<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report September 26, 1995
(Date of earliest event reported)
REPUBLIC WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-9787 73-1105145
-------- ------ ----------
(State or other (Commission File (I.R.S. Employer
jurisdiction Number) Identification
of incorporation) No.)
200 East Las Olas Blvd.
Suite 1400
Ft. Lauderdale, Florida 33301
(Address of principal executive offices)
Registrant's telephone number, including area code (305) 761-8333
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<PAGE> 2
With respect to each contract, agreement or other document referred to
herein and filed with the Securities and Exchange Commission (the "Commission")
as an exhibit to this report, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
ITEM 5. OTHER EVENTS.
PRIVATE PLACEMENT. On September 7, 1995, Republic Waste Industries,
Inc. ("Republic") issued and sold 5,000,000 shares of its common stock, $0.01
par value per share ("Common Stock"), for an aggregate of approximately $100
million pursuant to a private placement in which Allen & Company Incorporated
acted as the placement agent.
REPORTING OF CERTAIN FINANCIAL INFORMATION FOR REGISTRATION STATEMENT
AND OTHER PURPOSES. As previously reported in its Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995, the acquisition of Hudson
Management Corporation and Envirocycle, Inc. (together, the "Hudson Companies")
by Republic in exchange for an aggregate of 8,000,000 shares of Common Stock
was completed on August 3, 1995, and certain equity transactions involving the
issuance and sale by Republic, for an aggregate of approximately $134,275,000
in net proceeds, of an aggregate of 15,750,000 shares of Common Stock and
warrants to purchase 16,700,000 shares of Common Stock were completed in July
and August 1995 (together with the private placement described above, the
"Equity Transactions"). As previously reported in its Current Report on Form
8-K dated August 24, 1995, the acquisition of Southland Environmental Services,
Inc. ("Southland") by Republic in exchange for an aggregate of 2,600,000 shares
of Common Stock is pending subject to regulatory approvals and other customary
closing conditions. As previously reported in its Current Report on Form 8-K
dated August 28, 1995, the acquisition of Kertz Security Systems II, Inc. and
Kertz Security Systems, Inc. (together, "Kertz") by Republic in exchange for
1,090,000 shares of Common Stock was completed on August 28, 1995. Republic is
filing as part of this Current Report on Form 8-K/A supplemental consolidated
financial statements of Republic which have been retroactively adjusted to
reflect the merger with Kertz accounted for as a pooling of interests and
certain financial statements of Southland and the Hudson Companies, and certain
pro forma financial statements of Republic as a result of the Equity
Transactions, the acquisition of the Hudson Companies and the pending
acquisition of Southland, which financial statments are hereby incorporated by
reference in Republic's previously filed Registration Statements on Form S-3,
file numbers 33-61649 and 33-62489 and on Form S-8, file number 33-93742.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: The following Financial Statements are
included herein pursuant to Item 7 (a):
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . 3
Supplemental Consolidated Balance Sheets as of June 30, 1995
(unaudited) and December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 4
Supplemental Consolidated Statements of Income for the Six
Months Ended June 30, 1995 and 1994 (unaudited) and the Years Ended
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Supplemental Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . 6
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Supplemental Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 8
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . 27
Combined Balance Sheets as of June 30, 1995 (unaudited) and September
30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Combined Statements of Stockholders' Equity for the Years Ended
September 30, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . 40
Consolidated Balance Sheets as of June 30, 1995 (unaudited) and
September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Consolidated Statements of Income for the Nine Months Ended
June 30, 1995 and 1994 (unaudited) and the Years Ended
September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
2
<PAGE> 4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Republic Waste Industries, Inc.:
We have audited 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. 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
each 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, all in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
September 7, 1995
3
<PAGE> 5
REPUBLIC WASTE INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
---------------------------
June 30,
1995 1994 1993
----------- ---------- ----------
ASSETS (Unaudited)
<S> <C> <C> <C>
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.
4
<PAGE> 6
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 . . . . . . . . . . . . . . $ .13 $ .14 $ 0.30 $ (0.11) $ 0.18
Discontinued operations . . . . . . . . . . . . . .02 .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.
5
<PAGE> 7
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.
6
<PAGE> 8
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
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases of $281 and $487 were financed in the years ended December
31, 1993 and 1992, respectively, by borrowings and capitalized lease
obligations. Additionally, property of $178 was contributed to the Company
in the year ended December 31, 1992.
The accompanying notes are an integral part of these supplemental
consolidated financial statements.
7
<PAGE> 9
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.
8
<PAGE> 10
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.
9
<PAGE> 11
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
10
<PAGE> 12
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and financial requirements. The plan provides for the combination of the
Company's hazardous waste services operations in its wholly-owned subsidiary,
RESI, and the distribution of the stock of RESI to the stockholders of record
of Republic (the "Distribution"). On April 26, 1995, Republic stockholders
received one share of common stock of RESI for every five shares of Common
Stock of Republic owned on April 21, 1995 in connection with the spin-off of
RESI. Approximately 5.4 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>
11
<PAGE> 13
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Distribution, the Company has entered into the
Distribution Agreement with RESI which sets forth the terms of the
Distribution. Under this agreement, Republic contributed the intercompany
balance to RESI's equity at the date of the Distribution. In April 1995,
Republic contributed approximately $2.5 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
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.
The following table sets forth the purchase price of the Company's
acquisitions accounted for under the purchase method of accounting (in
thousands):
12
<PAGE> 14
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Cash (net of cash
acquired) . . . . . . . $ 4,059 $ 5,664 $ 2,899
Common stock (including
contingent consideration
earned) . . . . . . . . 105 266 2,964
------- ------- --------
$ 4,164 $ 5,930 $ 5,863
======= ======= ========
</TABLE>
The following describes each of the acquisitions completed by the
Company in 1994:
LAUGHLIN ENVIRONMENTAL, INC. In February 1994, the Company acquired
Laughlin Environmental, Inc. ("Laughlin"), located in the Houston, Texas area.
Laughlin provides environmental services on a contract basis and serves to
complement the Company's special waste landfill located in the Dallas, Texas
area. Additionally, Laughlin internalized a portion of its operating costs in
1994 through the acquisition of the assets of a subcontractor.
WASTE HANDLING SYSTEMS, INC. In October 1994, the Company acquired
Waste Handling Systems, Inc. ("Waste Handling") which is located in Rutherford
County, North Carolina, approximately 75 miles west of Charlotte. Waste
Handling is a collection operation adjacent to the Company's existing landfill
and collection operation in southwest North Carolina and services collection
routes in a 30 mile radius of Forest City, North Carolina through the
transportation of municipal solid waste.
MIDWEST SANITATION SERVICE, INC. In November 1994, the Company
acquired Midwest Sanitation Service, Inc. ("Midwest"). Midwest is a landfill
and collection operation which was the largest private hauler in North Dakota.
As discussed in Note 9, the Company also paid additional consideration
to the sellers of previously completed acquisitions for the attainment of
certain earnings levels as specified in the respective acquisition agreements.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS. The Company's unaudited
pro forma consolidated results of operations for 1994, 1993 and 1992 shown
below are presented assuming that the Company's business combinations had been
consummated January 1, 1992 (in thousands):
13
<PAGE> 15
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue as reported . . . . . . . . . . . . . . . . . . . $ 61,709 $ 56,817 $ 48,979
Revenue of businesses acquired . . . . . . . . . . . . . 2,890 10,389 6,808
-------- -------- --------
Pro forma revenue . . . . . . . . . . . . . . . . . . . . $ 64,599 $ 67,206 $ 55,787
======== ======== ========
Income (loss) from continuing operations as reported . . $ 8,659 $ (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.
14
<PAGE> 16
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.
15
<PAGE> 17
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.
16
<PAGE> 18
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1994, aggregate maturities of long-term debt were as
follows (in thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . $ 1,571
1996 . . . . . . . . . . . . . . . . . . 13,156
1997 . . . . . . . . . . . . . . . . . . 677
1998 . . . . . . . . . . . . . . . . . . 591
1999 . . . . . . . . . . . . . . . . . . 316
Thereafter . . . . . . . . . . . . . . . 412
-------
$16,723
=======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS. On May 3, 1991, the Company filed an action
against G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in
the United States District Court for the Central District of California (the
"Court"). The Company requested a declaratory judgment that it did not
anticipatorily breach a merger agreement (the "Merger Agreement") between the
Company and GI and that the Merger Agreement had been properly terminated. The
Company also sought to recover $600,000 from GI, plus interest and costs, with
respect to a certain financial guaranty provided by Republic in 1990 for the
benefit of GI. In response to the Company's action, GI filed a counterclaim
alleging that the Company breached the Merger Agreement and that it had
suffered damages in excess of $16.0 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")
vacated the August 1993 decision and remanded the case back to the Court for a
hearing on damages. The Company filed a motion for reconsiderations 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.
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.
17
<PAGE> 19
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL MATTERS. The Company's solid waste and environmental
services activities are conducted in the context of a developing and changing
statutory and regulatory framework, aggressive government enforcement and a
highly visible political environment. Governmental regulation of the waste
management industry requires the Company to obtain and retain numerous
governmental permits to conduct various aspects of its operations. These
permits are subject to revocation, modification or denial. The costs and other
capital expenditures which may be required to obtain or retain the applicable
permits or comply with applicable regulations could be significant.
In 1992, the Company received notices from Imperial County, California
(the "County") and the California Department of Toxic Substances Control
("DTSC") that spent filter elements (the "Filters") from geothermal power
plants, which had been deposited at the Company's Imperial Landfill for
approximately five years, were classified as hazardous waste under California
environmental regulations. Under United States EPA regulations, the Filters
are not deemed hazardous waste as they are associated with the production of
geothermal energy.
In February 1993, the DTSC denied the Company's October 1992 request
to classify the Filters as "special waste" under California regulations.
DTSC's denial indicated that the Filters met all technical and analytical
requirements for reclassification as a special waste, but that a procedural
requirement related to the timing of the reclassification request was not met.
The Company is currently conducting active discussions with all appropriate
California regulatory agencies in order to seek a variance under California
regulations which will reclassify the Filters as a special waste, irrespective
of the reclassification application submittal timing issue, and allow the
Filters to be left in the landfill. If this occurs, the state, regional and
local regulatory agencies may nevertheless require that the affected area of
the landfill be capped and that the affected area accept no additional waste.
A decision on the reclassification issue is expected by 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>
18
<PAGE> 20
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total rental expense incurred under operating leases was $653,000, $544,000 and
$468,000 in 1994, 1993 and 1992, respectively.
POSTRETIREMENT BENEFITS. The Company does not provide postretirement
or postemployment benefits to its employees and, accordingly, has not reflected
any cost arising from the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Effective January 1, 1994, the Company
instituted a defined contribution 401(k) savings plan for employees meeting
certain employment requirements. Under the plan, the Company may, at
its discretion, match a portion of employee contributions based on the
profitability and growth of the Company. No contributions under this plan were
made by the Company in 1994.
CONTINGENT CONSIDERATION. In certain of the business acquisitions
accounted for as purchases, the Company has agreed to issue contingent
consideration in the form of additional shares of the Company's common stock
and, in some cases, additional cash to the sellers of those businesses based on
the attainment of certain earnings levels and other contingencies. During the
years ended December 31, 1994, 1993 and 1992, the Company has issued
approximately 29,000, 160,000 and 186,000 shares of common stock and paid
$623,000, $432,000 and $40,000, respectively, for the attainment of such
earnings levels. These amounts have been capitalized as additional purchase
price. The maximum contingent consideration to be earned over the next 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
19
<PAGE> 21
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subsidiaries. These shares represented additions to treasury stock and were
subsequently retired in December 1994. The Company's stock repurchase program
expires in October 1995 and the Company does not currently plan to repurchase
any additional Common Stock.
1991 STOCK OPTION PLAN. In October 1991, the Board of Directors
approved a stock option plan (the "1991 Plan"), which was subsequently
approved by the Company's stockholders at the 1992 Annual Meeting of
Stockholders, under which employees and officers of the Company or any of its
subsidiaries or parent corporations and members of the Board of Directors of
the Company may be awarded options to purchase common shares. A maximum of
5,000,000 common shares, less shares issued or purchased pursuant to the 1990
Stock Option and Stock Purchase Plan (the "1990 Plan") as discussed below, have
been reserved for issuance to participants in the 1991 Plan in the form of
stock options. The option price under the 1991 Plan is to be determined by the
Board of Directors but shall not be less than the fair market value of the
common shares on the date the stock option is granted. Options are subject to
adjustment upon certain changes in the capital structure of the Company, such
as a stock dividend, stock split or other similar events.
1990 STOCK OPTION AND STOCK PURCHASE PLAN. In April 1990, the Board
of Directors approved a stock option and stock purchase plan for certain key
employees, directors, consultants and advisors. A maximum of 2,500,000 shares
of common stock were reserved for issuance to participants in the plan in the
form of either stock options or stock purchases, as determined by the
Compensation Committee. Options granted under the plan expire ten years from
the date of grant and vest over varying periods as determined by the
Compensation Committee. During the year ended December 31, 1990, 700,000
shares were purchased at $2.50 to $4.50 per share. When shares were purchased
under the 1990 Plan, the participant paid the par value of the shares in cash,
and issued a nonrecourse promissory note to the Company for the balance of the
purchase price. These promissory notes along with interest are due ten years
from the date of issuance and are collateralized by the shares purchased.
During 1992, the Company received payment of $648,000 on notes receivable
arising from stock purchase agreements pursuant to the 1990 Plan. The 1990
Plan has been replaced by the 1991 Plan, as discussed above.
Activity under the Company's 1990 and 1991 stock option plans during
each of the two years ended December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1990 Plan 1991 Plan Total Option Price
--------- --------- ----- ------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992 . . . . . . . 598,000 348,500 946,500 $2.50-$14.50
Granted . . . . . . . . . . . . . . . . . . 100,000 401,900 501,900 $4.00-$12.50
Cancelled . . . . . . . . . . . . . . . . . -- (331,900) (331,900) $7.25-$10.63
------- --------- ---------
Outstanding at December 31, 1993 . . . . . . . 698,000 418,500 1,116,500 $2.50-$14.50
Granted . . . . . . . . . . . . . . . . . . -- 176,000 176,000 $2.69-$ 3.38
Cancelled . . . . . . . . . . . . . . . . . (50,000) (130,500) (180,500) $2.69-$10.63
------- --------- ---------
Outstanding at December 31, 1994 . . . . . . . 648,000 464,000 1,112,000 $2.50-$14.50
======= ========= =========
Exercisable at December 31, 1994 . . . . . . . 648,000 113,450 761,450 $9.92(A)
======= ========= =========
Available for future grant at December 31, 1993 763,000 2,081,500 2,844,500
Cancelled . . . . . . . . . . . . . . . . . 50,000 130,500 180,500
Granted . . . . . . . . . . . . . . . . . . -- (176,000) (176,000)
-------- --------- ---------
Available for future grant at December 31, 1994 813,000 2,036,000 2,849,000
======== ========= =========
</TABLE>
___________________________________
(A) Represents the weighted average option price of options exercisable at
December 31, 1994.
20
<PAGE> 22
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(A)
==========
</TABLE>
___________________________
(A) 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 No. 109, deferred tax assets or liabilities at the end of each
period are determined by applying the current tax rate to the difference
between the financial reporting and income tax basis of assets and liabilities.
21
<PAGE> 23
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net operating loss ("NOL") carryforwards are recognized under SFAS No.
109 unless it is "more likely than not" that they will not be realized. In
1993, the Company recorded a $1,242,000 valuation allowance related to the
realization of deferred tax assets generated as a result of the 1993
restructuring and unusual charges. This valuation allowance was recorded due
to the uncertainty surrounding the future utilization of such deferred tax
assets. In 1994, the valuation allowance was eliminated based on the expected
realization of such deferred tax assets.
In the years immediately following an acquisition, the Company
provides income taxes at the statutory income tax rate applied to pre-tax
income. As part of its tax planning to reduce effective tax rates and cash
outlays for taxes, the Company employs a number of strategies such as combining
entities to reduce state income taxes, claiming tax credits not previously
claimed and recapturing taxes previously paid by acquired companies. At such
time as these reductions in the Company's deferred tax liabilities are
determined to be realizable, the impact of the reduction is recorded as tax
reserve adjustments in the tax provision. The Company's unaudited income tax
provision for the first quarter of 1995 was offset by such adjustments. The
Company's unaudited income tax provision 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>
22
<PAGE> 24
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.
23
<PAGE> 25
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>
24
<PAGE> 26
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 1994 $ 1,452 $ 2,585 $ 3,080 $ 1,542
continuing operations 1993 $ 1,173 $ 1,420 $ 1,728 $ (7,524)(a)
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)(a)
</TABLE>
____________
(a) 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
(A) 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.
25
<PAGE> 27
REPUBLIC WASTE INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(B) 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 transactions in (A) and (B) above, 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.
(C) 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 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.
(D) 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 a transfer station,
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.
26
<PAGE> 28
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).
27
<PAGE> 29
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------------
1995 1994 1993
----------- ------- -------
<S> <C> <C> <C>
(UNAUDITED)
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.
28
<PAGE> 30
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.
29
<PAGE> 31
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.
30
<PAGE> 32
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.
31
<PAGE> 33
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.
32
<PAGE> 34
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.
33
<PAGE> 35
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.
34
<PAGE> 36
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 the line of credit on February 28, 1995, the Companies obtained
35
<PAGE> 37
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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).
36
<PAGE> 38
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>
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.
37
<PAGE> 39
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
38
<PAGE> 40
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
39
<PAGE> 41
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
40
<PAGE> 42
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
June 30, -------------------------------------------
1995 1994 1993
----------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
Read accompanying notes to the financial statements.
41
<PAGE> 43
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
June 30, -------------------------------------
1995 1994 1993
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
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.
42
<PAGE> 44
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.
43
<PAGE> 45
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
-------------- --------- ------------- ----------- --------------- ------------
<C> <C>
<S> <C> <C> <S> <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.
44
<PAGE> 46
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended June 30, Years Ended September 30,
------------------------------ --------------------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited)
<S> <C> <C> <C> <C>
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)
---------- ---------- ---------- ----------
</TABLE>
Read accompanying notes to the financial statements.
45
<PAGE> 47
<TABLE>
<CAPTION>
Nine Months Ended June 30, Years Ended September 30,
------------------------------ --------------------------------
1995 1994 1994 1993
-------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
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 $ - $ - $ - $1,966,598
common control ======== ========== =========== ==========
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>
46
<PAGE> 48
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.
47
<PAGE> 49
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property, Plant and Equipment - Continued
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.
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.
48
<PAGE> 50
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Amortization - Continued
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.
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.
49
<PAGE> 51
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CONSOLIDATED SUBSIDIARIES - Continued
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>
50
<PAGE> 52
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NOTES RECEIVABLE - OTHER - 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.
51
<PAGE> 53
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
</TABLE>
52
<PAGE> 54
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM NOTES PAYABLE - Continued
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
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 upon appraisal at
the date of acquisition and will be amortized over the average estimated
remaining useful lives of the assets.
53
<PAGE> 55
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM NOTES PAYABLE - Continued
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>
54
<PAGE> 56
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES - Continued
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 share of each company's taxable income. Generally, the
stockholders funded tax payments with dividends from the companies.
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%.
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.
55
<PAGE> 57
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
56
<PAGE> 58
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
57
<PAGE> 59
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS & CONTINGENCIES - Continued
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 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.
58
<PAGE> 60
(b) Pro Forma Financial Information: The following pro forma financial
information is included herein pursuant to Item 7 (b):
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Condensed Consolidated Pro Forma Financial Statements. . . . . . . . . . . . . . 60
Unaudited Condensed Consolidated Pro Forma Balance Sheet as of
June 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Unaudited Condensed Consolidated Pro Forma Statement of
Operations for the Six Months Ended June 30, 1995. . . . . . . . . . . . . . . . . . . 62
Unaudited Condensed Consolidated Pro Forma Statement of
Operations for the Year Ended December 31, 1994. . . . . . . . . . . . . . . . . . . . 63
Unaudited Condensed Consolidated Pro Forma Statement of
Operations for the Year Ended December 31, 1993. . . . . . . . . . . . . . . . . . . . 64
Unaudited Condensed Consolidated Pro Forma Statement of
Operations for the Year Ended December 31, 1992. . . . . . . . . . . . . . . . . . . . 65
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements . . . . . . . . . 66
</TABLE>
59
<PAGE> 61
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. ("Hudson") 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 Hudson, 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, Hudson 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 Hudson 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 Hudson 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.
60
<PAGE> 62
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 HUDSON 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 financial
statement.
61
<PAGE> 63
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 HUDSON 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.
62
<PAGE> 64
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 HUDSON 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.
63
<PAGE> 65
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.
64
<PAGE> 66
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.
65
<PAGE> 67
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
(a) Represents an entry to payoff all outstanding indebtedness of the Company, Hudson and Southland
using proceeds from the Equity Transactions.
(b) Represents an entry to eliminate the historical intangible assets of Hudson.
(c) Represents an entry to record intangible assets resulting from the preliminary allocation of the
purchase price for Hudson 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 Hudson.
(f) Represents the recording of equity resulting from the Company's issuance of its common stock to
the sellers of Hudson 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 Hudson. Intangible assets
resulting from the purchase of Hudson 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 Hudson to conform with the Company's policies.
(i) Represents the contractual reduction of salary and benefits of the sellers of Hudson.
(j) Represents the assumed interest savings on the payoff of all existing indebtedness of the
Company, Hudson 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>
66
<PAGE> 68
(c) Exhibits: The exhibits to this Report are listed on the Exhibit Index set
forth elsewhere herein.
67
<PAGE> 69
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC WASTE INDUSTRIES, INC.
Date: September 26, 1995 By: /s/ Gregory K. Fairbanks
------------------------------
Gregory K. Fairbanks,
Chief Financial Officer and
Executive Vice President
68
<PAGE> 70
EXHIBIT INDEX
-------------
(a) - (b) Not applicable.
*(c) (23.1) Consent of Independent Certified Public Accountants
(23.2) Consent of Independent Certified Public Accountants
(27) Financial Data Schedule (for SEC use only)
__________________
*Filed herewith.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into the previously
filed Registration Statements of Republic Waste Industries, Inc. on Form S-3
(Registration No. 33-61649) and Form S-8 (Registration No. 33-93742).
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 20, 1995.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated December 9, 1994 on the Consolidated Financial Statements of
Southland Environmental Services, Inc. and Subsidiaries included in this Form
8-K into Republic Waste Industries, Inc.'s previously filed Registration
Statements on Form S-3, (Registration No. 33-61649), and Form S-8,
(Registration No. 33-93742).
/s/ Grenadier, Appleby, Collins & Company
--------------------------------------------
GRENADIER, APPLEBY, COLLINS & COMPANY
Jacksonville, Florida
September 18, 1995
