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.
FINANCIAL CONDITION AT DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993
Accounts receivable increased from $5.6 million as of December 31, 1993 to
$7.4 million as of December 31, 1994 due to the increase in the Company's
revenues and the acquisition of businesses in 1994.
The increase in goodwill from $6.9 million as of December 31, 1993 to $11.3
million as of December 31, 1994 is attributable to the acquisition of solid
waste companies completed in 1994.
Net assets of discontinued operations increased from $16.9 million as of
December 31, 1993 to $20.3 million as of December 31, 1994 due to net income
generated by the hazardous waste services segment in 1994 and the net increase
in the overall intercompany balance between the Company and the hazardous waste
services segment as a result of the net transactions between both entities.
The increase in accounts payable and accrued liabilities from $5.5 million
as of December 31, 1993 to $7.2 million as of December 31, 1994 is attributable
to the increase in the Company's operations and the acquisition of businesses in
1994.
Accumulated deficit decreased from $26.8 million to $15.6 million from
December 31, 1993 to December 31, 1994, respectively, due to the net income
generated by the Company in 1994.
19
<PAGE> 22
BUSINESS
INTRODUCTION
The Company, through its subsidiaries, provides integrated solid waste
disposal, collection and recycling services to public and private sector
customers. The Company currently owns and operates nine solid waste landfills
with three located in Texas, two in California and one each in Michigan, North
Carolina, Indiana and North Dakota with approximately 1,143 permitted acres and
total available permitted disposal capacity of approximately 47.3 million
in-place cubic yards as of September 30, 1995. The Company owns fourteen
collection companies providing collection service to over 212,000 residential,
commercial and industrial customers primarily in areas surrounding its landfill
sites and in Florida. The Company also provides a range of related environmental
services including engineering, consulting and analysis, remediation and other
technical services.
The Company, through certain recent acquisitions, also is engaged in the
electronic security services business, which consists of the sale, installation
and maintenance of electronic security systems for commercial and residential
use as well as the continuous electronic monitoring of installed security
systems. Currently, the Company monitors over 30,000 businesses and residences
predominately in the Miami/Fort Lauderdale, Orlando and Tampa, Florida areas.
On August 3, 1995, following a special meeting of the Company's
stockholders, the Company appointed a new management team consisting of H. Wayne
Huizenga as Chairman of the Board and Chief Executive Officer, Harris W. Hudson
as President and a Director, Gregory K. Fairbanks as an Executive Vice President
and Chief Financial Officer, and John J. Melk as a Director. Michael G.
DeGroote, former Chairman, Chief Executive Officer and President, was named Vice
Chairman of the Board, and Donald E. Koogler resigned as a Director but remains
as an Executive Vice President and Chief Operating Officer. This new management
team is implementing an aggressive growth strategy for the Company, pursuant to
which the Company will seek to quickly grow revenue and earnings by acquisitions
of solid waste companies, and also will seek to diversify the Company's
operations to include other service industries.
The Company's strategy is to act aggressively in growing as an integrated
solid waste management company by acquiring and integrating existing solid waste
collection, disposal and recycling businesses, and to expand its recently
acquired electronic security services business by internal growth and by making
additional acquisitions in that industry. Further, the Company currently
anticipates expanding the Company's operations outside of solid waste
management, electronic security services and related lines of business.
Management also plans to augment its growth strategy by expanding its existing
facilities and increasing marketing efforts related to securing additional
long-term contracts and additional volumes at its existing operations.
See "-- Acquisitions".
In 1994, the Company discontinued its hazardous waste services business
through the Distribution in April 1995 of that business segment to the Company's
stockholders. See "Results of Operations -- Discontinued Operations" under
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The Company was incorporated in Oklahoma in November 1980 and in May 1991
changed its state of domicile from Oklahoma to Delaware by means of a merger.
The Company's common stock is traded on Nasdaq under the trading symbol "RWIN,"
and is also listed on the Toronto Exchange and trades under the symbol "RWI".
ACQUISITIONS
ACQUISITION STRATEGY
The Company will continue its strategy of growing as an integrated solid
waste management company by acquiring and integrating existing solid waste
companies and recycling businesses. Further, management anticipates making
acquisitions to expand the Company's operations outside of solid waste
management, electronic security services and related lines of business,
resulting in a more diversified service company.
20
<PAGE> 23
Management intends to evaluate various types of service industries which are
capital intensive, fragmented and have relatively high profit margins, seek out
strategic acquisition opportunities in such industries and grow rapidly in such
industries through further acquisitions, consolidation and internal growth.
In expanding its solid waste operations, management anticipates focusing on
acquiring waste collection companies that are in markets which can utilize the
Company's existing landfill facilities, as well as in markets with attractive
third party disposal fees. The Company also may consider acquiring landfills
with significant permitted disposal capacity and certain levels of contracted
waste volume. In addition, the Company may focus on what it believes will be the
growing number of municipalities seeking to sell landfills, form joint ventures
or offer management contracts to operate landfills in response to the growing
technical and capital resources required by increasingly stringent federal,
state and local regulations.
The Company generally targets acquisitions in markets where it will be, or
can increase its market share to become, a significant provider of integrated
waste services in that market. These markets typically are outside major
metropolitan areas and tend to have concentrations of industrial businesses
requiring solid waste services. However, the Company is not limited to these
target market criteria, and as opportunities are identified, the Company may
acquire solid waste operations throughout North America.
In expanding its electronic security operations, the Company's primary goal
is to grow its customer base in the residential segments of the business. The
Company will target markets where it will be, or can increase its market share
to become, a significant provider of electronic security services. The Company
seeks to acquire security companies in high growth markets with strong recurring
monthly revenues derived from monitoring services. In addition, the Company will
seek to achieve economies of scale by acquiring security companies with accounts
that can be monitored through the Company's existing central monitoring station.
The Company intends to retain local management and sales personnel, where
appropriate.
The Company uses internal acquisition teams, its contacts in the solid
waste management and electronic security services industries and its
environmental service capabilities to identify, evaluate and acquire waste
management companies and electronic security services businesses in attractive
markets. Acquisition candidates are evaluated by the Company's internal
acquisition teams based on stringent criteria in a comprehensive process which
includes operational, legal and financial due diligence reviews.
RECENT ACQUISITIONS
Hudson Management Corporation and Envirocycle, Inc. On August 3, 1995, the
Company issued 8,000,000 shares of Common Stock in exchange for all of the
outstanding shares of common stock of Hudson Management Corporation and
Envirocycle, Inc. (together, "HMC"). HMC, as the third largest solid waste
management company in Florida, provides solid waste collection and recycling
services to over 150,000 commercial, industrial and residential customers.
Kertz Security Systems, Inc. and Kertz Security Systems II, Inc. On August
28, 1995, the Company issued 1,090,000 shares of Common Stock in exchange for
all of the outstanding shares of common stock of Kertz. The acquisition was
accounted for as a pooling-of-interests business combination. Kertz provides
electronic security monitoring and maintenance to over 30,000 residential and
commercial customers predominantly in the South Florida, Tampa and Orlando
areas.
Southland Environmental Services, Inc. On August 24, 1995, the Company
entered into a merger agreement for the acquisition of Southland in exchange for
an aggregate of 2,600,000 shares of Common Stock, subject to pending regulatory
approvals and customary closing conditions. The acquisition of Southland is
expected to close in October 1995 and will be accounted for as a
pooling-of-interests business combination. Southland, through its subsidiaries,
provides solid waste collection services to over 70,000 residential, commercial
and industrial customers in and around Jacksonville, Florida, owns and operates
a construction and demolition landfill, and provides composting and recycling
services.
See the Company's unaudited Condensed Consolidated Pro Forma Financial
Statements included elsewhere in this Prospectus.
21
<PAGE> 24
OPERATIONS
CONTINUING OPERATIONS
Currently, the Company has organized its continuing operations into two
general industry segments: (1) solid waste services and (2) electronic security
services.
SOLID WASTE SERVICES
The Company's solid waste operations include landfill, collection,
recycling and certain remediation services and related engineering and
consulting services.
LANDFILLS. The Company owns and operates nine solid waste landfills with
approximately 1,143 permitted acres and total available permitted disposal
capacity of approximately 47.3 million cubic in-place yards as of September 30,
1995. The in-place capacity of the Company's landfills is subject to change
based on engineering factors and requirements of regulatory authorities. Certain
of the landfills accept nonhazardous special waste, including utility ash,
asbestos and contaminated soils. The majority of the Company's landfill revenues
are derived from long-term integrated disposal and collection contracts with
industrial customers and municipalities and disposal contracts with certain
third party collection companies. The following table provides certain
information regarding these landfills as of September 30, 1995:
<TABLE>
<CAPTION>
UNUSED
TOTAL PERMITTED PERMITTED
LANDFILL NAME MARKETS SERVED ACREAGE ACREAGE ACREAGE
- ------------------------------ ------------------------------- ------- --------- ---------
<S> <C> <C> <C> <C>
Anderson...................... Northern California 1,200 150 100
C&T Regional.................. Rio Grande Valley, Texas 194 94 55
Cleveland Container........... Southwest North Carolina 169 116 86
Republic/CSC.................. North Central Texas 254 254 195
Republic/Imperial............. Southern California 160 120 89
Republic/Maloy................ East Central Texas 389 270 204
Taymouth...................... Central Michigan 138 43 19
Wabash Valley................. Northeast Indiana 103 56 16
St. John's.................... North Central North Dakota 150 40 33
------- --------- ---
2,757 1,143 797
======= ========= =========
</TABLE>
Each of the Company's existing landfill sites have the potential for
expanded disposal capacity beyond the currently permitted acreage. The Company
monitors the availability of permitted airspace at each of its landfills and
evaluates whether to pursue expansion at a given landfill based on estimated
future waste volumes, remaining capacity and likelihood of obtaining expansion.
Each of the Company's landfills currently has adequate permitted capacity;
however, the Company is currently seeking to expand permitted capacity at its
Wabash Valley and Republic/Maloy landfills in connection with favorable design
modifications.
COLLECTION. The Company's solid waste collection operations are of two
types: industrial and commercial/residential. The Company's strategy is to
acquire collection operations within the service areas of its landfills, such
that the operations can provide a steady stream of solid waste to its landfills,
and in areas with stable, attractive third party disposal fees.
In its industrial collection operations, the Company supplies its customers
with large waste containers known as "roll-off" containers. The Company collects
the roll-off containers on a set schedule, and transports the waste to a
landfill. Services are provided to individual facilities on a contract basis
with terms ranging from a single pickup to a one-year term.
The Company's commercial/residential collection operations involve the
curbside collection of refuse from small containers into collection vehicles for
transport to landfills. The Company provides collection service to over 212,000
residential, commercial and industrial customers. Commercial customers generally
are serviced pursuant to individual contracts which are for periods of up to
five years. Residential households generally are serviced pursuant to contracts
with municipal governments for collection in the municipality.
22
<PAGE> 25
The Company's contracts generally are secured by competitive bids (see
"-- Competition"). The Company currently provides commercial and residential
collection services in certain areas of California, Florida, Indiana, Maine,
North Carolina, North Dakota, and Texas.
RECYCLING. Management believes that recycling has and will continue to
become an increasingly important component of most major markets solid waste
management plans as a result of the public's increasing environmental awareness
and expanding federal and state regulations pertaining to waste recycling. The
Company currently provides recycling services through two of its subsidiaries,
HMC and Living Earth Technology Co. ("LETCO"). The services provided by HMC
include the curbside collection of recyclable waste; the operation of a facility
where recyclable waste is separated from other waste and is then compacted and
packaged for possible sale to third parties or disposal; and the provision of a
variety of recycling services, including the segregated collection of cardboard
boxes and construction debris for resale to paper manufacturers and others. In
Broward and Palm Beach Counties, Florida, HMC receives certain types of
commercial and industrial solid waste, which is sorted at its facilities into
recyclable materials and non-recyclable waste; the recyclable materials are
repackaged and sold to third parties and the non-recyclable waste is disposed of
at landfills or incinerators. LETCO recycles yard waste and timber by-products
by composting these materials and selling the end product to nurseries,
landscape architects and homeowners for landscape and gardening mulch. LETCO,
which owns proprietary, non-patented composting technology, has substantial
market share in the Houston and Dallas, Texas bulk compost markets. LETCO
currently accepts yard waste from the Houston and Dallas, Texas areas and timber
by-products from timber companies located in East Texas, Louisiana and Oklahoma.
REMEDIATION. The Company provides selected environmental remediation
services relating to the cleanup and containment of actual or threatened
releases of hazardous materials into the environment on both a planned and
emergency basis. The Company's solid waste division provides these services
through two subsidiaries, Environmental Specialists, Inc. ("ESI") in Kansas
City, Missouri and Laughlin Environmental, Inc. ("Laughlin") in Houston, Texas.
ESI is an EPA approved emergency response contractor and provides hazardous
spill cleanup and other special services on a contract basis. Laughlin provides
a broad range of environmental services including remediation and other
technical services.
ENGINEERING AND CONSULTING. The Company's solid waste segment provides
engineering and consulting services through Cascade Pacific Engineering, Inc.
("Cascade Pacific"), a subsidiary of the Company. Cascade Pacific specializes in
providing services in connection with the design and management of solid waste
facilities, including landfill management and design, source reduction and
recycling. Cascade Pacific also provides hydrogeological investigations,
contamination investigations, property transfer assessments, remediation design
and water and waste water systems design. In addition, Cascade Pacific provides
general civil engineering activities, some of which relate to its environmental
activities. Third parties utilizing Cascade Pacific's services include
municipalities, large industrial companies and other environmental service
companies.
ELECTRONIC SECURITY SERVICES
The Company, through its recently acquired Kertz subsidiaries, is engaged
in the electronic security services business, which consists of the sale,
installation and maintenance of electronic security systems for commercial and
residential use, as well as the continuous electronic monitoring of installed
security systems. Kertz sells and installs modern electronic devices in its
customers' businesses and residences to provide detection of events, such as
intrusion or fire. Kertz purchases the components of the systems it sells,
installs and maintains from various manufacturers. The products and services
marketed in the electronic security services industry by Kertz and others range
from basic residential systems that provide entry and fire detection to
sophisticated commercial systems incorporating closed circuit television systems
and access control. Detection systems may be continuously monitored by
centralized monitoring stations which are linked to the customer through
telephone lines. Kertz operates a central monitoring station in Fort Lauderdale,
Florida, from which it monitors over 30,000 businesses and residences
predominantly in the Miami/Fort Lauderdale, Orlando and Tampa, Florida areas by
local and long distance telephone lines. Upon detecting an intrusion or
23
<PAGE> 26
other event at a customer's business or residence, the central monitoring
station calls the customer and, if necessary, the local police, fire, ambulance
or other authorities.
DISCONTINUED OPERATIONS
On April 26, 1995, the Company completed the Distribution of its hazardous
waste services segment. 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 for all
periods presented have been retroactively restated to report separately the net
assets and operating results of these discontinued operations. For further
discussion of the Distribution, see "Results of Operations -- Discontinued
Operations" of Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2 of Notes to Consolidated Financial Statements
included herein.
SALES AND MARKETING
For solid waste services, the Company's sales and marketing strategy is to
provide full service environmental management to its customers. The Company
targets potential customers of all sizes from small quantity generators to large
"Fortune 500" companies, as well as municipalities.
In expanding its electronic security operations, the Company's primary goal
is to grow its customer base in both the commercial and residential segments of
the business. The Company will target markets where it will be, or can increase
its market share to become, a significant provider of electronic security
services.
The Company believes in maintaining a strong foundation of repeat business.
The Company derives its business from a broad clientele base which the Company
believes will enable it to experience stable growth. Marketing efforts focus on
continuing and increasing business with existing customers, as well as
attracting new clients.
CUSTOMERS
The Company's sales efforts are directed toward establishing and
maintaining business relationships with residences and businesses in areas in
which the Company operates, which have ongoing requirements for one or more of
the Company's services. During 1994, no one customer individually comprised more
than 5% of the total revenue of the Company.
REGULATION
The collection and disposal of solid waste, operation of landfills and
rendering of related environmental services are subject to federal, state and
local requirements which regulate health, safety, the environment, zoning and
land-use. Operating permits are generally required for landfills and certain
collection vehicles, and these permits are subject to revocation, modification
and renewal. Federal, state and local regulations vary, but generally govern
disposal activities and the location and use of facilities and also impose
restrictions to prohibit or minimize air and water pollution. In addition,
governmental authorities have the power to enforce compliance with these
regulations and to obtain injunctions or impose fines in the case of violations,
including criminal penalties. These regulations are administered by the EPA and
various other federal, state and local environmental, health and safety agencies
and authorities, including the Occupational Safety and Health Administration of
the U.S. Department of Labor.
The Company strives to conduct its operations in compliance with applicable
laws and regulations, but believes that in the existing climate of heightened
legal, political and citizen awareness and concerns, companies in the waste
management and environmental services industry, including the Company, may be
faced with fines and penalties and the need to expend funds for remedial work
and related activities at landfills. The Company has established a reserve to
cover any potential fines, penalties and costs which management believes will be
adequate. While such amounts expended in the past or anticipated to be expended
in the future have not had and are not expected to have a materially adverse
effect on the Company's financial
24
<PAGE> 27
condition or operations, the possibility remains that technological, regulatory
or enforcement developments, the results of environmental studies or other
factors could materially alter this expectation.
The Company's operation of landfills subjects it to certain operating,
monitoring, site maintenance, closure and post-closure obligations. In order to
construct, expand and operate a landfill, one or more construction or operating
permits, as well as zoning approvals, must be obtained. These operating permits
and zoning approvals are difficult and time-consuming to obtain, and the
issuance of such permits and approvals often is opposed by neighboring
landowners and local and national citizens' groups. Once obtained, the operating
permits may be subject to periodic renewal and are subject to modification and
revocation by the issuing agency. In connection with the Company's acquisition
of existing landfills, it often may be necessary to expend considerable time,
effort and money to bring the acquired facilities into compliance with
applicable requirements and to obtain the permits and approvals necessary to
increase their capacity.
Governmental authorities have the power to enforce compliance with
regulations and permit conditions and to obtain injunctions or impose fines in
case of violations. Citizens' groups may also bring suit for alleged violations.
During the ordinary course of its operations, the Company may from time to time
receive citations or notices from such authorities that its operations are not
in compliance with applicable environmental or health or safety regulations.
Upon receipt of such citations or notices, the Company will work with the
authorities to attempt to resolve the issues raised. Failure to correct the
problems to the satisfaction of the authorities could lead to monetary or
criminal penalties, curtailed operations or facility closure.
Federal Regulation. The following summarizes the primary environmental and
safety federal statutes of the United States of America affecting the business
of the Company:
(1) The Solid Waste Disposal Act ("SWDA"), as amended by the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"). SWDA and its
implementing regulations establish a framework for regulating the handling,
transportation, treatment and disposal of hazardous and nonhazardous solid
wastes. They also require states to develop programs to ensure the safe
disposal of solid wastes in sanitary landfills.
Subtitle D of RCRA establishes a framework for regulating the disposal
of municipal solid wastes. In the past, the Subtitle D framework has left
the regulation of municipal waste disposal largely to the states. On
October 9, 1991, however, the EPA promulgated a final rule which imposes
minimum federal comprehensive solid waste management criteria and
guidelines, including location restrictions, facility design and operating
criteria, closure and post-closure requirements, financial assurance
standards, groundwater monitoring requirements and corrective action
standards, many of which have not commonly been in effect or enforced in
connection with municipal solid waste landfills.
States were required by April 9, 1993, pursuant to specific criteria
published in a separate rule, to revise their landfill regulations to meet
these requirements. Because some parts of the new regulations will be
phased in over time, the full effect of these regulations may not be felt
for several years. However, other than for financial assurance
requirements, all provisions of the final rule became effective October 9,
1993. All of the Company's planned landfill expansions or new landfill
development projects have been engineered to meet or exceed these
requirements. Operating and design criteria for existing operations have
been modified to comply with these new regulations.
(2) The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended. CERCLA, among other things, provides
for the cleanup of sites from which there is a release or threatened
release of a hazardous substance into the environment. CERCLA imposes
liability for the costs of cleanup and for damages to natural resources
upon: (a) any person who currently owns or operates a facility or site from
which there is a release or threatened release of hazardous substances; (b)
any person who owned or operated such a facility or site at the time
hazardous substances were disposed of; (c) any person who by contract,
agreement or otherwise, arranged for the disposal or treatment (or for
transport for disposal or treatment) of hazardous substances owned or
processed by such person at such facility or site and (d) any person who
accepts or accepted hazardous substances for transport for treatment or
disposal at such a facility or site selected by such person. Under the
authority of
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CERCLA and its implementing regulations, detailed requirements apply to the
manner and degree of remediation of facilities and sites where hazardous
substances have been or are threatened to be released into the environment.
Among other things, CERCLA authorizes the federal government either to
remediate sites at which hazardous substances were disposed of and have
been or are threatened to be released into the environment, or to order (or
offer an opportunity to) persons potentially liable for the cleanup of the
hazardous substances to do so. In addition, CERCLA requires the EPA to
establish a National Priorities List ("NPL") of sites at which hazardous
substances have been or are threatened to be released and which require
investigation or cleanup.
Liability under CERCLA is not dependent upon the intentional disposal
of "hazardous wastes." It can be founded upon the release or threatened
release, even as a result of unintentional and non-negligent action, of
thousands of "hazardous substances," including very small quantities of
such substances. More than 20% of the sites on the NPL are solid waste
landfills which ostensibly never received any "hazardous wastes." Thus,
even if the Company's landfills have never received "hazardous wastes" as
such, it is possible that one or more hazardous substances may have come to
be located at its landfills. Because of the extremely broad definition of
"hazardous substances," the same is true of other industrial properties
with which the Company has been, or may become, associated as an owner or
operator. If this is the case, and if there is a release or threatened
release of such substances, the Company could be liable under CERCLA for
the cost of cleaning up such hazardous substances at the sites and for
damages to natural resources, even if those substances were deposited at
the Company's facilities before the Company acquired or operated them. The
costs of a CERCLA cleanup can be very expensive. Given the difficulty of
obtaining insurance for environmental impairment liability (see
"-- Liability Insurance and Bonding"), such liability could have a material
impact on the Company's business and financial condition.
(3) The Federal Water Pollution Control Act of 1972 (the "Clean Water
Act"). The Clean Water Act establishes a framework for regulating the
discharge of pollutants from a variety of sources, including solid waste
disposal sites, into streams, rivers and other waters. Whenever point
source runoff from the Company's landfills is to be discharged into surface
waters, the Act requires the Company to apply for and obtain discharge
permits, conduct sampling and monitoring and, under certain circumstances,
reduce the quantity of pollutants in those discharges. In 1990, the EPA
published new storm water discharge regulations which require landfills to
apply for a storm water discharge permit unless they are covered under a
storm water general permit promulgated by the agency. The new storm water
discharge regulations also require a permit for certain construction
activities, which may affect the Company's operations. If a landfill or
transfer station discharges wastewater through a sewage system to a
publicly-owned treatment works ("POTW"), the facility must comply with
discharge limits imposed by the POTW. In addition, states may adopt
groundwater protection programs under the Clean Water Act or Safe Drinking
Water Act that could affect solid waste landfills.
(4) The Clean Air Act. The Clean Air Act establishes a framework for
the federal, state and local regulation of the emission of air pollutants.
These regulations may impose emission limitations and monitoring and
reporting requirements on various of the Company's operations, including
landfills and refuse collection trucks owned by the Company. The Clean Air
Act Amendments, which were enacted into law at the end of 1990, resulted in
the imposition of stringent requirements on many activities that were
previously largely unregulated, such as emissions of solvents used in small
parts in degreasing baths in the Company's vehicle maintenance shops, as
well as imposing more stringent requirements on, among others, motor
vehicle emissions.
(5) The Occupational Safety and Health Act of 1970 (the "OSH
Act"). The OSH Act authorizes the Occupational Safety and Health
Administration to promulgate occupational safety and health standards.
Various of these standards, including standards for notices of hazardous
chemicals and the handling of asbestos, apply to the Company's operations.
State Regulation. Each state in which the Company operates has its own
laws and regulations governing solid waste disposal, water and air pollution
and, in most cases, releases and cleanup of hazardous substances
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<PAGE> 29
and liability for such matters. The states also have adopted regulations
governing the design, operation, maintenance and closure of landfills and
transfer stations. The Company's facilities and operations are likely to be
subject to many, if not all, of these types of requirements. In addition, the
Company's collection and landfill operations may be affected by the trend in
many states toward requiring the development of waste reduction and recycling
programs. For example, several states have enacted laws that will require
counties to adopt comprehensive plans to reduce, through waste planning,
composting, recycling or other programs, the volume of solid waste deposited in
landfills. Additionally, laws and regulations restricting the disposal of yard
waste in solid waste landfills have recently been promulgated in several states.
Legislative and regulatory measures to mandate or encourage waste reduction at
the source and waste recycling also are under consideration by Congress and the
EPA.
Finally, various states have enacted, or are considering enacting, laws
that restrict the disposal within the state of solid or hazardous wastes
generated outside the state. While laws that overtly discriminate against out of
state waste have been found to be unconstitutional, some laws that are less
overtly discriminatory have been upheld in court. Challenges to other such laws
are pending. The outcome of pending litigation and the likelihood that other
such laws will be passed and will survive constitutional challenge are
uncertain. In addition, Congress is currently considering legislation
authorizing states to adopt such restrictions. If state laws restricting the
interstate disposal of solid waste are passed and upheld, the Company's ability
to expand its landfill operations could be adversely affected.
"False" Alarm Ordinances. The Company believes that approximately 95% of
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false" alarms. Recently, a trend
has emerged on the part of local governmental authorities to consider or adopt
various measures aimed at reducing the number of "false" alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting "false" alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of "false" alarms,
(iii) imposing fines on alarm subscribers for "false" alarms, (iv) imposing
limitations on the number of times the police will respond to alarms at a
particular location after a specified number of "false" alarms, and/or (v)
requiring further verification of an alarm signal before the police will
respond. Enactment of such measures could adversely affect the Company's
electronic security services business and operations.
COMPETITION
Competition in the Solid Waste Industry; Landfill Alternatives. The waste
management industry is highly competitive and requires substantial amounts of
capital. Entry into the industry and ongoing operations within the industry
require substantial technical, managerial and financial resources. The solid
waste industry in the United States is currently dominated by three solid waste
companies, WMX Technologies, Inc., Browning-Ferris Industries, Inc. and Laidlaw
Inc. Competition in the solid waste industry also comes from a number of
regional solid waste companies, including USA Waste Services, Inc., Western
Waste Industries, Inc., Mid-American Waste Systems, Inc. and Sanifill, Inc. Some
of the Company's competitors have significantly larger operations and greater
resources than the Company. In each of its solid waste market areas, the Company
competes for landfill business on the basis of disposal fees (commonly known as
"tipping fees"), geographical location and quality of operations. The Company's
ability to obtain landfill business may be limited by the fact that some major
collection companies also own or operate landfills to which they send their
waste.
Further, alternatives to landfill disposal (such as recycling, composting
and waste-to-energy) are increasingly competing with landfills. There also has
been an increasing trend at the state and local levels to mandate waste
reduction at the source and to prohibit the disposal of certain types of wastes,
such as yard wastes, at landfills. This may result in the volume of waste going
to landfills being reduced in certain areas, which may affect the Company s
ability to operate its landfills at their full capacity and/or affect the prices
that can be charged for landfill disposal services. In addition, most of the
states in which the Company operates landfills have adopted plans or
requirements which set goals for specified percentages of certain solid waste
items to be recycled. To the extent these are not yet in place, these recycling
goals will be phased in over the next few years.
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In its collection business, in addition to national and regional firms and
numerous local companies, the Company may compete with those municipalities that
maintain waste collection or disposal operations. These municipalities may have
financial advantages due to the availability of tax revenues and tax-exempt
financing. The Company competes for collection accounts primarily on the basis
of price and the quality of its services. From time to time, competitors may
reduce the price of their services in an effort to expand market share or to win
a competitively bid municipal contract.
Competition in the Electronic Security Services Industry. The security
alarm industry is highly competitive and highly fragmented. The Company's
electronic security services business competes with five large national
companies, as well as smaller regional and local companies, in all of its
operations. Certain of the Company's competitors have greater financial and
other resources than the Company. Furthermore, new competitors are continuing to
enter the industry and the Company may encounter additional competition from
such future industry entrants.
LIABILITY INSURANCE AND BONDING
The nature of the Company's solid waste management business exposes it to a
significant risk of liability for legal damages arising out of its operations.
Such potential liability could involve, for example, claims for cleanup costs,
personal injury, property damage or damage to the environment in cases where the
Company may be held responsible for the escape of harmful materials; claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of the Company's operations; or claims alleging
negligence or professional errors or omissions in the planning or performance of
work. The Company could also be subject to fines and civil and criminal
penalties in connection with alleged violations of regulatory requirements.
Because of the nature and scope of the possible damages, liabilities imposed in
environmental litigation can be significant. Although the Company strives to
operate safely and prudently and has substantial general and automobile
liability insurance coverage, no assurance can be given that the Company will
not be exposed to uninsured liabilities which would have a material adverse
effect on its financial condition. The majority of the Company's solid waste
operations have environmental liability insurance subject to certain limitations
and exclusions with limits in excess of those required by permit regulations;
however, there is no assurance that such limits would be adequate in the event
of a major loss, nor is there assurance that the Company will continue to carry
environmental liability insurance should market conditions in the insurance
industry make such coverage cost prohibitive. The Company carries commercial
general liability insurance, automobile liability insurance, workers'
compensation and employer's liability insurance and umbrella policies to provide
excess limits of liability over the underlying limits contained in the
commercial general liability, automobile liability and employer's liability
policies, as well as property insurance.
In the normal course of business, the Company may be required to post a
performance bond or a bank letter of credit in connection with municipal
residential collection contracts, the operation, closure or post-closure of
landfills, certain remediation contracts and certain environmental permits.
Bonds issued by surety companies operate as a financial guarantee of the
Company's performance. To date, the Company has satisfied financial
responsibility requirements for regulatory agencies by making cash deposits,
obtaining bank letters of credit or by obtaining surety bonds.
EMPLOYEES
As of September 30, 1995, the Company employed 895 persons, 39 of whom were
covered by collective bargaining agreements. The management of the Company
believes that it has good relations with its employees.
SEASONALITY
The Company's solid waste operations can be adversely affected by extended
periods of inclement weather, such as rain or snow, which could delay the
collection and disposal of waste, reduce the volume of waste generated or delay
the expansion of the Company's landfill sites.
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GEOGRAPHICAL CONCENTRATION
The existing subscriber base of the Company's electronic security system
business is geographically concentrated in certain metropolitan areas of
Florida. Accordingly, their performance may be adversely affected be regional or
local economic conditions, regulation or other factors.
PROPERTIES
The Company's corporate headquarters are located at 200 East Las Olas
Boulevard, Suite 1400, Fort Lauderdale, Florida in leased premises. Certain of
the property and equipment of the Company and its subsidiaries are subject to
liens securing payment of portions of the Company's and its subsidiaries'
indebtedness. See Note 8 of Notes to Consolidated Financial Statements included
herein for information with respect to debt and capitalized lease obligations on
these properties. The Company and its subsidiaries also lease certain of their
offices, shop, storage space and equipment. See Notes 9 and 12 of Notes to
Consolidated Financial Statements included herein for information with respect
to leased properties. For additional information regarding properties owned and
operated by the Company, see "Business."
LEGAL AND ADMINISTRATIVE PROCEEDINGS
GENERAL CORPORATE PROCEEDINGS
G.I. Industries, Inc. On May 3, 1991, the Company filed an action against
GI 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 by the Company. The Company
also sought to recover $0.6 million from GI, plus interest and costs, with
respect to a certain financial guaranty provided by the Company 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 $16.0 million. In August 1993, the Court rendered a ruling
in favor of the Company and found that GI did not meet its burden in proving
that it could have performed its obligation under the Merger Agreement. GI
appealed that decision in September 1993. In March 1995, the United States Court
of Appeals for the Ninth Circuit at Pasadena, California (the "Court of
Appeals") reversed in part and vacated in part the August 1993 decision and
remanded the case back to the Court for further proceedings. 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 that may be awarded to GI.
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 $0.6 million, plus
interest and costs, including attorneys' fees.
A&B Investors, Inc. 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. In July
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 Waste Industries, Inc. ("Western")
filed an action against the Company and others on July 20, 1990 in the District
Court of Harris County, Texas for various causes of action including
interference with business relations is seeking $24.0 million in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. The
case is currently scheduled for trial in early 1996.
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The Company is also a party to various other general corporate legal
proceedings which have arisen in the ordinary course of its business. While the
results of these matters, as well as matters described above, 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 business or consolidated financial position; however,
unfavorable resolution of each matter individually or in the aggregate could
affect the consolidated results of operations for the quarterly periods in which
they are resolved.
ENVIRONMENTAL MATTERS
Imperial Landfill Filter Waste Issue. In 1992, the Company received
notices from Imperial County, California (the "County") and the Department of
Toxic Substances Control ("DTSC," a department of the EPA of the State of
California) which alleged 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 because waste associated with the
production of geothermal energy is exempted from the federal classification of
hazardous waste under 40 CFR Part 261.4(b)(5).
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. 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
in the United States District Court for the Southern District of California
against the known past and present owners and operators of the geothermal power
plants, the Ormesa I, IE, IH and II plants in Holtville, California, for all
losses, fines and expenses the Company incurs associated with the resolution of
this matter, including loss of airspace at the landfill, alleging claims for (i)
CERCLA response costs recovery, (ii) intentional misrepresentation, (iii)
negligent misrepresentation, (iv) negligence, (v) strict liability, (vi)
continuing trespass, (vii) nuisance, (viii) breach of contract and (ix) breach
of implied covenant of good faith and fair dealing. 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.
Imperial Landfill Permit. One of the Company's landfills, the Imperial
Landfill, currently exceeds its permitted daily tonnage capacity and is involved
in negotiations with the California Integrated Waste Management Board regarding
expansion of its daily tonnage capacity. Imperial Landfill received a notice of
violation regarding this issue in late 1989 and has since applied for a
modification of its permit to increase the allowed daily tonnage from 50 tons up
to a maximum of 1,000 tons. In addition, pursuant to the terms of the
acquisition, permits with respect to the landfill must be transferred to the
Company. Temporary written approval has been given by Imperial County,
California and the California Integrated Waste Management Board for the Company
to operate the landfill and for the landfill to receive in excess of 50 tons per
day while the permit modification and transfer are being reviewed.
The Company is also a party to various other environmental proceedings
related to its solid waste services operations which have arisen in the ordinary
course of its business. Although it is possible that losses
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exceeding amounts already recorded may be incurred upon the ultimate resolution
of these matters, as well as the matters described above, management believes
that such losses, if any, will not have a material adverse effect on the
Company's business or consolidated financial position; however, unfavorable
resolution of each matter individually or in the aggregate could affect the
consolidated results of operations for the quarterly periods in which they are
resolved.
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MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth below certain information with respect to
those individuals who serve as members of the Board of Directors and executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------------------------------------------
<S> <C> <C>
H. Wayne Huizenga............. 57 Chairman of the Board and Chief Executive
Officer
Michael G. DeGroote........... 61 Vice Chairman of the Board
Harris W. Hudson.............. 53 President and a Director
J.P. Bryan.................... 55 Director
Rick L. Burdick............... 43 Director
John J. Melk.................. 56 Director
Gregory K. Fairbanks.......... 41 Executive Vice President and Chief Financial
Officer
Donald E. Koogler............. 45 Executive Vice President and Chief Operating
Officer
J. Ronald Castell............. 56 Senior Vice President
Robert A. Guerin.............. 52 Senior Vice President
Richard L. Handley............ 48 Senior Vice President and General Counsel
Robert J. Henninger, Jr....... 46 Senior Vice President
</TABLE>
The Board of Directors currently consists of six members. Pursuant to a
contractual commitment with the Company, Mr. Huizenga has the right to nominate
one additional member to be elected to serve on the Board of Directors. The
Board of Directors is divided into three classes, one class of which is elected
each year to hold office for a three-year term and until successors are elected
and qualified. Successors to those directors whose terms have expired are
required to be elected by stockholder vote while vacancies in unexpired terms
and any additional positions created by board action are filled by action of the
existing Board of Directors. The executive officers named above were elected to
serve in such capacities until the next annual meeting of the Board of
Directors, or until their respective successors have been duly elected and have
been qualified, or until their earlier death, resignation, disqualification or
removal from office. Mr. Hudson is married to Mr. Huizenga's sister. Otherwise,
there is no family relationship between any of the directors and executive
officers of Republic.
H. WAYNE HUIZENGA has served as the Chairman of the Board and Chief
Executive Officer of the Company since August 3, 1995. Mr. Huizenga has served
as the Vice Chairman of Viacom Inc. ("Viacom") since September 1994, and as a
Director of Viacom since 1993 and of its principal subsidiaries, Viacom
International Inc. and Paramount Communications Inc., which are diversified
entertainment and communications companies, since 1993 and 1994, respectively.
Mr. Huizenga served as the Chairman of the Board of the Blockbuster
Entertainment Group, a division of Viacom, from September 1994, at which time
Viacom acquired Blockbuster Entertainment Corporation ("Blockbuster") through a
merger, until September 1995. From April 1987 through September 1994, Mr.
Huizenga served as the Chairman of the Board and Chief Executive Officer of
Blockbuster, during which time he helped build Blockbuster into the world's
largest video and music retailer. Mr. Huizenga also served as the President of
Blockbuster from April 1987 to June 1988. Mr. Huizenga also co-founded Waste
Management, Inc., now known as WMX Technologies, Inc. ("Waste Management"), the
world's largest integrated environmental services company, in 1971 and served in
various capacities, including the President, the Chief Operating Officer and a
Director from its inception until 1984. Mr. Huizenga also owns or controls the
Miami Dolphins, Florida Marlins and Florida Panthers professional sports
franchises, as well as Joe Robbie Stadium, in South Florida. In addition, Mr.
Huizenga serves as the Chairman of the Board of Spelling Entertainment Group
Inc.
MICHAEL G. DEGROOTE has served as the Vice Chairman of the Company since
August 3, 1995. Mr. DeGroote had served as the Chief Executive Officer of the
Company since May 1991, and had served as
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Senior Chairman of the Board of the Company from May 1991 to August 1991. He
served as Chairman of the Board and President of the Company from August 1991
until August 3, 1995. Mr. DeGroote owned a controlling interest in Laidlaw Inc.
("Laidlaw"), a Canadian company, from 1959 until he sold his interest in 1988.
Laidlaw is the third largest waste service company in North America and the
largest operator of school buses with over 28,000 vehicles. Mr. DeGroote served
as the Chairman of the Board and Chief Executive Officer of Laidlaw from 1959
until June 1990, when he resigned from those positions to pursue personal
business matters. Mr. DeGroote has served as a Director of Gulf Canada Resources
Ltd. ("Gulf Canada") since May 1995.
HARRIS W. HUDSON has served as the President and a Director of the Company
since August 3, 1995. From May 21, 1995 until August 3, 1995, Mr. Hudson had
served as a consultant to the Company. Mr. Hudson founded and since inception in
1983 has served as Chairman of the Board, Chief Executive Officer and President
of Hudson Management Corporation, a solid waste collection company, and of
Envirocycle, Inc., a recycling company, both of which were acquired by the
Company on August 3, 1995. From 1964 to 1982, Mr. Hudson served as Vice
President of Waste Management of Florida, Inc., a subsidiary of Waste
Management, and its predecessor.
J.P. BRYAN has served as a Director of the Company since May 1991 and also
was a Director of the Company from August 1990 until March 1991. Since January
1995, Mr. Bryan has served as President and Chief Executive Officer of Gulf
Canada, which is engaged in oil and gas exploration and production. Since 1981,
Mr. Bryan has served as the Chairman of the Board and Chief Executive Officer of
Torch Energy Advisors Inc., a subsidiary of Torchmark Corporation, engaged in
the management of institutional holdings in energy-related fields and has, since
March 1990, held the same positions with Nuevo Energy Company, a company
involved in the oil and gas industry. Mr. Bryan also currently serves on the
Board of Directors of Bellweather Exploration Company, an oil and gas
exploration company.
RICK L. BURDICK has been a Director of the Company since May 1991. Since
June 1995, Mr. Burdick has served as a Director of J. Ray McDermott, S.A. Mr.
Burdick is the sole shareholder of a professional corporation which is a partner
in the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., a limited
liability partnership including professional corporations.
JOHN J. MELK has served as a Director of the Company since August 3, 1995.
Mr. Melk has been Chairman and Chief Executive Officer of H20 Plus Inc., a bath
and skin care product and retail business, since 1988. Mr. Melk has been a
private investor in various businesses since March 1984 and prior to March 1984,
he held various positions with Waste Management and its subsidiaries, including
President of Waste Management International, plc., a subsidiary of Waste
Management. Mr. Melk also serves as a Director of Psychemedics Corporation. From
February 1987 until March 1989 and from May 1993 until September 1994, Mr. Melk
served as a director of Blockbuster. He also served as the Vice Chairman of
Blockbuster from February 1987 until March 1989.
GREGORY K. FAIRBANKS has served as an Executive Vice President and the
Chief Financial Officer of the Company since August 3, 1995. From May 21, 1995
until August 3, 1995, Mr. Fairbanks served as a consultant to the Company. Mr.
Fairbanks served as a Senior Vice President and the Chief Financial Officer of
Blockbuster from June 1992 through September 1994, at which time Blockbuster was
acquired by Viacom in a merger. He also served as the Treasurer of Blockbuster
from March 1993 until September 1994. From October 1980 until he joined
Blockbuster in June 1992, Mr. Fairbanks served in a number of finance related
capacities for Waste Management International, plc., the latest as Chief
Financial Officer (from 1987 through 1992) and Executive Vice President (from
1991 through 1992). Prior to October 1980, Mr. Fairbanks was employed by Arthur
Andersen & Co., an international public accounting firm, for approximately four
years. From September 1994 to May 21, 1995, Mr. Fairbanks was a consultant to
the Blockbuster Entertainment Group, a division of Viacom.
DONALD E. KOOGLER has served as an Executive Vice President and the Chief
Operating Officer of the Company since May 1991. From May 1991 until August 3,
1995, Mr. Koogler also served as a Director of the Company. In September 1990,
Mr. Koogler founded K&K Investment and Consulting Services and served as its
President until May 1991. Mr. Koogler joined Laidlaw as a Vice President in 1985
and became an
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<PAGE> 36
Executive Vice President in October 1987. Mr. Koogler also served as Vice
President of Waste Management, Inc. from 1980 until 1985. Mr. Koogler has been
employed in the solid waste industry for over 25 years, in various executive
positions.
J. RONALD CASTELL joined the Company as a Vice President on August 3, 1995,
and was promoted to Senior Vice President on October 2, 1995. From September
1994 until joining the Company, he served as a consultant to Viacom. Prior to
that, Mr. Castell was Senior Vice President of Programming and Communications
for Blockbuster from August 1991 until September 1994 and was Senior Vice
President of Programming and Merchandising from February 1989 until August 1991.
From October 1985 to February 1989, he was Vice President of Marketing and
Merchandising at Erol's, then a chain of two hundred video stores headquartered
in the Washington, D.C. area.
ROBERT A. GUERIN became Senior Vice President of the Company on August 3,
1995. From September 1994 until joining the Company, he served as a consultant
to Viacom. Prior to that, Mr. Guerin was Senior Vice President of Domestic
Franchising for Blockbuster from January 1992 until September 1994, was Senior
Vice President of Administration and Development for Blockbuster from October
1989 until December 1991, and was a Vice President of Blockbuster from March
1988 until October 1989. From March 1986 to March 1988, Mr. Guerin served as
Vice President and Region Manager of Waste Management of North America, Inc., a
subsidiary of Waste Management, where he was responsible for operations with
over 6,000 employees. From June 1982 to March 1986, he served as President of
Wells Fargo Armored Service Corp., a transporter of currency and valuables with
over 7,000 employees.
RICHARD L. HANDLEY joined the Company on October 2, 1995 as a Senior Vice
President and the General Counsel. From June 1993 until joining the Company, he
was a principal of Randolph Management Group, Inc., a management consulting firm
specializing in the environmental industry. Prior to that, Mr. Handley was Vice
President, Secretary and General Counsel of The Brand Companies, Inc., an
environmental services company, from July 1990 until May 1993, Associate General
Counsel of Waste Management of North America, Inc. from January 1987 to June
1990, and legal counsel to Waste Management Energy Systems, Inc., a
waste-to-energy company, from September 1985 to January 1987, all of which
companies were affiliates or subsidiaries of Waste Management. Prior to
September 1985, Mr. Handley was a lawyer in private practice in Chicago,
Illinois.
ROBERT J. HENNINGER, JR. has served as a Senior Vice President of the
Company since October 2, 1995. From September 1994 until joining the Company, he
served as a consultant to Viacom, and from July 1994 until September 1994, he
served as Senior Vice President and Chief Administrative Officer of Blockbuster.
Prior to July 1994, Mr. Henninger was employed by Arthur Andersen & Co., an
international public accounting firm, for 23 years, and had been Managing
Partner of the firm's Fort Lauderdale, Florida office since 1984.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings and took four actions by
unanimous written consent in lieu of meeting during 1994. Each director attended
at least 75% of the aggregate of the total number of meetings of the Board of
Directors and the total number of meetings held by all committees of the Board
on which he served.
The Board of Directors has established three committees, the Executive
Committee, the Audit Committee and the Compensation Committee. The Executive
Committee, which took five actions by unanimous written consent in lieu of
meetings during 1994, consisted of Messrs. DeGroote and Burdick until August 3,
1995, and since that date has consisted of Messrs. Huizenga, Hudson and
DeGroote. The Executive Committee has full authority to exercise all the powers
of the Board of Directors between meetings of the Board of Directors, except as
reserved by the Board of Directors. The Executive Committee does not have the
power to elect or remove officers, approve a merger of the Company, recommend a
sale of substantially all of the Company's assets, recommend a dissolution of
the Company, amend the Company's By-laws or Certificate of Incorporation,
declare dividends on the Company's outstanding securities, or, except as
expressly authorized by the Board, issue any Common Stock or preferred stock. By
action of the Board of Directors on
34
<PAGE> 37
August 3, 1995, the Executive Committee has certain limited authority to approve
the issuance of Common Stock in connection with certain types of mergers and
acquisitions by the Company.
The Audit Committee, which held two meetings during 1994, consisted of
Messrs. Koogler, Bryan and Burdick until August 3, 1995, and since that date has
consisted of Messrs. Bryan, Burdick and DeGroote. The Audit Committee has the
power to oversee the retention, performance and compensation of the independent
public accountants for the Company, and the establishment and oversight of such
systems of internal accounting and auditing control as it deems appropriate.
The Compensation Committee, which was established by the Board of Directors
in February 1993, consisted of Messrs. DeGroote and Burdick until August 3,
1995, and since that date has consisted of Messrs. Melk, DeGroote and Bryan. The
Compensation Committee held one meeting and took three actions by unanimous
written consent during 1994. The Compensation Committee reviews the Company's
compensation philosophy and programs, exercises authority with respect to the
payment of salaries and incentive compensation to directors and officers, and
administers the Company's 1991 Stock Option Plan and 1995 Employee Stock Option
Plan.
35
<PAGE> 38
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was established by the Board of Directors in
February 1993 and Messrs. DeGroote and Burdick were appointed to the
Compensation Committee at that time. Mr. DeGroote was the Chairman of the Board,
President and Chief Executive Officer of the Company until August 3, 1995. On
August 3, 1995, the Board of Directors appointed Mr. DeGroote as its Vice
Chairman (a non-officer position), and appointed three of its non-employee
directors, Messrs. Melk, DeGroote and Bryan to the Compensation Committee.
Mr. Burdick is the sole shareholder of a professional corporation which is
a partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. which
renders legal services to the Company.
COMPENSATION TABLES
The following tables set forth information with respect to those persons
who were, at December 31, 1994, (i) the Chief Executive Officer and (ii) the
other most highly compensated executive officers of the Company (collectively,
the "Named Officers"). The principal positions described with respect to the
Named Officers relate to the positions held by such persons as of December 31,
1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
UNDERLYING
WARRANTS/
ANNUAL COMPENSATION OTHER OPTIONS
NAME AND PRINCIPAL ------------------------- ANNUAL TO PURCHASE ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION COMMON STOCK COMPENSATION
- ------------------------- ---- -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael G. DeGroote...... 1994 -- -- -- -- --
(Chairman, President 1993 -- -- -- -- --
and Chief Executive 1993 -- -- -- -- --
Officer)
Donald E. Koogler........ 1994 --(1) -- -- -- --
(Director, Executive 1993 $228,752 -- -- 240,000(2) --
Vice President and 1992 $225,000 -- $210,854(3) -- --
Chief Operating
Officer)
Douglas R. Gowland....... 1994 $204,613 -- -- -- --
(Senior Vice 1993 $204,800 -- $ 30,874(4) 275,000(2) --
President)(5) 1992 $187,249(6) -- -- 300,000(2) $ 83,870(7)
</TABLE>
- ---------------
<TABLE>
<S> <C>
(1) Mr. Koogler elected to defer the receipt of 1994 compensation totaling $235,425 until
January 1, 1997. See "Compensation Committee Report on Executive Compensation" herein
for information regarding the Non-qualified Deferred Plan.
(2) See "Executive Warrants" below for information regarding these warrants.
(3) Consists of reimbursements to Mr. Koogler for the expenses and losses incurred by him
associated with the sale of his residences upon relocation to Houston, Texas in June
1991, in connection with his employment with the Company, and to Atlanta, Georgia in
December 1991, due to relocation of the Company's corporate office.
(4) Consists of reimbursements to Mr. Gowland for the expenses incurred by him associated
with the sale of his residence and relocation to Philadelphia, Pennsylvania in
November 1993, due to the reorganization of the hazardous waste services segment
operations.
</TABLE>
36
<PAGE> 39
<TABLE>
<S> <C>
(5) Mr. Gowland's employment with the Company ended on April 26, 1995, in connection with
the Distribution of RESI.
(6) Mr. Gowland's employment with the Company began January 13, 1992.
(7) Mr. Gowland received compensation for consulting services rendered in connection with
an acquisition completed by the Company in 1992 pursuant to an agreement in place
prior to his employment with the Company.
</TABLE>
AGGREGATED WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END WARRANT
VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED WARRANTS AT IN-THE-MONEY WARRANTS AT
SHARES DECEMBER 31, 1994 DECEMBER 31, 1994(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael G. DeGroote........... -- -- 600,000 400,000 -- --
(MGD Holdings) (Chairman,
President and Chief
Executive Officer)
Donald E. Koogler............. -- -- 180,000 120,000 -- --
(Director, Executive Vice
President and Chief
Operating Officer)
Douglas R. Gowland............ -- -- 145,000 155,000 -- --
</TABLE>
- ---------------
(1) None of the unexercised warrants were "in-the-money" as all of the various
warrant prices exceeded the market price of the Company's Common Stock at
December 31, 1994.
EXECUTIVE WARRANTS
The Board of Directors approved the issuance of warrants to Messrs. Koogler
and Gowland for the purchase of shares of Common Stock at an exercise price
based on the market price of Common Stock on the date of issuance (the
"Executive Warrants") as compensation for their continued service as officers of
the Company. In connection with the Distribution of RESI, Mr. Gowland resigned
as a Senior Vice President of the Company; however, the Company agreed not to
terminate his Executive Warrants given his position with RESI. Executive
Warrants are exercisable, with respect to each portion vested, for a period of
four years following such vesting. Each of Messrs. Koogler and Gowland was
required to execute a non-competition agreement in connection with the Executive
Warrants.
DONALD E. KOOGLER. Mr. Koogler was granted Executive Warrants to purchase
300,000 shares of Common Stock at an exercise price of $9.00 per share in 1991.
Mr. Koogler's warrants vested in increments of 20% per year over a five year
period with the first 20% (or 60,000 warrants) having vested May 31, 1992. In
May 1993, the Company canceled the unvested portion of Mr. Koogler's Executive
Warrants (or 240,000 warrants) and re-issued to Mr. Koogler Executive Warrants
to purchase 240,000 shares of Common Stock at an exercise price of $4.00 per
share. The grant of Executive Warrants in 1993 to Mr. Koogler vests in
increments of 25% per year over a four year period with 75% (or 180,000
warrants) having vested as of May 31, 1995.
DOUGLAS R. GOWLAND. Mr. Gowland had been granted Executive Warrants to
purchase 300,000 shares of Common Stock at an exercise price of $12.75 per
share. Mr. Gowland's warrants vested in increments of 5/12 of 20% (25,000
warrants) on May 31, 1992, 20% per year over the subsequent four years through
May 31, 1996, and the remaining 7/12 of 20% vest December 31, 1996. In May 1993,
the Company canceled the unvested portion of Mr. Gowland's Executive Warrants
(or 275,000 warrants) and re-issued to Mr. Gowland Executive Warrants to
purchase 275,000 shares of Common Stock at an exercise price of $4.00 per share.
The grant of Executive Warrants in 1993 to Mr. Gowland vests in increments of
60,000 warrants per annual period beginning May 31, 1992 and the remaining
35,000 vest at December 31, 1996. As of May 31, 1995, Executive Warrants to
purchase 180,000 shares of Common Stock had vested.
37
<PAGE> 40
1994 NON-EMPLOYEE DIRECTOR WARRANTS
In May 1994 and 1995, the Board of Directors and stockholders of the
Company approved the issuance of warrants to purchase 50,000 shares of Common
Stock at an exercise price of $2.69 per share to each of Messrs. Bryan and
Burdick, each non-employee directors of the Company, as compensation for
continuing service on the Board of Directors (the "Non-Employee Director
Warrants"). The Non-Employee Director Warrants vest over a five year period in
increments of 20%, commencing on May 31, 1995, are exercisable for a period of
four years after vesting and terminate on or about the termination of the
non-employee director's service as a director of the Company. On August 3, 1995,
the Board of Directors approved an amendment to the Non-Employee Director
Warrants to accelerate the vesting of all of the Non-Employee Director Warrants
and make them immediately exercisable in full, with such amendment to the
Non-Employee Director Warrants to become effective subject to and upon approval
of the Company's stockholders, which the Company expects to obtain during the
fourth quarter of 1995.
CONSULTING AGREEMENTS
On May 21, 1995, the Company entered into Consulting Agreements with
Messrs. Hudson and Fairbanks pursuant to which such individuals provide
consulting services to the Company. In connection therewith, the Company granted
each of Messrs. Hudson and Fairbanks options to purchase 150,000 and 100,000
shares of Common Stock, respectively, at an exercise price of $3.875 per share,
under the Company's 1991 Stock Option Plan. These options vest at a rate of
one-third per year over a three-year period from the date of grant. On August 3,
1995, upon being appointed as officers of the Company, the Board of Directors
terminated the Consulting Agreements and amended the stock option grants to
allow Messrs. Hudson and Fairbanks' options to continue to vest through their
tenure of service as employees of the Company.
CHIEF EXECUTIVE OFFICER OPTIONS
On August 3, 1995, the Compensation Committee of the Board of Directors
approved a grant of options under the Company's 1991 Stock Option Plan to
purchase 1,000,000 shares of Common Stock, exercisable at a price of $24.75 per
share, to Mr. Huizenga for his services to be performed as Chairman and Chief
Executive Officer of the Company (the "CEO Options"). The CEO Options vested
immediately and are presently exercisable in full. Mr. Huizenga will not be paid
any cash salary or bonuses for his services to the Company, given his
substantial ownership position in the Company. Accordingly, any benefit realized
by Mr. Huizenga from his compensation arrangement will be derived solely from
increases in the value of the Common Stock of the Company, giving him an
additional incentive in the success of the Company.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
On August 3, 1995, the Board of Directors approved amendments to the 1995
Non-Employee Director Stock Option Plan of the Company (the "Director Plan")
principally to provide for an automatic grant of an option to purchase 50,000
shares of Common Stock to each member of the Board of Directors who becomes or
joins the Board as a non-employee director, and to further provide an additional
automatic grant of an option to purchase 10,000 shares of Common Stock on the
first day of each fiscal year thereafter to each non-employee director
continuing to serve on the Board at such dates. All options granted under the
Director Plan, as amended, will be fully vested and immediately exercisable in
full. Under the Director Plan, as amended, each automatic grant of options to a
non-employee director remains exercisable so long as such Director remains a
member of the Board, and are exercisable at a price per share equal to the
market value of a share of Common Stock on Nasdaq as of the date it was
automatically granted. In accordance with the Director Plan, as amended, on
August 3, 1995, Messrs. Melk and DeGroote each received an automatic grant of
options to purchase 50,000 shares of Common Stock at an exercise price of $24.75
per share. The amendment to the Director Plan, and the automatic grants made
thereunder to Messrs. Melk and DeGroote, will become effective subject to and
upon approval of the Company's stockholders, which the Company expects to obtain
during the fourth quarter of 1995.
38
<PAGE> 41
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of September 21, 1995, by (i) each person who is
known by the Company to own beneficially 5% or more of Common Stock, (ii) each
director of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table and (iv) all directors and executive officers of
the Company as a group. Share amounts and percentages shown for each entity,
individual or group in the table are adjusted to give effect to shares of Common
Stock that are not outstanding but may be acquired by a person upon exercise of
all options and warrants exercisable by such entity, individual or group within
60 days of September 21, 1995. However, such shares of Common Stock are not
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
NAME AND ADDRESS ----------------------
OF BENEFICIAL OWNER NUMBER PERCENT
-------------------------------------------------------------- ---------- -------
<S> <C> <C>
H. Wayne Huizenga(1).......................................... 14,000,000 20.9%
200 South Andrews Avenue
Fort Lauderdale, Florida 33301
MGD Holdings Ltd.(2).......................................... 12,700,000 21.6
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Westbury (Bermuda) Ltd.(3).................................... 4,050,000 6.7
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Michael G. DeGroote(4)........................................ 16,750,000 27.2
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Harris W. Hudson(5)........................................... 9,800,000 16.5
200 East Las Olas Boulevard
Suite 1400
Fort Lauderdale, Florida 33301
Gregory K. Fairbanks(6)....................................... 300,000 *
Donald E. Koogler(7).......................................... 120,000 *
J.P. Bryan(8)................................................. 35,000 *
Rick L. Burdick(9)............................................ 10,000 *
John J. Melk(10).............................................. 1,350,000 2.3
All directors and executive officers as a group (10
persons).................................................... 42,655,000 58.8
</TABLE>
- ---------------
* Less than 1 percent
(1) The aggregate amount of Common Stock beneficially owned by Mr. Huizenga
consists of 5,000,000 shares owned directly by him, presently exercisable
warrants to purchase 4,000,000, 2,000,000 and 2,000,000 shares of Common
Stock at exercise prices of $4.50, $5.50 and $7.00 per share, respectively,
and vested options to purchase 1,000,000 shares of Common Stock at an
exercise price of $24.75 per share.
39
<PAGE> 42
(2) The aggregate amount of Common Stock beneficially owned by MGD Holdings, a
Bermuda corporation controlled by Mr. DeGroote, consists of 11,900,000
shares directly owned by MGD Holdings. MGD Holdings also owns Management
Warrants to purchase up to 1,000,000 shares of Common Stock at an exercise
price of $9.00 per share, 800,000 of which have vested as of the date
hereof.
(3) The aggregate amount of Common Stock to be beneficially owned by Westbury
(Bermuda) Ltd., a Bermuda corporation controlled by Mr. DeGroote
("Westbury"), consists of 1,350,000 shares owned directly by it and
presently exercisable warrants to purchase 1,350,000, 675,000 and 675,000
shares of Common Stock at exercise prices of $4.50, $5.50 and $7.00 per
share, respectively.
(4) The aggregate amount of Common Stock beneficially owned by Mr. DeGroote
consists of the shares beneficially owned by MGD Holdings and Westbury. Mr.
DeGroote is the sole stockholder, the President and a director of MGD
Holdings and Westbury.
(5) The aggregate amount of Common Stock beneficially owned by Mr. Hudson
consists of 8,600,000 shares owned directly by him and presently
exercisable warrants to purchase 600,000, 300,000 and 300,000 shares of
Common Stock at exercise prices of $4.50, $5.50 and $7.00 per share,
respectively.
(6) The aggregate amount of Common Stock to be beneficially owned by Mr.
Fairbanks consists of 100,000 shares owned directly by him and presently
exercisable warrants to purchase 100,000, 50,000 and 50,000 shares of
Common Stock at exercise prices of $4.50, $5.50 and $7.00 per share,
respectively.
(7) The aggregate amount of Common Stock beneficially owned by Mr. Koogler
consists of executive warrants to purchase 180,000 shares of Common Stock
at an exercise price of $4.00 per share, 120,000 of which have vested as of
the date hereof.
(8) The aggregate amount of Common Stock beneficially owned by Mr. Bryan
consists of an option to purchase 25,000 shares of Common Stock at an
exercise price of $10.25 per share, and warrants to purchase 50,000 shares
of Common Stock at an exercise price of $2.69 per share, 10,000 of which
have vested as of the date hereof.
(9) The aggregate amount of Common Stock beneficially owned by Mr. Burdick
consists of warrants to purchase 50,000 shares of Common Stock at an
exercise price of $2.69 per share, 10,000 of which have vested as of the
date hereof.
(10) The aggregate amount of Common Stock beneficially owned by Mr. Melk
consists of 1,100,000 shares owned directly by him and vested warrants to
purchase 100,000, 50,000 and 50,000 shares of Common Stock at exercise
prices of $4.50, $5.50 and $7.00 per share, respectively, and 50,000 shares
held by his wife. Mr. Melk disclaims beneficial ownership of the shares
held by his wife.
40
<PAGE> 43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain agreements and transactions between
or among the Company and certain related parties. It is the Company's policy to
enter into transactions with related parties on terms that, on the whole, are no
less favorable than those that would be available from unaffiliated parties.
Based on the Company's experience in the waste industry and the terms of its
transactions with unaffiliated parties, it is the Company's belief that all of
the transactions described below involving the Company met that standard at the
time such transactions were effected.
MANAGEMENT AGREEMENT AND MANAGEMENT WARRANTS
In June 1991, the Company entered into a management agreement (the
"Management Agreement") with MGD Holdings in which MGD Holdings provides
executive, operational and management services to the Company. Warrants dated as
of June 7, 1991, to purchase 1,150,000 shares of Common Stock were issued by the
Company to MGD Holdings at an exercise price of $9.00 per share (the "Management
Warrants") for services to be rendered pursuant to the Management Agreement. In
1992, Management Warrants to purchase 150,000 shares of Common Stock were
assigned by MGD Holdings to a former employee of MGD Holdings who is currently
an unrelated third party. The Management Warrants vest at the rate of 20% per
year over a five year period. Currently, Management Warrants to purchase 800,000
shares of Common Stock have vested. The Management Warrants are exercisable,
with respect to each portion vested, for a period of four years following such
vesting. The Management Agreement may be terminated by either party under
certain circumstances. Mr. Huizenga, the Company's Chairman and Chief Executive
Officer since August 3, 1995, has the authority, under certain contractual
commitments, to cause the Company to terminate the Management Agreement. In the
event of termination of the Management Agreement by the Company, the holder will
become vested in all remaining Management Warrants; however, in the event of
termination by MGD Holdings, the holder will forfeit all remaining unvested
Management Warrants. The Management Warrants also fully vest in the event of the
death or incapacity of Mr. DeGroote, the President and sole stockholder of MGD
Holdings, or the loss of effective control of the Company by MGD Holdings.
TRANSACTIONS AND OTHER EVENTS
Mr. Hudson owns several corporations which own 5 parcels of real property
in various locations in Florida which are leased to various subsidiaries of HMC,
a subsidiary of the Company. Such leases were entered into by the corporations
owned by Mr. Hudson and the HMC subsidiaries several years prior to the August
3, 1995 acquisition of HMC by the Company. Total lease payments payable by the
HMC subsidiaries to the corporations owned by Mr. Hudson aggregate approximately
$27,000 per month. The Company is in the process of obtaining independent
appraisals of the fair market values of the properties leased by the HMC
subsidiaries, and the Company intends to purchase all of such leased properties
for an amount equal to the appraised values thereof from the corporations owned
by Mr. Hudson during the fourth quarter of 1995.
After August 3, 1995, the Company began making payments to a corporation
owned by Mr. Huizenga for the business use of certain aircraft owned by such
corporation. Such payments may exceed $60,000 during the current fiscal year.
The Company believes that the terms of its use of the aircraft are more
favorable to the Company than it could have obtained from an unaffiliated party
and expects to continue to use the aircraft on such terms in the future.
41
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
The First Amended and Restated Certificate of Incorporation of the Company
(the "Certificate of Incorporation") authorizes capital stock consisting of
350,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000
shares of preferred stock ("Preferred Stock"). There were 58,033,656 shares of
Common Stock, and no shares of Preferred Stock, issued and outstanding as of
September 21, 1995. The following summary description of the capital stock of
the Company is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Company, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK. The holders of shares of Common Stock have equal pro rata
rights to dividends if, as and when declared by the Company's Board of
Directors; do not have any preemptive subscription or conversion rights; and
have one vote per share on all matters upon which the stockholders of the
Company may vote at all meetings of stockholders. There are no redemption or
sinking fund provisions applicable to the Common Stock. The holders of the
Common Stock of the Company do not have cumulative voting rights. As a result,
the holders of a majority of the shares voting for the election of directors can
elect all the members of the Board of Directors.
PREFERRED STOCK. No shares of Preferred Stock are currently outstanding.
The Board of Directors is authorized to divide the Preferred Stock into series
and, with respect to each series, to determine the dividend rights, dividend
rate, conversion rights, voting rights, redemption rights and terms, liquidation
preferences, the number of shares constituting the series, the designation of
such series and such other rights, qualifications, limitations or restrictions
as the Board of Directors may determine. The Board of Directors could, without
shareholder approval, issue Preferred Stock with voting rights and other rights
that could adversely affect the voting power of holders of Common Stock and such
stock could be used to prevent a hostile takeover of the Company. The Company
has no present plans to issue any shares of Preferred Stock.
CERTIFICATE OF INCORPORATION AND BYLAWS; CLASSIFICATION OF BOARD OF
DIRECTORS. The Company's Certificate of Incorporation provides that the members
of the Board of Directors be divided into three classes with terms of three
years each, with the term of office of one class expiring each year.
Accordingly, only those directors of a single class can be changed in any one
year and it would take three elections to change the entire Board. The Company's
Bylaws provide that directors may be removed for cause by vote of two-thirds of
the other directors or by vote of a majority of stockholders, and may be removed
without cause by the vote of a majority of stockholders at a meeting called for
such purpose. While the Company believes that such provisions are in the best
interests of the Company and its stockholders, such requirements may have the
effect of protecting the Company's management against outside interests.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Common Stock is First Interstate Bank of Texas, N.A.
PLAN OF DISTRIBUTION
The 6,000,000 shares of Common Stock covered by this Prospectus are
available for use in future acquisitions of other businesses, properties or
equity and/or debt securities in business combination transactions, which may
relate to businesses similar or dissimilar to the Company's businesses. The
consideration offered by the company in such acquisitions in addition to the
shares of Common Stock offered by this Prospectus may include cash, debt or
other securities (which may be convertible into shares of Common Stock covered
by this prospectus), or assumption by the Company of liabilities of the business
being acquired, or a combination thereof. It is contemplated that the terms of
each acquisition will be determined by negotiations between the Company and the
management or the owners of the businesses or properties to be acquired or the
owners of the securities (including newly issued securities) to be acquired,
with the Company taking into account the quality of management, the past and
potential earning power and growth of the businesses, properties or equity
and/or debt securities to be acquired, and other relevant factors. It is
anticipated that shares of Common Stock issued in acquisitions will be valued at
a price reasonably related to
42
<PAGE> 45
the market value of the Common Stock at the time the basic terms of the
acquisition are tentatively agreed upon or at or about the time or times of
delivery of the shares.
With the consent of the Company, this Prospectus may also be used by
persons or entities who have received or will receive from the Company Common
Stock covered by this Prospectus in connection with acquisitions of businesses,
properties or securities and who may wish to sell such stock under circumstances
requiring or making desirable its use and by certain donees of such persons or
entities. The Company's consent to such use may be conditioned upon such persons
or entities agreeing not to offer more than a specified number of shares
following amendments to this Prospectus, which the Company may agree to use its
best efforts to prepare and file at certain intervals. The Company may require
that any such offering be effected in an organized manner through securities
dealers.
Sales by means of this Prospectus by persons other than the Company may be
made from time to time privately at prices to be individually negotiated with
the purchasers, or publicly through transactions on Nasdaq or the Toronto
Exchange (which may involve crosses and block transactions), other exchanges or
in the over-the-counter market, at prices reasonably related to market prices at
the time of sale or at negotiated prices. Broker-dealers participating in such
transactions may act as agent or as principal and may receive commissions from
the purchasers as well as from the sellers. The Company may indemnify any
broker-dealer participating in such transactions against certain liabilities,
including liabilities under the Securities Act. Profits, commissions and
discounts on sales by persons who may be deemed to be underwriters within the
meaning of the Securities Act may be deemed underwriting compensation under the
Securities Act.
Stockholders may also offer shares of stock issued in past and future
acquisitions or purchased from the Company by means of prospectuses under other
registration statements or pursuant to exemptions from the registration
requirements of the Securities Act, including sales which meet the requirements
of Rule 144 or 145(d) under the Securities Act, and stockholders should seek the
advice of their own counsel with respect to the legal requirements for such
sales.
LEGAL MATTERS AND EXPERTS
The validity of the Shares offered hereby will be passed upon for the
Company by Akerman, Senterfitt & Eidson, P.A. Attorneys employed by Akerman,
Senterfitt & Eidson, P.A. beneficially owned an aggregate of 302,250 shares of
Common Stock as of the date of this Prospectus.
The Consolidated Financial Statements and Schedule of the Company as of
December 31, 1994 and 1993 and for the three years ended December 31, 1994
appearing in this Prospectus and Registration Statement have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The Combined Financial Statements of HMC at September 30, 1994 and 1993 and
for each of the three years ended September 30, 1994, appearing in this
Prospectus and Registration Statement have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
The Consolidated Financial Statement of Southland at September 30, 1994 and
1993 and for each of the two years ended September 30, 1994, appearing in this
Prospectus and Registration Statement have been audited by Grenadier, Appleby,
Collins & Company, independent certified public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
43
<PAGE> 46
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.............................. F-3
Consolidated Balance Sheets as of December 31, 1994 and 1993.................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1994,
1993 and 1992.................................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1991, 1992, 1993 and 1994...................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1993 and 1992.................................................................. F-7
Notes to Consolidated Financial Statements...................................... F-8
Supplemental Consolidated Balance Sheets as of June 30, 1995 (unaudited) and
December 31, 1994 and 1993..................................................... F-24
Supplemental Consolidated Statements of Operations for the Six Months Ended June
30, 1995 and 1994 (unaudited) and the Years Ended December 31, 1994, 1993 and
1992........................................................................... F-25
Supplemental Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1991, 1992, 1993 and 1994......................................... F-26
Supplemental Consolidated Statements of Cash Flows for the Six Months Ended June
30, 1995 and 1994 (unaudited) and the Years Ended December 31, 1994, 1993 and
1992........................................................................... F-27
Notes to Supplemental Consolidated Financial Statements......................... F-28
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1995 (unaudited)
and December 31, 1994.......................................................... F-47
Unaudited Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1995 and 1994............................................ F-48
Unaudited Condensed Consolidated Statement of Stockholders' Equity as of
December 31, 1994 and June 30, 1995............................................ F-49
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1995 and 1994................................................... F-50
Notes to Unaudited Condensed Consolidated Financial Statements.................. F-51
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND
ENVIROCYCLE, INC.
Report of Independent Certified Public Accountants.............................. F-55
Combined Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994
and 1993....................................................................... F-56
Combined Statements of Income for the Nine Months Ended June 30, 1995 and 1994
(unaudited) and the Years Ended September 30, 1994, 1993 and 1992.............. F-57
Combined Statements of Stockholders' Equity as of September 30, 1991, 1992, 1993
and 1994....................................................................... F-58
Combined Statements of Cash Flows for the Nine Months Ended June 30, 1995 and
1994 (unaudited) and the Years Ended September 30, 1994, 1993 and 1992......... F-59
Notes to Combined Financial Statements.......................................... F-60
</TABLE>
F-1
<PAGE> 47
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Independent Auditors' Report.................................................... F-68
Consolidated Balance Sheets as of June 30, 1995 (unaudited) and September 30,
1994 and 1993.................................................................. F-69
Consolidated Statements of Income for the Nine Months Ended June 30, 1995 and
1994 (unaudited) and the Years Ended September 30, 1994 and 1993............... F-70
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
September 30, 1994 and 1993.................................................... F-71
Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1995
and 1994 (unaudited) and the Years Ended September 30, 1994 and 1993........... F-72
Notes to Consolidated Financial Statements...................................... F-73
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Pro Forma Financial Statements................. F-82
Unaudited Condensed Consolidated Pro Forma Balance Sheet as of June 30, 1995.... F-83
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Six
Months Ended June 30, 1995..................................................... F-84
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year
Ended December 31, 1994........................................................ F-85
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year
Ended December 31, 1993........................................................ F-86
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year
Ended December 31, 1992........................................................ F-87
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements........ F-88
</TABLE>
F-2
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Republic Waste Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Waste Industries, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1994 and 1993 and the related consolidated statements of operations,
stockholders' equity and cash flows 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 Waste 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.
We have also made a similar audit of the accompanying supplemental
consolidated balance sheets of Republic Waste Industries, Inc. (a Delaware
corporation) 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 merger
with Kertz Security Systems II, Inc. and Kertz Security Systems, Inc. on August
28, 1995, which has been accounted for as a pooling 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 Waste Industries, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for such of the
three years in the period ended December 31, 1994, after giving retroactive
effect to the merger with Kertz Security Systems II, Inc. and Kertz Security
Systems, Inc. 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,
September 7, 1995.
F-3
<PAGE> 49
REPUBLIC WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $ 2,742 $ 3,279
Accounts receivable, less allowance for doubtful accounts of $245 and
$269, respectively................................................ 7,432 5,579
Prepaid expenses..................................................... 1,095 1,124
Other current assets................................................. 2,937 2,917
-------- --------
TOTAL CURRENT ASSETS......................................... 14,206 12,899
Property and equipment, net............................................ 85,492 83,160
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........................................................... 1,144 1,359
-------- --------
TOTAL ASSETS................................................. $132,441 $121,236
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................................... $ 3,097 $ 2,565
Accrued liabilities.................................................. 4,116 2,915
Notes payable........................................................ 394 661
Current maturities of long-term debt................................. 899 1,115
Current portion of accrued environmental and landfill costs.......... 1,404 1,715
Income taxes payable................................................. 160 351
-------- --------
TOTAL CURRENT LIABILITIES.................................... 10,070 9,322
Long-term debt, net of current maturities.............................. 14,926 14,193
Accrued environmental and landfill costs, net of current portion....... 8,244 8,757
Deferred income taxes.................................................. 11,232 11,344
-------- --------
TOTAL LIABILITIES............................................ 44,472 43,616
-------- --------
COMMITMENTS AND CONTINGENCIES
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; 27,185,731, and 27,348,388 issued, respectively....... 272 273
Additional paid-in capital........................................... 103,994 104,849
Accumulated deficit since January 1, 1990............................ (15,624) (26,829)
Notes receivable arising from stock purchase agreements.............. (673) (673)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................... 87,969 77,620
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $132,441 $121,236
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 50
REPUBLIC WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Revenue..................................................... $48,766 $ 41,095 $ 35,341
Expenses:
Cost of operations........................................ 30,769 25,377 22,735
Selling, general and administrative....................... 8,507 8,857 7,516
Restructuring and unusual charges......................... -- 10,040 2,250
Other (income) expense:
Interest and other income................................. (138) (149) (2,443)
Interest expense.......................................... 1,125 665 494
------- -------- --------
40,263 44,790 30,552
------- -------- --------
Income (loss) from continuing operations before income
taxes..................................................... 8,503 (3,695) 4,789
Income tax provision........................................ -- 210 113
------- -------- --------
Income (loss) from continuing operations.................... 8,503 (3,905) 4,676
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)
------- -------- --------
2,684 (14,579) (18,680)
------- -------- --------
Net income (loss)........................................... $11,187 $(18,484) $(14,004)
======= ======== ========
Earnings (loss) per common and common equivalent share:
Continuing operations..................................... $ 0.31 $ (0.14) $ 0.18
Discontinued operations................................... 0.10 (0.53) (0.71)
------- -------- --------
Net income (loss)......................................... $ 0.41 $ (0.67) $ (0.53)
======= ======== ========
Weighted average common and common equivalent shares........ 27,417 27,508 26,351
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 51
REPUBLIC WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED NOTES
EARNINGS RECEIVABLE
(ACCUMULATED ARISING
DEFICIT) FROM
ADDITIONAL SINCE STOCK
COMMON PAID-IN JANUARY 1, PURCHASE
STOCK CAPITAL 1990 AGREEMENTS
------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991................. $247 $ 89,948 $ 7,114 $ (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 -- --
Collections on notes receivable............ -- -- -- 25
Foreign currency translation adjustment.... -- -- (983) --
Other...................................... -- (104) -- --
Net loss................................... -- -- (14,004) --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1992................. 273 105,528 (7,873) (673)
Cancellation of shares held in escrow
issued for an acquisition............... (1) (944) -- --
Shares issued for contingent
consideration........................... 1 265 -- --
Foreign currency translation adjustment.... -- -- (472) --
Net loss................................... -- -- (18,484) --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1993................. 273 104,849 (26,829) (673)
Shares issued for contingent consideration,
net of shares returned in settlement.... 2 (2) -- --
Purchases of treasury stock................ (3) (853) -- --
Foreign currency translation adjustment.... -- -- 18 --
Net income................................. -- -- 11,187 --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1994................. $272 $103,994 $(15,624) $ (673)
======== ========= ============= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 52
REPUBLIC WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(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................... $ 8,503 $(3,905) $ 4,676
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................ 4,748 3,940 2,822
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..................................... (242) (803) (621)
Prepaid expenses and other assets....................... 162 (1,547) (65)
Accounts payable and accrued liabilities................ (782) (2,746) 687
Income taxes payable.................................... (191) (521) 1,418
Other liabilities....................................... (997) 1,009 (886)
------- ------- --------
Net cash provided by continuing operations.............. 11,505 6,058 5,499
------- ------- --------
CASH USED BY 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........................ (5,452) (3,701) (10,414)
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...................... (8,926) (9,233) (10,303)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt and notes payable............... (7,559) (7,453) (14,502)
Proceeds from long-term debt and notes payable............. 6,035 15,480 12,989
Purchases of treasury stock................................ (856) -- --
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 (used in) provided by financing activities........ (2,380) 7,533 10,523
------- ------- --------
DECREASE IN CASH AND CASH EQUIVALENTS........................ (537) (2) (11,891)
CASH AND CASH EQUIVALENTS:
Beginning of period........................................ 3,279 3,281 15,172
------- ------- --------
End of period.............................................. $ 2,742 $ 3,279 $ 3,281
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest................................................... $ 991 $ 520 $ 474
Income taxes............................................... $ 424 $ 312 $ 557
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Equipment purchases of $281 and $487 were financed in years ended December 31, 1993 and 1992,
respectively, by borrowings and capitalized lease obligations.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 53
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of 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 the hazardous
waste services segment of the Company to Republic stockholders. In February
1995, the Board of Directors approved this distribution to Republic stockholders
of record as of February 15, 1995. 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.
Revenue Recognition. The Company recognizes revenue as services are
provided.
Marketable Securities. The Company purchases marketable securities for
investment purposes which are recorded at 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 $1,976,000 and
$1,689,000, 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 years for
buildings and improvements, five to fifteen years for vehicles and equipment and
five 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.
F-8
<PAGE> 54
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("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.
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.
F-9
<PAGE> 55
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and
financial requirements. The plan provides for the combination of the Company's
hazardous waste services operations in its wholly-owned subsidiary, Republic
Environmental Systems, Inc. ("RESI") and the distribution of the stock of RESI
to the stockholders of record of Republic (the "Distribution"). In February
1995, the Board of Directors approved the Distribution to Republic stockholders
of record as of February 15, 1995. Republic stockholders will receive one share
of RESI's common stock for every five shares of common stock, $0.01 par value
per share ("Common Stock"), of Republic owned on the record date of the
Distribution. The Company will have no direct ownership interest in RESI after
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>
F-10
<PAGE> 56
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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..................................... (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>
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 has agreed to contribute the intercompany balance
to RESI's equity at the date of the Distribution. Republic has also agreed to
contribute additional capital to RESI of $2.4 million in 1995 to repay certain
indebtedness of RESI and to provide working capital to RESI. As a result of
these transactions, the Company's equity at the date of the Distribution will be
reduced by approximately $23.0 million.
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. 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 $17.6
million. 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 $2.9 million and $2.7
million, respectively.
F-11
<PAGE> 57
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. BUSINESS COMBINATIONS
General. From January 1, 1992 through December 31, 1994, the Company
acquired five 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. These businesses 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):
<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.
F-12
<PAGE> 58
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenue as reported................................... $48,766 $41,095 $35,341
Revenue of businesses acquired........................ 2,890 10,389 6,808
------- ------- -------
Pro forma revenue..................................... $51,656 $51,484 $42,149
======= ======= =======
Income (loss) from continuing operations as
reported............................................ $ 8,503 $(3,905) $ 4,676
Net income of businesses acquired..................... 97 353 443
Pro forma adjustments(A).............................. 126 (11) 113
------- ------- -------
Pro forma income (loss) from continuing operations.... $ 8,726 $(3,563) $ 5,232
======= ======= =======
Earnings (loss) per common and common equivalent share
from continuing operations as reported.............. $ 0.31 $ (0.14) $ 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......... $ 0.32 $ (0.13) $ 0.20
======= ======= =======
Weighted average common and common equivalent shares
as reported......................................... 27,417 27,508 26,351
Effect of shares issued for business acquisitions..... -- -- 349
------- ------- -------
Pro forma weighted average common and common
equivalent shares................................... 27,417 27,508 26,700
======= ======= =======
</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 $10.0 million 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 $6.6 million. 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
$1.2 million. In addition, the Company also reevaluated its exposure related to
litigation and environmental matters and provided additional accruals
aggregating $2.2 million for the costs to defend or settle certain litigation
and environmental matters.
F-13
<PAGE> 59
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 $2.2 million, 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 is shown below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Common shares outstanding................................ 27,186 27,348 27,281
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..... 27,417 27,508 26,351
====== ====== ======
</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 is shown below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Landfills and landfill improvements.................... $ 80,237 $ 77,198
Vehicles and equipment................................. 14,753 12,438
Buildings and improvements............................. 2,317 1,248
Furniture and fixtures................................. 354 270
-------- --------
97,661 91,154
Less accumulated depreciation and depletion............ (12,169) (7,994)
-------- --------
$ 85,492 $ 83,160
======== ========
</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 $7.6
million 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.
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.
F-14
<PAGE> 60
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
-------------------
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 9.7% (weighted average interest rate of 7.2% as of
December 31, 1994), payable monthly through 1998....... 763 1,392
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................................... 2,462 1,716
------- -------
15,825 15,308
Less current maturities.................................. (899) (1,115)
------- -------
$14,926 $14,193
======= =======
</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 obtained a commitment to extend
the due date from September 1996 to March 1998 and to increase the availability
under this facility to $35,000,000, upon participation from a second bank. 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.
At December 31, 1994, aggregate maturities of long-term debt were as
follows (in thousands):
<TABLE>
<S> <C>
1995..................................................... $ 899
1996..................................................... 13,055
1997..................................................... 608
1998..................................................... 550
1999..................................................... 302
Thereafter............................................... 411
-------
$15,825
=======
</TABLE>
F-15
<PAGE> 61
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $16.0 million. 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 at Pasadena, California (the "Court of Appeals") reversed in part
and vacated in part 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 timely
petition for writ of certiorari with the United States Supreme Court, although
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 $24.0 million in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case is currently scheduled for trial in late 1995 or early 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.
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.
F-16
<PAGE> 62
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 October 1995. 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 are as follows (in thousands):
<TABLE>
<S> <C>
1995........................................................ $548
1996........................................................ $457
1997........................................................ $331
1998........................................................ $104
1999........................................................ $ 53
Thereafter.................................................. $ 27
</TABLE>
Total rental expense incurred under operating leases was $631,000, $535,000
and $461,000 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.
F-17
<PAGE> 63
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 of 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 1.3 million shares, or 4.8% 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 1.3
million shares, or 4.8% 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 subsidiaries. These shares
represented additions to treasury stock and were subsequently retired in
December 1994. The Company's stock repurchase program expires on October 31,
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.
F-18
<PAGE> 64
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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(1)
========= ======== ========
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>
- ---------------
(1) Represents the weighted average option price of options exercisable at
December 31, 1994.
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(1)
=========
</TABLE>
- ---------------
(1) Represents the weighted average exercise price of warrants exercisable at
December 31, 1994.
F-19
<PAGE> 65
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
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............................................. $ 183 $ 344 $ 2,113
State............................................... 251 141 113
------- ------- -------
434 485 2,226
Federal deferred...................................... 2,771 (1,517) (575)
Tax reserve adjustments............................... (1,963) -- (1,538)
Change in valuation allowance......................... (1,242) 1,242 --
------- ------- -------
Income tax provision.................................. $ -- $ 210 $ 113
======= ======= =======
</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.
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.
F-20
<PAGE> 66
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 2.6 1.0
State income taxes, net of federal benefit.............. 2.2 3.1 0.1
Tax reserve adjustments................................. (23.1) -- (32.1)
Change in valuation allowance........................... (14.6) 33.6 --
Other, net.............................................. 0.4 0.4 (0.6)
----- ----- -----
Effective tax rate.................................... 0.0% 5.7% 2.4%
===== ===== =====
</TABLE>
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.......................... $19,900 $20,400
Book capitalization of costs expensed for tax.................. -- 31
------- -------
19,900 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)
------- -------
11,232 10,102
Valuation allowance.............................................. -- 1,242
------- -------
Net deferred income tax liability................................ $11,232 $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.
F-21
<PAGE> 67
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<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 $10,842 $13,115 $12,350 $ 12,459
1993 $ 9,113 $10,917 $10,452 $ 10,613
Gross profit............................... 1994 $ 4,132 $ 4,632 $ 4,703 $ 4,530
1993 $ 3,529 $ 4,040 $ 4,106 $ 4,043
Income from continuing operations.......... 1994 $ 1,721 $ 2,427 $ 2,300 $ 2,055
1993 $ 891 $ 1,508 $ 1,566 $ (7,870)(1)
Net Income................................. 1994 $ 1,575 $ 3,254 $ 3,288 $ 3,070
1993 $ 420 $ 1,403 $ 1,964 $(22,271)
Earnings per share from continuing 1994 $ 0.06 $ 0.09 $ 0.08 $ 0.08
operations............................... 1993 $ 0.02 $ 0.05 $ 0.06 $ (0.29)(1)
</TABLE>
- ---------------
(1) As discussed in Note 4, restructuring and unusual charges of $10,040 were
recorded by the Company in the fourth quarter of 1993 to reorganize its
operations.
14. 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 $37,575,000. 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. Mr. Gregory K. Fairbanks was appointed as
Executive Vice President and Chief Financial Officer and Mr. Donald E. Koogler
resigned as a director but remains as Executive Vice President and Chief
Operating Officer of Republic.
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 $70 million after deducting 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 $100 million after deducting fees and
commissions.
As a result of the above transactions, the Company received approximately
$234 million in cash in July, August and September 1995. The Company used a
portion of these proceeds to repay all outstanding borrowings under its
revolving line of credit facility totaling approximately $15.5 million plus
interest expense.
Acquisition of Hudson Management Corporation and Envirocycle, Inc. (the
"Hudson Companies"). On August 3, 1995, the Company issued 8.0 million shares of
Common Stock in exchange for all of the
F-22
<PAGE> 68
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding shares of common stock of the Hudson Companies, each of which is
owned by Mr. Hudson. The Hudson Companies, as the third largest solid waste
management company in Florida, provide solid waste collection and recycling
services to commercial, industrial and residential customers. The acquisition
will be accounted for using the purchase method of accounting. Subsequent to the
acquisition, the Company repaid substantially all of the outstanding debt of the
Hudson Companies which totaled approximately $11 million.
Acquisition of Kertz Security Systems. On August 28, 1995, the Company
issued 1,090,000 shares of the Company's Common Stock in exchange for all of the
outstanding shares of common stock of Kertz Security Systems II, Inc. and Kertz
Security Systems, Inc. ("Kertz"). Kertz provides electronic security monitoring
and maintenance to over 30,000 residential and commercial customers
predominantly in the South Florida, Tampa and Orlando areas. The acquisition
will be accounted for under the pooling-of-interests method of accounting.
Acquisition of Southland Environmental Services. On August 24, 1995,
Republic entered into a definitive agreement to acquire all of the outstanding
common stock of Southland Environmental Services, Inc. in exchange for 2.6
million shares of Common Stock of Republic. Southland provides solid waste
collection services in the Northeast Florida area serving over 70,000
residential and commercial customers. Southland also owns and operates a
construction and demolition landfill and provides composting and recycling
services. This acquisition is expected to close in October 1995 and will be
accounted for under the pooling-of-interests method of accounting.
F-23
<PAGE> 69
REPUBLIC WASTE INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1995 1994 1993
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 3,089 $ 3,084 $ 3,822
Accounts receivable, less allowance for doubtful accounts
of $599 (unaudited), $445 and $469, respectively....... 9,288 8,004 6,158
Prepaid expenses.......................................... 1,007 1,135 1,161
Other current assets...................................... 3,275 3,053 3,056
----------- -------- --------
Total Current Assets.............................. 16,659 15,276 14,197
Property and equipment, net................................. 88,330 86,902 84,299
Goodwill, net of accumulated amortization of $882
(unaudited), $710 and $481, respectively.................. 12,969 11,307 6,946
Net assets of discontinued operations....................... -- 20,292 16,872
Other assets................................................ 1,136 1,145 1,360
----------- -------- --------
Total Assets...................................... $ 119,094 $134,922 $123,674
=========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 4,707 $ 3,614 $ 2,949
Accrued liabilities....................................... 3,035 4,553 3,287
Notes payable............................................. 633 394 661
Current maturities of long-term debt...................... 1,304 1,571 1,753
Current portion of accrued environmental and landfill
costs.................................................. 2,080 1,404 1,715
Income taxes payable...................................... 303 160 351
----------- -------- --------
Total Current Liabilities......................... 12,062 11,696 10,716
Long-term debt, net of current maturities................... 18,172 15,152 14,512
Accrued environmental and landfill costs, net of current
portion................................................... 7,267 8,244 8,757
Deferred income taxes....................................... 11,933 11,232 11,344
----------- -------- --------
Total Liabilities................................. 49,434 46,324 45,329
----------- -------- --------
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; 28,273,506 (unaudited), 28,275,731,
and 28,438,388 issued, respectively.................... 283 283 284
Additional paid-in capital................................ 67,858 104,161 105,016
Retained earnings (accumulated deficit) since January 1,
1990................................................... 1,744 (15,173) (26,282)
Notes receivable arising from stock purchase agreements... (225) (673) (673)
----------- -------- --------
Total Stockholders' Equity........................ 69,660 88,598 78,345
----------- -------- --------
Total Liabilities and Stockholders' Equity........ $ 119,094 $134,922 $123,674
=========== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-24
<PAGE> 70
REPUBLIC WASTE INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------
1995 1994 1994 1993 1992
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................................ $35,701 $30,778 $61,709 $ 56,817 $ 48,979
Expenses:
Cost of operations........................... 22,558 18,724 37,692 33,237 28,808
Selling, general and administrative.......... 6,932 7,530 14,314 16,107 14,725
Restructuring and unusual charges............ -- -- -- 10,040 2,250
Other (income) expense:
Interest and other income.................... (168) (108) (154) (167) (2,452)
Interest expense............................. 816 595 1,198 733 518
------- ------- ------- -------- --------
30,138 26,741 53,050 59,950 43,849
------- ------- ------- -------- --------
Income (loss) from continuing operations before
income taxes................................. 5,563 4,037 8,659 (3,133) 5,130
Income tax provision........................... 1,523 -- -- 70 253
------- ------- ------- -------- --------
Income (loss) from continuing operations....... 4,040 4,037 8,659 (3,203) 4,877
Discontinued operations:
Income (loss) from discontinued operations,
net of income tax benefit of $298
(unaudited), $0 (unaudited), $0, $210 and
$123, respectively........................ 508 681 2,684 (14,579) (1,117)
Loss on disposition.......................... -- -- -- -- (17,563)
------- ------- ------- -------- --------
508 681 2,684 (14,579) (18,680)
------- ------- ------- -------- --------
Net income (loss).............................. $ 4,548 $ 4,718 $11,343 $(17,782) $(13,803)
======= ======= ======= ======== ========
Earnings (loss) per common and
common equivalent share:
Continuing operations........................ $ 0.13 $ 0.14 $ 0.30 $ (0.11) $ 0.18
Discontinued operations...................... 0.02 0.03 0.10 (0.51) (0.68)
------- ------- ------- -------- --------
Net income (loss)............................ $ 0.15 $ 0.17 $ 0.40 $ (0.62) $ (0.50)
======= ======= ======= ======== ========
Weighted average common and
common equivalent shares..................... 30,019 28,560 28,507 28,598 27,441
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-25
<PAGE> 71
REPUBLIC WASTE INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED NOTES
EARNINGS RECEIVABLE
(ACCUMULATED ARISING
DEFICIT) FROM
ADDITIONAL SINCE STOCK
COMMON PAID-IN JANUARY 1, PURCHASE
STOCK CAPITAL 1990 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) --
Net loss................................... -- -- (17,782) --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1993................. 284 105,016 (26,282) (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 --
Net income................................. -- -- 11,343 --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1994................. $283 $104,161 $(15,173) $ (673)
======== ========= ============= ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-26
<PAGE> 72
REPUBLIC WASTE INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ----------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF
CONTINUING OPERATIONS:
Income (loss) from continuing operations............................. $ 4,040 $ 4,037 $ 8,659 $(3,203) $ 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............................. 2,910 2,313 4,960 4,142 2,944
Provision for doubtful accounts...................................... 159 39 174 371 161
Provision for accrued environmental and landfill costs............... 170 110 377 215 76
(Gain) loss on the sale of equipment................................. (23) (193) (247) 5 (769)
Gain on sale of marketable securities................................ -- -- -- -- (2,000)
Changes in assets and liabilities, net of effects from business
acquisitions:
Accounts receivable................................................ (897) (691) (235) (838) (748)
Prepaid expenses and other assets.................................. 12 (262) 182 (1,565) (112)
Accounts payable and accrued liabilities........................... (702) (186) (584) (2,625) 698
Income taxes payable............................................... 143 242 (191) (688) 1,585
Other liabilities.................................................. 274 (377) (997) 1,009 (886)
------- ------- ------- ------- --------
Net cash provided by continuing operations..................... 6,086 5,032 12,098 6,863 5,826
------- ------- ------- ------- --------
CASH PROVIDED BY (USED BY) DISCONTINUED OPERATIONS..................... (263) 765 (736) (4,360) (17,610)
------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired.......................... (2,358) (500) (4,059) (5,664) (2,899)
Purchases of property and equipment.................................. (3,573) (2,357) (5,935) (4,330) (10,818)
Proceeds from the sale of equipment.................................. 90 412 585 132 1,010
Purchases of marketable securities................................... -- -- -- -- (7,554)
Proceeds from the sale of marketable securities...................... -- -- -- -- 9,554
------- ------- ------- ------- --------
Net cash used in investing activities.......................... (5,841) (2,445) (9,409) (9,862) (10,707)
------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants............................... 181 -- -- -- --
Capital contribution to Republic Environmental Systems, Inc.......... (2,520) -- -- -- --
Payments of long-term debt and notes payable......................... (2,668) (2,900) (7,456) (7,592) (14,580)
Proceeds from long-term debt and notes payable....................... 5,160 1,014 5,873 16,229 13,313
Purchases of treasury stock.......................................... (223) (450) (856) -- --
Distributions to former shareholders of acquired businesses.......... (355) (149) (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......................................................... 448 -- -- -- 648
------- ------- ------- ------- --------
Net cash provided by (used in) financing activities............ 23 (2,485) (2,691) 7,676 10,769
------- ------- ------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 5 867 (738) 317 (11,722)
CASH AND CASH EQUIVALENTS:
Beginning of period.................................................. 3,084 3,822 3,822 3,505 15,227
------- ------- ------- ------- --------
End of period........................................................ $ 3,089 $ 4,689 $ 3,084 $ 3,822 $ 3,505
======= ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest............................................................. $ 678 $ 456 $ 1,064 $ 588 $ 497
Income taxes......................................................... $ 627 $ 325 $ 424 $ 312 $ 557
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.
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-27
<PAGE> 73
REPUBLIC WASTE 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 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 of record as of February 15, 1995.
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 June 30, 1995, and the consolidated results of their
operations and cash flows for the six months ended June 30, 1995 and 1994.
Supplemental Consolidated Financial Statements. The accompanying
supplemental consolidated financial statements give retroactive effect to the
merger with Kertz Security Systems II, Inc. and Kertz Security Systems, Inc.
("Kertz"). On August 28, 1995, the Company issued 1,090,000 shares of the
Company's common stock, $0.01 par value per share ("Common Stock"), in exchange
for all of the oustanding shares of common stock of Kertz. Kertz provides
electronic security monitoring and maintenance to over 30,000 residential and
commercial customers predominantly in the South Florida, Tampa and Orlando
areas. The transaction was accounted for under the pooling-of-interests method
of accounting and, accordingly, the accompanying supplemental consolidated
financial statements have been retroactively adjusted as if the Company and
Kertz 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 previously separate companies
for the periods prior to the combination are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------
1995 1994 1994 1993 1992
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
The Company.......................... $29,919 $23,957 $48,766 $ 41,095 $ 35,341
Kertz................................ 5,782 6,821 12,943 15,722 13,638
------- ------- ------- -------- --------
$35,701 $30,778 $61,709 $ 56,817 $ 48,979
======= ======= ======= ======== ========
Net income (loss):
The Company.......................... $ 4,750 $ 4,829 $11,187 $(18,484) $(14,004)
Kertz................................ (202) (111) 156 702 201
------- ------- ------- -------- --------
$ 4,548 $ 4,718 $11,343 $(17,782) $(13,803)
======= ======= ======= ======== ========
Earnings per share:
The Company.......................... $ 0.16 $ 0.17 $ 0.39 $ (0.65) $ (0.51)
Kertz................................ (0.01) -- 0.01 0.03 0.01
------- ------- ------- -------- --------
$ 0.15 $ 0.17 $ 0.40 $ (0.62) $ (0.50)
======= ======= ======= ======== ========
</TABLE>
Revenue Recognition. The Company recognizes revenue as services are
provided.
F-28
<PAGE> 74
REPUBLIC WASTE 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 $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 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
Statement of Financial Accounting Standards ("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.
F-29
<PAGE> 75
REPUBLIC WASTE 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 and
financial requirements. The plan provides
F-30
<PAGE> 76
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 5.4 million RESI shares were distributed to
Republic 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>
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 $2.5 million to RESI to repay certain indebtedness of RESI and to
provide working capital to RESI. Additionally, the Company reclassified
approximately $36.3 million to retained earnings from
F-31
<PAGE> 77
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $23.0 million.
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 and the Tax Sharing Agreement are 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 $17.6
million. 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 $2.9 million and
$2.7 million, respectively.
3. BUSINESS COMBINATIONS
General. From January 1, 1992 through December 31, 1994, the Company
acquired five 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. These businesses 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.
F-32
<PAGE> 78
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the purchase price of the Company's
acquisitions accounted for under the purchase method of accounting (in
thousands):
<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.
F-33
<PAGE> 79
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<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............................................ $ 8,659 $(3,203) $ 4,877
Net income of businesses acquired..................... 97 353 443
Pro forma adjustments(A).............................. 126 (11) 113
------- ------- -------
Pro forma income (loss) from continuing operations.... $ 8,882 $(2,861) $ 5,433
======= ======= =======
Earnings (loss) per common and common equivalent share
from continuing operations as reported.............. $ 0.30 $ (0.11) $ 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 $ (0.10) $ 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 $10.0 million 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 $6.6 million. 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
$1.2 million. In addition, the Company also reevaluated its exposure related to
litigation and environmental matters and provided additional accruals
aggregating $2.2 million for the costs to defend or settle certain litigation
and environmental matters.
F-34
<PAGE> 80
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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 $2.2 million, 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 is shown below (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1995 1994 1994 1993 1992
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Common shares outstanding..................... 28,273 28,511 28,276 28,438 28,371
Effect of using weighted average common shares
outstanding during the year................. (5) -- -- -- (1,116)
Common shares issuable under options, warrants
and earn-out agreements..................... 1,751 49 82 160 186
Weighted average effect of treasury stock
purchases................................... -- -- 149 -- --
------ ------ ------ ------ ------
Weighted average common and common
equivalent shares........................... 30,019 28,560 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 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 $7.6
million 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.
F-35
<PAGE> 81
REPUBLIC WASTE 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,
-------------------
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.
At December 31, 1994, aggregate maturities of long-term debt 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>
F-36
<PAGE> 82
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $16.0 million. 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") reversed in part and vacated in part 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 timely petition for writ of
certiorari with the United States Supreme Court, although 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 $24.0 million in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case is currently scheduled for trial in late 1995 or early 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.
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.
F-37
<PAGE> 83
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 October 1995. 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 are as follows (in thousands):
<TABLE>
<S> <C>
1995.......................................................... $562
1996.......................................................... $470
1997.......................................................... $338
1998.......................................................... $104
1999.......................................................... $ 53
Thereafter.................................................... $ 27
</TABLE>
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.
F-38
<PAGE> 84
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 of 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 1.3 million shares, or 4.8% 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 1.3
million shares, or 4.8% 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 subsidiaries. These shares
represented additions to treasury stock and were subsequently retired in
December 1994. The Company's stock repurchase program expires on October 31,
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.
F-39
<PAGE> 85
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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(1)
========= ========= ========
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>
- ---------------
(1) Represents the weighted average option price of options exercisable at
December 31, 1994.
F-40
<PAGE> 86
REPUBLIC WASTE 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(1)
=========
</TABLE>
- ---------------
(1) Represents the weighted average exercise price of warrants exercisable at
December 31, 1994.
11. INCOME TAXES
Kertz elected S-corporation status for income tax reporting purposes on
July 1, 1993 at which time deferred tax balances were eliminated through a
credit to the deferred income tax provision. Since July 1, 1993, net income and
the related differences that arise in the recording of income and expense items
for financial reporting and income tax reporting purposes have been included in
the individual tax returns of the former stockholders of Kertz. Upon the closing
of the merger transaction on August 28, 1995, Kertz was no longer eligible for
S-corporation status. Deferred income taxes recorded at closing upon the change
in the tax status were not material to the supplemental consolidated financial
statements.
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............................................. $ 183 $ 399 $ 2,266
State............................................... 251 141 127
------- ------- -------
434 540 2,393
Federal deferred...................................... 2,771 (1,712) (602)
Tax reserve adjustments............................... (1,963) -- (1,538)
Change in valuation allowance......................... (1,242) 1,242 --
------- ------- -------
Income tax provision.................................. $ -- $ 70 $ 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
F-41
<PAGE> 87
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 of approximately 38% for the three and six months ended June 30, 1994
was 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................................ 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) 39.7 --
Kertz earnings (S-corporation).......................... (0.6) (10.9) --
Other, net.............................................. 0.4 0.8 (0.4)
----- ----- -----
Effective tax rate................................. 0.0% 2.2% 4.9%
===== ===== =====
</TABLE>
F-42
<PAGE> 88
REPUBLIC WASTE 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......................... $19,900 $ 20,400
Book capitalization of costs expensed for tax................. -- 31
------- --------
19,900 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)
------- --------
11,232 10,102
Valuation allowance............................................. -- 1,242
------- --------
Net deferred income tax liability............................... $11,232 $ 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.
F-43
<PAGE> 89
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OPERATIONS BY INDUSTRY SEGMENT (UNAUDITED)
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............................. $ 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>
F-44
<PAGE> 90
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<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 continuing operations... 1994 $ 1,452 $ 2,585 $ 3,080 $ 1,542
1993 $ 1,173 $ 1,420 $ 1,728 $ (7,524)(1)
Net income (loss).......................... 1994 $ 1,306 $ 3,412 $ 4,068 $ 2,557
1993 $ 702 $ 1,315 $ 2,126 $(21,925)
Earnings (loss) per share from 1994 $ 0.05 $ 0.09 $ 0.11 $ 0.05
continuing operations.................... 1993 $ 0.04 $ 0.05 $ 0.06 $ (0.26)(1)
</TABLE>
- ---------------
(1) As discussed in Note 4, restructuring and unusual charges of $10,040 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 $37,575,000. 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. Mr. Gregory K. Fairbanks was appointed as
Executive Vice President and Chief Financial Officer and Mr. Donald E. Koogler
resigned as a director but remains as Executive Vice President and Chief
Operating Officer of Republic.
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 $70 million after deducting 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 $100 million after deducting fees and
commissions.
As a result of the above transactions, the Company received approximately
$234 million in cash in July, August and September 1995. The Company used a
portion of these proceeds to repay all outstanding borrowings under its
revolving line of credit facility totaling approximately $15.5 million plus
interest expense.
Acquisition of Hudson Management Corporation and Envirocycle, Inc. (the
"Hudson Companies"). On August 3, 1995, the Company issued 8.0 million shares of
Common Stock in exchange for all of the
F-45
<PAGE> 91
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding shares of common stock of the Hudson Companies, each of which is
owned by Mr. Hudson. The Hudson Companies, as the third largest solid waste
management company in Florida, provide solid waste collection and recycling
services to commercial, industrial and residential customers. The acquisition
will be accounted for using the purchase method of accounting. Subsequent to the
acquisition, the Company repaid substantially all of the outstanding debt of the
Hudson Companies which totaled approximately $11 million.
Acquisition of Southland Environmental Services. On August 24, 1995,
Republic entered into a definitive agreement to acquire all of the outstanding
common stock of Southland Environmental Services, Inc. in exchange for 2.6
million shares of Common Stock of Republic. Southland provides solid waste
collection services in the Northeast Florida area serving over 70,000
residential and commercial customers. Southland also owns and operates a
construction and demolition landfill and provides composting and recycling
services. This acquisition is expected to close in October 1995 and will be
accounted for under the pooling-of-interests method of accounting.
F-46
<PAGE> 92
REPUBLIC WASTE INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................... $ 2,948 $ 2,742
Accounts receivable, less allowance for doubtful accounts of
$399 and $245, respectively............................... 8,776 7,432
Prepaid expenses............................................. 961 1,095
Other current assets......................................... 3,128 2,937
----------- ------------
Total current assets................................. 15,813 14,206
Property and equipment, net.................................... 87,015 85,492
Goodwill, net of accumulated amortization of $882 and $710,
respectively................................................. 12,969 11,307
Net assets of discontinued operations.......................... -- 20,292
Other assets................................................... 1,135 1,144
----------- ------------
Total assets......................................... $ 116,932 $132,441
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................................. $ 4,343 $ 3,097
Accrued liabilities.......................................... 2,558 4,116
Notes payable................................................ 633 394
Current maturities of long-term debt......................... 621 899
Current portion of accrued environmental and landfill
costs..................................................... 2,080 1,404
Income taxes payable......................................... 303 160
----------- ------------
Total current liabilities............................ 10,538 10,070
Long-term debt, net of current maturities...................... 17,995 14,926
Accrued environmental and landfill costs, net of current
portion...................................................... 7,267 8,244
Deferred income taxes.......................................... 11,544 11,232
----------- ------------
Total liabilities.................................... 47,344 44,472
----------- ------------
Commitments and contingencies
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 shares
authorized; 27,183,506 and 27,185,731 issued,
respectively.............................................. 272 272
Additional paid-in capital................................... 67,691 103,994
Retained earnings (accumulated deficit) since January 1,
1990...................................................... 1,850 (15,624)
Notes receivable arising from stock purchase agreements...... (225) (673)
----------- ------------
Total stockholders' equity........................... 69,588 87,969
----------- ------------
Total liabilities and stockholders' equity........... $ 116,932 $132,441
=========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE> 93
REPUBLIC WASTE INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue............................................. $16,158 $13,115 $29,919 $23,957
Expenses:
Cost of operations................................ 10,773 8,483 19,583 15,193
Selling, general and administrative............... 2,120 2,023 4,325 4,194
Other (income) expense:
Interest and other income......................... (138) (76) (158) (101)
Interest expense.................................. 419 258 793 523
------- ------- ------- -------
13,174 10,688 24,543 19,809
------- ------- ------- -------
Income from continuing operations before income
taxes............................................. 2,984 2,427 5,376 4,148
Income tax provision................................ 1,134 -- 1,134 --
------- ------- ------- -------
Income from continuing operations................... 1,850 2,427 4,242 4,148
Income from discontinued operations, net of income
tax provision of $0, $298 and $0, respectively.... -- 827 508 681
------- ------- ------- -------
Net income.......................................... $ 1,850 $ 3,254 $ 4,750 $ 4,829
======= ======= ======= =======
Earnings per common and common equivalent share:
Continuing operations............................. $ 0.06 $ 0.09 $ 0.15 $ 0.15
Discontinued operations........................... -- 0.03 0.02 0.03
------- ------- ------- -------
Net income........................................ $ 0.06 $ 0.12 $ 0.17 $ 0.18
======= ======= ======= =======
Weighted average common and common equivalent
shares............................................ 28,986 27,403 28,929 27,470
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-48
<PAGE> 94
REPUBLIC WASTE INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED NOTES
EARNINGS RECEIVABLE
(ACCUMULATED ARISING
DEFICIT) FROM
ADDITIONAL SINCE STOCK
COMMON PAID-IN JANUARY 1, PURCHASE
STOCK CAPITAL 1990 AGREEMENTS
------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994................. $272 $103,994 $(15,624) $ (673)
Purchases of treasury stock.................. -- (223) -- --
Exercise of stock options and warrants....... -- 225 -- --
Payments received on notes................... -- -- -- 448
Reclassification of additional paid-in
capital to effect the spin-off............. -- (36,305) 36,305 --
Spin-off of Republic Environmental Systems,
Inc., effective April 1995................. -- -- (23,579) --
Net income................................... -- -- 4,750 --
Foreign currency translation adjustment...... -- -- (2) --
------ ---------- ------------ ----------
Balance at June 30, 1995..................... $272 $ 67,691 $ 1,850 $ (225)
======== ========= ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
<PAGE> 95
REPUBLIC WASTE INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations...................................... $ 4,242 $ 4,148
Adjustments to reconcile income from continuing operations to net cash
provided by operations:
Depreciation, depletion and amortization............................ 2,780 2,234
Provision for doubtful accounts..................................... 159 39
Provision for accrued environmental and landfill costs.............. 170 110
Gain on the sale of property and equipment.......................... (23) (193)
Changes in assets and liabilities, net of effects from business
acquisitions:
Accounts receivable................................................. (957) (667)
Prepaid expenses and other assets................................... 49 (241)
Accounts payable and accrued liabilities............................ (589) (374)
Income taxes payable................................................ 143 242
Other liabilities................................................... (115) (377)
------- -------
Net cash provided by continuing operations............................... 5,859 4,921
------- -------
Cash provided (used) by discontinued operations.......................... (263) 765
------- -------
Cash flows from investing activities:
Business acquisitions, net of cash acquired............................ (2,358) (500)
Purchases of property and equipment.................................... (3,538) (2,015)
Proceeds from the sale of property and equipment....................... 90 412
------- -------
Net cash used in investing activities.................................... (5,806) (2,103)
------- -------
Cash flows from financing activities:
Exercise of stock options and warrants................................. 181 --
Repayments received on notes receivable arising from stock purchase
agreements.......................................................... 448 --
Capital contribution to Republic Environmental Systems, Inc. .......... (2,520) --
Purchases of treasury stock............................................ (223) (450)
Payments of long-term debt and notes payable........................... (2,702) (2,828)
Proceeds from long-term debt and notes payable......................... 5,232 935
------- -------
Net cash provided by (used in) financing activities...................... 416 (2,343)
------- -------
Increase in cash and cash equivalents.................................... 206 1,240
Cash and cash equivalents:
Beginning of period.................................................... 2,742 3,279
------- -------
End of period.......................................................... $ 2,948 $ 4,519
======= =======
Supplemental disclosure of cash paid for:
Interest............................................................... $ 653 $ 440
Income taxes........................................................... $ 627 $ 325
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-50
<PAGE> 96
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Republic Waste Industries, Inc. and its wholly-owned subsidiaries
(the "Company" or "Republic") and have been prepared by the Company without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. All significant intercompany accounts and transactions have been
eliminated. As discussed in Note 2, the Company spun-off its hazardous waste
services segment, Republic Environmental Systems, Inc. ("RESI") to Republic
stockholders in April 1995 (the "Distribution"). Accordingly, this segment was
accounted for as a discontinued operation and the accompanying consolidated
financial statements have been restated to report separately the net assets and
operating results of these discontinued operations prior to the distribution
date. Certain information related to the Company's organization, significant
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted in the accompanying condensed consolidated
financial statements. These unaudited consolidated financial statements reflect,
in the opinion of management, all adjustments (which include only normal
recurring adjustments, except as disclosed herein) necessary to fairly state the
financial position and the results of operations for the periods presented and
the disclosures herein are adequate to make the information presented not
misleading. Operating results for interim periods are not necessarily indicative
of the results that can be expected for a full year. These interim financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained elsewhere in this Prospectus.
2. SPIN-OFF OF RESI
On April 26, 1995, Republic stockholders received one share of common stock
of the Company's hazardous waste subsidiary, RESI, for every five shares of
common stock, $0.01 par value per share ("Common Stock"), of Republic owned on
April 21, 1995 in connection with the spin-off of RESI. Approximately 5.4
million RESI shares were distributed to Republic 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 was
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
prior to the distribution date. Revenue of the discontinued operations was
$12,040,000, $12,148,000 and $22,252,000 for three months ended June 30, 1994
and the six months ended June 30, 1995 and 1994, respectively. Net income of the
discontinued operations was $827,000, $508,000 and $681,000 for the three months
ended June 30, 1994 and the six months ended June 30, 1995 and 1994,
respectively.
In connection with the Distribution, the Company entered into a
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 $2.5 million to RESI to repay RESI's indebtedness and to provide
working capital to RESI. Additionally, the Company reclassified approximately
$36.3 million to retained earnings from additional paid-in capital 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 $23.0
million.
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, property and casualty insurance coverage for
RESI through June 30, 1995, treatment of various tax matters for periods through
the date of the Distribution and indemnification between both parties. The
Corporate Services Agreement and the Tax Sharing Agreement are expected to be
terminated by the end of 1995.
F-51
<PAGE> 97
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The computation of weighted average common and common equivalent shares
used in the calculation of fully diluted earnings per share is shown below (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common shares outstanding................... 27,183 27,346 27,183 27,421
Common shares issuable at current earnings
levels under options, warrants and
earn-out agreements....................... 1,823 57 1,751 49
Effect of using weighted average common
shares outstanding during the period...... (20) -- (5) --
------ ------ ------ ------
Weighted average common and common
equivalent shares......................... 28,986 27,403 28,929 27,470
====== ====== ====== ======
</TABLE>
The difference between shares for primary and fully diluted earnings per
common and common equivalent share was not significant for the periods
presented.
4. TREASURY STOCK
In October 1994, the Board of Directors authorized the Company to continue
its stock repurchase program and repurchase up to 1.3 million shares or 4.8% of
its outstanding Common Stock through October 1995. Through July 1995, 65,000
shares were repurchased for an aggregate value of $223,000 and were subsequently
retired. The Company's stock repurchase program expires on October 31, 1995 and
the Company does not currently plan to repurchase any additional Common Stock.
5. INCOME TAXES
As part of its tax planning to reduce cash outlays for taxes, the Company
employs a number of strategies such as combining entities to reduce state income
taxes and recapturing taxes previously paid by acquired companies, among others.
When the Company determines that deferred tax assets for which it had previously
recorded no benefit are realizable, the impact is recorded as "tax reserve
adjustments" in the tax provision. The Company's income tax provision for the
first quarter of 1995 was offset by such adjustments. The Company's income tax
provision of approximately 38% for the three and six months ended June 30, 1994
was offset by reductions in valuation allowance, as well as tax reserve
adjustments.
6. 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 $16.0 million. 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
F-52
<PAGE> 98
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Appeals for the Ninth Circuit (the "Court of Appeals") reversed in part and
vacated in part 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 timely
petition for writ of certiorari with the United States Supreme Court, although
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 U. S. 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. In July 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 $24.0 million in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case is currently scheduled for trial in late 1995 or early 1996.
While the results of the legal proceedings described above and other legal
proceedings and environmental matters 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.
Reference is made to the Company's Consolidated Financial Statements for
the year ended December 31, 1994 included elsewhere in this Prospectus for
information regarding pending environmental proceedings.
7. 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,
Vice Chairman of the Board of Republic) and Mr. Harris W. Hudson, and certain of
their assigns for an aggregate purchase price of $37,575,000. 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 and Mr. Melk was named as a member of the Board
of Directors. Mr. Gregory K. Fairbanks was appointed as Executive Vice President
and Chief Financial Officer and Mr. Donald E. Koogler will remain as Executive
Vice President and Chief Operating Officer of Republic.
F-53
<PAGE> 99
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRIVATE PLACEMENT TRANSACTION. In July 1995, the Company sold 5,400,000
shares of Common Stock in a private placement transaction for $13.25 per share,
less fees and commissions, for net proceeds of $70,200,000.
As a result of these transactions, the Company received approximately
$134.3 million in cash in July and August 1995. The Company used a portion of
these proceeds to repay all outstanding borrowings under its revolving line of
credit facility totaling approximately $15.5 million plus interest expense.
Additionally, in August 1995, the Company repaid substantially all of the
outstanding debt of Hudson Management Corporation and Envirocycle, Inc. totaling
approximately $11.0 million.
ACQUISITION OF HUDSON MANAGEMENT CORPORATION AND ENVIROCYCLE, INC. On
August 3, 1995, the Company issued 8,000,000 shares of Common Stock in exchange
for all of the outstanding shares of common stock of Hudson Management
Corporation and Envirocycle, Inc. (the "Hudson Companies"), each of which is
owned by Mr. Hudson. The Hudson Companies, as the third largest solid waste
management company in Florida, provide solid waste collection and recycling
services to commercial, industrial and residential customers. The acquisition
will be accounted for using the purchase method of accounting.
F-54
<PAGE> 100
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Boards of Directors of
Hudson Management Corporation
and Envirocycle, Inc.:
We have audited the accompanying combined balance sheets of Hudson
Management Corporation and subsidiaries and Envirocycle, Inc. (a Florida
corporation and a Florida S-corporation, respectively, affiliated through common
ownership) as of September 30, 1994 and 1993, and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1994. 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 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 Hudson Management
Corporation and subsidiaries and Envirocycle, Inc. as of September 30, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1994, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 1, 1995 (except with respect to the
matter discussed in Note 10,
as to which the date is
August 3, 1995).
F-55
<PAGE> 101
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------------
1995 1994 1993
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................... $ 630 $ 538 $ 2,007
Accounts receivable, less allowance for doubtful
accounts of $510 (unaudited), $330 and $220,
respectively......................................... 5,765 5,371 4,400
Prepaid expenses and other.............................. 1,353 1,179 634
Deferred income taxes................................... 864 845 911
----------- ------- -------
Total current assets............................ 8,612 7,933 7,952
PROPERTY AND EQUIPMENT, net............................... 18,589 14,088 11,405
INTANGIBLE ASSETS, net.................................... 2,679 2,557 2,669
OTHER ASSETS.............................................. 51 58 50
----------- ------- -------
Total assets.................................... $29,931 $24,636 $22,076
=========== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 2,725 $ 2,556 $ 2,170
Current portion of long-term debt....................... 3,596 2,736 3,263
Deferred revenue and other credits...................... 2,316 1,930 1,702
Accrued liabilities..................................... 4,294 3,243 3,291
Customer deposits....................................... 135 145 135
----------- ------- -------
Total current liabilities....................... 13,066 10,610 10,561
DEFERRED INCOME TAXES..................................... 1,320 1,471 1,369
LONG-TERM DEBT, less current portion...................... 8,937 7,022 4,570
----------- ------- -------
Total liabilities............................... 23,323 19,103 16,500
----------- ------- -------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 6, 7 and 10)
STOCKHOLDERS' EQUITY:
Capital stock........................................... -- -- --
Additional paid-in capital.............................. 73 73 73
Retained earnings....................................... 6,535 5,460 5,503
----------- ------- -------
Total stockholders' equity...................... 6,608 5,533 5,576
----------- ------- -------
Total liabilities and stockholders' equity...... $29,931 $24,636 $22,076
=========== ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-56
<PAGE> 102
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS FOR THE YEAR
ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------- ---------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE.......................................... $41,439 $34,055 $48,003 $45,582 $38,788
OPERATING EXPENSES:
Cost of operations............................. 29,957 24,154 35,048 32,025 27,738
Selling, general and administrative............ 7,328 7,377 9,444 8,573 8,305
INTEREST EXPENSE................................. 474 329 505 552 737
------- ------- ------- ------- -------
37,759 31,860 44,997 41,150 36,780
------- ------- ------- ------- -------
Income before income taxes............. 3,680 2,195 3,006 4,432 2,008
INCOME TAX PROVISION............................. 455 254 377 901 874
------- ------- ------- ------- -------
Net income............................. 3,225 1,941 2,629 3,531 1,134
UNAUDITED PRO FORMA ADJUSTMENT TO REFLECT INCOME
TAXES FOR ENVIROCYCLE, INC. (Note 1)........... 1,014 608 892 952 54
------- ------- ------- ------- -------
Unaudited pro forma net income (Note
1)................................... $ 2,211 $ 1,333 $ 1,737 $ 2,579 $ 1,080
======= ======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-57
<PAGE> 103
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------- ---------- --------
<S> <C> <C> <C>
BALANCE, September 30, 1991................................ $ -- $ 73 $ 1,893
Net income............................................... -- -- 1,134
Stockholder distributions................................ -- -- (220)
------- --- --------
BALANCE, September 30, 1992................................ -- 73 2,807
Net income............................................... -- -- 3,531
Stockholder distributions................................ -- -- (835)
------- --- --------
BALANCE, September 30, 1993................................ -- 73 5,503
Net income............................................... -- -- 2,629
Stockholder distributions................................ -- -- (2,672)
------- --- --------
BALANCE, September 30, 1994................................ $ -- $ 73 $ 5,460
====== ==== ========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-58
<PAGE> 104
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS FOR THE YEARS
ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------- ---------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 3,225 $ 1,941 $ 2,629 $ 3,531 $ 1,134
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization............... 2,013 1,950 2,614 2,495 2,642
Deferred income tax provision (benefit)..... (170) 134 168 (156) 115
Gain on disposition of property and
equipment................................. (8) -- (82) (2) --
Changes in assets and liabilities --
(Increase) decrease in:
Accounts receivable.................... (686) (583) (971) (488) (563)
Prepaid expenses and other............. (180) (1,282) (545) (15) (11)
Other assets........................... 7 (3) (8) 42 58
Increase (decrease) in:
Accounts payable....................... 542 (250) 386 (447) 930
Deferred revenue and other credits..... 446 185 228 59 529
Accrued liabilities.................... 1,025 960 (48) 44 867
Customer deposits...................... (7) 4 10 2 2
------- ------- ------- ------- -------
Total adjustments...................... 2,982 1,115 1,752 1,534 4,569
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 6,207 3,056 4,381 5,065 5,703
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposition of
property and equipment...................... $ 6 $ 294 $ 327 $ 35 $ --
Purchases of property and equipment............ (6,502) (4,625) (5,380) (2,759) (4,303)
Purchases of intangible assets................. (201) (50) (50) -- (11)
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (6,697) (4,381) (5,103) (2,724) (4,314)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt............................. 5,386 5,917 6,441 2,396 3,261
Principal repayments on debt................... (2,626) (4,353) (4,516) (4,262) (3,216)
Stockholder distributions...................... (2,922) (1,230) (2,672) (835) (220)
------- ------- ------- ------- -------
Net cash used in financing
activities........................... (162) 334 (747) (2,701) (175)
------- ------- ------- ------- -------
EFFECT OF ENVIROCYCLE, INC. CHANGE IN CASH FOR
THE PERIOD OCTOBER 1 - DECEMBER 31 (Note 1).... 744 (109) -- -- --
------- ------- ------- ------- -------
Net increase (decrease) in cash........ 92 (1,100) (1,469) (360) 1,214
CASH, beginning of period........................ 538 2,007 2,007 2,367 1,153
------- ------- ------- ------- -------
CASH, end of period.............................. $ 630 $ 907 $ 538 $ 2,007 $ 2,367
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH PAID FOR:
Interest....................................... $ 575 $ 420 $ 591 $ 658 $ 804
Income taxes................................... $ 58 $ 404 $ 730 $ 948 $ 824
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-59
<PAGE> 105
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE JUNE 30, 1995 AND
1994 PERIODS IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination --
The combined financial statements include the accounts of Hudson Management
Corporation and its wholly-owned subsidiaries and Envirocycle, Inc. (together,
the "Companies"), which are affiliated through common ownership. All material
intercompany transactions between Hudson Management Corporation, its
subsidiaries and Envirocycle, Inc. have been eliminated.
The accounts of Envirocycle, Inc. have been combined on the basis of a
calendar year and include the years ended December 31, 1994 and 1993 and the
period from commencement of operations (March 23, 1992) through December 31,
1992. For comparative purposes, the unaudited combined statements of income and
cash flows for the nine month periods ended June 30, 1995 and 1994 include the
accounts of Envirocycle, Inc. for the periods from October 1 through June 30.
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
June 30, 1995, and the combined results of their operations and cash flows for
the nine months ended June 30, 1995 and 1994.
Revenue Recognition --
Collection services may be billed up to four months in advance. Revenue on
such advance billings is deferred until services are performed. Such amounts are
included in deferred revenue and other credits in the accompanying combined
balance sheets.
Property and Equipment --
The Companies provide for depreciation using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Vehicles...................................................... 5-7 years
Containers and compactors..................................... 10 years
Equipment..................................................... 5-7 years
Leasehold improvements........................................ 5-7 years
Buildings..................................................... 31.5-40 years
</TABLE>
Maintenance and repairs are charged to expense when incurred. Additions and
major renewals are capitalized.
Depreciation and amortization expense for property and equipment for the
years ended September 30, 1994, 1993 and 1992 was $2,452,000, $2,216,000 and
$2,039,000, respectively.
Intangible Assets --
Intangible assets consist of the cost of purchased businesses in excess of
the market value of net assets acquired (goodwill), the costs of certain
franchise service areas obtained as part of businesses acquired, and noncompete
agreements obtained from former owners and management of businesses acquired.
F-60
<PAGE> 106
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets are amortized using the straight-line method over their
estimated useful lives and are comprised of the following as of September 30,
1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
USEFUL LIVES 1994 1993
------------ ------ ------
<S> <C> <C> <C>
Goodwill............................................ 40 years $2,585 $2,585
Franchise agreements................................ 4-16 years 666 674
Customer lists...................................... 5 years 10 10
Noncompete agreements............................... 5-15 years 51 311
------ ------
3,312 3,580
Less accumulated amortization....................... (755) (911)
------ ------
$2,557 $2,669
====== ======
</TABLE>
The Companies continually evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Companies use an estimate of the related
undiscounted net income over the remaining life of intangible assets in
measuring whether the intangible assets are recoverable.
Amortization expense for intangible assets was $162,000, $279,000 and
$603,000 in 1994, 1993 and 1992, respectively.
Accrued Liabilities --
The Companies accrue estimated insurance claims for the self-funded portion
of their workers' compensation and health insurance plans. At September 30, 1994
and 1993, insurance claim reserves of $2,101,000 and $2,199,000, respectively,
were included in accrued liabilities.
Income Taxes --
Hudson Management Corporation 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 in the combined financial statements.
For the nine months ended June 30, 1995 and 1994, income taxes have been
provided based upon Hudson Management Corporation's anticipated effective annual
income tax rate.
Envirocycle, Inc. has elected S-corporation status for income tax reporting
purposes since its inception in 1992. Therefore, since that date, net income 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 stockholders of Envirocycle, Inc.
Upon closing of the merger transactions described in Note 10, Envirocycle,
Inc. will no longer be eligible for S-corporation status. At that time, deferred
income taxes will be recorded in accordance with SFAS No. 109 and an adjustment
to record Envirocycle, Inc. retained earnings as a capital contribution will be
recorded. Although the ultimate amount is not presently determinable, if
deferred taxes were recorded at June 30, 1995, retained earnings would be
decreased by approximately $46,000 (unaudited). In addition, $1,453,000
(unaudited) of retained earnings at June 30, 1995 would have been reclassified
to additional paid-in capital.
F-61
<PAGE> 107
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma effect of converting Envirocycle, Inc. from
S-corporation status is as follows (in thousands):
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
BALANCE, June 30, 1995 (unaudited)................ $ -- $ 73 $ 6,535
Recording of deferred tax liability............... -- -- (46)
Reclassification of retained earnings to
additional paid-in capital...................... -- 1,453 (1,453)
------ --------- --------
$ -- $1,526 $ 5,036
====== ========= ========
</TABLE>
The unaudited pro forma adjustment to reflect income taxes for Envirocycle,
Inc. included in the accompanying combined statements of income is for
informational purposes only. Income taxes have been provided at an estimated
effective tax rate of 40%.
Environmental Costs --
The Companies are subject to environmental laws and regulations that have
been enacted in response to technological advances and increased concern over
environmental issues. These regulations are administered by the Environmental
Protection Agency and various other federal, state and local environmental,
transportation, health and safety agencies. The Companies have not incurred any
material environmental costs nor 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.
Concentrations of Credit Risk --
The Companies provide solid waste collection and recycling services to
commercial, industrial and residential customers located in the State of Florida
primarily through franchise agreements with municipalities. Depending on the
terms of the franchise agreements, the Companies either bill services to the
municipality or directly to the customer. Deposits are generally received from
residential customers billed directly by the Companies. As of September 30, 1994
and 1993, approximately 33% and 44% of outstanding accounts receivable,
respectively, were due directly from municipalities while the remainder was due
directly from individual customers. The Companies continually evaluate the
collectibility of accounts receivable and maintain allowances for potential
credit losses. Overall, the Companies believe their credit exposure is minimal
given the creditworthiness of municipal customers and the wide dispersion of
non-municipal bill customers.
Additionally, the Companies provide services to a major municipality
customer which comprised 25%, 23% and 26% of combined revenues in 1994, 1993 and
1992, respectively.
F-62
<PAGE> 108
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT:
A summary of property and equipment is shown below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Land................................................... $ 505 $ 510
Vehicles............................................... 13,328 12,337
Containers and compactors.............................. 8,495 7,006
Equipment.............................................. 1,546 1,189
Leasehold improvements................................. 1,109 938
Buildings.............................................. 1,268 1,183
-------- --------
26,251 23,163
Less accumulated depreciation and amortization......... (12,163) (11,758)
-------- --------
$ 14,088 $ 11,405
======== ========
</TABLE>
(3) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks, interest adjusts based on fluctuations
in the banks' prime lending rate (7.75% at September 30,
1994), due 1994-2000, collateralized by substantially all
property and equipment and other assets, publicly traded
common stock owned by the Companies' stockholders and the
personal guarantee of a stockholder.......................... $ 7,642 $ 6,813
Mortgage note payable monthly at $3,350 principal plus interest
at 10% through January 1999, at which time the remaining
principal balance is due. This note is collateralized by the
Company's real property with a net book value of
approximately $1,161,000 and $1,091,000 as of September 30,
1994 and 1993, respectively.................................. 566 606
Note payable to stockholder, unsecured, interest only at 9%
payable semi-annually, principal balance due December 1997... 1,154 --
Note payable to stockholder, unsecured, payable at $1,478 per
month principal plus interest at the prime lending rate
(7.75% at September 30, 1994) through February 1997, at which
time the remaining principal balance is due.................. 216 234
Other notes payable............................................ 180 180
------- -------
9,758 7,833
Less current portion of long-term debt......................... (2,736) (3,263)
------- -------
$ 7,022 $ 4,570
======= =======
</TABLE>
The Companies had a $2.0 million working capital line of credit with a bank
which expired February 28, 1995. Borrowings under the line of credit were
immediately converted to term notes payable. At September 30, 1994, the
Companies had approximately $380,000 available under the line of credit. Upon
expiration of
F-63
<PAGE> 109
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the line of credit on February 28, 1995, the Companies obtained a $1.5 million
line of credit expiring February 28, 1996.
The following are estimated aggregate future debt principal payments as of
September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
------------------------------------------------------------------
<S> <C>
1995............................................................ $2,736
1996............................................................ 1,936
1997............................................................ 2,102
1998............................................................ 2,197
1999............................................................ 787
------
$9,758
======
</TABLE>
(4) RELATED PARTY TRANSACTIONS:
The Companies lease various office and garage space and land from a
stockholder. The operating leases expire at various dates through September 1998
and provide for monthly rentals of approximately $30,000 with a provision for a
rental increase each year based on the consumer price index.
During the years presented, there were funds advanced to and received from
a stockholder. At September 30, 1994 and 1993, there were notes payable to such
stockholder totaling $1,370,000 and $234,000, respectively (see Note 3).
Hudson Management Corporation has utilized the personal guarantee and
certain assets of a stockholder as well as certain assets of a person related to
Companies' stockholders as additional collateral on a significant portion of
their debt (see Notes 3 and 10).
(5) LEASES:
In addition to the related party leases discussed above, the Companies
lease corporate office space at a base rental amount of $4,300 per month through
September 1995. Also, the Companies must pay their share of the operating
expenses for the building which were estimated to be $1,300 per month through
September 1995. Subsequent to September 30, 1994, this lease was renewed (and
additional space was obtained) for a base rental amount of $4,700 per month
through January 2000, plus a share of building operating expenses estimated to
be $2,900 per month. Total rent expense for the years ended September 30, 1994,
1993 and 1992 was approximately $482,000, $384,000 and $372,000, respectively
(including related party leases of approximately $350,000, $317,000 and
$304,000, respectively).
F-64
<PAGE> 110
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate future minimum lease payments (including related party
leases and the lease renewal described above) are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
------------------------------------------------------------------
<S> <C>
1995............................................................ $ 436
1996............................................................ 304
1997............................................................ 304
1998............................................................ 304
1999............................................................ 91
Thereafter...................................................... 30
------
$1,469
======
</TABLE>
(6) INCOME TAXES:
The components of the income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993 1992
---- ------ ----
<S> <C> <C> <C>
Current:
Federal................................................... $182 $ 945 $677
State..................................................... 27 112 82
---- ------ ----
209 1,057 759
---- ------ ----
Deferred:
Federal................................................... 143 (139) 14
State..................................................... 25 (17) 101
---- ------ ----
168 (156) 115
---- ------ ----
$377 $ 901 $874
==== ====== ====
</TABLE>
A reconciliation of the statutory federal income tax rate to the Companies'
actual and pro forma effective tax rates as reported in the accompanying
combined statements of income is shown below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
ACTUAL PRO FORMA (UNAUDITED)
--------------------------- -------------------------
1994 1993 1992 1994 1993 1992
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
rate......................... 34.0% 34.0% 34.0% 34.0% 34.0% 34.0%
Amortization of goodwill....... 0.8 0.6 1.0 0.8 0.6 1.0
State income taxes, net of
federal benefit.............. 1.1 1.4 6.0 4.1 3.5 6.1
Nondeductible expenses......... 2.0 1.4 3.0 2.0 1.4 3.0
Envirocycle, Inc. earnings
(S-corporation).............. (25.2) (18.3) (2.3) -- -- --
Other, net..................... (0.2) 1.2 1.8 1.3 2.3 2.1
------ ------ ----- ----- ----- -----
Effective tax rate........... 12.5% 20.3% 43.5% 42.2% 41.8% 46.2%
====== ====== ===== ===== ===== =====
</TABLE>
F-65
<PAGE> 111
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, Hudson Management Corporation adopted SFAS No. 109 with no
material impact. 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 bases of assets and
liabilities.
Components of the net deferred income tax liability are shown below (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1993
------- -------
<S> <C> <C>
Deferred income tax liability:
Book basis in property over tax basis.................. $(1,471) $(1,369)
------- -------
Deferred income tax assets:
Non-deductible self insurance reserves................. 779 816
Non-deductible allowance for doubtful accounts......... 57 83
Other, net............................................. 9 12
------- -------
845 911
------- -------
Net deferred income tax liability...................... $ (626) $ (458)
======= =======
</TABLE>
Prepaid expenses and other as of September 30, 1994 include current income
taxes receivable totaling approximately $464,000.
The Companies federal income tax returns for 1993 are currently under
examination by the Internal Revenue Service. In the opinion of the Companies'
management, the outcome of such examination will not have a material impact on
the combined financial position and results of operations of the Companies.
(7) COMMITMENTS AND CONTINGENCIES:
The Companies provide commercial, industrial and residential waste
collection and recycling services under terms of contracts or franchise
agreements with several governmental agencies (municipalities and counties).
Among other things, these contracts and agreements specify the terms and
conditions of performance, rates, geographical boundaries and types of services
to be provided. The contracts and agreements expire at various times through
September 2002 and, in most cases, must be competitively bid for renewal.
The Companies have adopted a maximum premium group health insurance plan.
The plan calls for the Companies to pay approximately $65 per employee each
month to a third party administrator. This 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 are $30,000 per year per
individual or an aggregate amount equal to a maximum premium amount per
employee, per year. The Companies have accrued their estimate of the claims
liability under the plan which management believes is adequate to cover claims
incurred as of September 30, 1994 and 1993.
The Companies participate in a workers' compensation employers' self
insurance plan. The Companies' maximum liability under the self insurance plan
is limited to a percentage of the standard premium, as defined. Reserves are
estimated for both reported and unreported claims using industry loss
development factors. Revisions to estimated reserves are recorded in the period
in which they become known. The estimated workers' compensation reserves as of
September 30, 1994 and 1993 totaling $2,071,000 and $2,169,000, respectively,
represent management's best estimate, and in the opinion of the Companies'
management, any future adjustments to estimated reserves will not have a
material impact on the combined financial statements.
F-66
<PAGE> 112
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1994, the Companies had a $2.0 million letter of credit
line with a bank of which $1.0 million has been used to guarantee the payment of
claims under the Companies' workers' compensation self insurance plan.
In the normal course of business, the Companies have performance and surety
bonds which are not reflected in the accompanying combined balance sheets. The
aggregate value of these off balance sheet financial instruments totaled
approximately $5.3 million at September 30, 1994. The Companies' 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.
The Companies are involved in certain legal actions and claims arising in
the ordinary course of business. Based on advice of legal counsel, it is the
opinion of management that such litigation and claims will be resolved without
material effect on the Companies' combined financial position.
(8) 401(K) SAVINGS PLAN:
Employees of the Companies may participate in a Section 401(k) savings
plan, whereby the employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting certain age and length-of-service requirements.
Effective January 1, 1995, the Companies elected to provide an employer matching
contribution of 10% of each employee's contribution for fiscal 1995. The
Companies made no matching contribution to the plan in 1994, 1993 or 1992.
(9) STOCKHOLDERS' EQUITY:
Capital stock consists of the following authorized, issued and outstanding
shares as of September 30, 1994 and 1993:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED PAR
AUTHORIZED AND OUTSTANDING VALUE AMOUNT
---------- --------------- ----- ------
<S> <C> <C> <C> <C>
Hudson Management Corporation..... 500 200 $ 1 $200
Envirocycle, Inc.................. 1,000 100 1 100
------
$300
=======
</TABLE>
(10) SUBSEQUENT EVENT:
On May 21, 1995, the Companies entered into merger agreements with Republic
Waste Industries, Inc. ("Republic") whereby Republic would acquire all of the
outstanding capital stock of the Companies for eight million shares of Republic
common stock. The merger agreements were consummated on August 3, 1995 upon
approval by Republic's stockholders and regulatory agencies and completion of
other customary closing conditions.
F-67
<PAGE> 113
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Southland Environmental Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Southland
Environmental Services, Inc. and Subsidiaries as of September 30, 1994 and 1993,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Southland Environmental Services, Inc. and Subsidiaries as of September 30, 1994
and 1993, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
GRENADIER, APPLEBY, COLLINS &
COMPANY
Jacksonville, Florida
December 9, 1994
F-68
<PAGE> 114
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------------------
1995 1994 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................. $ 525,754 $ 483,193 $ 313,811
Accounts receivable -- trade......................... 3,916,547 2,844,357 1,984,970
Allowance for doubtful accounts...................... (167,409) (168,220) (100,950)
Accounts receivable -- other......................... 210,451 101,941 65,086
Prepaid expenses..................................... 304,844 339,914 366,850
Refundable taxes..................................... -- 231,261 108,182
Other current assets................................. 199,522 119,789 130,317
------------ ----------- -----------
4,989,709 3,952,235 2,868,266
------------ ----------- -----------
PROPERTY, PLANT, AND EQUIPMENT, at cost................ 19,963,626 15,955,667 11,667,820
Less accumulated depreciation........................ (7,824,425) (6,319,630) (5,305,976)
------------ ----------- -----------
12,139,201 9,636,037 6,361,844
------------ ----------- -----------
OTHER ASSETS
Notes receivable..................................... 427,959 429,810 108,688
Cost in excess of net assets acquired -- net......... 1,783,851 484,568 510,764
Other intangibles -- net............................. 232,944 196,829 235,965
Deposits and other................................... 172,133 92,313 60,194
------------ ----------- -----------
2,616,887 1,203,520 915,611
------------ ----------- -----------
$19,745,797 $14,791,792 $10,145,721
============ ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable -- bank................................ $ 1,000 $ 1,000 $ 1,000
Notes payable -- stockholders........................ -- 44,568 154,024
Current maturities of long-term notes payable........ 2,181,953 1,856,414 1,318,008
Accounts payable..................................... 1,743,469 1,487,077 1,070,089
Accrued insurance.................................... -- 142,126 240,376
Other accrued liabilities............................ 874,569 529,722 498,926
Deferred revenue..................................... 452,359 681,766 604,122
----------- ----------- -----------
5,253,350 4,742,673 3,886,545
----------- ----------- -----------
LONG-TERM LIABILITIES
Long-term notes payable.............................. 8,317,491 5,627,306 3,118,008
Deferred income taxes................................ 970,991 740,976 585,804
----------- ----------- -----------
9,288,482 6,368,282 3,703,812
----------- ----------- -----------
14,541,832 11,110,955 7,590,357
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 1,000,000 shares
authorized, 600,000 shares issued and
outstanding....................................... 600,000 600,000 600,000
Additional paid-in capital........................... 1,664,224 1,664,224 1,664,224
Retained earnings.................................... 2,939,741 1,416,613 291,140
------------ ----------- -----------
5,203,965 3,680,837 2,555,364
------------ ----------- -----------
$19,745,797 $14,791,792 $10,145,721
=========== =========== ==========
</TABLE>
Read accompanying notes to the financial statements.
F-69
<PAGE> 115
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
30, YEARS ENDED SEPTEMBER 30,
------------------------- -------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Collection services....................... $11,529,065 $ 9,550,197 $13,178,645 $11,317,242
Recycling services........................ 6,740,451 2,976,868 4,558,860 3,584,591
Landfill and composting operations........ 2,453,529 2,277,574 3,116,624 3,269,396
----------- ----------- ----------- -----------
20,723,045 14,804,639 20,854,129 18,171,229
----------- ----------- ----------- -----------
EXPENSES
Operating expenses........................ 13,912,006 10,028,294 14,335,026 13,024,409
Depreciation and amortization............. 1,579,777 1,185,871 1,701,377 1,337,450
Selling, general and administrative....... 2,270,087 1,847,849 2,547,112 2,035,653
----------- ----------- ----------- -----------
17,761,870 13,062,014 18,583,515 16,397,512
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS...................... 2,961,175 1,742,625 2,270,614 1,773,717
OTHER INCOME (EXPENSES)
Interest expense.......................... (542,291) (342,744) (514,416) (374,792)
Miscellaneous -- net...................... 34,425 40,109 57,475 178,820
----------- ----------- ----------- -----------
(507,866) (302,635) (456,941) (195,972)
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE IN AN
ACCOUNTING PRINCIPLE...................... 2,453,309 1,439,990 1,813,673 1,577,745
PROVISION FOR INCOME TAXES.................. 930,181 550,340 (688,200) (202,900)
----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN AN ACCOUNTING PRINCIPLE................ 1,523,128 889,650 1,125,473 1,374,845
CUMULATIVE EFFECT OF A CHANGE IN AN
ACCOUNTING PRINCIPLE...................... -- -- -- (461,442)
----------- ----------- ----------- -----------
NET INCOME.................................. 1,523,128 889,650 1,125,473 913,403
UNAUDITED PROFORMA ADJUSTMENT TO REFLECT
INCOME TAXES FOR
S-CORPORATION EARNINGS (NOTE 9)........... -- -- -- (428,198)
----------- ----------- ----------- -----------
UNAUDITED PROFORMA
NET INCOME (NOTE 9)....................... $ 1,523,128 $ 889,650 $ 1,125,473 $ 485,205
========== ========== ========== ==========
</TABLE>
Read accompanying notes to the financial statements.
F-70
<PAGE> 116
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
SOUTHLAND ADDITIONAL
ENVIRONMENTAL COMBINED PAID-IN RETAINED TREASURY
SERVICES, INC. COMPANIES CAPITAL EARNINGS STOCK TOTAL
-------------- --------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, September 30, 1992...... $ -- $ 27,875 $1,178,303 $ 656,737 $(230,930) $ 1,631,985
Contributions to capital........ -- -- 691,000 -- -- 691,000
Net income...................... -- -- -- 913,403 -- 913,403
Dividends paid.................. -- -- -- (1,279,000) -- (1,279,000)
Exchange of stock -- companies
under common control.......... 579,419 (27,498) (750,151) -- 198,230 --
Acquisition of minority
interest...................... 20,581 (377) 545,072 -- 32,700 597,976
-------------- --------- ---------- ----------- --------- -----------
BALANCES, September 30, 1993...... 600,000 -- 1,664,224 291,140 -- 2,555,364
Net income...................... -- -- -- 1,125,473 -- 1,125,473
-------------- --------- ---------- ----------- --------- -----------
BALANCES, September 30, 1994...... $600,000 $ -- $1,664,224 $ 1,416,613 $ -- $ 3,680,837
============ ========== ========= ========== ========= ==========
</TABLE>
Read accompanying notes to the financial statements.
F-71
<PAGE> 117
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE YEARS ENDED SEPTEMBER 30,
30,
------------------------- -------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 1,523,128 $ 889,650 $ 1,125,473 $ 913,403
Noncash items included in net income:
Cumulative effect of a change in an accounting principle...... -- -- -- 461,442
Depreciation and amortization................................. 1,579,777 1,185,871 1,701,377 1,337,450
Net loss (gain) on disposal of property and equipment......... 36,647 (8,453) 3,927 (94,305)
Deferred taxes................................................ 230,015 109,340 148,250 35,200
Net increase in trade and other receivables..................... (1,269,294) (785,162) (797,363) (95,107)
(Increase) decrease in trade notes receivable................... (3,502) (313,060) (362,786) 4,712
Decrease (increase) in inventory, prepaid expenses and
other current assets.......................................... 9,397 198,379 26,854 (100,455)
Increase (decrease) in accounts payable......................... 256,392 458,346 426,705 (448,332)
(Decrease) increase in other accrued liabilities................ 202,721 (500,027) (67,454) 66,397
(Decrease) increase in deferred revenue......................... (229,407) 61,216 77,644 38,691
----------- ----------- ----------- -----------
Net cash provided by operating activities................. 2,335,874 1,296,100 2,282,627 2,119,096
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisition............................................ (2,853,550) -- -- --
Proceeds from sale of property and equipment.................... 215,500 31,643 143,283 303,816
Purchase of property, plant, and equipment...................... (2,183,996) (2,802,100) (3,791,931) (353,422)
Net (increase) decrease in refundable taxes..................... 231,261 88,983 (123,079) (108,182)
Increase in deposits and other assets........................... (158,460) (2,991) (63,822) (81,049)
Collections from affiliates..................................... -- -- -- 100,325
Collections from stockholders/officers.......................... -- -- -- 462,018
----------- ----------- ----------- -----------
Net cash (used) provided by investing activities.......... (4,749,245) (2,684,465) (3,835,549) 323,506
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of stockholder loan................................... (44,568) (105,806) (109,456) (330,000)
Proceeds from long-term debt.................................... 5,182,642 3,950,000 3,967,269 464,779
Principal payments on long-term debt and capital lease
obligations................................................... (2,682,142) (1,310,145) (2,135,509) (1,645,723)
Contributions to capital........................................ -- -- -- 691,000
Proceeds from line of credit -- net............................. -- -- -- 1,000
Payment of bank overdraft....................................... -- -- -- (33,097)
Dividends paid.................................................. -- -- -- (1,279,000)
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities.......... 2,455,932 2,534,049 1,722,304 (2,131,041)
----------- ----------- ----------- -----------
NET INCREASE IN CASH.............................................. $ 42,561 $ 1,145,684 $ 169,382 $ 311,561
CASH -- BEGINNING OF YEAR......................................... 483,193 313,811 313,811 2,250
----------- ----------- ----------- -----------
CASH -- END OF YEAR............................................... $ 525,754 $ 1,459,495 $ 483,193 $ 313,811
========== ========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Notes payable and capital lease obligations incurred for
purchase of property and equipment.......................... $ 515,224 $ 958,033 $ 1,215,944 $ 1,168,068
========== ========== ========== ==========
Adjustment to purchase price of recycling company............. -- $ 75,901 $ 75,901 $ --
========== ========== ========== ==========
Refinance debt................................................ $ -- -- $ -- $ 1,148,127
========== ========== ========== ==========
Collections from affiliates................................... $ -- $ -- $ -- $ 11,589
========== ========== ========== ==========
Acquisition of minority interest.............................. $ -- $ -- $ -- $ 701,400
========== ========== ========== ==========
Exchange of stock -- Companies under common control........... $ -- $ -- $ -- $ 1,966,598
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest........................ $ 468,870 $ 416,416 $ 514,416 $ 380,867
========== ========== ========== ==========
Cash paid during the year for income taxes.................... $ 603,750 $ 441,761 $ 561,760 $ 140,000
========== ========== ========== ==========
</TABLE>
Read accompanying notes to the financial statements.
F-72
<PAGE> 118
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements for the years ended September 30,
1994 and 1993 include the accounts of Southland Environmental Services, Inc.
("SES") (formerly Southland Environmental Systems, Inc.) and its wholly-owned
subsidiaries (the "Company"). The financial statements for the year ended
September 30, 1993 were prepared on a combined basis from October 1, 1992
through March 31, 1993 and on a consolidated basis from April 1, 1993 through
September 30, 1993. All significant intercompany transactions and balances have
been eliminated.
On April 1, 1993, the majority stockholder contributed his entire interest
in the combined companies to the capital of SES, a newly formed holding company.
The capital contribution was accounted for at historical cost in a manner
similar to a pooling of interest. Immediately after the contribution of the
majority stockholder, the holding company issued stock to the minority
stockholders for their entire interests in two of the combined companies in a
transaction accounted for as a purchase. The total cost of the acquisition was
$701,400 which exceeded the net assets by $597,976. Equipment values were
increased by $118,832 based on appraised value and will be amortized over the
average estimated remaining useful lives of the assets. The cost in excess of
net assets acquired was $523,860. Deferred income taxes of $44,716 have been
provided for the difference between the assigned values and the tax basis of the
acquired assets.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company at June 30, 1995, and the consolidated results of their operations
and cash flows for the nine months ended June 30, 1995 and 1994.
Cash
Cash includes all cash balances and highly liquid investments in money
market accounts. The Company places its temporary cash investments with a high
quality financial institution. At times, such investments may be in excess of
FDIC insurance limits. The Company does not believe it is exposed to any
significant credit risk on cash and cash equivalents.
Inventory
Inventories consisting primarily of recyclable material are valued at the
lower of cost, determined on the first-in, first-out method, or market and are
classified as other current assets in the consolidated financial statements.
Property, Plant and Equipment
The cost of property, plant, and equipment is depreciated over the
estimated useful lives of the related assets. Depreciation is computed using the
straight-line method for financial reporting purposes and on the modified and
accelerated cost recovery systems for income tax purposes.
Maintenance and repairs are charged to expense as incurred. Betterments and
renewals are capitalized. The asset cost and accumulated depreciation are
removed from the accounts for assets sold or retired, and any resulting gain or
loss is included in consolidated net income.
F-73
<PAGE> 119
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated useful lives of assets for the purpose of computing
depreciation are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements......................................... 15-31
Vehicles and heavy equipment....................................... 3-8
Containers and compactors.......................................... 5-8
Recycling equipment................................................ 7-8
Furniture and equipment............................................ 5-7
</TABLE>
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 temporary differences between the basis of
assets and liabilities for financial statement and income tax purposes.
Deferred Revenue
Amounts billed to customers in advance of the service provided are deferred
and are not recognized as earned revenue until the period in which the service
is performed.
Amortization
Costs in excess of net assets acquired of $523,860 resulted from the
acquisition of the minority interest in two subsidiary companies during 1993,
and is being amortized on the straight-line basis over twenty years. Accumulated
amortization was $39,292 and $13,096 at September 30, 1994 and 1993,
respectively.
Other intangibles include costs of $565,656 incurred in connection with
debt acquisition and refinancing, legal fees for organization and acquisition of
the parent and certain subsidiaries, noncompete agreements and franchise rights.
Costs are being amortized on the straight-line method over periods from four to
twenty years. Accumulated amortization for the years ended September 30, 1994
and 1993, was $368,827 and $280,119, respectively.
Amortization expense for the years ended September 30, 1994 and 1993, was
$114,904 and $103,051, respectively.
Reclassification
Certain reclassifications have been made in the September 30, 1993
consolidated financial statements to conform to classifications used in the
September 30, 1994 consolidated financial statements.
2. CONSOLIDATED SUBSIDIARIES
SES provides waste collection, landfill, composting and recycling services
in northeast Florida through its wholly-owned subsidiaries as follows:
SOUTHLAND WASTE SYSTEMS, INC. provides commercial and industrial waste
collection services to a broad range of customers throughout Duval and Clay
counties.
SEABOARD WASTE SYSTEMS, INC. (formerly Seaboard Sanitation, Inc.) provides
commercial, industrial and residential waste collection services throughout
northern St. Johns County under an exclusive franchise agreement whose current
term expires January, 2001, with provision for successive five year renewals at
the option of the county.
F-74
<PAGE> 120
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SOUTHLAND WASTE SYSTEMS OF JAX, INC. (formerly Southland Services of
Jacksonville, Inc.) provides residential waste collection to approximately
28,700 homes in Duval County under a contract expiring in December, 1996.
Management expects this contract to be renewed.
NINE MILE ROAD, INC. owns and operates the only construction and demolition
landfill and yard waste composting facility in St. Johns County.
SOUTHLAND RECYCLING SERVICES, INC. (formerly Covenant Recycling Services,
Inc.) operates a recycling facility where it processes and markets recyclable
materials, predominately office paper and cardboard, collected from commercial
customers.
ENVIRO-COMP SERVICES, INC. operates a yard waste/mulching and composting
facility under a contract with the City of Jacksonville which expires September,
2001 with provision that the city may extend the contract for two additional
five year terms. Payments are made to the Company by the City based on a rate
per ton for yard waste delivered to the facility for processing.
During 1994, the contract with the City was amended to permit the
establishment of an additional processing facility on Company owned land. The
City agreed to reimburse the Company for the construction cost of the new
facility not to exceed $650,000. The agreement provides for immediate cash
payments of $270,000 and execution of a note to the Company payable monthly over
five years with interest at 5.25% for the remaining costs. In addition, the City
will share equally in the profits from the sale of each truck load of processed
material after deduction of certain defined costs.
At September 30, 1994, the facility was substantially complete and
allowable construction costs were $634,520. This amount, less the $270,000 cash
payment, is reflected on the consolidated financial statements in accordance
with the contractual term of repayment. The current portion of $60,753 is
included in accounts receivable -- other.
SOUTHLAND MAINTENANCE SERVICES, INC. provides vehicle repairs and
maintenance services to all operating companies in the consolidated group.
3. NOTES RECEIVABLE
Notes receivable consisted of the following at September 30:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Installment notes receivable from retail equipment
sales; aggregate monthly payments of $2,978 including
interest at 9.6% to 26.7%; due through September,
1999 (net of deferred interest income of $19,156).... $ 74,529 $ 38,543
Receivable from a municipality; monthly payments of
$6,075 with interest at 5.25%; due through March,
2000................................................. 364,520 --
Note receivable from an individual; monthly payments of
$677 including interest at 9%; due through August,
2013; collateralized by land and building............ 74,033 75,085
Other notes............................................ 4,511 12,889
-------- --------
517,593 126,517
Less: current portion.................................. (87,783) (17,829)
-------- --------
$429,810 $108,688
======== ========
</TABLE>
F-75
<PAGE> 121
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The current portion of notes receivable is included in accounts
receivable -- other on the consolidated balance sheets.
4. REFUNDABLE TAXES
A subsidiary has applied to the State of Florida for a refund of $175,000
representing sales taxes paid on equipment purchased for use in a yard waste
composting facility. Florida law permits a sales tax exemption for qualified
resource recovery equipment as defined in state statutes and certified by the
Florida Department of Environmental Protection ("DEP"). DEP has certified all
equipment listed on the application as qualifying for the exemption. The refund
amount was recognized as a reduction of the cost basis of the qualifying assets.
Additionally, refundable taxes includes Federal income tax deposits of $56,261
at September 30, 1994.
A permanent income tax deposit of $108,182 previously required to maintain
a September 30 year end under Subsection S of the Internal Revenue Code was
available for refund at September 30, 1993.
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Land and land improvements........................ $ 1,204,062 $ 858,656
Buildings and improvements........................ 824,547 703,701
Vehicles and heavy equipment...................... 10,242,124 7,171,692
Containers and compactors......................... 2,366,457 1,817,112
Recycling equipment............................... 781,555 701,360
Furniture and equipment........................... 536,922 415,299
----------- -----------
15,955,667 11,667,820
Less: accumulated depreciation.................... (6,319,630) (5,305,976)
----------- -----------
$ 9,636,037 $ 6,361,844
========== ==========
</TABLE>
Depreciation expense for the years ended September 30, 1994 and 1993, was
$1,586,473 and $1,234,399, respectively.
6. NOTES PAYABLE -- BANK
The Company has a $500,000 revolving line of credit with a bank bearing
interest at 1/2% above the bank's prime interest rate. Borrowings against the
line of credit were $1,000 at September 30, 1994 and 1993. The loan is
collateralized by accounts receivable, guaranteed by the Company's majority
stockholder, and contains various covenants which include maintenance of minimum
tangible net worth and restrictions on the debt to equity ratio. At September
30, 1994, the Company had exceeded the required debt to equity ratio which is a
breach of the loan agreement. The bank has waived that requirement as of
September 30, 1994.
7. NOTES PAYABLE -- STOCKHOLDERS
Notes payable -- stockholders are unsecured, have no fixed payment terms,
bear interest at the applicable federal rate, and are subordinated to bank notes
payable.
F-76
<PAGE> 122
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM NOTES PAYABLE
Long-term notes payable consisted of the following at September 30:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Industrial Development Revenue Bond -- City of
Jacksonville; payable monthly in varying
installments from $2,083 to $2,578 plus interest
at 86% of the prime commercial rate; due
February, 2005; collateralized by property and
equipment with a net book value of $367,100 at
September 30, 1994.............................. $ 325,417 $ 350,417
Notes payable to bank; monthly payments
aggregating $73,773 plus interest varying from
prime plus 1% to 9.82% fixed; due through June,
2001; collateralized by substantially all
property, plant, and equipment.................. 4,652,381 1,501,016
Mortgage note payable to a corporation; monthly
payments of $1,087 including interest at 8%; due
through June, 2011; collateralized by land, land
improvements and facilities with a net book
value of $538,000 at September 30, 1994......... 120,491 123,757
Capital lease obligations with monthly payments
aggregating $8,907 at rates from 5.595% to
12.79%; due through December, 1997;
collateralized by vehicles and equipment with a
net book value of $264,600 at September 30,
1994............................................ 218,034 379,537
Equipment purchase notes payable to corporate
lenders in monthly installments aggregating
$101,302 at rates from 5.90% to 10.50%; due
through July, 1999; collateralized by vehicles
and equipment with a net book value of
$2,799,000 at September 30, 1994................ 2,001,429 1,900,850
Note payable to individual; monthly payments of
$10,246 including interest at 6 1/2%; due
February, 1995.................................. 165,968 180,439
----------- -----------
7,483,720 4,436,016
Less: current maturities.......................... (1,856,414) (1,318,008)
----------- -----------
$ 5,627,306 $ 3,118,008
========== ==========
</TABLE>
The Industrial Development Revenue Bond was issued to a subsidiary and is
guaranteed by the Company's majority stockholder and two other subsidiaries. The
Bond contains various financial covenants pertaining to the maintenance of net
worth, ratio of total liabilities to net worth, ratio of net income and noncash
items to current maturities of long-term debt, long-term debt limit, and key man
life insurance. The Company was in compliance with all covenants at September
30, 1994, and 1993.
A subsidiary acquired certain assets and assumed certain liabilities of a
recycling company during 1991 in a business combination accounted for as a
purchase. The acquisition agreement provided that the purchase price could be
increased by a maximum of $204,269 as determined by gross profits of the
subsidiary through December 31, 1994. During 1994, in settlement of claims made
by the previous owner, the acquisition agreement was modified to eliminate all
adjustments to the purchase price based on gross profits and increase the
purchase price by $75,901. The additional cost was recognized as an increase in
equipment values based
F-77
<PAGE> 123
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
upon appraisal at the date of acquisition and will be amortized over the average
estimated remaining useful lives of the assets.
Maturities of long-term notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOTES CAPITAL
SEPTEMBER 30, PAYABLE LEASES TOTAL
------------------------------------------------ ---------- -------- ----------
<S> <C> <C> <C>
1995.......................................... $1,774,550 $ 81,864 $1,856,414
1996.......................................... 1,437,193 51,359 1,488,552
1997.......................................... 1,281,485 79,619 1,361,104
1998.......................................... 1,228,870 5,192 1,234,062
1999.......................................... 695,610 -- 695,610
Thereafter.................................... 847,978 -- 847,978
---------- -------- ----------
$7,265,686 $218,034 $7,483,720
========= ======== =========
</TABLE>
9. INCOME TAXES
The components of income tax expense for the years ended September 30 are
as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Current:
Federal.............................................. $461,150 $143,200
State................................................ 78,800 24,500
-------- --------
Current Total..................................... $539,950 $167,700
======== ========
Deferred:
Federal.............................................. $126,550 $ 33,200
State................................................ 21,700 2,000
-------- --------
Deferred Total.................................... $148,250 $ 35,200
-------- --------
$688,200 $202,900
======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September 30
are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently deductible....... $ 45,762 $ 39,954
Other................................................ 5,535 4,384
-------- --------
$ 51,297 $ 44,338
======== ========
Deferred tax liabilities:
Book basis in property over tax basis................ $738,488 $580,836
Other................................................ 2,488 4,968
-------- --------
$740,976 $585,804
======== ========
</TABLE>
Effective March 31, 1993, the combined companies terminated their election
to be taxed under Subsection S of the Internal Revenue Code. Prior to the
termination, the companies generally did not pay corporate income taxes.
Instead, the stockholders were liable for individual income taxes on their
respective
F-78
<PAGE> 124
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share of each company's taxable income. Generally, the stockholders funded tax
payments with dividends from the companies.
A reconciliation between the effective income tax rate and the applicable
statutory federal income tax rate for the fiscal years ended September 30, is as
follows:
<TABLE>
<CAPTION>
1994 1993
----------------------- ------------------------
PERCENT OF PERCENT OF
PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Tax at federal statutory rate....... $616,650 34.0% $ 536,450 34.0%
State Income Tax, net of
federal tax benefit............... 65,850 3.6 16,200 1.0
Tax effect of Subsection S income... -- -- (358,350) (22.7)
Other, net.......................... 5,700 .3 8,600 0.5
-------- ----- --------- ----------
$688,200 37.9% $ 202,900 12.8%
======== ========= ========= =========
</TABLE>
10. CUMULATIVE EFFECT ON PRIOR YEAR OF CHANGE IN AN ACCOUNTING PRINCIPLE
Effective April 1, 1993, the Company adopted FASB Statement 109, Accounting
for Income Taxes, which requires an asset and liability approach to financial
accounting and reporting for income taxes. Under this method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
The cumulative effect of the change for periods prior to April 1, 1993, was
$461,442 and is included as a charge to income in 1993.
11. PROFIT SHARING PLAN
The Company has a 401(k) profit sharing/savings plan covering all employees
meeting age and length of service requirements. Employees may elect to make
contributions of up to 10% of their compensation pursuant to a salary reduction
agreement. The Company has elected to make a discretionary matching contribution
not to exceed 3% of the employee's compensation. Company matching contributions
to the Plan were $50,749 and $64,926 for the years ended September 30, 1994, and
1993, respectively. In addition, the Company, at its option, may contribute
additional amounts to the Plan.
12. INSURANCE PLANS
Worker's Compensation
The Company participates in the Employers Self Insurance Fund. Under this
plan, the Company pays a minimum premium for administrative costs which is
expensed when incurred. The Company is also required to maintain a minimum claim
fund deposit of $27,700 which is included in prepaid expenses on the
consolidated financial statements.
Participating companies make periodic payments to the fund for paid claims
up to a maximum amount of 100% of the standard premium plus a loss conversion of
15% of paid claims. The Company has provided a $276,000 payment bond to
guarantee claim payments as required by rules established by the fund trustees.
As of September 30, 1994, the Company has provided an allowance for all
known significant unpaid or open claims. In the opinion of management, this
insurance plan is adequate to cover loss contingencies based upon the historical
experience of the Company.
F-79
<PAGE> 125
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Health Insurance
During fiscal year 1994, the Company instituted a self-funded program for
providing health insurance benefits to employees. Aggregate and specific
stop-loss coverage was obtained to limit risk.
Claim payments reached the maximum amount under the aggregate stop-loss
coverage prior to September 30, 1994, and no further liability exists through
the policy year ended October 31, 1994.
13. COMMITMENTS & CONTINGENCIES
Future minimum payments under capital leases and noncancelable operating
leases having initial or remaining terms in excess of one year as of September
30, 1994, were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
SEPTEMBER 30, LEASES LEASES
------------------------------------------------------ -------- ---------
<S> <C> <C>
1995................................................ $ 99,427 $85,640
1996................................................ 59,558 10,765
1997................................................ 83,248 1,770
1998................................................ 5,253 --
1999................................................ -- --
-------- ---------
247,486 $98,175
=========
Less: amounts attributable to interest................ 29,452
--------
Present value of minimum lease payments
(current portion $81,864)........................... $218,034
========
</TABLE>
Rental expense for all operating leases amounted to $154,622 and $181,427
for the years ended September 30, 1994 and 1993, respectively.
At September 30, 1993, the Company had outstanding payment/performance
bonds of $2,261,000 issued primarily in connection with landfill and waste
collection operating performance and participation in the Employers Self
Insurance Worker's Compensation Fund. The payment/performance bonds are
collateralized by a $275,000 bank letter of credit.
A subsidiary engaged in operating a construction and demolition landfill is
party to a depletion agreement with the prior owners of the property providing
for the payment of a fee based upon the tons of debris accepted at the landfill.
In addition, the subsidiary has entered into an agreement with the county which
provides for payment of a host fee based upon the tons of debris accepted at the
landfill. Total fees paid for 1994 and 1993 were $366,524 and $351,861,
respectively. The company has also granted the prior owners of the property the
option, for a period of ten years after the landfill reaches capacity, to
reacquire the 89 acre site for an amount equal to the greater of the remaining
principal balance due under the purchase money mortgage between the parties or
$100 per acre.
Two subsidiaries of the Company provide services to the City of
Jacksonville which represents more than 10% of the revenues of the consolidated
group. These revenues represented 25.0% and 30.2% in 1994 and 1993,
respectively.
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of accounts receivable. Management believes
these risks are limited due to the large number of customers and contracts with
municipalities along with generally short payment terms.
The Company is subject to certain federal, state and local environmental
laws and regulations. The Company has not experienced any significant regulatory
problems, is not involved in litigation over
F-80
<PAGE> 126
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
environmental matters, and believes it is in substantial compliance with all
applicable environmental laws and regulations. No provision for anticipated
future costs of environmental remediation has been made and such costs, if any,
are not expected to have a material adverse effect on the Company's financial
position.
14. SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 9, 1994, the date of the last auditors' report, two
of the Company's competitors merged. Both of the competing companies provided
residential collection services under contracts with the City of Jacksonville,
Florida. As the result of rulings from governmental agencies, the surviving
competitor was required to divest certain segments of the residential market.
On March 29, 1995, the Company purchased the residential contract rights
and certain assets from the competitor for $4,030,000. Concurrent with this
transaction, the City of Jacksonville passed an ordinance approving the transfer
of the contract rights to the Company and authorized the realignment and
reduction of the city's residential waste collection service areas from four to
three. The ordinance also extended the Company's contract through September 30,
2001.
As a result of realignment, the Company realized excess service units.
Collection service providers in the other two service areas paid the Company
$1,176,450 for this excess based on the increased number of service units in
their respective areas.
On August 24, 1995, the Company entered into a definitive agreement with
Republic Waste Industries, Inc. ("Republic") under which the Company would
exchange all of its outstanding common stock for 2.6 million shares of Republic
common stock. The transaction will be accounted for under the pooling-of-
interests method of accounting.
15. PRO FORMA INCOME TAX ADJUSTMENT (UNAUDITED)
The unaudited pro forma adjustment to reflect income taxes for
S-corporation earnings included in the accompanying consolidated statements of
income is for informational purposes only. Income taxes have been provided at an
estimated effective tax rate of 40%.
F-81
<PAGE> 127
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC WASTE INDUSTRIES, INC., AND SUBSIDIARIES,
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.,
AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
The following unaudited condensed consolidated pro forma financial
statements include the supplemental consolidated financial statements of
Republic Waste Industries, Inc. and subsidiaries (the "Company") which include
the financial position and results of operations of Kertz Security Systems II,
Inc. and Kertz Security Systems, Inc. ("Kertz"), with which the Company merged
in August 1995. This transaction has 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 Kertz had operated as one entity since inception.
The following unaudited condensed consolidated pro forma balance sheet
presents the pro forma financial position of the Company as of June 30, 1995 as
if the acquisition of Hudson Management Corporation and subsidiaries and
Envirocycle, Inc. ("HMC") and the pending acquisition of Southland Environmental
Services, Inc. and subsidiaries ("Southland") had been consummated as of June
30, 1995. The balance sheet also contains pro forma adjustments for a series of
equity transactions involving the sale of common stock and warrants (the "Equity
Transactions") as if the Equity Transactions had been consummated as of June 30,
1995.
The following unaudited condensed consolidated pro forma statements of
operations for the six months ended June 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 HMC, the pending acquisition of Southland and the
Equity Transactions had been consummated at the beginning of the periods
presented. The following unaudited condensed consolidated pro forma statements
of operations for the years ended December 31, 1993 and December 31, 1992
present the pro forma results of continuing operations of the Company as if the
pending acquisition of Southland, which will be accounted for under the pooling
of interests method of accounting, had been consummated 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 and Southland.
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 treasury stock method or the modified treasury stock method where
applicable. 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 approximately $874,000 on a primary basis and $0 on a fully diluted
basis for the six months ended June 30, 1995. The increase to income from
continuing operations for the year ended December 31, 1994 was approximately
$1,843,000.
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, pending acquisition or Equity
Transactions had taken place on the assumed dates, nor are they necessarily
indicative of the results of future combined operations.
F-82
<PAGE> 128
REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES,
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.,
AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE EQUITY ---------------------
COMPANY HMC TRANSACTIONS SOUTHLAND COMBINED DR. CR. PRO FORMA
-------- ------- ------------ --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...... $ 3,089 $ 630 $234,275 $ 526 $238,520 $ 43,143(a) $195,377
Accounts receivable, net....... 9,288 5,765 3,960 19,013 19,013
Prepaid expenses and other
current assets............... 4,282 2,217 504 7,003 7,003
-------- ------- ------------ --------- -------- -------- -------- ---------
Total current assets..... 16,659 8,612 234,275 4,990 264,536 43,143 221,393
Property and equipment, net.... 88,330 18,589 12,139 119,058 119,058
Goodwill, net of accumulated
amortization................. 12,969 2,679 2,017 17,665 $134,671(c) 2,679(b) 149,657
Other assets................... 1,136 51 600 1,787 1,787
-------- ------- ------------ --------- -------- -------- -------- ---------
Total assets............. $119,094 $29,931 $234,275 $19,746 $403,046 $134,671 $ 45,822 $491,895
======== ======= =========== ========= ========= ======== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable and accrued
expenses..................... $ 7,742 $ 7,154 $ 2,618 $17,514 $ 17,514
Current maturities of long-term
debt and notes payable....... 1,937 3,596 2,183 7,716 $ 7,716(a) --
Deferred revenue and other
current liabilities.......... 2,383 2,316 452 5,151 5,151
-------- ------- ------------ --------- -------- -------- -------- ---------
Total current
liabilities............ 12,062 13,066 5,253 30,381 7,716 22,665
Long-term debt, net of current
maturities................... 18,172 8,937 8,318 35,427 35,427(a) --
Accrued environmental and
landfill costs,
net of current maturities.... 7,267 -- -- 7,267 7,267
Deferred income taxes.......... 11,933 1,320 971 14,224 14,224
-------- ------- ------------ --------- -------- -------- -------- ---------
Total liabilities........ 49,434 23,323 14,542 87,299 43,143 44,156
-------- ------- ------------ --------- -------- -------- -------- ---------
Stockholders' equity
Common stock................... 283 $ 208 491 $ 106(f) 597
Additional paid-in capital..... 67,858 73 234,067 2,264 304,262 1,809(e) 138,520(f) 442,683
26(f) 1,736(d)
Retained earnings.............. 1,744 6,535 2,940 11,219 1,736(d) 4,684
4,799(e)
Notes receivable arising from
stock purchase agreements...... (225) (225) (225)
-------- ------- ------------ --------- -------- -------- -------- ---------
Total stockholders'
equity................. 69,660 6,608 234,275 5,204 315,747 8,370 140,362 447,739
-------- ------- ------------ --------- -------- -------- -------- ---------
Total liabilities and
stockholders' equity... $119,094 $29,931 $234,275 $19,746 $403,046 $ 51,513 $140,362 $491,895
======== ======= =========== ========= ========= ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-83
<PAGE> 129
REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES,
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.,
AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE -----------------
COMPANY HMC SOUTHLAND COMBINED DR. CR. PRO FORMA
------- ------- --------- -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue..................................... $35,701 $28,617 $15,273 $79,591 $79,591
Expenses:
Cost of operations........................ 22,558 20,607 11,003 54,168 $1,683(g) $ 248(h) 55,603
Selling, general and administrative....... 6,932 5,061 1,680 13,673 447(i) 13,226
Other (income) expense:
Interest and other income................. (168) (44) -- (212) (212)
Interest expense.......................... 816 376 392 1,584 1,584(j) --
------- ------- --------- -------- ------ ------ ---------
30,138 26,000 13,075 69,213 1,683 2,279 68,617
------- ------- --------- -------- ------ ------ ---------
Income from continuing operations before
income taxes.............................. 5,563 2,617 2,198 10,378 1,683 2,279 10,974
Income tax provision........................ 1,523 1,047 832 3,402 177(k) 3,579
------- ------- --------- -------- ------ ------ ---------
Income from continuing operations........... $4,040 $ 1,570 $ 1,366 $ 6,976 $1,860 $2,279 $ 7,395
======== ======= ========= ========= ====== ====== ==========
Primary:
Earnings per share from continuing
operations.............................. $ 0.14 $ 0.15
======== ==========
Weighted average shares outstanding....... 28,778 56,120
======== ==========
Fully Diluted:
Earnings per share from continuing
operations.............................. $ 0.13 $ 0.12
======== ==========
Weighted average shares outstanding....... 30,019 59,414
======== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-84
<PAGE> 130
REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES,
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.,
AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
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 SOUTHLAND COMBINED DR. CR. PRO FORMA
------- ------- --------- -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue..................................... $61,709 $48,003 $20,854 $130,566 $130,566
Expenses:
Cost of operations........................ 37,692 35,048 16,036 88,776 $3,367(g) $ 494(h) 91,649
Selling, general and administrative....... 14,314 9,444 2,547 26,305 1,787(i) 24,518
Other (income) expense:
Interest and other income................. (154) -- (57) (211) (211)
Interest expense.......................... 1,198 505 514 2,217 2,217(j) --
------- ------- --------- -------- ------ ------ ---------
53,050 44,997 19,040 117,087 3,367 4,498 115,956
------- ------- --------- -------- ------ ------ ---------
Income from continuing operations before
income taxes.............................. 8,659 3,006 1,814 13,479 3,367 4,498 14,610
Income tax provision........................ -- 1,269 688 1,957 304(k) 2,261
------- ------- --------- -------- ------ ------ ---------
Income from continuing operations........... $8,659 $ 1,737 $ 1,126 $11,522 $3,671 $4,498 $ 12,349
======== ======= ========= ========= ====== ====== ==========
Earnings per share from continuing
operations................................ $ 0.30 $ 0.26
======== ==========
Weighted average shares outstanding......... 28,507 54,884
======== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-85
<PAGE> 131
REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES,
AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE -----------------
COMPANY SOUTHLAND COMBINED DR. CR. PRO FORMA
------- --------- -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue.............................................. $56,817 $18,171 $74,988 $74,988
Expenses:
Cost of operations................................. 33,237 14,361 47,598 47,598
Selling, general and administrative................ 16,107 2,036 18,143 18,143
Restructuring and unusual charges.................. 10,040 -- 10,040 10,040
Other (income) expense:
Interest and other income.......................... (167) (178) (345) (345)
Interest expense................................... 733 375 1,108 1,108
------- --------- -------- ------ ------ ---------
59,950 16,594 76,544 76,544
------- --------- -------- ------ ------ ---------
Income (loss) from continuing operations before
income taxes....................................... (3,133) 1,577 (1,556) (1,556)
Income tax provision................................. 70 631 701 $ 32(k) 669
------- --------- -------- ------ ------ ---------
Income (loss) from continuing operations............. $(3,203) $ 946 $(2,257) $ -- $ 32 $(2,225)
======== ========= ========= ====== ====== ==========
Loss per share from continuing operations............ $(0.11) $ (0.07)
======== ==========
Weighted average shares outstanding.................. 28,598 31,198
======== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-86
<PAGE> 132
REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES,
AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE -----------------
COMPANY SOUTHLAND COMBINED DR. CR. PRO FORMA
------- --------- -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue.............................................. $48,979 $15,139 $64,118 $64,118
Expenses:
Cost of operations................................. 28,808 11,940 40,748 40,748
Selling, general and administrative................ 14,725 1,805 16,530 16,530
Restructuring and unusual changes.................. 2,250 -- 2,250 2,250
Other (income) expense:
Interest and other income.......................... (2,452) (55) (2,507) (2,507)
Interest expense................................... 518 348 866 866
------- --------- -------- ------ ------ ---------
43,849 14,038 57,887 57,887
------- --------- -------- ------ ------ ---------
Income from continuing operations before income
taxes.............................................. 5,130 1,101 6,231 6,231
Income tax provision................................. 253 -- 253 $ 418(k) 671
------- --------- -------- ------ ------ ---------
Income from continuing operations.................... $4,877 $ 1,101 $ 5,978 $ 418 $ -- $ 5,560
======== ========= ========= ====== ====== ==========
Earnings per share from continuing operations........ $ 0.18 $ 0.19
======== ==========
Weighted average shares outstanding.................. 27,441 30,041
======== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-87
<PAGE> 133
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
(a) Represents an entry to payoff all outstanding indebtedness of the Company, HMC and
Southland using proceeds from the Equity Transactions.
(b) Represents an entry to eliminate the historical intangible assets of HMC.
(c) Represents an entry to record intangible assets resulting from the preliminary
allocation of the purchase price for HMC which was approximately $139 million.
(d) Represents an entry to record retained earnings as a contribution to capital upon the
termination of S-Corp. status for Kertz and Envirocycle, Inc.
(e) Represents an entry to eliminate the equity balances of HMC.
(f) Represents the recording of equity resulting from the Company's issuance of its common
stock to the sellers of HMC and Southland.
(g) 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.
(h) 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.
(i) Represents the contractual reduction of salary and benefits of the sellers of HMC.
(j) Represents the assumed interest savings on the payoff of all existing indebtedness of
the Company, HMC and Southland with the proceeds from the Equity Transactions.
(k) Represents the incremental change in the combined entity's provision for income taxes as
a result of the pre-tax earnings of acquired entities and all pro forma adjustments as
described above.
</TABLE>
F-88
<PAGE> 134
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by the
Registrant in connection with the filing of this Registration Statement. All of
such expenses, other than the filing fee for the Commission, are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee..................................... $ 46,034
Printing and Engraving Expenses................................................... $ 50,000
Legal Fees and Expenses........................................................... $ 25,000
Accounting Fees and Expenses...................................................... $ 30,000
Blue Sky Fees and Expenses........................................................ $ 1,000
--------
Total................................................................... $152,034
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Company entitles the Board of
Directors to provide for indemnification of directors and officers to the
fullest extent provided by law, except for liability (i) for any breach of
directors duty of loyalty to the Company or its stockholders, (ii) for acts of
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends, or for unlawful
stock purchases or redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit.
Article VII of the Bylaws of the Company provide that to the fullest extent
and in the manner permitted by the laws of the State of Delaware and
specifically as is permitted under Section 145 of the General Corporation Law of
the State of Delaware, the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the Company, by reason
of the fact that such person is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit, or proceeding if he acted in good faith
and in a manner he reasonably believed to be in and not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
he had no reasonable cause to believe his conduct was unlawful. Determination of
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contender or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in and not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was lawful.
The Bylaws provide that any decision as to indemnification shall be made:
(a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding; or (b) if
such a quorum is not obtainable, or even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion; or (c) by the stockholders. The Board of Directors may authorize
indemnification of expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding in advance of the final disposition
of such action, suit or proceeding. Indemnification pursuant to these provisions
is not exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise and shall continue as to a person who has ceased to be a
director or officer. The Company may purchase and maintain insurance on behalf
of any person who is or was a director or officer.
II-1
<PAGE> 135
Further, the Bylaws provide that the indemnity provided will be extended to
the directors, officers, employees and agents of any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of the Bylaws with respect to the resulting or
surviving corporation as he/she would have with respect to such constituent
corporation if its separate existence had continued.
Under an insurance policy maintained by the Company, the directors and
officers of the Company are insured, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of being or having been
such directors or officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All transactions listed below involved the issuance of shares of Common
Stock and other securities of the Company prior to the commencement of the
offering of shares of Common Stock described in the foregoing Prospectus. Unless
otherwise indicated, all securities were issued by the Company in reliance upon
Section 4(2) of the Securities Act of 1933, as amended.
On October 2, 1995, in connection with the merger of Reliable Sanitation,
Inc., a closely-held Florida corporation ("Reliable"), the Company issued
138,450 shares of Common Stock to the sole shareholder of Reliable in exchange
for all of the issued and outstanding capital stock of Reliable.
On September 7, 1995, the Company issued and sold 5,000,000 shares of
Common Stock in a private placement to institutional and other accredited
investors, at an offering price of $20.25 per share. The shares were placed
through Allen & Company, Incorporated, for a commission of $0.25 per share on
all shares sold.
On August 28, 1995, in connection with the merger of Kertz Security
Systems, Inc. and Kertz Security Systems II, Inc., both closely-held Florida
corporations (together, "Kertz"), the Company issued 1,090,000 shares of Common
Stock to the shareholders of Kertz in exchange for all of the issued and
outstanding capital stock of Kertz.
On August 3, 1995, in connection with the merger of Hudson Management
Corporation and Envirocycle, Inc., both closely-held Florida corporations
(together, "HMC"), the Company issued 8,000,000 shares of Common Stock to the
sole shareholder of HMC in exchange for all of the issued and outstanding
capital stock of HMC.
On August 3, 1995, the Company issued and sold to H. Wayne Huizenga,
Westbury (Bermuda) Ltd., and Harris W. Hudson, and their respective assigns, in
the aggregate, 10,350,000 shares of Common Stock, and warrants to purchase
16,700,000 shares of Common Stock at exercise prices ranging from $4.50 to $7.00
per share, for an aggregate purchase price of $64,075,000 pursuant to certain
stock purchase agreements.
On July 24, 1995, the Company issued and sold 5,400,000 shares of Common
Stock in a private placement to institutional and other accredited investors, at
an offering price of $13.25 per share. The shares were placed through Allen &
Company, Incorporated, for a commission of $0.25 per share on all shares sold.
On May 25, 1995, in connection with the attainment of a specified earnings
level by Cleveland Container Services, Inc. ("Cleveland Container"), for the
year ended December 31, 1994, the Company issued 34,375 shares of Common Stock
to the former owner of Cleveland Container.
On April 18, 1994, in connection with the attainment of a specific earnings
level by Cleveland Container, for the year ended December 31, 1993, the Company
issued 39,000 shares of Common Stock to the former owner of Cleveland Container.
II-2
<PAGE> 136
On April 9, 1994, in connection with the attainment of a specified earnings
level by Living Earth Technology, Inc. ("Living Earth"), for the year ended
December 31, 1993, the Company issued 108,336 shares of Common Stock to the
former owners of Living Earth.
On April 1, 1993, in connection with the attainment of a specified earnings
level by Living Earth, for the year ended December 31, 1992, the Company issued
120,833 shares of Common Stock to the former owners of Living Earth.
On April 1, 1993, in connection with the attainment of a specified earnings
level by El Centro Sanitation Service company and Republic Imperial Acquisition
Corp. (collectively "El Centro"), for the year ended December 31, 1992, the
Company issued 24,595 shares of Common Stock to the former owners of El Centro.
On November 8, 1992, in connection with the acquisition of all the
outstanding shares of Cleveland Container, the Company issued 465,000 shares of
Common Stock to the shareholder of Cleveland Container.
On May 26, 1992, in connection with the attainment of a specified earnings
level by El Centro, for the year ended December 31, 1991, the Company issued
81,996 shares of Common Stock to the former owners of El Centro.
In May 1992, MGD Holdings, Ltd. elected to purchase 2,000,000 shares of
Common Stock for $5.50 per share pursuant to its exercise of warrants granted in
connection with a Loan Agreement dated March 18, 1991.
On April 9, 1992, in connection with the attainment of a specified earnings
level by Living Earth, for the year ended December 31, 1991, the Company issued
120,831 shares of Common Stock to the former owners of Living Earth.
On March 23, 1992, in connection with the acquisition of all the
outstanding shares of Stout Environmental, Inc. ("Stout"), the Company issued
3,000,001 shares of Common Stock to the former shareholders of Stout.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) A list of the exhibits filed as part of this Registration Statement is
set forth in the Exhibit Index which immediately precedes such exhibits.
(b) Financial Statement Schedule
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants on Schedule................ II-4
Schedule II -- Valuation and Qualifying Accounts and Reserves................. II-5
</TABLE>
II-3
<PAGE> 137
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders and Board of Directors of Republic Waste Industries, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Republic Waste Industries, Inc.
included in this Registration Statement, and have issued our report thereon
dated September 7, 1995. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in Item 16(b) hereof is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 7, 1995
II-4
<PAGE> 138
SCHEDULE II
REPUBLIC WASTE INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
BALANCE
AT ADDITIONS ACCOUNTS BALANCE
BEGINNING CHARGED TO WRITTEN AT END
CLASSIFICATIONS OF YEAR INCOME OFF OTHER(1) OF YEAR
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1994............................. $ 269 $174 $(202) $ 4 $ 245
1993............................. $ 226 $364 $(404) $ 83 $ 269
1992............................. $ 122 $267 $(225) $ 62 $ 226
</TABLE>
- ---------------
(1) Allowance of acquired businesses.
II-5
<PAGE> 139
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement;
iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the information required to be included in a post-effective amendment
by these paragraphs is contained in periodic reports filed with or furnished by
the Registrant pursuant to Section 13 or 15(d) of the Exchange Act that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Ft. Lauderdale, State
of Florida, on October 10, 1995.
REPUBLIC WASTE INDUSTRIES, INC.
By: *
----------------------------------
H. Wayne Huizenga
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<S> <C> <C>
* Chairman of the Board and October 10, 1995
- ------------------------------------------ Chief Executive Officer
H. Wayne Huizenga (Principal Executive Officer)
* President and Director October 10, 1995
- ------------------------------------------
Harris W. Hudson
/s/ Gregory K. Fairbanks Executive Vice President and October 10, 1995
- ------------------------------------------ Chief Financial Officer
Gregory K. Fairbanks (Principal Financial Officer)
* Vice President and Controller October 10, 1995
- ------------------------------------------ (Principal Accounting Officer)
Michael R. Carpenter
* Vice Chairman of the Board October 10, 1995
- ------------------------------------------
Michael G. DeGroote
* Director October 10, 1995
- ------------------------------------------
J.P. Bryan
* Director October 10, 1995
- ------------------------------------------
Rick L. Burdick
* Director October 10, 1995
- ------------------------------------------
John J. Melk
*By: /s/ Gregory K. Fairbanks
-------------------------------------
Gregory K. Fairbanks
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 141
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
3.1 First Amended and Restated Certificate of Incorporation of Republic Waste
Industries, Inc. (incorporated by reference from Exhibit 3.1 to the Company's
Registration Statement on Form S-3, file number 33-62489)
3.2 Bylaws of Republic Waste Industries, Inc. (incorporated by reference from Exhibit
3.2 to the Company's Registration Statement on Form S-3, file number 33-42530).
5.1* Opinion of Akerman, Senterfitt & Eidson, P.A. as to the validity of the Shares.
10.1 Management Agreement between Republic Waste Industries, Inc. and MGD Holdings Ltd.
(incorporated by reference from Exhibit 10.17 to the Registrant's Registration
Statement No. 33-42530 filed on September 13, 1991).
10.2 Warrant to Purchase 1,150,000 Shares of Republic Waste Industries, Inc. Common Stock
issued to MGD Holdings Ltd. (incorporated by reference from Exhibit 10.18 to the
Registrant's Registration Statement No. 33-42530 filed on September 13, 1991).
10.3 Stock Exchange Agreement between Republic Waste Industries, Inc. and MGD Holdings
Ltd. (incorporated by reference from Exhibit 10.22 to the Registrant's Registration
Statement No. 33-42530 filed on September 13, 1991).
10.4 Republic Waste Industries, Inc. 1991 Stock Option Plan effective October 29, 1991
(incorporated by reference from Exhibit 10.42 to the Registrant's Form 10-K filed on
March 30, 1993).
10.5 Form of Warrant to purchase 300,000 shares of Republic Waste Industries, Inc. Common
Stock, issued to Donald E. Koogler (incorporated by reference from Exhibit 10.54 to
the Registrant's Form 10-K filed on March 30, 1993).
10.6 Form of Warrant to purchase 300,000 shares of Republic Waste Industries, Inc. Common
Stock, issued to Douglas R. Gowland (incorporated by reference from Exhibit 10.55 to
the Registrant's Form 10-K filed on March 30, 1993).
10.7 Form of warrant to purchase 100,000 shares of Republic Waste Industries, Inc. Common
Stock issued to MGD Holdings Ltd. (incorporated by reference from Exhibit 10.33 to
the Registrant's Form 10-K for the year ended December 31, 1994).
10.8 Form of warrant to purchase 50,000 shares of Republic Waste Industries, Inc. Common
Stock issued to J.P. Bryan (incorporated by reference from Exhibit 10.34 to the
Registrant's Form 10-K for the year ended December 31, 1994).
10.9 Form of Warrant to purchase 50,000 shares of Republic Waste Industries, Inc. Common
Stock issued to Rick L. Burdick (incorporated by reference from Exhibit 10.35 to the
Registrant's Form 10-K for the year ended December 31, 1994).
10.10 Distribution Agreement dated February 14, 1995 between Republic Waste Industries,
Inc. and Republic Environmental Systems, Inc. (incorporated by reference from
Exhibit 10.36 to the Registrant's Form 10-K for the year ended December 31, 1994).
10.11 Stock Purchase Agreement dated May 21, 1995 by and between H. Wayne Huizenga and
Republic Waste Industries, Inc. (the "Huizenga Purchase Agreement") (incorporated by
reference from Exhibit (c)(1) to the Registrant's Form 8-K/A dated July 17, 1995).
10.12 Agreement and Plan of Merger dated May 21, 1995 by and among Republic Waste
Industries, Inc., Republic Hudson Acquisition Corporation, Hudson Management
Corporation and Harris W. Hudson and Bonnie J. Hudson (incorporated by reference
from Exhibit (c)(2) to the Registrant's Form 8-K/A dated July 17, 1995).
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.13 Agreement and Plan of Merger dated May 21, 1995 by and among Republic Waste
Industries, Inc., Republic Hudson Acquisition Corporation, Envirocycle, Inc. and
Harris W. Hudson and Bonnie J. Hudson (incorporated by reference from Exhibit (c)(3)
to the Registrant's Form 8-K/A dated July 17, 1995).
10.14 Stock Purchase Agreement dated May 21, 1995 by and between Harris W. Hudson and
Republic Waste Industries, Inc. (incorporated by reference from Exhibit (c)(4) to
the Registrant's Form 8-K/A dated July 17, 1995).
10.15 Stock Purchase Agreement dated May 21, 1995 by and between Westbury (Bermuda) Ltd.
and Republic Waste Industries, Inc. (incorporated by reference from Exhibit (c)(5)
to the Registrant's Form 8-K/A dated July 17, 1995).
10.16 Proxy dated as of May 21, 1995 by MGD Holdings Ltd. in favor of H. Wayne Huizenga
(See Exhibit D to the Huizenga Purchase Agreement) (incorporated by reference from
Exhibit (c)(6) to the Registrant's Form 8-K/A dated July 17, 1995).
10.17 Stockholder Stock Option Agreement dated as of May 21, 1995 by MGD Holdings Ltd. in
favor of H. Wayne Huizenga (See Exhibit C to the Huizenga Purchase Agreement)
(incorporated by reference from Exhibit (c)(7) to the Registrant's Form 8-K/A dated
July 17, 1995).
10.18 First Amendment to Stock Purchase Agreement dated July 17, 1995 by and between
Republic Waste Industries, Inc. and H. Wayne Huizenga (incorporated by reference
from Exhibit (c)(8) to the Registrant's Form 8-K/A dated July 17, 1995).
10.19* Republic Waste Industries, Inc. 1995 Employee Stock Option Plan.
10.20* Republic Waste Industries, Inc. 1995 Non-Employee Director Stock Option Plan.
10.21 Merger Agreement, dated August 24, 1995, among Republic Waste Industries, Inc., RS
Mergersub, Inc., Southland Environmental Services, Inc., Felix A. Crawford,
individually and as Trustee of the Felix A. Crawford Revocable Living Trust, and
CFP, Ltd. (incorporated by reference from Exhibit (c)(1) to the Registrant's Form
8-K, dated August 24, 1995).
10.22 Merger Agreement, dated as of August 24, 1995, among Republic Waste Industries,
Inc., RKSA, Inc., RKSA II, Inc., Kertz Security Systems, Inc., Kertz Security
Systems II, Inc., Leon H. Brauser, Michael Brauser, Robert Brauser and Joel Brauser
(incorporated by reference from Exhibit (c)(2.1) to the Registrant's Form 8-K, dated
August 28, 1995).
21.1* Subsidiaries of Republic Waste Industries, Inc. as of October 9, 1995.
23.1 Consent of Akerman, Senterfitt & Eidson, P.A. (included in Exhibit 5.1 above).
23.2** Consent of Independent Public Accountants.
23.3** Consent of Independent Public Accountants.
24.1** Power of Attorney.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 5.1
AKERMAN, SENTERFITT & EIDSON, P.A.
ATTORNEYS AT LAW
One Brickell Square
24th Floor
801 Brickell Avenue
Miami, Florida 33131-2948
(305) 374-5600
Telecopy (305) 374-5095
October 10, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: REPUBLIC WASTE INDUSTRIES, INC.
AMENDMENT NO. 1 TO REGISTRATION
STATEMENT ON FORM S-1
FILE NUMBER 33-63209
Ladies and Gentlemen:
We have acted as counsel to Republic Waste Industries, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of Amendment No. 1 to
a Registration Statement on Form S-1, file number 33-63209 (the "Registration
Statement") under the Securities Act of 1933, as amended. The Registration
Statement relates to an aggregate of 6,000,000 shares of the Company's common
stock, par value $0.01 per share (the "Shares"), which may be offered and issued
from time to time by the Company in connection with future acquisitions of
other businesses, properties or equity and/or debt securities in business
combination transactions.
We have examined such corporate records, documents, instruments and
certificates of the Company and have received such representations from the
officers and directors of the Company and have reviewed such questions of law
as we have deemed necessary, relevant or appropriate to enable us to render the
opinion expressed herein. In such examination, we have assumed the genuineness
of all signatures and authenticity of all documents, instruments, records and
certificates submitted to us as originals.
Based upon such examination and review and upon the representations
made to us by the officers and directors of the Company, we are of the opinion
that when the Registration Statement becomes effective under the Securities Act
of 1933, as amended, and the Shares are issued and distributed as contemplated
in the Registration Statement, the Shares will constitute legally issued, fully
paid and non-assessable securities of the Company.
<PAGE> 2
Securities and Exchange Commission
October 10, 1995
Page 2
The opinions expressed herein are limited to the corporate laws of the
State of Delaware and we express no opinion as to the effect on the matters
covered by any other jurisdiction.
This firm consents to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to the firm under the caption
"Legal Matters and Experts" in the prospectus which is part of the Registration
Statement.
Very truly yours,
AKERMAN, SENTERFITT & EIDSON, P.A.
<PAGE> 1
Exhibit 10.19
REPUBLIC WASTE INDUSTRIES, INC.
1995 EMPLOYEE STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. This Employee Stock Option Plan (the
"Plan") is to benefit Republic Waste Industries, Inc., a Delaware corporation
(the "Company"), and its subsidiaries through the maintenance and development
of their respective businesses by offering certain present and future key
employees and officers, and independent contractors providing services to
Republic, a favorable opportunity to become holders of stock in the Company
over a period of years, thereby giving them a permanent stake in the growth and
prosperity of the Company and encouraging the continuance of their involvement
with the Company or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee"), consisting of two or more outside directors (as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"))
appointed by the Board of Directors, whose interpretation of the terms and
provisions of the Plan shall be final and conclusive. The selection of
employees, officers and consultants for participation in the Plan and all
decisions concerning the timing, pricing and amount of any grant or award under
the Plan shall be made solely by the Committee.
3. ELIGIBILITY. Options shall be granted only to key employees of the
Company and its subsidiaries (including officers of the Company and its
subsidiaries but excluding non-employee directors of the Company and its
subsidiaries) and independent contractors performing services for the Company
and its subsidiaries selected initially and from time to time by the Committee
on the basis of their importance to the business of the Company or its
subsidiaries.
4. GRANTING OF OPTIONS. The Committee may grant options under which a
total of not in excess of 4,000,000 shares of the $.01 par value common stock
of the Company ("Common Stock") may be purchased from the Company, subject to
adjustment as provided in Section 10. In the event that an option expires or
is terminated or canceled unexercised as to any shares, such released shares
may again be optioned (including a grant in substitution for a canceled
option). Shares subject to options may be made available from unissued or
reacquired shares of Common Stock. Nothing contained in the Plan or in any
option granted pursuant thereto shall confer upon any optionee any right to be
continued in the employment of the Company or any subsidiary of the Company or
as a consultant to the Company or any subsidiary of the Company, or interfere
in any way with the right of the Company or its subsidiaries to terminate his
employment or consulting relationship at any time.
5. OPTION PRICE. The option price shall be determined by the
Committee and, subject to the provisions of Section 10 hereof, shall be not
less than the fair market value, at the time the option is granted, of the
shares of Common Stock subject to the option.
<PAGE> 2
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Section 8 hereof, each option shall be for such term of not less
than five years nor more than ten years, as shall be determined by the
Committee at the time of option is granted. Each option shall become
exercisable with respect to 25% of the total number of shares subject to the
option twelve months after the date of its grant and with respect to each
additional 25% at the end of each twelve-month period thereafter during the
succeeding three years. Notwithstanding the foregoing, the Committee may in
its discretion (i) specifically provide for another time or times of exercise
at the time the option is granted; (ii) accelerate the exercisability of any
option subject to such terms and conditions as the Committee deems necessary
and appropriate; or (iii) at any time prior to the expiration or termination of
any option previously granted, extend the term of any option (including such
options held by officers) for such additional period as the Committee in its
discretion shall determine. In no event, however, shall the aggregate option
period with respect to any option, including the original term of the option
and any extensions thereof, exceed ten years. Subject to the foregoing, all or
any part of the shares to which the right to purchase has accrued may be
purchased at the time of such accrual or at any time or times thereafter during
the option period.
In the event of a Change in Control (as defined below), all outstantding
options shall become immediately exercisable. Notwithstanding any other
provision in the Plan during the period of thirty (30) days after such Change
of Control, each optionee who is any officer or a director (and also an
employee or consultant) of the Company shall have the right to require the
Company to purchase for him any option granted under the Plan at a purchase
price equal to (i) the excess of fair market value per share over the option
price (ii) multiplied by the number of option shares specified by such
individual for purchase in a written notice to the Company, attention of the
Secretary. For purposes of this Agreement, a "Change in Control" shall be
deemed to occur if any person shall (a) acquire direct or indirect beneficial
ownership of at least 50% of the issued and outstanding Common Stock of the
Company, or (b) has the power (whether such power arises as a result of the
ownership of capital stock, by contract or otherwise), or ability to elect or
cause the election of directors consisting at the time of such election of a
majority of the board of directors of Republic. As used herein, "person" shall
mean any person, corporation, partnership, joint venture or other entity or any
group (as such term is defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended, and the rules promulgated thereunder). For purposes of
this paragraph, "fair market value per share" shall mean the average of the
highest sales price per share of the Company's Common Stock as quoted on the
NASD National Market or by the principal exchange upon which the Company's
Common Stock is listed on each of the five trading days immediately preceding
the date on which such individual so notifies the Company. The amount payable
to each such individual by the Company shall be in cash or by certified check
and shall be reduced by any taxes required to be withheld.
7. EXERCISE OF OPTION. As a condition to the exercise of any option,
the "Quoted Price" (as defined below) per share of Common Stock on the date of
exercise must be equal or exceed the option price referred to in Section 5
hereof. An option may be exercised by giving
2
<PAGE> 3
written notice to the Company, attention of the Secretary, specifying the
number of shares to be purchased, accompanied by the full purchase price for
the shares to be purchased either (i) in cash, (ii) by check, (iii) by a
promissory note in a form specified by the Company and payable to the Company
no later than fifteen business days after the date of exercise of the option,
(iv) if so approved by the Committee, by shares of the Common Stock of the
Company or (v) by a combination of these methods of payment. The "Quoted
Price" and the per share value of Common Stock for purposes of paying the
option price in accordance with the immediately preceding sentence shall equal
the closing selling price per share of Common Stock on the date in question on
the Nasdaq National Market or the principal stock exchange upon which the
Company's Common Stock is listed (the "Exchange"). The right to pay the
purchase price of shares by delivery of a promissory note shall not be
available to any optionee who is a person described in Section 16(a) of the
Securities Exchange Act of 1934 (the "1934 Act").
At any time of any exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the optionee (or
his heirs, legatees, or legal representatives, as the case may be) as a
condition upon the exercise thereof, to deliver to the Company a written
representation of present intention to purchase the shares for investment and
not for distribution. In the event such representation is required to be
delivered, an appropriate legend may be placed upon each certificate delivered
to the optionee upon his exercise of part or all of the option and a stop
transfer order may be placed with the transfer agent. Each option shall also be
subject to the requirement that, if at any time the Company determines, in its
discretion, that the listing, registration or qualification of the shares
subject to the option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of or in connection with, the issue or
purchase of shares thereunder, the option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.
At the time of the exercise of any option the Committee may require, as a
condition of the exercise of such option, the optionee to (x) pay the Company
an amount equal to the amount of tax the Company may be required to withhhold
to obtain a deduction for federal income tax purposes as a result of the
exercise of such option by the optionee or (y) make such other arrangements
with the Company which would enable the Company to pay such withholding tax,
including, without limitation, holding back a number of shares issuable upon
exercise of the option equal to the amount of such withholding tax, or
permitting the optionee to deliver a promissory note in a form specified by the
Committee or withhold taxes from other compensation payable to the optionee by
the Company, or (z) a combination of the foregoing.
8. TERMINATION OF RELATIONSHIP-EXERCISE THEREAFTER. In the event the
relationship between the Company and an optionholder is terminated for any
reason other than death, permanent disability or retirement, such
optionholder's options shall expire and all rights to purchase shares pursuant
thereto shall terminate immediately. The Committee may, in its sole
discretion, permit any option to remain exercisable for such period after such
termination as the
3
<PAGE> 4
Committee may prescribe, but in no event after the expiration date of the
option. Temporary absence from employment or as a consultant because of
illness, vacation, approved leaves of absence, and transfers of employment
among the Company and its subsidiaries, shall not be considered to terminate
employment or consulting relationship or to interrupt continuous employment or
consulting relationship.
In the event of termination of said relationship because of death,
permanent disability (as the term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), or retirement, the option may be
exercised in full, without regard to any installments established under Section
6 hereof, by the optionee or, if he is not living, by his heirs, legatees or
legal representative (as the case may be) during its specified term prior to
three years after the date of the death, permanent disability or retirement, or
such longer period as the Committee may perscribe, but in no event after the
expiration date of the option.
9. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the
optionee, options shall be exercisable only by the optionee, and options shall
not be assignable or transferable by the optionee otherwise than by will or by
the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Code, or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder.
10. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
outstanding shares of Common Stock of the Company is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to options granted hereunder shall be proportionately adjusted;
(b) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted, on an
equitable basis as determined by the Committee, for each share of Common Stock
then subject to the Plan, whether or not at the time subject to outstanding
options, the number and kind of shares of stock or other securities to which
the holders of shares of Common Stock of the Company will be entitled pursuant
to the transaction; and (c) in the event of any other relevant change in the
capitalization of the Company, the Committee shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the Plan,
whether or not then subject to outstanding options. In the event of any such
adjustment, the purchase price per share shall be proportionately adjusted.
11. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any
option granted pursuant to the Plan shall confer upon any optionee any right to
be continued in the employment of the Company or any subsidiary of the Company
or to be continued as a consultant to the Company or any subsidiary of the
Company or interfere in any way with the right of the Company or its
subsidiaries to terminate such employment or consulting relationship and/or to
remove any optionee who is a director from service on the Board of Directors of
the Company at any time in accordance with the provisions of applicable law.
4
<PAGE> 5
12. AMENDMENT OF PLAN. The Board of Directors of the Company may
amend or discontinue the Plan at any time. However, no such amendments or
discontinuance shall be made without the requisite stockholder approval of the
stockholders of the Company if stockholder approval is required as a condition
to the Plan continuing to comply with the provisions of Rule 16b-3 or Section
162(m) of the Code.
13. GOVERNANCE BY RULE 16b-3. The Plan is intended to and shall be
governed by Rule 16b-3 promulgated under the 1934 Act.
14. EFFECTIVE DATE. On June 8, 1995, this Plan was adopted and
authorized by the Board of Directors of the Company for submission to the
stockholders of the Company. If this Plan is approved by an affirmative vote
of the holders of a majority of the shares of Common Stock voting in person or
by proxy at duly held stockholders' meeting, this Plan shall be deemed to have
become effective on June 8, 1995. With respect to any options granted on or
after such effective date and prior to stockholder approval, all options shall
be canceled and void if this Plan is not approved by stockholders within one
year of the date of the Board's adoption hereof.
5
<PAGE> 1
EXHIBIT 10.20
REPUBLIC WASTE INDUSTRIES, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. This 1995 Non-Employee Director Stock
Option Plan ("Plan") is intended to promote the interests of Republic Waste
Industries, Inc., a Delaware corporation (the "Company"), by offering non-
employee members of the Board of Directors of the Company (individually a
"Non-employee Director" and collectively "Non-employee Directors") the
opportunity to participate in a special stock option program designed to
provide them with significant incentives to remain in the service of the
Company.
2. ELIGIBILITY. Each Non-employee Director shall be eligible to
receive grants of nonstatutory options under this Plan (individually an
"Option" and collectively "Options") pursuant to the provisions of Section 4
hereof.
Except for the automatic grants of Options to be made pursuant to the
provisions of Section 4 hereof, Non-employee Directors shall not be eligible
to receive any additional Option grants or stock issuance under this Plan or
any other stock plan of the Company or any of its affiliates.
3. STOCK SUBJECT TO PLAN. The stock issuable under this Plan
shall be the shares of the Company's common stock, par value of $.01 per share
("Common Stock"). Such shares may be made available from authorized but
unissued shares of Common Stock or shares of Common Stock reacquired by the
Company. The aggregate number of shares of Common Stock issuable upon exercise
of Options under this Plan shall not exceed 1,000,000 shares, subject to
adjustment from time to time in accordance with Section 10 hereof.
4. AUTOMATIC GRANTING OF OPTIONS. Each individual who is
initially elected or appointed as a Non-employee Director on or after August 3,
1995 shall be automatically granted, on such date, an Option to purchase 50,000
shares of Common Stock. Commencing with the first business day of calendar
year 1996 and continuing in effect for the first business day of each
subsequent calendar year, each individual who is at the time serving as a
Non-employee Director shall receive an additional automatic grant of an Option
to purchase 10,000 shares of Common Stock. The foregoing dates are herein
referred to individually as an "Automatic Grant Date" and collectively as
"Automatic Grant Dates" and the Non-employee Directors receiving Options are
herein referred to individually as an "Optionee" and collectively as
"Optionees." Options granted under the Plan are not intended to be treated as
incentive stock options as defined in Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code").
In the event that an Option expires or is terminated or canceled
unexercised as to any shares of Common Stock, the shares subject to the Option,
or a portion thereof not so exercised shall be made available for subsequent
automatic Option grants under this Plan.
<PAGE> 2
Should the total number of shares of Common Stock at the time
available under this Plan not be sufficient for the automatic grants to be made
at that particular time, the available shares shall be allocated
proportionately among all the automatic grants to be made at that time.
5. EXERCISE PRICE. The price per share payable upon exercise of
an Option ("Exercise Price") shall be the "Closing Selling Price" per share of
Common Stock as of the Automatic Grant Date.
For purposes of establishing the Exercise Price, the "Closing Selling
Price" per share of the Common Stock on any relevant date shall be the lesser
of (I) the closing selling price per share of Common Stock on the date in
question as quoted on the Nasdaq Stock Market or by the principal stock
exchange upon which the Company's Common Stock is listed (the "Exchange"), or
if there is no reported closing selling price of Common Stock on the Exchange
on the date in question, the closing selling price on the Exchange on the last
preceding date for which such quotation exists, or (ii) the average of the
closing selling prices per share of Common Stock as quoted on the Exchange for
the ten trading days immediately preceding the date in question or such fewer
number of days during such ten-day period for which a closing selling price
quotation on the Exchange exists.
6. DURATION OF OPTIONS AND EXERCISABILITY. Subject to the
provisions of Section 8 hereof, each Option shall have a term of ten years
measured from the Automatic Grant Date. Each Option shall become exercisable
for any or all of the shares covered by such Option immediately upon the
Automatic Grant Date. The Option shall thereafter remain so exercisable until
the expiration or sooner termination of the Option term.
Notwithstanding any other provision in the Plan, during the period of
thirty (30) days after such Change of Control, each Optionee shall have the
right to require the Company to purchase from Optionee any Option granted under
the Plan at a purchase price equal to (I) the excess of fair market value per
share over the Option price (ii) multiplied by the number of Option shares
specified by such individual for purchase in a written notice to the Company,
attention of the Secretary. A "Change in Control" shall be deemed to occur if
any person shall (a) acquire direct or indirect beneficial ownership of at
least 50% of the issued and outstanding Common Stock of the Company, or (b) has
the power (whether such power arises as a result of the ownership of capital
stock, by contract or otherwise), or the ability to elect or cause the election
of directors consisting at the time of such election of a majority of the Board
of Directors of the Company. As used herein, "person" shall mean any person,
corporation, partnership, joint venture or other entity or any group (as such
term is defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules promulgated thereunder). For purposes of this
paragraph, "fair market value per share" shall mean the average of the highest
sales price per share of the Company's Common Stock as quoted on the Exchange
on each of the five trading days immediately preceding the date on which such
individual so notifies the Company. The amount payable to each such individual
by the Company shall be in cash or by certified
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check and shall be reduced by any taxes required to be withheld.
7. EXERCISE OF OPTION. As a condition to the exercise of any
Option, the "Quoted Price" (as defined below) per share of Common Stock on the
date of exercise must equal or exceed the Exercise Price. An Option may be
exercised by giving written notice to the Company, attention of the Secretary,
specifying the number of shares to be purchased, accompanied by the full
purchase price for the shares to be purchased either (I) in cash, (ii) by
check, (iii) by shares of the Common Stock, or (iv) by a combination of these
methods of payment. The "Quoted Price" and the per share value of Common Stock
for purposes of paying the Exercise Price in accordance with the immediately
preceding sentence shall be determined pursuant to clause (I) of the definition
of Closing Selling Price under Section 5 hereof, but determined with respect to
the date of exercise. The Company may in its discretion permit an Optionee to
deliver a promissory note in a form specified by the Company and payable to the
Company no later than the fifteenth day of April in the year following the year
of exercise of any Option in payment of any withholding tax requirements of the
Company with respect to such exercise.
At any time of any exercise of any Option, the Company may, if it
shall determine it necessary or desirable for any reason, require the Optionee
(or his or her heirs, legatees, or legal representative, as the case may be) as
a condition upon the exercise thereof, to deliver to the Company a written
representation of present intention to purchase the shares for investment and
not for distribution. In the event such representation is required to be
delivered, an appropriate legend may be placed upon each certificate delivered
to the Optionee (or his or her heirs, legatees or legal representative, as the
case may be) upon his or her exercise of part or all of the Option and a stop
transfer order may be placed with the transfer agent. Each Option shall also
be subject to the requirement that, if at any time the Company determines, in
its discretion, that the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of or in connection with, the issue or
purchase of shares thereunder, the Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.
At the time of the exercise of any Option the Company may require, as
a condition of the exercise of such Option, the Optionee to pay the Company an
amount equal to the amount of tax the Company may be required to withhold to
obtain a deduction for federal income tax purposes as a result of the exercise
of such Option by the Optionee.
8. TERMINATION OF BOARD MEMBERSHIP - EXERCISE THEREAFTER. Should
an Optionee cease to be an outside member of the Board of Directors of the
Company for any reason other than death or permanent disability, such
Optionee's Options shall expire and all rights to purchase shares pursuant
thereto shall terminate five (5) business days after the date the Optionee
ceases to be an outside member of the Board of Directors of the
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Company. The Company may, in its sole discretion, permit such Options to
remain exercisable for a reasonable period after such cessation of Board
membership.
Should an Optionee cease to be an outside member of the Board of
Directors of the Company because of death or permanent disability (as that term
is defined in Section 22(e)(3) of the Code, as now in effect or as subsequently
amended), the Option may be exercised in full by the Optionee or, if he or she
is not living, by his or her heirs, legatees, or legal representative, as the
case may be, during its specified term prior to three years after the date of
death or permanent disability, but in no event after the expiration date of the
Option.
9. NON-TRANSFERABILITY. During the lifetime of the Optionee,
Options shall be exercisable only by the Optionee, and Options shall not be
assignable or transferable by the Optionee otherwise than by will or by the
laws of descent and distribution, or pursuant to a qualified domestic relations
order as defined by the Code, or Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules thereunder.
10. ADJUSTMENTS. The number of shares subject to this Plan and to
Options granted under this Plan shall be adjusted as follows: (a) in the event
that the number of outstanding shares of Common Stock is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
this Plan and to Options granted hereunder shall be proportionately adjusted;
(b) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted, on an
equitable basis, for each share of Common Stock then subject to this Plan,
whether or not at the time subject to outstanding Options, the number and kind
of shares of stock or other securities to which the holders of shares of Common
Stock will be entitled pursuant to the transaction; and (C) in the event of any
other relevant change in the capitalization of the Company, an equitable
adjustment shall be made in the number of shares of Common Stock then subject
to this Plan, whether or not then subject to outstanding Options. In the event
of any such adjustment the Exercise Price per share shall be proportionately
adjusted.
11. AMENDMENT OF PLAN. This Plan may from time to time be amended
or discontinued by action of the Board of Directors of the Company; provided
that (I) no such amendment or discontinuance shall change or impair any Options
previously granted without the consent of the Optionee, (ii) the provisions of
this Plan relating to the amount of shares which may be subject to Options, the
Automatic Grant Dates and/or the Exercise Price shall not be amended more than
once every six months, other than to comply with ERISA or the Code, and or the
rules thereunder and (iii) any amendment which would (A) materially increase
the benefits accruing to the participants under this Plan, (B) materially
increase the number of securities which may be issued under this Plan, and/or
(C) materially modify the requirements as to the eligibility for participation
in this Plan shall require the approval of the stockholders of the Company,
unless such approval is not required by Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "1934
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Act"), or any other federal regulations.
12. CASH PROCEEDS. Any cash proceeds received by the Company from
the sale of shares pursuant to the Options granted under this Plan shall be
used for general corporate purposes.
13. NO IMPAIRMENT OF RIGHTS. Nothing in this Plan or any
automatic grant made pursuant to this Plan shall be construed or interpreted so
as to affect adversely or otherwise impair the Company's right to remove any
Optionee from service on the Board of Directors of the Company at any time in
accordance with the Company's By-laws or any provisions of applicable law.
14. HOLDING PERIOD. Anything contained in the Plan to the
contrary notwithstanding, any disposition of an Option otherwise permitted by
the terms of the Plan, or of the Common Stock acquired upon exercise of an
Option, shall be subject to compliance with the requirements of paragraph
(c)(1) of Rule 16b-3 or its successors promulgated under the 1934 Act,
applicable to such disposition, and any date, period or procedure specified or
referred to in the Plan with respect to any such disposition shall be adjusted,
if necessary, so as to give effect to this Section 14.
15. COMPLIANCE WITH RULE 16B-3. The Plan is intended to comply
with all applicable conditions of Rule 16b-3 or its successors promulgated
under the 1934 Act, regardless of whether such conditions are set forth in the
Plan. To the extent any provision of the Plan or action of the Plan
administrators fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Plan administrators.
16. EFFECTIVE DATE. On August 3, 1995, this Plan, as amended and
restated, was adopted and authorized by the disinterested members of the Board
of Directors of the Company for submission to the stockholders of the Company.
If this Plan, as hereby amended and restated, is approved by the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock,
this Plan, as hereby amended and restated, shall be deemed to have become
effective as of August 3, 1995. Options granted under the Plan shall not be
exercisable until stockholder approval is obtained; if this Plan, as hereby
amended and restated, is not approved by stockholders within one year of the
date of the Board's adoption hereof, then all such Options shall be canceled
and void.
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EXHIBIT 21.1
Subsidiaries As of October 9, 1995
The list of subsidiaries of Republic Waste Industries, Inc. as of March 23,
1995 from Exhibit 22.1 to the Registrant's Form 10-K for the year ended December
31, 1994 is incorporated herein by reference. The following additional
subsidiaries have been added since such date:
Name Jurisdiction of Incorporation
- ---- -----------------------------
Hudson Management Corporation Florida
Envirocycle, Inc. Florida
All Service Refuse Company, Inc. Florida
East Bay Sanitation Service, Inc. Florida
Florida Refuse Services, Inc. Florida
Gulf Coast Waste Services, Inc. Florida
Sunburst Sanitation Corporation Florida
Treasure Coast Refuse Corp. Florida
Waste Collection Services Corporation Florida
Kertz Security Systems, Inc. Florida
Kertz Security Systems II, Inc. Florida
Reliable Sanitation, Inc. Florida
