<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1996.
REGISTRATION NO. 33-63209
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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REPUBLIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 4953 73-1105145
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
200 EAST LAS OLAS BLVD., SUITE 1400
FORT LAUDERDALE, FLORIDA 33301
(305) 627-6000
(Address, including zip code, and telephone number, including
area code of registrant's principal executive offices)
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<TABLE>
<S> <C>
COPY TO:
RICHARD L. HANDLEY JONATHAN L. AWNER
SENIOR VICE PRESIDENT AKERMAN, SENTERFITT & EIDSON, P.A.
REPUBLIC INDUSTRIES, INC. ONE S.E. THIRD AVENUE
200 EAST LAS OLAS BLVD., SUITE 1400 SUITE 2800
FT. LAUDERDALE, FL 33301 MIAMI, FLORIDA 33131
(305) 627-6000 (305) 374-5600
(Name, address, including zip code, and
telephone number, including area code, of
agent for service)
</TABLE>
FILING AMENDED PROSPECTUS AND
AMENDING ITEMS 13, 15, 16 AND 17 OF PART II
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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<PAGE> 2
REPUBLIC INDUSTRIES, INC.
(CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
LOCATION OR CAPTION
ITEM NUMBER IN PROSPECTUS
- ------------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Page of
Prospectus............................... Inside Front Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Plan of Distribution
9. Description of Securities to be
Registered............................... Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters and Experts
11. Information with Respect to the
Registrant............................... Price Range of Common Stock and Dividend
Policy; Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Properties; Legal and Administrative
Proceedings; Management; Executive
Compensation; Security Ownership of
Certain Beneficial Owners and Management;
Certain Relationships and Related
Transactions; Financial Statements.
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
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<PAGE> 3
PROSPECTUS
5,072,596 SHARES
(REPUBLIC INDUSTRIES, INC. LOGO)
COMMON STOCK
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This Prospectus relates to an aggregate of 5,072,596 shares (the "Shares")
of common stock, par value $.01 per share ("Common Stock"), of Republic
Industries, Inc., a Delaware corporation (the "Company"), which may be offered
and issued from time to time by the Company in connection with future
acquisitions of other businesses, properties or equity and/or debt securities in
business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus may also be used, with the Company's prior consent, by
persons or entities who have received or will receive such Shares in connection
with such acquisitions and who wish to offer and sell such Shares under
circumstances requiring or making desirable its use and by certain donees of
such persons or entities. See "Plan of Distribution."
The Company will receive no portion of the proceeds from the sale of the
Shares offered hereby and will bear certain expenses incident to their
registration. See "Use of Proceeds."
The Common Stock is traded on The Nasdaq Stock Market ("Nasdaq") under the
symbol "RWIN." On February 2, 1996, the last reported sales price for the Common
Stock as reported by Nasdaq was $31.125 per share.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
THE CAPTION "RISK FACTORS" LOCATED ON PAGE 6 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY , 1996
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Price Range of Common Stock and
Dividend Policy..................... 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 23
<CAPTION>
PAGE
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<S> <C>
Properties............................ 32
Legal and Administrative
Proceedings......................... 32
Management............................ 35
Executive Compensation................ 39
Security Ownership of Certain
Beneficial Owners and Management.... 42
Certain Relationships and Related
Transactions........................ 44
Description of Capital Stock.......... 45
Plan of Distribution.................. 46
Legal Matters and Experts............. 46
</TABLE>
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and, in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy and information
statements and other information concerning the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's
regional offices located at Northwest Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and at Seven World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Commission at prescribed rates through its Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Common Stock is traded on Nasdaq.
Information filed by the Company with Nasdaq may be inspected at the offices of
Nasdaq at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Shares offered hereby
(including all amendments and supplements thereto, the "Registration
Statement"). This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto can be inspected and copied at the public
reference facilities and regional offices of the Commission and at the offices
of Nasdaq referred to above.
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PROSPECTUS SUMMARY
THE COMPANY
The Company is a diversified services company, which, through its
subsidiaries, primarily provides integrated solid waste collection, disposal and
recycling services to public and private sector customers. The Company currently
owns or operates thirteen solid waste landfills with five located in Texas, two
in California and one each in Florida, Michigan, North Carolina, South Carolina,
Indiana and North Dakota with approximately 1,483 permitted acres and total
available permitted disposal capacity of approximately 59.1 million in-place
cubic yards as of December 31, 1995. The Company also currently provides
collection service to over 650,000 residential, commercial and industrial
customers, primarily in areas surrounding its landfill sites, certain areas in
Georgia and South Carolina and throughout Florida. In addition, the Company
provides related environmental services including engineering, consulting and
analysis, remediation and other technical services.
The Company, through certain recently acquired businesses, also is engaged
in the electronic security services business, which consists of the sale,
installation, and maintenance of electronic security systems for commercial and
residential use as well as the continuous electronic monitoring of installed
security systems. Currently, the Company monitors over 100,000 businesses and
residences, predominantly in Florida.
The Company's strategy is to aggressively grow as an integrated solid waste
management company by acquiring and integrating existing solid waste collection,
disposal and recycling businesses, and to expand its recently acquired
electronic security services business by internal growth and by making
additional acquisitions in that industry. Further, the Company currently
anticipates expanding its operations outside of solid waste management,
electronic security services and related lines of business. Management also
plans to augment its growth strategy by expanding its existing facilities and
increasing marketing efforts related to securing additional long-term contracts
and additional volumes at its existing operations. See "Business --
Acquisitions".
On August 3, 1995, following a special meeting of the Company's
stockholders, the Company appointed a new management team consisting of H. Wayne
Huizenga as Chairman of the Board and Chief Executive Officer, Harris W. Hudson
as President and a Director, Gregory K. Fairbanks as an Executive Vice President
and Chief Financial Officer, and John J. Melk as a Director. Michael G.
DeGroote, former Chairman, Chief Executive Officer and President, was named Vice
Chairman of the Board, and Donald E. Koogler resigned as a Director but remained
as an Executive Vice President and Chief Operating Officer. This new management
team is implementing the aggressive growth strategy for the Company.
The Company changed its name to Republic Industries, Inc. from Republic
Waste Industries, Inc. on November 28, 1995. The Common Stock of the Company is
traded on Nasdaq under the trading symbol "RWIN." The Company's principal
executive offices are located at 200 East Las Olas Boulevard, Suite 1400, Ft.
Lauderdale, Florida 33301, and its telephone number is (305) 627-6000.
RECENT DEVELOPMENTS
Earnings Release. On January 29, 1996, the Company announced unaudited
condensed consolidated results of operations for the year ended December 31,
1995. These results of operations, which are shown below with comparative
figures for the year ended December 31, 1994, reflect, in the opinion of the
Company, all material adjustments necessary to present fairly the results of
operations for the years ended December 31, 1995 and 1994.
For the year ended December 31, 1995, income and income per share from
continuing operations increased 61 percent to $23,212,000 and 9 percent to 35
cents per share, respectively, over 1994.
The comparability of income per share from continuing operations for the
year ended December 31, 1995 to the results reported for the same period in 1994
has been affected by certain tax reserve adjustments in 1994 which significantly
reduced the reported income tax provision during the prior year period. If
income tax expense had been provided at the same effective rates for the 1995
and 1994 periods, the increases for income
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<PAGE> 6
and income per share from continuing operations would have been 101 percent and
40 percent, respectively, for the year ended December 31, 1995.
Company revenue for the year ended December 31, 1995 was $260,315,000, an
increase of 39 percent over the $187,111,000 reported for 1994. The Company's
operating results for the prior year period have been restated to reflect a
series of mergers which were accounted for under the pooling of interests method
of accounting. If the Company's revenue for the current year periods was
compared to the revenue originally reported in the prior year, revenue would
have increased over 400 percent for the year ended December 31, 1995.
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
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1995 1994(A)
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(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenue................................................................ $260,315 $187,111
Expenses:
Cost of operations................................................... 169,559 123,877
Selling, general and administrative.................................. 54,133 41,730
-------- --------
Operating Income....................................................... 36,623 21,504
Other income (expense), net............................................ 61 (3,233)
-------- --------
Income from continuing operations before income taxes.................. 36,684 18,271
Income tax provision................................................... 13,472 3,839
-------- --------
Income from continuing operations...................................... 23,212 14,432
Income (loss) from discontinued operations............................. (293) 2,684
-------- --------
Net Income............................................................. $ 22,919 $ 17,116
======== ========
Primary earnings per common and common equivalent share:
Income from continuing operations.................................... $ 0.37 $ 0.32
Income from discontinued operations.................................. -- 0.06
-------- --------
Net Income........................................................... $ 0.37 $ 0.38
======== ========
Weighted average common and common equivalent shares................... 62,357 45,545
======== ========
Fully diluted earnings per common and common equivalent share:
Income from continuing operations.................................... $ 0.35 $ 0.32
Income from discontinued operations.................................. -- 0.06
-------- --------
Net Income........................................................... $ 0.35 $ 0.38
======== ========
Weighted average common and common equivalent shares................... 65,785 45,545
======== ========
</TABLE>
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(a) Operating results for the year ended December 31, 1994 have been restated to
reflect several business combinations accounted for under the pooling of
interests method of accounting as described below and the acquisition of
Kertz Security Systems, Inc. and Kertz Security Systems II, Inc.
(collectively, "Kertz").
Pending Acquisition of Mid-American Waste Systems of Georgia, Inc. and
Affiliates. On February 2, 1996, the Company entered into a definitive
agreement for the acquisition of substantially all of the assets of Mid-American
Waste Systems of Georgia, Inc., Speedway Grading Corp., and Newcorp
Environmental, Inc., all Georgia corporations and subsidiaries of Mid-American
Waste Systems, Inc. (the "Mid-American Companies"), for a purchase price of
approximately $52,000,000, subject to pending regulatory approvals and customary
closing conditions. The acquisition of the assets of the Mid-American Companies
is expected to close in the first quarter of 1996. The Mid-American Companies
own and operate a landfill, provide solid waste collection and recycling
services to approximately 60,000 commercial, residential and industrial
customers, and operate two transfer stations, in certain areas of the greater
Atlanta, Georgia metropolitan
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area. The acquisition will add approximately $25 million to the Company's annual
revenue and will be accounted for under the purchase method of accounting.
New Credit Facility. On December 19, 1995, the Company obtained a $250
million revolving credit facility from certain banks, which presently has no
outstanding borrowings.
Acquisition of J.C. Duncan Company, Inc. and Affiliates. On November 30,
1995, the Company acquired, in merger transactions, all of the outstanding
shares of capital stock of J.C. Duncan Company, Inc., a Texas corporation, and
of several related companies affiliated by common ownership and management with
J.C. Duncan Company, Inc. (collectively, "Duncan"), in exchange for an aggregate
of 5,256,055 shares of Common Stock. The acquisition of Duncan is being
accounted for as a pooling of interests business combination. Duncan provides
solid waste collection and recycling services to approximately 300,000
residential, commercial and industrial customers in the Dallas-Fort Worth
metropolitan area and throughout west Texas, and also operates two landfills.
Acquisition of Garbage Disposal Service, Inc. On November 30, 1995, the
Company acquired, in a merger transaction, all of the outstanding shares of
capital stock of Garbage Disposal Service, Inc., a North Carolina corporation
("GDS"), in exchange for an aggregate of 3,003,000 shares of Common Stock. The
acquisition of GDS is being accounted for as a pooling of interests business
combination. GDS provides solid waste collection and recycling services for
commercial, residential and industrial customers throughout western North
Carolina.
Acquisition of Fennell Container Company, Inc. and Affiliates. On November
30, 1995, the Company acquired, in merger transactions, all of the outstanding
shares of capital stock of Fennell Container Company, Inc., a South Carolina
corporation, and of several related companies affiliated by common ownership and
management with Fennell Container Company, Inc. (collectively, "Fennell"), in
exchange for an aggregate of 3,111,111 shares of Common Stock. The acquisition
of Fennell is being accounted for as a pooling of interests business
combination. Fennell provides waste collection, recycling and environmental
services to more than 12,000 commercial, industrial and residential customers in
and around Charleston and Greenville, South Carolina, and also owns a landfill
which is in the final stages of construction and is scheduled to begin accepting
waste under its new permit in early 1996.
Acquisition of Scott Security Systems. On November 30, 1995, the Company
acquired, in merger transactions, all of the outstanding shares of capital stock
of Cana First Corporation, a Florida corporation doing business as Scott
Security Systems, and of several related companies affiliated by common
ownership and management with Cana First Corporation (collectively, "Scott"), in
exchange for an aggregate of 1,567,818 shares of Common Stock. The acquisition
of Scott is being accounted for as a pooling of interests business combination.
Scott provides electronic security monitoring and maintenance to more than
70,000 accounts, primarily residential, in Jacksonville, Orlando and
Tallahassee, Florida, as well as other metropolitan areas in the southeastern
United States, including Charlotte, North Carolina, Savannah, Georgia and
Nashville, Tennessee.
Acquisition of Southland Environmental Services. On October 17, 1995, the
Company acquired, in a merger transaction, all of the outstanding shares of
capital stock of Southland Environmental Services, Inc., a Florida corporation
("Southland"), in exchange for an aggregate of 2,600,000 shares of Common Stock.
The acquisition of Southland is being accounted for as a pooling of interests
business combination. Southland, through its subsidiaries, provides solid waste
collection services to over 70,000 residential, commercial and industrial
customers in and around Jacksonville, Florida, owns and operates a construction
and demolition landfill, and provides composting and recycling services.
Acquisition of United Waste Service, Inc. On October 11, 1995, the Company
acquired, in a merger transaction, all of the outstanding shares of capital
stock of United Waste Service, Inc., a Georgia corporation ("United"), in
exchange for 1,500,000 shares of Common Stock. The acquisition of United is
being accounted for as a pooling of interests business combination. United
provides solid waste collection, transfer and recycling services in the Atlanta,
Georgia metropolitan area and serves over 8,000 residential and commercial
customers.
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<PAGE> 8
RISK FACTORS
An investment in the Shares being offered hereby involves a significant
degree of risk. In addition to the other information set forth in this
Prospectus, prospective purchasers of the Shares should consider carefully the
following factors in evaluating an investment in the Company.
Control Of The Company. H. Wayne Huizenga, Chairman of the Board and Chief
Executive Officer of the Company, Michael G. DeGroote, Vice Chairman of the
Board of the Company, Harris W. Hudson, a Director and the President of the
Company (and Mr. Huizenga's brother-in-law), and John J. Melk, a Director of the
Company, in the aggregate beneficially own directly and indirectly 43,028,608
shares of Common Stock, respectively (including shares beneficially owned by
certain of their spouses, with respect to which they each respectively disclaim
beneficial ownership, and including presently exercisable warrants and options
for an aggregate of 14,520,000 shares of Common Stock), as of January 29, 1996,
or an aggregate of 47.3% of the issued and outstanding shares of Common Stock as
of such date assuming all of such warrants and options are exercised. Although
there is no agreement among any of Messrs. Huizenga, DeGroote, Hudson or Melk to
vote together on any matters submitted to a vote of the Company's stockholders,
if Messrs. Huizenga, Hudson, DeGroote and Melk vote together, they would have
the ability to control the outcome of most matters submitted to a vote of the
Company's stockholders, especially with respect to the election of directors.
Dependence on Key Personnel. The Company believes that the experience and
success that its management team has had in operating and growing public and
private service companies, in general, and public and private companies in the
waste management industry, in particular, is important to the Company's future
success. However, there can be no assurance that its management team will have
the same success in operating and growing the Company as it has had with other
companies in the past. Furthermore, the Company has not entered into
non-competition agreements or employment agreements with any of Messrs.
Huizenga, Hudson or Gregory K. Fairbanks, the Company's Chief Financial Officer
and an Executive Vice President. The loss of the services of any of the members
of its management team, in general, or Mr. Huizenga in particular (whether such
loss is through resignation or otherwise), could have a material adverse effect
on the operations and future success of the Company.
Possible Depressing Effect of Future Sales of Common Stock. Future sales
of the Shares or the perception that such sales could occur could adversely
affect the market price of the Common Stock. There can be no assurance as to
when, and how many of, the Shares will be sold and the effect such sales may
have on the market price of the Common Stock. Since August 11, 1995, the Company
has registered for sale, from time to time on a continuous basis under several
shelf registration statements, by certain selling stockholders an aggregate of
77,724,809 shares of Common Stock, of which 18,145,000 were reserved for
issuance pursuant to certain outstanding options and warrants. These
registration statements cover, among other shares, 20,750,000 shares of Common
Stock issued in various private placements, and 26,265,894 shares of Common
Stock in various private business combination transactions, since July 1995.
Since August 11, 1995, an aggregate of approximately 10,315,441 shares have been
sold into the public market under these shelf registration statements, to the
knowledge of the Company. In addition, the Company intends to continue to issue
in the future Common Stock and/or options or warrants to purchase Common Stock
pursuant to exemptions from registration available under the Securities Act in
connection with certain of its acquisitions. Such securities are subject to
resale in accordance with the Securities Act and the regulations promulgated
thereunder. As such restrictions lapse or if such shares are registered for sale
to the public, such securities may be sold into the public market. To facilitate
the issuance of Common Stock in making acquisitions, the Company is registering
the Shares hereunder. In the event of the issuance and subsequent resale of a
substantial number of shares of Common Stock, or a perception that such sales
could occur, there could be a material adverse effect on the prevailing market
price of the Common Stock.
Dilution. The issuance of additional shares of Common Stock upon exercise
of outstanding and presently exercisable warrants, or upon the Company's
completion of any acquisitions and business combinations, may have a dilutive
effect on earnings per share and will have a dilutive effect on the voting
rights of the holders of Common Stock.
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Absence of Operating History in Possible New Lines of Business. Management
currently contemplates expanding the Company's operations outside of solid waste
management and related lines of business. Since August 28, 1995, the Company has
been operating in the electronic security services industry through the
acquisition of several companies which provide electronic security sales,
installation and monitoring services. The Company had no prior history of
operations in the electronic security services industry or any industry other
than solid waste management and related lines of business. There can be no
assurance that the Company will be successful in the electronic security
services industry or in any other industry which it enters. There can be no
assurance that the Company will enter into any additional industries unrelated
to the solid waste services industry or, if it does enter into any such
industries, that it will achieve the results anticipated by management.
Need for Substantial Additional Capital. The Company's current business
strategy is to act aggressively in growing as an integrated solid waste
management company by acquiring and integrating existing solid waste companies
and recycling businesses, and to expand its recently acquired electronic
security services business by internal growth and by making additional
acquisitions in that industry. Further, the Company currently anticipates
expanding the Company's operations outside of solid waste management, electronic
security services and related lines of business. Although the Company has
substantially no debt and has approximately $150 million in cash available for
general corporate purposes, and has a $250 million credit facility (which
presently has no outstanding borrowings), the Company believes that substantial
additional capital may be necessary to fully capitalize on acquisition and
expansion opportunities that may become available to the Company. However, there
can be no assurance that such additional financing will be available, or, in the
event that it is, that it will be available on terms acceptable to the Company.
In the event that such financing is not available or is not available in the
amounts or on terms currently contemplated by management, the implementation of
the Company's acquisition strategy could be materially and adversely affected.
Impediments to Completing Future Acquisitions. The Company's acquisition
strategy depends on its ability to identify and acquire appropriate solid waste
collection operations and landfills, electronic security systems businesses, and
other unrelated service businesses, to integrate the acquired operations
effectively and to increase its market share. A number of the Company's
competitors for such acquisitions are larger, better known companies than the
Company with significantly greater financial resources. There can be no
assurance that the Company will be able to locate acquisition candidates in
markets or on terms the Company deems attractive, that any identified candidates
will be acquired, or that acquired operations will be effectively integrated to
realize expected efficiencies and economies of scale or prove profitable. The
completion of acquisitions requires the expenditure of sizeable amounts of
capital, and the intense competition among companies pursuing similar
acquisition strategies may increase capital requirements. The Company could be
forced to alter its strategy in the future if such candidates become unavailable
or too costly. As the Company continues to pursue its acquisition strategy in
the future, its financial position and results of operations may fluctuate
significantly from period to period.
Risks Associated with Acquisitions. Although the Company investigates each
business that it acquires, there may be liabilities that the Company fails or is
unable to discover, including liabilities arising from non-compliance with
environmental laws by prior owners, and for which the Company, as a successor
owner, may be responsible. The Company seeks to minimize the impact of these
liabilities by obtaining indemnities and warranties from the seller which may be
supported by deferring payment of a portion of the purchase price. However,
these indemnities and warranties, if obtained, may not fully cover the
liabilities due to their limited scope, amounts, or duration, the financial
limitations of the indemnitor or warrantor, or other reasons.
Environmental Regulation. The collection and disposal of solid wastes,
operation of landfills and rendering of related environmental services are
subject to federal, state and local requirements which regulate health, safety,
the environment, zoning and land-use. Operating permits are generally required
for landfills and certain collection vehicles, and these permits are subject to
revocation, modification and renewal. Federal, state and local regulations vary,
but generally govern disposal activities and the location and use of facilities
and also impose restrictions to prohibit or minimize soil, air and water
pollution. In connection with landfills, it often may be necessary to expend
considerable time, effort and money to bring the Company's existing or acquired
facilities into compliance with applicable requirements and to obtain the
permits and approvals necessary to increase their capacity. In addition,
governmental authorities have the power to enforce
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compliance with these regulations and to obtain injunctions or impose fines in
the case of violations, including criminal penalties. These regulations are
administered by the United States Environmental Protection Agency (the "EPA")
and various other federal, state and local environmental and health and safety
agencies and authorities, including the Occupational Safety and Health
Administration of the United States Department of Labor. Certain of the
Company's waste disposal operations traverse state boundaries. Although such
operations currently constitute an immaterial portion of the Company's business,
their importance may increase as the Company completes future acquisitions. Such
operations could be adversely affected if the federal government or a state in
which a landfill is located limits or prohibits, imposes discriminatory fees on
or otherwise seeks to discourage the disposal, within state boundaries, of waste
collected outside of the state.
Subtitle D of the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), establishes a framework for regulating the storage, collection
and disposal of non-hazardous solid wastes. In the past, the Subtitle D
framework has left the regulation of non-hazardous waste storage, collection and
disposal largely to the states. However, in October 1991, the EPA promulgated a
final rule which imposes minimum federal comprehensive solid waste management
criteria and guidelines for disposal facilities and operations, including
location restrictions, facility design and operating criteria, closure and
post-closure requirements, financial assurance standards, groundwater monitoring
requirements and corrective action standards, many of which have not commonly
been in effect or enforced in connection with solid waste landfills. States are
required to revise their landfill regulations to meet these requirements.
Because some parts of the new regulations will be phased in over time, the full
effect of these regulations may not be felt for several years. However, other
than for groundwater monitoring and financial assurance requirements, all
provisions of the final rule became effective in October 1993. All of the
Company's planned landfill expansions or new landfill development projects have
been engineered to meet or exceed these requirements. Operating and design
criteria for existing operations have been modified to comply with these new
regulations. There can be no assurance that the EPA will not promulgate similar
regulations under Subtitle D in connection with the collection of non-hazardous
solid waste.
Hazardous Substances Liability. The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("Superfund" or "CERCLA"),
has been interpreted by some courts to impose strict, joint and several
liability on current and former owners or operators of facilities at which there
has been a release or a threatened release of a "hazardous substance" and on
persons who generate, transport or arrange for the disposal of such substances
at the facility. Thousands of substances are defined as "hazardous" under CERCLA
and their presence, even in minute amounts, can result in substantial liability.
The statute provides for the remediation of contaminated facilities and imposes
costs on the responsible parties. The expense of conducting such a cleanup and
the damages can be very significant and, given the limitations in insurance
coverage for these risks, could have a material adverse impact on the Company's
business and financial condition. Notwithstanding its efforts to comply with
applicable regulations and to avoid transporting and receiving hazardous
substances, such substances may be present in waste collected by the Company or
disposed in its landfills, or in waste collected, transported or disposed in the
past by acquired companies. More than 20% of the sites on the EPA's National
Priorities List of Hazardous Waste Sites are solid waste landfills that
ostensibly never received any "hazardous wastes." The Company intends to
continue to focus on the non-hazardous waste disposal market and does not intend
to acquire or develop hazardous waste disposal operations. As used in this
Prospectus, "non-hazardous waste" means substances, including asbestos, that are
not defined as hazardous wastes under federal regulations.
Lack of Environmental Liability Insurance. The majority of the Company's
facilities currently carry site-specific pollution legal liability insurance,
which may provide coverage under certain circumstances for pollution damage to
third parties. In addition, the Company has certain contractors' pollution
liability insurance and professional liability insurance, which may provide
coverage under certain circumstances for damage to third parties. However, both
of these coverages are restrictive in nature, as they are subject to certain
exclusions and effective dates, consistent with insurance industry requirements.
In addition, such coverage is subject to specific and aggregate limits which may
not be sufficient to cover claims, if they should arise. In certain prior years,
consistent with industry experience, the Company was not able to obtain broad
pollution insurance at reasonable costs and, therefore, carried only such
coverage as was required by regulatory
8
<PAGE> 11
permits. In addition, the extent of insurance coverage under certain forms of
policies has been the subject in recent years of litigation in which insurance
companies have, in some cases, successfully taken the position that certain
risks are not covered by such policies. If, in the absence of such insurance,
the Company were to incur liability for environmental damages of sufficient
magnitude, it could have a material adverse effect on the Company's business and
financial condition.
Risks of Pending and Future Legal Proceedings. In addition to the costs of
complying with environmental regulations, waste management companies will
continue to be involved in legal proceedings in the ordinary course of business.
Government agencies may seek to impose fines on the Company for alleged failure
to comply with laws and regulations or to deny, revoke or impede the renewal of
the Company's permits and licenses. In addition, such governmental agencies, as
well as surrounding landowners, may claim the Company is liable for
environmental damage. Citizen's groups have become increasingly active in
challenging the grant or renewal of permits and licenses, and responding to such
challenges has further increased the costs associated with permitting new
facilities or expanding current facilities. A significant judgment against the
Company, the loss of a significant permit or license or the imposition of a
significant fine could have a material adverse effect on the Company's financial
condition. The Company is currently a party to various legal proceedings as well
as environmental proceedings which have arisen in the ordinary course of its
business. No assurance can be given with respect to the outcome of these legal
and environmental proceedings and the effect such outcomes may have on the
Company. Unfavorable resolution of any matter individually or in the aggregate
could adversely affect the results of operations for the quarterly periods in
which they are resolved.
Seasonality. The Company believes that its collection and landfill
operations can be adversely affected by protracted periods of inclement weather
which could delay the development of landfill capacity or the transfer of waste
and/or reduce the volume of waste generated. There can be no assurance that
protracted periods of inclement weather will not have a material adverse effect
on the Company's future results of operations.
Competition in the Solid Waste Industry; Landfill Alternatives. The waste
industry is highly competitive. Entry into the industry and ongoing operations
within the industry require substantial technical, managerial and financial
resources. The non-hazardous waste industry is led by three large national waste
management companies and numerous regional and local companies, all of which
contribute to the high level of competition that characterizes the industry.
Some of these companies have significantly greater financial and operational
resources and more established market positions than the Company. In addition,
the Company must often compete with municipalities that maintain their own waste
collection and landfill operations and often have financial advantages due to
the availability of tax revenues and tax-exempt financing.
Further, alternatives to landfill disposal (such as recycling, composting
and waste-to-energy) are increasingly competing with landfills. There also has
been an increasing trend at the state and local levels to mandate waste
reduction at the source and to prohibit the disposal of certain types of wastes,
such as yard wastes, at landfills. This may result in the volume of waste going
to landfills being reduced in certain areas, which may affect the Company's
ability to operate its landfills at their full capacity and/or affect the prices
that can be charged for landfill disposal services. In addition, most of the
states in which the Company operates landfills have adopted plans or
requirements which set goals for specified percentages of certain solid waste
items to be recycled. To the extent these are not yet in place, these recycling
goals will be phased in over the next few years.
Competition in the Electronic Security Service Industry. The security
alarm industry is highly competitive and highly fragmented. The Company's
electronic security systems business competes with five large national
companies, as well as smaller regional and local companies, in all of its
operations. Furthermore, new competitors are continuing to enter the industry
and the Company may encounter additional competition from such future industry
entrants. Certain of the Company's competitors have greater financial and other
resources than the Company. There can be no assurance that the Company will be
able to compete effectively in the future.
9
<PAGE> 12
"False" Alarm Ordinances. The Company believes that approximately 95% of
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false" alarms. Significant concern
has arisen in certain municipalities about this high incidence of "false"
alarms. This concern could cause a decrease in the likelihood or timeliness of
police response to alarm activations and thereby decrease the propensity of
consumers to purchase or maintain alarm monitoring services. Recently, a trend
has emerged on the part of local governmental authorities to consider or adopt
various measures aimed at reducing the number of "false" alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting "false" alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of "false" alarms,
(iii) imposing fines on alarm subscribers for "false" alarms, (iv) imposing
limitations on the number of times the police will respond to alarms at a
particular location after a specified number of "false" alarms, and/or (v)
requiring further verification of an alarm signal before the police will
respond. Enactment of such measures could adversely affect the Company's
electronic security services business and operations.
Geographic Concentration of Company's Electronic Security Systems Business;
Risks of Potential Expansion. The existing subscriber base of the Company's
electronic security systems business is geographically concentrated in certain
metropolitan areas of Florida. Accordingly, its performance may be adversely
affected by regional or local economic conditions, regulation or other factors.
The Company may from time to time make acquisitions in regions outside of its
current operating areas. In order for the Company to expand successfully into a
new area, the Company must obtain a sufficient number, and density, of
subscriber accounts in such area to support the additional investment. There can
be no assurance that an expansion into new geographic areas would generate
operating profits.
10
<PAGE> 13
USE OF PROCEEDS
This Prospectus relates solely to Shares being registered for issuance from
time to time in connection with future acquisitions of other business,
properties or equity and/or debt securities in business combination
transactions. The Company will not receive any proceeds from the sale of such
Shares but will pay all expenses related to the registration of the Shares.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been traded on Nasdaq under the symbol
"RWIN" since September 4, 1990. The following table sets forth, for the periods
indicated, the high and low closing sales prices for the Common Stock as quoted
on Nasdaq.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ---------------------------------------------------------------------- ------- -------
<S> <C> <C>
1994:
March 31............................................................ $3 9/16 $ 2 3/4
June 30............................................................. 3 1/2 2 11/16
September 30........................................................ 3 9/16 3
December 31......................................................... 4 3 1/4
1995:
March 31............................................................ 4 1/16 3 1/8
June 30............................................................. 13 5/8 3 3/16
September 30........................................................ 26 1/16 13
December 31......................................................... 36 1/8 20
1996:
March 31 (through January 29)....................................... 35 7/8 28 7/8
</TABLE>
On February 2, 1996, the closing sales price of the Common Stock as
reported by Nasdaq was $31.125 per share. The number of record holders of the
Common Stock as of February 2, 1996, was 2,056.
The Company has applied to voluntarily delist the Common Stock from the
Toronto Stock Exchange (the "TSE") due to a lack of trading volume on the TSE.
The Company has been notified by the TSE that this application was approved and
the Common Stock will be delisted from the TSE effective February 16, 1996.
Since commencement of operations as a waste management and environmental
services company in December 1989, the Company has not declared or paid any
dividends on its Common Stock and the Board of Directors does not currently
anticipate paying dividends on its Common Stock at any time in the foreseeable
future.
11
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
In August 1995, the Company merged with Kertz. This transaction has been
accounted for under the pooling of interests method of accounting and,
accordingly, the financial data below has been restated for all periods as if
the Company and Kertz had operated as one entity since inception. The following
Summary Consolidated Financial Data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Company's Consolidated and Supplemental Consolidated Financial
Statements and Notes thereto and other financial and pro forma information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
(RESTATED) (RESTATED)
----------------- -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(2),(3),(4),(6),(7),(8):
Revenue......................... $64,226 $46,519 $61,709 $56,817 $48,979 $34,622 $22,319
Income (loss) from continuing
operations before income
taxes(1)...................... 10,685 6,708 8,659 (3,133) 5,130 4,387 (1,521)
Income (loss) from continuing
operations(1)................. 6,998 6,668 8,606 (3,341) 4,877 2,605 (900)
Earnings (loss) per common and
common equivalent share from
continuing operations......... $ 0.19 $ 0.23 $ 0.30 $ (0.12) $ 0.18 $ 0.13 $ (0.09)
Weighted average common and
common equivalent shares...... 37,871 28,525 28,507 28,598 27,441 20,335 10,222
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(RESTATED)
----------------------------------------------------
1994 1993 1992 1991 1990
SEPTEMBER 30, -------- -------- -------- -------- --------
1995
(RESTATED)
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(2),(3),(4),(5),(6),(7),(8):
Working capital (deficiency).... $ 207,867 $ 3,580 $ 3,481 $ 1,892 $ 12,856 $ (2,709)
Short-term debt, including
current maturities............ -- 1,965 2,414 2,434 2,539 7,218
Long-term debt, net of current
maturities.................... -- 15,152 14,512 2,822 3,591 6,930
Stockholders' equity............ 386,799 88,558 78,345 97,745 96,723 41,786
Total assets.................... 428,626 134,922 123,674 129,746 128,514 68,670
</TABLE>
- ---------------
(1) Includes restructuring and unusual charges of $10,040,000, $2,250,000 and
$1,544,000 in 1993, 1992 and 1991, respectively. See Note 4 of Notes to
Consolidated Financial Statements included elsewhere in this Prospectus.
(2) In April 1995, the Company spun-off its hazardous waste services segment,
Republic Environmental Systems, Inc. ("RESI"), to the Company's
stockholders of record as of April 21, 1995. Accordingly, this segment was
accounted for as a discontinued operation and the Company's Consolidated
Financial Statements for all periods presented have been restated to report
separately the net assets and operating results of these discontinued
operations.
(3) In 1992, the Company acquired Stout Environmental, Inc. ("Stout") in a
merger transaction accounted for under the pooling of interests method of
accounting. Accordingly, the financial data presented above for periods
prior to that date has been restated as if the Company and Stout had
operated as one entity since inception.
12
<PAGE> 15
(4) In 1992, the Company sold its demolition and excavation subsidiary and the
Consolidated Financial Statements were restated to reflect the demolition
and excavation operations as a discontinued operation for periods prior to
that date.
(5) On August 3, 1995, the Company issued and sold an aggregate of 8,350,000
shares of Common Stock and warrants to purchase an additional 16,700,000
shares of Common Stock to Mr. Huizenga, Westbury (Bermuda) Ltd. (a company
controlled by Mr. DeGroote) and Mr. Hudson, and certain of their assignees.
Also on August 3, 1995, the Company issued and sold an additional 1,000,000
shares of Common Stock each to Mr. Huizenga and Mr. Melk. On July 24, 1995,
the Company issued and sold 5,400,000 shares of Common Stock in a private
placement transaction. On September 7, 1995, the Company issued and sold
5,000,000 shares of Common Stock in an additional private placement
transaction. See the Company's unaudited Condensed Consolidated Pro Forma
Financial Statements included elsewhere in this Prospectus.
(6) In August 1995, the Company acquired all of the outstanding shares of common
stock of Hudson Management Corporation and Envirocycle, Inc. (collectively,
"HMC"). The transaction was accounted for under the purchase method of
accounting and, accordingly, the results of operations of HMC subsequent to
that time are included in the Company's Consolidated Financial Statements.
(7) Financial data for all periods presented is restated to reflect the
Company's merger with Kertz in August 1995 which was accounted for under
the pooling of interests method of accounting.
(8) The Company merged with United and Southland in October 1995, and Duncan,
GDS, Fennell and Scott in November 1995. See the Company's Supplemental
Consolidated Financial Statements included elsewhere in this Prospectus.
(9) No cash dividends were declared on the Company's Common Stock during the
periods presented. See "Price Range of Common Stock and Dividend Policy."
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
GENERAL
The Company's current business strategy is to aggressively grow as an
integrated solid waste management company by acquiring and integrating existing
solid waste companies and recycling businesses, and to expand its recently
acquired electronic security services business by internal growth and by making
additional acquisitions in that industry. Further, management currently
anticipates expanding the Company's operations outside of solid waste
management, electronic security services and related lines of business.
Management intends to evaluate various types of service industries which are
capital intensive, fragmented and have relatively high profit margins, seek out
strategic acquisition opportunities in such industries and grow rapidly in such
industries through further acquisitions, consolidation and internal growth.
Management anticipates that the Company will make acquisitions in the future
through the issuance of Common Stock, with the proceeds from the equity
transactions consummated in 1995, or from borrowings under a credit facility
(see Liquidity and Capital Resources).
In August 1995, the Company issued 8,000,000 shares of Common Stock in
merger transactions in exchange for all of the outstanding shares of common
stock of HMC, which was owned by Mr. Hudson, who became President and a director
of the Company upon completion of such mergers. HMC, as the third largest solid
waste management company in Florida, provides solid waste collection and
recycling services to commercial, industrial and residential customers. This
acquisition was accounted for under the purchase method of accounting and,
accordingly, is included in the Company's financial statements from the date of
acquisition.
In August 1995, the Company issued 1,090,000 shares of Common Stock in
exchange for all of the outstanding 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 merger with Kertz has been accounted for under the
pooling of interests method of accounting and, accordingly, the Company's
financial statements have been restated for all periods as if the companies had
operated as one entity since inception.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
In April 1995, the Company distributed the stock of the hazardous waste
services segment of the Company to its stockholders (the "Distribution" -- see
Discontinued Operations). The following discussion excludes the operational
activity and results of the hazardous waste services segment of the Company,
which has been included in the accompanying consolidated financial statements as
discontinued operations for the periods prior to the distribution.
14
<PAGE> 17
The following table presents, for the periods indicated, the percentage
relationship which certain captioned items in the Company's Unaudited Condensed
Consolidated Statements of Operations bear to total revenue and other pertinent
data:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenue............................................. 100.0% 100.0% 100.0% 100.0%
Cost of operations.................................. 68.0 59.0 65.3 60.2
Selling, general and administrative expenses........ 18.3 22.5 18.9 23.8
----- ----- ----- -----
Operating income.................................... 13.7% 18.5% 15.8% 16.0%
===== ===== ===== =====
</TABLE>
REVENUE
Revenue increased 81.2% to $28,525,000 in the third quarter of 1995 from
$15,741,000 in the third quarter of 1994 due primarily to the acquisition of
HMC, as well as increased volume at existing operations. For the nine months
ended September 30, 1995, revenue increased 38.1% to $64,226,000 compared to
$46,519,000 for the same period of the prior year. This increase was primarily
due to the same factors discussed above.
COST OF OPERATIONS
Cost of operations increased $10,123,000, or 109.0%, to $19,406,000 in the
third quarter of 1995 from $9,283,000 in the third quarter of 1994. As a
percentage of revenue, these costs were 68.0% and 59.0% in the third quarter of
1995 and 1994, respectively. The increase in cost of operations as a percentage
of revenue is attributable to the acquisition of businesses primarily involved
in the collection of solid waste which typically have slightly higher operating
costs than those companies primarily involved in the disposal of solid waste.
Cost of operations increased 49.8% to $41,964,000 for the nine months ended
September 30, 1995 from $28,007,000 for the same period of the prior year. As a
percentage of revenue, these costs increased to 65.3% in 1995 from 60.2% in 1994
as a result of the acquisition of collection businesses, as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 46.8% to $5,212,000
in the third quarter of 1995 from $3,551,000 in the third quarter of 1994. For
the nine months ended September 30, 1995, selling, general and administrative
expenses increased to $12,144,000 from $11,081,000 for the same period of the
prior year. These increases are primarily attributable to the acquisitions and
the additional staff necessary to support the expansion of the Company's
business. Selling, general and administrative expenses during the three and nine
months ended September 30, 1995, as percentages of revenue, decreased primarily
as a result of the relative increase in the Company's revenue base. Management
anticipates that selling, general and administrative expenses will continue to
increase due to the expenditures associated with the expansion of the Company's
business through the development and acquisition of businesses in the solid
waste, security services and other industries.
INTEREST AND OTHER INCOME
Interest and other income increased to $1,454,000 in the third quarter of
1995 from $21,000 in the third quarter of 1994. For the nine months ended
September 30, 1995, interest and other income increased to $1,622,000 compared
to $129,000 for the same period of the prior year. The increase for both periods
is due to the increase in the Company's cash investments resulting from the
proceeds from the sales of Common Stock during the three months ended September
30, 1995 (see Liquidity and Capital Resources).
15
<PAGE> 18
INCOME TAXES
As part of its tax planning to reduce cash outlays for taxes, the Company
employs a number of strategies such as combining entities to reduce state income
taxes and recapturing taxes previously paid by acquired companies, among others.
When the Company determines that deferred tax assets for which it had previously
recorded no benefit are realizable, the impact is recorded as "tax reserve
adjustments" in the tax provision. The Company's 38% income tax provision for
the first quarter of 1995 was partially offset by such adjustments. Accordingly,
the Company's income tax provision for the nine months ended September 30, 1995
was reduced to 35%, while the income tax provision for three months ended
September 30, 1995 was 39%. The Company's 38% tax provision for the three and
nine months ended September 30, 1994 was partially offset by tax reserve
adjustments and a change in the valuation allowance. The Company does not
anticipate using significant tax reserve adjustments to reduce its effective
income tax rate in future periods.
ENVIRONMENTAL AND LANDFILL MATTERS
The Company provides for accrued environmental and landfill costs which
include landfill site closure and post-closure costs. Landfill site closure and
post-closure costs include costs to be incurred for final closure of the
landfills and costs for providing required post-closure monitoring and
maintenance of landfills. These costs are accrued based on consumed airspace.
The Company estimates its future cost requirements for closure and post-closure
monitoring and maintenance for its solid waste facilities based on its
interpretation of the technical standards of the EPA's Subtitle D regulations.
These estimates do not take into account discounts for the present value of such
total estimated costs. The Company periodically reassesses its methods and
assumptions used to estimate such accruals for environmental and landfill costs
and adjusts such accruals accordingly. Such factors considered are changing
regulatory requirements, the effects of inflation, changes in operating climates
in the regions in which the Company's facilities are located and the
expectations regarding costs of securing environmental services.
DISCONTINUED OPERATIONS
In February 1995, the Board of Directors approved the plan for the
Distribution of the stock of RESI to the stockholders of record of the Company.
On April 26, 1995, the Company's stockholders received one share of RESI's
common stock for every five shares of Common Stock owned on April 21, 1995.
Approximately 5,400,000 RESI shares were distributed. RESI's common stock
commenced trading on Nasdaq on April 27, 1995 under the trading symbol "RESI."
The Company has had no direct ownership interest in RESI since the Distribution.
The hazardous waste services segment of the Company's business has been
accounted for as a discontinued operation and, accordingly, the accompanying
Unaudited Condensed Consolidated Financial Statements of the Company have been
restated to report separately the net assets and operating results of these
discontinued operations for periods prior to the distribution.
LIQUIDITY AND CAPITAL RESOURCES
In August 1995, the Company issued and sold an aggregate of 8,350,000
shares of Common Stock and warrants to purchase an additional 16,700,000 shares
of Common Stock to Mr. Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation
controlled by Mr. DeGroote) and Mr. Hudson, and certain of their assigns for an
aggregate purchase price of approximately $37,500,000. The warrants are
exercisable at prices ranging from $4.50 to $7.00 per share effective August
1995. In August 1995, the Company issued and sold an additional 1,000,000 shares
of Common Stock each to Mr. Huizenga and Mr. Melk, for $13.25 per share for
aggregate proceeds of approximately $26,500,000.
On August 3, 1995, in connection with the equity investment, Mr. Huizenga
was elected Chairman of the Board of Directors and Chief Executive Officer of
Republic and Mr. DeGroote, former Chairman of the Board, President and Chief
Executive Officer of the Company, was elected Vice Chairman of the Board.
Additionally, Mr. Hudson was appointed as President of the Company and as a
member of the Board of Directors and Mr. Melk was named as a member of the Board
of Directors.
16
<PAGE> 19
In July 1995, the Company sold 5,400,000 shares of Common Stock in a
private placement transaction for $13.25 per share, less expenses, fees and
commissions, for net proceeds of approximately $69,000,000. In September 1995,
the Company sold 5,000,000 shares of Common Stock in an additional private
placement transaction for $20.25 per share resulting in net proceeds of
approximately $99,000,000 after deducting expenses, fees and commissions.
As a result of these transactions, the Company received approximately
$232,000,000 in cash during the three months ended September 30, 1995. The
Company used a portion of these proceeds to repay all outstanding borrowings
under its revolving line of credit facility and all debt of HMC and Kertz during
the same period.
The Company made capital expenditures of approximately $11,300,000 during
the nine months ended September 30, 1995, which included funds for the expansion
of landfill sites, fixed assets for normal replacement and market development
and expenditures associated with the expansion of the Company's operations
through business acquisitions. Management anticipates continuing making capital
expenditures for the construction of new airspace, upgrading existing equipment
and facilities and complying with current and proposed regulations during the
remainder of 1995, and expects that these expenditures may increase in the
future due to the growth of the Company through business combinations.
The Company's net cash flows from operations increased slightly during the
nine months ended September 30, 1995 as a result of an increase in operating
cash generated by its ongoing business, substantially offset by a settlement of
certain legal liabilities. The Company used its operating cash flows during the
nine months ended September 30, 1995 to repay existing indebtedness and make
capital expenditures. The Company has in the past made capital expenditures from
cash on hand and operating cash flows and anticipates continuing to do so for
the remainder of 1995.
The Company's revolving line of credit facility, which bears interest at
the Eurodollar Offered Rate plus 1.5%, was reduced by the Company to a
$10,000,000 letter of credit facility during the third quarter of 1995. Also
during this period, the Company used a portion of the proceeds from its sales of
Common Stock to repay all outstanding borrowings under this facility.
As previously discussed, the Company will continue to pursue acquisitions
in the solid waste, electronic security services and other selected service
industries and anticipates financing acquisitions with the proceeds from the
above-mentioned equity transactions as well as through the issuance of Common
Stock. Management believes that the Company currently has sufficient cash and
access to the financial markets to fund current operations and make
acquisitions; however, substantial additional capital may be necessary to fully
implement the Company's aggressive acquisition program. Accordingly, the Company
replaced its existing credit facility on December 19, 1995 with a substantially
larger credit facility of $250,000,000, the proceeds from which will be used,
among other things, to make acquisitions and to expand the Company's operations.
However, there can be no assurance that any additional financing will be
available, or, in the event that it is, that it will be available in the amounts
or terms acceptable to the Company.
In October 1994, the Board of Directors authorized the Company to continue
its stock repurchase program and to repurchase up to 1,300,000 shares or 4.8% of
its outstanding Common Stock, through October 1995. Through July 1995, 65,000
shares were repurchased for an aggregate value of approximately $222,000 and
were subsequently retired. The Company's stock repurchase program expired in
October 1995.
FINANCIAL CONDITION AT SEPTEMBER 30, 1995 COMPARED TO DECEMBER 31, 1994
Cash and cash equivalents increased to $208,026,000 as of September 30,
1995 from $3,084,000 as of December 31, 1994 as a result of the proceeds
received in the third quarter from the private placement and equity
transactions.
The increase in accounts receivable, less allowance for doubtful accounts,
to $15,973,000 as of September 30, 1995 from $8,004,000 as of December 31, 1994
is primarily attributable to the acquisition of HMC in August 1995.
17
<PAGE> 20
Property and equipment, net, increased to $110,940,000 as of September 30,
1995 from $86,902,000 as of December 31, 1994 primarily due to the acquisition
of HMC.
The increase in intangible assets, net, to $84,764,000 as of September 30,
1995 from $11,307,000 as of December 31, 1994 is primarily a result of the
acquisition of HMC, which was accounted for under the purchase method of
accounting.
Net assets of discontinued operations decreased to zero as of September 30,
1995 from $20,292,000 as of December 31, 1994 due to the spin-off of the
hazardous waste services segment which was consummated in April 1995.
The increase in accounts payable and accrued liabilities to $20,391,000 as
of September 30, 1995 from $8,713,000 as of December 31, 1994 is primarily
attributable to the acquisition of HMC.
Long-term debt, including current maturities and notes payable, decreased
to zero as of September 30, 1995 from $15,082,000 as of December 31, 1994 due to
the payoff of the Company's debt in the third quarter of 1995 from the proceeds
from the private placement and equity transactions.
Total stockholders' equity increased to $386,799,000 as of September 30,
1995 from $88,558,000 as of
December 31, 1994 primarily as a result of the equity investments, private
placement transactions and the acquisition of HMC.
THREE YEARS ENDED DECEMBER 31, 1994
GENERAL
The Company is a diversified services company which primarily provides
integrated solid waste collection, disposal and recycling services to public and
private sector customers. The Company also is engaged in the electronic security
services business, which consists of the sale, installation and maintenance of
electronic security systems for commercial and residential use as well as the
continuous electronic monitoring of installed security systems. The Company's
strategy is to aggressively grow as an integrated solid waste management company
by acquiring and integrating existing solid waste collection, disposal and
recycling businesses, and to expand its recently acquired electronic security
services business by internal growth and by making additional acquisitions in
that industry. Further, the Company currently anticipates expanding its
operations outside of solid waste management, electronic security services and
related lines of business.
Revenue. The Company's revenue from landfill operations is comprised
primarily of tipping fees charged to third parties. The Company's revenue from
its collection operations consists of fees from residential, commercial and
industrial customers. The Company's revenue from its electronic security
services business results from monitoring contracts for security systems and
fees charged for the sale and installation of such systems.
Expenses. Landfill cost of operations includes most daily operating
expenses, the legal and administrative costs of ongoing environmental
compliance, costs of capital for cell development and accruals for closure and
post-closure costs. Certain direct landfill development costs, such as
engineering, upgrading, cell construction and permitting costs, are capitalized
and depleted based on consumed airspace. All indirect landfill development
costs, such as executive salaries, general corporate overhead, public affairs
and other corporate services are expensed as incurred. Cost of operations for
the Company's collection operations is primarily variable and includes disposal,
labor, fuel and equipment maintenance costs. Cost of operations for the
Company's electronic security services business primarily consists of the labor
and equipment associated with the sale, installation and monitoring of security
systems.
18
<PAGE> 21
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
In 1994, the Company pursued a plan to exit the hazardous waste services
segment of the environmental industry. The plan provided for the combination of
the Company's hazardous waste services operations in RESI and the distribution
of the stock of RESI to the Company's stockholders in 1995. The following
discussion excludes the operational activity and results of the hazardous waste
services segment of the Company, which has been included in the accompanying
Consolidated Financial Statements for all periods presented as discontinued
operations.
The following table presents, for the years indicated, the percentage
relationship which certain captioned items in the Company's Consolidated
Statements of Operations bear to total revenues and other pertinent data:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.................................................... 100.0% 100.0% 100.0%
Cost of operations......................................... 61.1 58.5 58.8
Selling, general and administrative expenses............... 23.2 28.3 30.1
Restructuring and unusual charges.......................... -- 17.7 4.6
----- ----- -----
Operating income........................................... 15.7% (4.5)% 6.5%
===== ===== =====
</TABLE>
Revenue
Revenue increased 8.6% from $56,817,000 in 1993 to $61,709,000 in 1994 due
primarily to the acquisition of businesses, as well as internal growth and
selective price increases. Revenue increased 16.0% from $48,979,000 in 1992 to
$56,817,000 in 1993. This increase was primarily due to increased revenue
contributed by businesses acquired in the last half of 1992 and internal growth
reflecting price and volume increases.
Cost of Operations and Operating Income
Cost of operations increased $4,455,000, or 13.4%, from $33,237,000 in 1993
to $37,692,000 in 1994. As a percentage of revenue, these costs were 58.5% and
61.1% in 1993 and 1994, respectively. The increase in cost of operations as a
percentage of revenue is attributable to the acquisition of collection
businesses in 1994, which typically have slightly higher operating costs than
landfill operations. Cost of operations increased 15.4% from $28,808,000 in 1992
to $33,237,000 in 1993. As a percentage of revenue, these costs decreased from
58.8% in 1992 to 58.5% in 1993 as a result of price increases and the
implementation of cost reduction measures.
Selling, general and administrative expenses decreased from $16,107,000 in
1993 to $14,314,000 in 1994, or 11.1%. These expenses decreased as a percentage
of revenue from 28.3% in 1993 to 23.2% in 1994, largely due to the Company's
continued commitment to reduce and control selling, general and administrative
expenses by implementing efficiencies and automation within the Company's
administrative functions. From 1992 to 1993, selling, general and administrative
expenses increased from $14,725,000 to $16,107,000 due primarily to business
acquisitions. As a percentage of revenue, these expenses were approximately
28.3% and 30.1% in 1993 and 1992, respectively. The Company constantly reviews
its selling, general and administrative costs throughout its businesses in an
effort to maintain control of the level of spending for such costs.
Restructuring and Unusual Charges
In 1993, the Company recorded restructuring and unusual charges of
$10,040,000 based on the Company's revaluation of its solid waste operations. As
a result of this revaluation, the Company decided to terminate certain
contracts, close one of its facilities due to low waste volumes and abandon its
permitting effort at another facility because of limited market opportunity in
that area and delays in the permitting
19
<PAGE> 22
process. The write-off of property and equipment and accumulated permitting
costs associated with these facilities were included in these restructuring and
unusual charges. In accordance with industry standards, the Company provides for
closure and post-closure over the life of a facility. Accordingly, the Company
fully provided for these costs on the closed facility. In addition, the Company
also reevaluated its exposure related to litigation and environmental matters
and provided additional accruals for the costs to defend or settle certain
litigation and environmental matters. For further discussion of the
restructuring and unusual charges, see Note 4 of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
In March 1992, the Company acquired Stout Environmental, Inc. in a merger
transaction accounted for in accordance with the pooling-of-interests method. In
connection with the merger, the Company incurred substantial legal, accounting,
consulting and financing costs aggregating $2,250,000, which were recorded as an
unusual charge.
Interest and Other Income
Interest and other income remained constant for both 1994 and 1993. From
1992 to 1993, interest and other income decreased from $2,452,000 to $167,000,
respectively, primarily as a result of the gain on the sale of certain
marketable securities purchased and sold in 1992.
Interest Expense
Interest expense increased from approximately $733,000 in 1993 to
$1,198,000 in 1994. This increase is primarily attributable to increased
borrowings to finance acquisitions during 1994. Interest expense as a percentage
of revenue remained constant from 1992 to 1993 at an average of approximately
1.2%.
Income Taxes
The Company's income tax provision for 1994 was partially offset by the
decrease in the valuation allowance related to the expected realization of
deferred tax assets generated as a result of restructuring and unusual charges
incurred in the fourth quarter of 1993. The valuation allowance was recorded in
1993 due to the uncertainty surrounding the future utilization of such deferred
tax assets. The additional decrease in the tax provision for 1994 was a result
of tax planning strategies employed by the Company, such as combining entities
to reduce state income taxes, claiming tax credits not previously claimed,
recapturing taxes previously paid by acquired companies and adjustments for the
resolution of tax matters in amounts more favorable than those originally
estimated. The Company's effective tax rate for 1994, 1993 and 1992 was 0.6%,
6.6% and 4.9%, respectively.
The Company changed methods of accounting for income taxes as a result of
the adoption of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," in 1992. SFAS No. 109 requires a change in
accounting for income taxes to an asset and liability approach. The cumulative
effect of this change was immaterial as the Company had previously accounted for
income taxes in accordance with SFAS No. 96, "Accounting for Income Taxes,"
which was similar in approach.
20
<PAGE> 23
Income and Earnings Per Share
The following table sets forth certain components of income from continuing
operations and related earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Income (loss) from continuing operations:
Income from continuing operations before restructuring
and unusual charges.................................. $ 8,606 $ 6,699 $ 7,127
Restructuring and unusual charges....................... -- 10,040 2,250
------- ------- -------
Income (loss) from continuing operations................ $ 8,606 $(3,341) $ 4,877
======= ======= =======
Earnings (loss) per share:
Income from continuing operations before restructuring
and unusual charges.................................. $ 0.30 $ 0.23 $ 0.26
Restructuring and unusual charges....................... -- (0.35) (0.08)
------- ------- -------
Income (loss) from continuing operations................ $ 0.30 $ (0.12) $ 0.18
======= ======= =======
Weighted average shares outstanding....................... 28,507 28,598 27,441
======= ======= =======
</TABLE>
Income from continuing operations before restructuring and unusual charges
increased considerably from $6,699,000 in 1993 to $8,606,000 in 1994. Earnings
per share from continuing operations before restructuring and unusual charges
increased to $0.30 in 1994 from $0.23 in 1993. These increases are attributable
to the increase in the Company's revenue and continued cost control efforts.
From 1992 to 1993, income from continuing operations before restructuring and
unusual charges decreased from $7,127,000, or $0.26 per share, to $6,699,000, or
$0.23 per share, due to the gain on the sale of marketable securities purchased
and sold in 1992. Excluding the gain on the sale of marketable securities,
earnings per share from continuing operations before restructuring and unusual
charges in 1992 was $0.18.
Environmental and Landfill Matters
The Company provides for accrued environmental and landfill costs which
include landfill site closure and post-closure costs. Landfill site closure and
post-closure costs include costs to be incurred for final closure of the
landfills and costs for providing required post-closure monitoring and
maintenance of landfills. These costs are accrued based on consumed airspace.
The Company estimates its future cost requirements for closure and post-closure
monitoring and maintenance for its solid waste facilities based on its
interpretation of the technical standards of the EPA's Subtitle D regulations.
These estimates do not take into account discounts for the present value of such
total estimated costs. Environmental costs are accrued by the Company through a
charge to income in the appropriate period for known and anticipated
environmental liabilities.
The Company periodically reassesses its methods and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which the Company's facilities are located and the expectations
regarding costs of securing environmental services.
DISCONTINUED OPERATIONS
Spin-off of the hazardous waste services segment. In July 1994, the
Company announced the contemplation of a plan to exit the hazardous waste
services segment of the environmental industry, and in October 1994, the Board
of Directors authorized management to pursue the plan, subject to final approval
from the Board of Directors and the resolution of certain legal and financial
requirements. The plan provided for the combination of the Company's hazardous
waste services operations in its wholly-owned subsidiary, RESI, and the
distribution of the stock of RESI to the stockholders of record of the Company.
21
<PAGE> 24
In February 1995, the Board of Directors approved the plan of distribution,
and on April 26, 1995, the Company's stockholders received one share of RESI's
common stock for every five shares of Common Stock owned of record on April 21,
1995. Approximately 5.4 million RESI shares were distributed to stockholders of
the Company. The Company has had no direct ownership interest in RESI since the
Distribution. The hazardous waste services segment of the Company's business has
been accounted for as a discontinued operation, and accordingly, the
accompanying consolidated financial statements of the Company for all periods
presented have been restated to report separately the net assets and operating
results of these discontinued operations. For further discussion of the
Distribution, see Note 2 of Notes to Consolidated Financial Statements included
herein.
Sale of the demolition and excavation subsidiary in 1992. In 1992, the
Company sold its demolition and excavation subsidiary and recorded a non-cash
loss on disposition of $17,563,000. This segment of the Company's business was
accounted for as a discontinued operation and, accordingly, the Company's
consolidated financial statements report separately the operating results of
these discontinued operations through the date of sale in 1992.
FINANCIAL CONDITION AT DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993
Accounts receivable increased from $6,158,000 as of December 31, 1993 to
$8,004,000 as of December 31, 1994 due to the increase in the Company's revenues
and the acquisition of businesses in 1994.
The increase in goodwill from $6,946,000 as of December 31, 1993 to
$11,307,000 as of December 31, 1994 is attributable to the acquisition of solid
waste companies completed in 1994.
Net assets of discontinued operations increased from $16,872,000 as of
December 31, 1993 to $20,292,000 as of December 31, 1994 due to net income
generated by the hazardous waste services segment in 1994 and the net increase
in the overall intercompany balance between the Company and the hazardous waste
services segment as a result of the net transactions between both entities.
The increase in accounts payable and accrued liabilities from $6,236,000 as
of December 31, 1993 to $8,167,000 as of December 31, 1994 is attributable to
the increase in the Company's operations and the acquisition of businesses in
1994.
Accumulated deficit decreased from $26,420,000 to $15,364,000 from December
31, 1993 to December 31, 1994, respectively, due to the net income generated by
the Company in 1994.
22
<PAGE> 25
BUSINESS
INTRODUCTION
The Company is a diversified services company, which, through its
subsidiaries, primarily provides integrated solid waste disposal, collection and
recycling services to public and private sector customers. The Company currently
owns or operates thirteen solid waste landfills with five located in Texas, two
in California and one each in Florida, Michigan, North Carolina, South Carolina,
Indiana and North Dakota with approximately 1,483 permitted acres and total
available permitted disposal capacity of approximately 59.1 million in-place
cubic yards as of December 31, 1995. The Company also currently provides
collection service to over 650,000 residential, commercial and industrial
customers, primarily in areas surrounding its landfill sites, certain areas of
Georgia and South Carolina and throughout Florida. In addition, the Company
provides related environmental services including engineering, consulting and
analysis, remediation and other technical services.
The Company, through certain recently acquired businesses, also is engaged
in the electronic security services business, which consists of the sale,
installation and maintenance of electronic security systems for commercial and
residential use as well as the continuous electronic monitoring of installed
security systems. Currently, the Company monitors over 100,000 businesses and
residences predominately in Florida.
On August 3, 1995, following a special meeting of the Company's
stockholders, the Company appointed a new management team consisting of H. Wayne
Huizenga as Chairman of the Board and Chief Executive Officer, Harris W. Hudson
as President and a Director, Gregory K. Fairbanks as an Executive Vice President
and Chief Financial Officer, and John J. Melk as a Director. Michael G.
DeGroote, former Chairman, Chief Executive Officer and President, was named Vice
Chairman of the Board, and Donald E. Koogler resigned as a Director but remained
as an Executive Vice President and Chief Operating Officer. This new management
team is implementing an aggressive growth strategy for the Company, pursuant to
which the Company will seek to quickly grow revenue and earnings by acquisitions
of solid waste companies, and also will seek to diversify the Company's
operations to include other service industries.
The Company's strategy is to aggressively grow as a diversified services
company by acquiring and integrating existing solid waste collection, disposal
and recycling businesses, and by expanding its recently acquired electronic
security services business by internal growth and by making additional
acquisitions in that industry. Further, the Company currently anticipates
expanding the Company's operations outside of solid waste management, electronic
security services and related lines of business. Management also plans to
augment its growth strategy by expanding its existing facilities and increasing
marketing efforts related to securing additional long-term contracts and
additional volumes at its existing operations. See "-- Acquisitions".
In 1994, the Company discontinued its hazardous waste services business
through the Distribution in April 1995 of that business segment to the Company's
stockholders. See "Results of Operations -- Discontinued Operations" under
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The Company was incorporated in Oklahoma in November 1980 and in May 1991
changed its state of domicile from Oklahoma to Delaware by means of a merger.
The Company changed its name to Republic Industries, Inc. from Republic Waste
Industries, Inc. on November 28, 1995. The Company's common stock is traded on
Nasdaq under the trading symbol "RWIN."
ACQUISITIONS
ACQUISITION STRATEGY
The Company will continue its strategy of growing as a diversified services
company by acquiring and integrating existing solid waste companies and
recycling businesses, and electronic security services businesses. Further,
management anticipates making acquisitions to expand the Company's operations
outside of solid waste management, electronic security services and related
lines of business, resulting in a more
23
<PAGE> 26
diversified service company. Management intends to evaluate various types of
service industries which are capital intensive, fragmented and have relatively
high profit margins, seek out strategic acquisition opportunities in such
industries and grow rapidly in such industries through further acquisitions,
consolidation and internal growth.
In expanding its solid waste operations, management anticipates focusing on
acquiring waste collection companies that are in markets which can utilize the
Company's existing landfill facilities, as well as in markets with attractive
third party disposal fees. The Company also may consider acquiring landfills
with significant permitted disposal capacity and certain levels of contracted
waste volume. In addition, the Company may focus on what it believes will be the
growing number of municipalities seeking to sell landfills, form joint ventures
or offer management contracts to operate landfills in response to the growing
technical and capital resources required by increasingly stringent federal,
state and local regulations.
The Company generally targets acquisitions in markets where it will be, or
can increase its market share to become, a significant provider of integrated
waste services in that market. The Company seeks to acquire companies which have
long-term contracts for solid waste collection and hauling services in high
growth markets. However, the Company is not limited to these target market
criteria, and as opportunities are identified, the Company may acquire solid
waste operations throughout North America.
In expanding its electronic security operations, the Company's primary goal
is to grow its customer base in the residential segment of the business. The
Company will target markets where it will be, or can increase its market share
to become, a significant provider of electronic security services. The Company
seeks to acquire security companies in high growth markets with strong recurring
monthly revenues derived from monitoring services. In addition, the Company will
seek to achieve economies of scale by acquiring security companies with accounts
that can be monitored through the Company's existing central monitoring
stations. The Company intends to retain local management and sales personnel,
where appropriate.
The Company uses internal acquisition teams, its contacts in the solid
waste management and electronic security services industries and its
environmental service capabilities to identify, evaluate and acquire waste
management companies and electronic security services businesses in attractive
markets. Acquisition candidates are evaluated by the Company's internal
acquisition teams based on stringent criteria in a comprehensive process which
includes operational, legal and financial due diligence reviews.
RECENT ACQUISITIONS
Pending Acquisition of Mid-American Waste Systems of Georgia, Inc. and
Affiliates. On February 2, 1996, the Company entered into a definitive
agreement for the acquisition of substantially all of the assets of the
Mid-American Companies for a purchase price of approximately $52,000,000,
subject to pending regulatory approvals and customary closing conditions. The
acquisition of the assets of the Mid-American Companies is expected to close in
the first quarter of 1996. The Mid-American Companies own and operate a
landfill, provide solid waste collection and recycling services to approximately
60,000 commercial, residential and industrial customers, and operate two
transfer stations, in certain areas of the greater metropolitan Atlanta, Georgia
area.
Acquisition of J.C. Duncan Company, Inc. and Affiliates. On November 30,
1995, the Company acquired, in merger transactions, all of the outstanding
shares of capital stock of Duncan in exchange for an aggregate of 5,256,055
shares of Common Stock. The acquisition of Duncan is being accounted for as a
pooling of interests business combination. Duncan provides solid waste
collection and recycling services to approximately 300,000 residential,
commercial and industrial customers in the Dallas-Fort Worth metropolitan area
and throughout west Texas, and also operates two landfills.
Acquisition of Garbage Disposal Service, Inc. On November 30, 1995, the
Company acquired, in a merger transaction, all of the outstanding shares of
capital stock of GDS in exchange for an aggregate of 3,003,000 shares of Common
Stock. The acquisition of GDS is being accounted for as a pooling of interests
business combination. GDS provides solid waste collection and recycling services
for commercial, residential and industrial customers throughout western North
Carolina.
24
<PAGE> 27
Acquisition of Fennell Container Company, Inc. and Affiliates. On November
30, 1995, the Company acquired, in merger transactions, all of the outstanding
shares of capital stock of Fennell in exchange for an aggregate of 3,111,111
shares of Common Stock. The acquisition of Fennell is being accounted for as a
pooling of interests business combination. Fennell provides waste collection,
recycling and environmental services to more than 12,000 commercial, industrial
and residential customers in and around Charleston and Greenville, South
Carolina, and also owns a landfill which is in the final stages of construction
and is scheduled to begin accepting waste under its new permit in early 1996.
Acquisition of Scott Security Systems. On November 30, 1995, the Company
acquired, in merger transactions, all of the outstanding shares of capital stock
of Scott in exchange for an aggregate of 1,567,818 shares of Common Stock. The
acquisition of Scott is being accounted for as a pooling of interests business
combination. Scott provides electronic security monitoring and maintenance to
more than 70,000 accounts, primarily residential, in Jacksonville, Orlando and
Tallahassee, Florida, as well as other metropolitan areas in the southeastern
United States, including Charlotte, North Carolina, Savannah, Georgia and
Nashville, Tennessee.
Acquisition of Southland Environmental Services, Inc. On October 17, 1995,
the Company acquired, in a merger transaction, all of the outstanding shares of
capital stock of Southland in exchange for an aggregate of 2,600,000 shares of
Common Stock. The acquisition of Southland is being accounted for as a pooling
of interests business combination. Southland, through its subsidiaries, provides
solid waste collection services to over 70,000 residential, commercial and
industrial customers in and around Jacksonville, Florida, owns and operates a
construction and demolition landfill, and provides composting and recycling
services.
Acquisition of United Waste Service, Inc. On October 11, 1995, the Company
acquired, in a merger transaction, all of the outstanding shares of capital
stock of United in exchange for 1,500,000 shares of Common Stock. The
acquisition of United is being accounted for as a pooling of interests business
combination. United provides solid waste collection, transfer and recycling
services in the Atlanta, Georgia metropolitan area and services over 8,000
residential and commercial customers.
See the Company's Supplemental Consolidated Financial Statements included
elsewhere in this Prospectus.
OPERATIONS
CONTINUING OPERATIONS
Currently, the Company has organized its continuing operations into two
general industry segments: (1) solid waste services and (2) electronic security
services.
SOLID WASTE SERVICES
The Company's solid waste operations include landfill, collection,
recycling and certain remediation services and related engineering and
consulting services.
Landfills. The Company owns or operates thirteen solid waste landfills
with approximately 1,483 permitted acres and total available permitted disposal
capacity of approximately 59.1 million cubic in-place yards as of December 31,
1995. The in-place capacity of the Company's landfills is subject to change
based on engineering factors and requirements of regulatory authorities. Certain
of the landfills accept nonhazardous special waste, including utility ash,
asbestos and contaminated soils. The majority of the Company's landfill revenues
are derived from long-term integrated disposal and collection contracts with
industrial customers and
25
<PAGE> 28
municipalities and disposal contracts with certain third party collection
companies. The following table provides certain information regarding these
landfills as of December 31, 1995:
<TABLE>
<CAPTION>
UNUSED
TOTAL PERMITTED PERMITTED
LANDFILL NAME MARKETS SERVED ACREAGE ACREAGE ACREAGE
- ------------------------------ --------------------------- ------- --------- ---------
<S> <C> <C> <C> <C>
Anderson...................... Northern California 1,200 150 100
C&T Regional.................. Rio Grande Valley, Texas 194 94 55
Cleveland Container........... Southwest North Carolina 169 116 86
Republic/CSC.................. North Central Texas 254 254 195
Republic/Imperial............. Southern California 160 120 89
Republic/Maloy................ East Central Texas 389 270 204
Taymouth...................... Central Michigan 138 43 19
Wabash Valley................. Northeast Indiana 103 56 16
North Central North
St. John's.................... Dakota..................... 150 40 33
Nine Mile Road................ Northeast Florida 80 25 17
San Angelo.................... West Texas 283 283 133
Presidio...................... West Texas 10 10 6
Pepperhill.................... Southeast South Carolina 37 22 22
------- --------- ---
3,167 1,483 975
====== ======= =======
</TABLE>
Each of the Company's existing landfill sites have the potential for
expanded disposal capacity beyond the currently permitted acreage. The Company
monitors the availability of permitted airspace at each of its landfills and
evaluates whether to pursue expansion at a given landfill based on estimated
future waste volumes, remaining capacity and likelihood of obtaining expansion.
Each of the Company's landfills currently has adequate permitted capacity;
however, the Company is currently seeking to expand permitted capacity at its
Wabash Valley and Nine Mile Road landfills in connection with favorable design
modifications.
Collection. The Company's solid waste collection operations are of two
types: industrial and commercial/residential. The Company's strategy is to
acquire collection operations within the service areas of its landfills, such
that the operations can provide a steady stream of solid waste to its landfills,
and in areas with stable, attractive third party disposal fees. The Company
provides collection service to over 650,000 residential, commercial and
industrial customers.
In its industrial collection operations, the Company supplies its customers
with large waste containers known as "roll-off" containers. The Company collects
the roll-off containers on a set schedule, and transports the waste to a
landfill. Services are provided to individual facilities on a contract basis
with terms ranging from a single pickup to a one-year term.
The Company's commercial/residential collection operations involve the
curbside collection of refuse from small containers into collection vehicles for
transport to landfills. Commercial customers generally are serviced pursuant to
individual contracts which are for periods of up to five years. Residential
households generally are serviced pursuant to contracts with municipal
governments for collection in the municipality. The Company's contracts
generally are secured by competitive bids (see "-- Competition"). The Company
currently provides commercial and residential collection services in certain
areas of California, Florida, Georgia, Indiana, Maine, North Carolina, North
Dakota, South Carolina and Texas.
Recycling. Management believes that recycling has and will continue to
become an increasingly important component of most major markets solid waste
management plans as a result of the public's increasing environmental awareness
and expanding federal and state regulations pertaining to waste recycling. The
Company currently provides recycling services through most of its collection
subsidiaries and has six recycling facilities located in Florida, Georgia, South
Carolina and North Carolina. The services provided by the Company's collection
subsidiaries include the curbside collection of recyclable waste, and the
provision of a variety of recycling services, including the segregated
collection of cardboard boxes and construction debris for resale to paper
manufacturers and others. In Florida, Georgia, South Carolina and North
Carolina, the
26
<PAGE> 29
Company receives certain types of commercial and industrial solid waste, which
is sorted at its facilities into recyclable materials and non-recyclable waste;
the recyclable materials are repackaged and sold to third parties and the
non-recyclable waste is disposed of at landfills or incinerators. The Company
also recycles yard waste and timber by-products in Dallas and Houston, Texas and
Jacksonville, Florida by composting these materials and selling the end product
to nurseries, landscape architects and homeowners for landscape and gardening
mulch.
Remediation. The Company provides selected environmental remediation
services relating to the cleanup and containment of actual or threatened
releases of hazardous materials into the environment on both a planned and
emergency basis. The Company's solid waste division provides these services
through three subsidiaries, Environmental Specialists, Inc. ("ESI") in Kansas
City, Missouri, Laughlin Environmental, Inc. ("Laughlin") in Houston, Texas and
Fenn-Vac, Inc. in North Charleston, South Carolina. ESI and Fenn-Vac, Inc. are
EPA approved emergency response contractors and provide hazardous spill cleanup
and other special services on a contract basis. Laughlin provides a broad range
of environmental services including remediation and other technical services.
ELECTRONIC SECURITY SERVICES
The Company, through certain recently acquired businesses, is engaged in
the electronic security services business, which consists of the sale,
installation and maintenance of electronic security systems for commercial and
residential use, as well as the continuous electronic monitoring of installed
security systems. The Company sells and installs modern electronic devices in
its customers' businesses and residences to provide detection of events, such as
intrusion or fire. The Company purchases the components of the systems it sells,
installs and maintains from various manufacturers. The products and services
marketed in the electronic security services industry by the Company and others
range from basic residential systems that provide entry and fire detection to
sophisticated commercial systems incorporating closed circuit television systems
and access control. Detection systems may be continuously monitored by
centralized monitoring stations which are linked to the customer through
telephone lines. The Company operates two central monitoring stations in
Florida, from which it monitors over 100,000 businesses and residences
predominantly in Florida by local and long distance telephone lines. Upon
detecting an intrusion or other event at a customer's business or residence, the
central monitoring station calls the customer and, if necessary, the local
police, fire, ambulance or other authorities.
DISCONTINUED OPERATIONS
On April 26, 1995, the Company completed the Distribution of its hazardous
waste services segment. The hazardous waste services segment of the Company's
business has been accounted for as a discontinued operation and, accordingly,
the accompanying Consolidated Financial Statements of the Company for all
periods presented have been retroactively restated to report separately the net
assets and operating results of these discontinued operations. For further
discussion of the Distribution, see "Results of Operations -- Discontinued
Operations" of Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2 of Notes to Consolidated Financial Statements
included herein.
SALES AND MARKETING
For solid waste services, the Company's sales and marketing strategy is to
provide full service environmental management to its customers. The Company
targets potential customers of all sizes from small quantity generators to large
"Fortune 500" companies, as well as municipalities.
In expanding its electronic security operations, the Company's primary goal
is to grow its customer base in the residential segment of the business. The
Company will target markets where it will be, or can increase its market share
to become, a significant provider of electronic security services.
The Company believes in providing quality services which will enable it to
maintain high levels of recurring revenue from its customers. The Company
derives its business from a broad customer base which
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the Company believes will enable it to experience stable growth. Marketing
efforts focus on continuing and increasing business with existing customers, as
well as attracting new customers.
CUSTOMERS
The Company's sales efforts are directed toward establishing and
maintaining business relationships with residences and businesses in areas in
which the Company operates, which have ongoing requirements for one or more of
the Company's services. During 1995, no one customer individually comprised more
than 10% of the total revenue of the Company.
REGULATION
The collection and disposal of solid waste, operation of landfills and
rendering of related environmental services are subject to federal, state and
local requirements which regulate health, safety, the environment, zoning and
land-use. Operating permits are generally required for landfills and certain
collection vehicles, and these permits are subject to revocation, modification
and renewal. Federal, state and local regulations vary, but generally govern
disposal activities and the location and use of facilities and also impose
restrictions to prohibit or minimize air and water pollution. In addition,
governmental authorities have the power to enforce compliance with these
regulations and to obtain injunctions or impose fines in the case of violations,
including criminal penalties. These regulations are administered by the EPA and
various other federal, state and local environmental, health and safety agencies
and authorities, including the Occupational Safety and Health Administration of
the U.S. Department of Labor.
The Company strives to conduct its operations in compliance with applicable
laws and regulations, but believes that in the existing climate of heightened
legal, political and citizen awareness and concerns, companies in the waste
management and environmental services industry, including the Company, may be
faced with fines and penalties and the need to expend funds for remedial work
and related activities at landfills. The Company has established a reserve to
cover any potential fines, penalties and costs which management believes will be
adequate. While such amounts expended in the past or anticipated to be expended
in the future have not had and are not expected to have a materially adverse
effect on the Company's financial condition or operations, the possibility
remains that technological, regulatory or enforcement developments, the results
of environmental studies or other factors could materially alter this
expectation.
The Company's operation of landfills subjects it to certain operating,
monitoring, site maintenance, closure and post-closure obligations. In order to
construct, expand and operate a landfill, one or more construction or operating
permits, as well as zoning approvals, must be obtained. These operating permits
and zoning approvals are difficult and time-consuming to obtain, and the
issuance of such permits and approvals often is opposed by neighboring
landowners and local and national citizens' groups. Once obtained, the operating
permits may be subject to periodic renewal and are subject to modification and
revocation by the issuing agency. In connection with the Company's acquisition
of existing landfills, it often may be necessary to expend considerable time,
effort and money to bring the acquired facilities into compliance with
applicable requirements and to obtain the permits and approvals necessary to
increase their capacity.
Governmental authorities have the power to enforce compliance with
regulations and permit conditions and to obtain injunctions or impose fines in
case of violations. Citizens' groups may also bring suit for alleged violations.
During the ordinary course of its operations, the Company may from time to time
receive citations or notices from such authorities that its operations are not
in compliance with applicable environmental or health or safety regulations.
Upon receipt of such citations or notices, the Company will work with the
authorities to attempt to resolve the issues raised. Failure to correct the
problems to the satisfaction of the authorities could lead to monetary or
criminal penalties, curtailed operations or facility closure.
Federal Regulation. The following summarizes the primary environmental and
safety federal statutes of the United States of America affecting the business
of the Company:
(1) The Solid Waste Disposal Act ("SWDA"), as amended by the Resource
Conservation and Recovery Act of 1976, as amended. SWDA and its
implementing regulations establish a framework for
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<PAGE> 31
regulating the handling, transportation, treatment and disposal of
hazardous and nonhazardous solid wastes. They also require states to
develop programs to ensure the safe disposal of solid wastes in sanitary
landfills.
Subtitle D of RCRA establishes a framework for regulating the disposal
of municipal solid wastes. In the past, the Subtitle D framework has left
the regulation of municipal waste disposal largely to the states. On
October 9, 1991, however, the EPA promulgated a final rule which imposes
minimum federal comprehensive solid waste management criteria and
guidelines, including location restrictions, facility design and operating
criteria, closure and post-closure requirements, financial assurance
standards, groundwater monitoring requirements and corrective action
standards, many of which have not commonly been in effect or enforced in
connection with municipal solid waste landfills.
States were required by April 9, 1993, pursuant to specific criteria
published in a separate rule, to revise their landfill regulations to meet
these requirements. Because some parts of the new regulations will be
phased in over time, the full effect of these regulations may not be felt
for several years. However, other than for financial assurance
requirements, all provisions of the final rule became effective October 9,
1993. All of the Company's planned landfill expansions or new landfill
development projects have been engineered to meet or exceed these
requirements. Operating and design criteria for existing operations have
been modified to comply with these new regulations.
(2) The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended. CERCLA, among other things, provides
for the cleanup of sites from which there is a release or threatened
release of a hazardous substance into the environment. CERCLA imposes
liability for the costs of cleanup and for damages to natural resources
upon: (a) any person who currently owns or operates a facility or site from
which there is a release or threatened release of hazardous substances; (b)
any person who owned or operated such a facility or site at the time
hazardous substances were disposed of; (c) any person who by contract,
agreement or otherwise, arranged for the disposal or treatment (or for
transport for disposal or treatment) of hazardous substances owned or
processed by such person at such facility or site and (d) any person who
accepts or accepted hazardous substances for transport for treatment or
disposal at such a facility or site selected by such person. Under the
authority of CERCLA and its implementing regulations, detailed requirements
apply to the manner and degree of remediation of facilities and sites where
hazardous substances have been or are threatened to be released into the
environment.
Among other things, CERCLA authorizes the federal government either to
remediate sites at which hazardous substances were disposed of and have
been or are threatened to be released into the environment, or to order (or
offer an opportunity to) persons potentially liable for the cleanup of the
hazardous substances to do so. In addition, CERCLA requires the EPA to
establish a National Priorities List ("NPL") of sites at which hazardous
substances have been or are threatened to be released and which require
investigation or cleanup.
Liability under CERCLA is not dependent upon the intentional disposal
of "hazardous wastes." It can be founded upon the release or threatened
release, even as a result of unintentional and non-negligent action, of
thousands of "hazardous substances," including very small quantities of
such substances. More than 20% of the sites on the NPL are solid waste
landfills which ostensibly never received any "hazardous wastes." Thus,
even if the Company's landfills have never received "hazardous wastes" as
such, it is possible that one or more hazardous substances may have come to
be located at its landfills. Because of the extremely broad definition of
"hazardous substances," the same is true of other industrial properties
with which the Company has been, or may become, associated as an owner or
operator. If this is the case, and if there is a release or threatened
release of such substances, the Company could be liable under CERCLA for
the cost of cleaning up such hazardous substances at the sites and for
damages to natural resources, even if those substances were deposited at
the Company's facilities before the Company acquired or operated them. The
costs of a CERCLA cleanup can be very expensive. Given the difficulty of
obtaining insurance for environmental impairment liability (see
"-- Liability Insurance and Bonding"), such liability could have a material
impact on the Company's business and financial condition.
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(3) The Federal Water Pollution Control Act of 1972 (the "Clean Water
Act"). The Clean Water Act establishes a framework for regulating the
discharge of pollutants from a variety of sources, including solid waste
disposal sites, into streams, rivers and other waters. Whenever point
source runoff from the Company's landfills is to be discharged into surface
waters, the Act requires the Company to apply for and obtain discharge
permits, conduct sampling and monitoring and, under certain circumstances,
reduce the quantity of pollutants in those discharges. In 1990, the EPA
published new storm water discharge regulations which require landfills to
apply for a storm water discharge permit unless they are covered under a
storm water general permit promulgated by the agency. The new storm water
discharge regulations also require a permit for certain construction
activities, which may affect the Company's operations. If a landfill or
transfer station discharges wastewater through a sewage system to a
publicly-owned treatment works ("POTW"), the facility must comply with
discharge limits imposed by the POTW. In addition, states may adopt
groundwater protection programs under the Clean Water Act or Safe Drinking
Water Act that could affect solid waste landfills.
(4) The Clean Air Act. The Clean Air Act establishes a framework for
the federal, state and local regulation of the emission of air pollutants.
These regulations may impose emission limitations and monitoring and
reporting requirements on various of the Company's operations, including
landfills and refuse collection trucks owned by the Company. The Clean Air
Act Amendments, which were enacted into law at the end of 1990, resulted in
the imposition of stringent requirements on many activities that were
previously largely unregulated, such as emissions of solvents used in small
parts in degreasing baths in the Company's vehicle maintenance shops, as
well as imposing more stringent requirements on, among others, motor
vehicle emissions.
(5) The Occupational Safety and Health Act of 1970 (the "OSH
Act"). The OSH Act authorizes the Occupational Safety and Health
Administration to promulgate occupational safety and health standards.
Various of these standards, including standards for notices of hazardous
chemicals and the handling of asbestos, apply to the Company's operations.
State Regulation. Each state in which the Company operates has its own
laws and regulations governing solid waste disposal, water and air pollution
and, in most cases, releases and cleanup of hazardous substances and liability
for such matters. The states also have adopted regulations governing the design,
operation, maintenance and closure of landfills and transfer stations. The
Company's facilities and operations are likely to be subject to many, if not
all, of these types of requirements. In addition, the Company's collection and
landfill operations may be affected by the trend in many states toward requiring
the development of waste reduction and recycling programs. For example, several
states have enacted laws that will require counties to adopt comprehensive plans
to reduce, through waste planning, composting, recycling or other programs, the
volume of solid waste deposited in landfills. Additionally, laws and regulations
restricting the disposal of yard waste in solid waste landfills have recently
been promulgated in several states. Legislative and regulatory measures to
mandate or encourage waste reduction at the source and waste recycling also are
under consideration by Congress and the EPA.
Finally, various states have enacted, or are considering enacting, laws
that restrict the disposal within the state of solid or hazardous wastes
generated outside the state. While laws that overtly discriminate against out of
state waste have been found to be unconstitutional, some laws that are less
overtly discriminatory have been upheld in court. Challenges to other such laws
are pending. The outcome of pending litigation and the likelihood that other
such laws will be passed and will survive constitutional challenge are
uncertain. In addition, Congress is currently considering legislation
authorizing states to adopt such restrictions. If state laws restricting the
interstate disposal of solid waste are passed and upheld, the Company's ability
to expand its landfill operations could be adversely affected.
"False" Alarm Ordinances. The Company believes that approximately 95% of
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false" alarms. Recently, a trend
has emerged on the part of local governmental authorities to consider or adopt
various measures aimed at reducing the number of "false" alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting "false" alarms, (ii) licensing individual alarm
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<PAGE> 33
systems and the revocation of such licenses following a specified number of
"false" alarms, (iii) imposing fines on alarm subscribers for "false" alarms,
(iv) imposing limitations on the number of times the police will respond to
alarms at a particular location after a specified number of "false" alarms,
and/or (v) requiring further verification of an alarm signal before the police
will respond. Enactment of such measures could adversely affect the Company's
electronic security services business and operations.
COMPETITION
Competition in the Solid Waste Industry; Landfill Alternatives. The waste
management industry is highly competitive and requires substantial amounts of
capital. Entry into the industry and ongoing operations within the industry
require substantial technical, managerial and financial resources. The solid
waste industry in North America is currently dominated by three solid waste
companies, WMX Technologies, Inc., Browning-Ferris Industries, Inc. and Laidlaw
Inc. Competition in the solid waste industry also comes from a number of
regional solid waste companies, including USA Waste Services, Inc., Western
Waste Industries, Inc., Mid-American Waste Systems, Inc. and Sanifill, Inc. Some
of the Company's competitors have significantly larger operations and greater
resources than the Company. In each of its solid waste market areas, the Company
competes for landfill business on the basis of disposal fees (commonly known as
"tipping fees"), geographical location and quality of operations. The Company's
ability to obtain landfill business may be limited by the fact that some major
collection companies also own or operate landfills to which they send their
waste.
Further, alternatives to landfill disposal (such as recycling, composting
and waste-to-energy) are increasingly competing with landfills. There also has
been an increasing trend at the state and local levels to mandate waste
reduction at the source and to prohibit the disposal of certain types of wastes,
such as yard wastes, at landfills. This may result in the volume of waste going
to landfills being reduced in certain areas, which may affect the Company's
ability to operate its landfills at their full capacity and/or affect the prices
that can be charged for landfill disposal services. In addition, most of the
states in which the Company operates landfills have adopted plans or
requirements which set goals for specified percentages of certain solid waste
items to be recycled. To the extent these are not yet in place, these recycling
goals will be phased in over the next few years.
In its collection business, in addition to national and regional firms and
numerous local companies, the Company may compete with those municipalities that
maintain waste collection or disposal operations. These municipalities may have
financial advantages due to the availability of tax revenues and tax-exempt
financing. The Company competes for collection accounts primarily on the basis
of price and the quality of its services. From time to time, competitors may
reduce the price of their services in an effort to expand market share or to win
a competitively bid municipal contract.
Competition in the Electronic Security Services Industry. The security
alarm industry is highly competitive and highly fragmented. The Company's
electronic security services business competes with five large national
companies, as well as smaller regional and local companies, in all of its
operations. Certain of the Company's competitors have greater financial and
other resources than the Company. Furthermore, new competitors are continuing to
enter the industry and the Company may encounter additional competition from
such future industry entrants.
LIABILITY INSURANCE AND BONDING
The nature of the Company's solid waste management business exposes it to a
significant risk of liability for legal damages arising out of its operations.
Such potential liability could involve, for example, claims for cleanup costs,
personal injury, property damage or damage to the environment in cases where the
Company may be held responsible for the escape of harmful materials; claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of the Company's operations; or claims alleging
negligence or professional errors or omissions in the planning or performance of
work. The Company could also be subject to fines and civil and criminal
penalties in connection with alleged violations of regulatory requirements.
Because of the nature and scope of the possible damages, liabilities imposed in
environmental
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litigation can be significant. Although the Company strives to operate safely
and prudently and has substantial general and automobile liability insurance
coverage, no assurance can be given that the Company will not be exposed to
uninsured liabilities which would have a material adverse effect on its
financial condition. The majority of the Company's solid waste operations have
environmental liability insurance subject to certain limitations and exclusions
with limits in excess of those required by permit regulations; however, there is
no assurance that such limits would be adequate in the event of a major loss,
nor is there assurance that the Company will continue to carry environmental
liability insurance should market conditions in the insurance industry make such
coverage cost prohibitive. The Company carries commercial general liability
insurance, automobile liability insurance, workers' compensation and employer's
liability insurance and umbrella policies to provide excess limits of liability
over the underlying limits contained in the commercial general liability,
automobile liability and employer's liability policies, as well as property
insurance.
In the normal course of business, the Company may be required to post a
performance bond or a bank letter of credit in connection with municipal
residential collection contracts, the operation, closure or post-closure of
landfills, certain remediation contracts and certain environmental permits.
Bonds issued by surety companies operate as a financial guarantee of the
Company's performance. To date, the Company has satisfied financial
responsibility requirements for regulatory agencies by making cash deposits,
obtaining bank letters of credit or by obtaining surety bonds.
EMPLOYEES
As of December 31, 1995, the Company employed 3,473 persons, 32 of whom
were covered by collective bargaining agreements. The management of the Company
believes that it has good relations with its employees.
SEASONALITY
The Company's solid waste operations can be adversely affected by extended
periods of inclement weather, such as rain or snow, which could delay the
collection and disposal of waste, reduce the volume of waste generated or delay
the expansion of the Company's landfill sites.
GEOGRAPHICAL CONCENTRATION
The existing subscriber base of the Company's electronic security system
business is geographically concentrated in certain metropolitan areas of
Florida. Accordingly, their performance may be adversely affected be regional or
local economic conditions, regulation or other factors.
PROPERTIES
The Company's corporate headquarters are located at 200 East Las Olas
Boulevard, Suite 1400, Fort Lauderdale, Florida in leased premises. Certain of
the property and equipment of the Company and its subsidiaries are subject to
liens securing payment of portions of the Company's and its subsidiaries'
indebtedness. See Note 8 of Notes to Consolidated Financial Statements included
herein for information with respect to debt and capitalized lease obligations on
these properties. The Company and its subsidiaries also lease certain of their
offices, shop, storage space and equipment. See Notes 9 and 12 of Notes to
Consolidated Financial Statements included herein for information with respect
to leased properties. For additional information regarding properties owned and
operated by the Company, see "Business."
LEGAL AND ADMINISTRATIVE PROCEEDINGS
GENERAL CORPORATE PROCEEDINGS
G.I. Industries, Inc. On May 3, 1991, the Company filed an action against
GI Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the United
States District Court for the Central District of California (the "Court"). The
Company requested a declaratory judgment that it did not anticipatorily breach a
merger agreement (the "Merger Agreement") between the Company and GI and that
the Merger
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Agreement had been properly terminated by the Company. The Company also sought
to recover $0.6 million from GI, plus interest and costs, with respect to a
certain financial guaranty provided by the Company in 1990 for the benefit of
GI. In response to the Company's action, GI filed a counterclaim alleging that
the Company breached the Merger Agreement and that it had suffered damages in
excess of $16.0 million. In August 1993, the Court rendered a ruling in favor of
the Company and found that GI did not meet its burden in proving that it could
have performed its obligation under the Merger Agreement. GI appealed that
decision in September 1993. In March 1995, the United States Court of Appeals
for the Ninth Circuit at Pasadena, California (the "Court of Appeals") reversed
in part and vacated in part the August 1993 decision and remanded the case back
to the Court for further proceedings. The Company filed a motion for
reconsideration and suggestion of en banc consideration with the Court of
Appeals in an effort to restore the original ruling denying GI's claim. On May
12, 1995, the Court of Appeals denied the motion and suggestion. The Company
filed a petition for writ of certiorari with the United States Supreme Court,
which was denied. The Court has commenced proceedings that may lead to a trial
on damages that may be awarded to GI.
Subsequent to the Company's seeking recovery from GI for the guaranty, GI
filed for protection under Chapter 11 of the Bankruptcy Code. The Company is a
secured creditor and anticipates a complete recovery of the $0.6 million, plus
interest and costs, including attorneys' fees.
A&B Investors, Inc. On November 9, 1992, A&B Investors, Inc. ("A&B") filed
an action against the Company in the District Court of Harris County, Texas
alleging, among other claims, breach of contract and securities fraud. In July
1995, this matter was resolved in an out-of-court settlement which did not have
a material effect on the Company's results of operations or consolidated
financial position.
Western Waste Industries, Inc. Western Waste Industries, Inc. ("Western")
filed an action against the Company and others on July 20, 1990 in the District
Court of Harris County, Texas for various causes of action including
interference with business relations is seeking $24.0 million in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. The
case is currently scheduled for trial in March 1996.
The Company is also a party to various other general corporate legal
proceedings which have arisen in the ordinary course of its business. While the
results of these matters, as well as matters described above, cannot be
predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's business or consolidated financial position; however,
unfavorable resolution of each matter individually or in the aggregate could
affect the consolidated results of operations for the quarterly periods in which
they are resolved.
ENVIRONMENTAL MATTERS
Imperial Landfill Filter Waste Issue. In 1992, the Company received
notices from Imperial County, California (the "County") and the Department of
Toxic Substances Control ("DTSC," a department of the EPA of the State of
California) which alleged that spent filter elements (the "Filters") from
geothermal power plants which had been deposited at the Company's Imperial
Landfill for approximately five years were classified as hazardous waste under
California environmental regulations. Under United States EPA regulations, the
Filters are not deemed hazardous waste because waste associated with the
production of geothermal energy is exempted from the federal classification of
hazardous waste under 40 CFR Part 261.4(b)(5).
In February 1993, the DTSC denied the Company's October 1992 request to
classify the Filters as "special waste" under California regulations. DTSC's
denial indicated that the Filters met all technical and analytical requirements
for reclassification as a special waste, but that a procedural requirement
related to the timing of the reclassification request was not met. The Company
is currently conducting active discussions with all appropriate California
regulatory agencies in order to seek a variance under California regulations
which will reclassify the Filters as a special waste, irrespective of the
reclassification application submittal timing issue, and allow the Filters to be
left in the landfill. If this occurs, the state, regional and local regulatory
agencies may nevertheless require that the affected area of the landfill be
capped and that the affected area accept no additional waste. In the event that
the variance is not granted, the Regional Water
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Quality Control Board and Integrated Waste Management Board will determine what
remedial measures must be taken based on the Filters' classification as a
California hazardous waste. One of those measures could include the removal of
the Filters or the closure of a portion of the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
in the United States District Court for the Southern District of California
against the known past and present owners and operators of the geothermal power
plants, the Ormesa I, IE, IH and II plants in Holtville, California, for all
losses, fines and expenses the Company incurs associated with the resolution of
this matter, including loss of airspace at the landfill, alleging claims for (i)
CERCLA response costs recovery, (ii) intentional misrepresentation, (iii)
negligent misrepresentation, (iv) negligence, (v) strict liability, (vi)
continuing trespass, (vii) nuisance, (viii) breach of contract and (ix) breach
of implied covenant of good faith and fair dealing. The Company seeks to recover
actual expenses and punitive damages. Discovery and regulatory studies are
proceeding. The Company believes it will prevail, but no amounts have been
accrued for any recovery of damages.
Imperial Landfill Permit. One of the Company's landfills, the Imperial
Landfill, currently exceeds its permitted daily tonnage capacity and is involved
in negotiations with the California Integrated Waste Management Board regarding
expansion of its daily tonnage capacity. Imperial Landfill received a notice of
violation regarding this issue in late 1989 and has since applied for a
modification of its permit to increase the allowed daily tonnage from 50 tons up
to a maximum of 1,000 tons. In addition, pursuant to the terms of the
acquisition, permits with respect to the landfill must be transferred to the
Company. Temporary written approval has been given by Imperial County,
California and the California Integrated Waste Management Board for the Company
to operate the landfill and for the landfill to receive in excess of 50 tons per
day while the permit modification and transfer are being reviewed.
The Company is also a party to various other environmental proceedings
related to its solid waste services operations which have arisen in the ordinary
course of its business. Although it is possible that losses exceeding amounts
already recorded may be incurred upon the ultimate resolution of these matters,
as well as the matters described above, management believes that such losses, if
any, will not have a material adverse effect on the Company's business or
consolidated financial position; however, unfavorable resolution of each matter
individually or in the aggregate could affect the consolidated results of
operations for the quarterly periods in which they are resolved.
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MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth below certain information with respect to
those individuals who serve as members of the Board of Directors and executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------
<S> <C> <C>
H. Wayne Huizenga......................... 58 Chairman of the Board and Chief Executive
Officer
Michael G. DeGroote....................... 61 Vice Chairman of the Board
Harris W. Hudson.......................... 53 President and a Director
J.P. Bryan................................ 55 Director
Rick L. Burdick........................... 43 Director
John J. Melk.............................. 56 Director
George D. Johnson, Jr..................... 54 Director
Gregory K. Fairbanks...................... 42 Executive Vice President and Chief Financial
Officer
Donald E. Koogler......................... 46 Executive Vice President and Chief Operating
Officer
J. Ronald Castell......................... 57 Senior Vice President
Robert A. Guerin.......................... 52 Senior Vice President
Richard L. Handley........................ 48 Senior Vice President and General Counsel
Robert J. Henninger, Jr................... 47 Senior Vice President
</TABLE>
The Board of Directors currently consists of seven members. Directors are
elected to serve until the next annual meeting of the Company's stockholders, or
until their earlier death, resignation, or removal from office. Successors to
those directors whose terms have expired are required to be elected by
stockholder vote while vacancies in unexpired terms and any additional positions
created by board action are filled by action of the existing Board of Directors.
The executive officers named above were elected to serve in such capacities
until the next annual meeting of the Board of Directors, or until their
respective successors have been duly elected and have been qualified, or until
their earlier death, resignation, disqualification or removal from office. Mr.
Hudson is married to Mr. Huizenga's sister. Otherwise, there is no family
relationship between any of the directors and executive officers of Republic.
H. Wayne Huizenga has served as the Chairman of the Board and Chief
Executive Officer of the Company since August 3, 1995. Mr. Huizenga served as
the Vice Chairman of Viacom Inc. ("Viacom"), a diversified entertainment and
communications company, from September 1994 until October 1995. Mr. Huizenga
also served as the Chairman of the Board of the Blockbuster Entertainment Group,
a division of Viacom, from September 1994, at which time Viacom acquired
Blockbuster Entertainment Corporation ("Blockbuster") through a merger, until
October 1995. From April 1987 through September 1994, Mr. Huizenga served as the
Chairman of the Board and Chief Executive Officer of Blockbuster, during which
time he helped build Blockbuster into the world's largest video and music
retailer. Mr. Huizenga also served as the President of Blockbuster from April
1987 to June 1988. Mr. Huizenga also co-founded Waste Management, Inc., now
known as WMX Technologies, Inc. ("Waste Management"), the world's largest
integrated environmental services company, in 1971 and served in various
capacities, including the President, the Chief Operating Officer and a Director
from its inception until 1984. Mr. Huizenga also owns or controls the Miami
Dolphins, Florida Marlins and Florida Panthers professional sports franchises,
as well as Joe Robbie Stadium, in South Florida. In addition, Mr. Huizenga has
served as the Chairman of the Board of Extended Stay America, Inc., an economy
extended-stay lodging chain ("ESA"), since August 1995.
Michael G. DeGroote has served as the Vice Chairman of the Company since
August 3, 1995. Mr. DeGroote had served as the Chief Executive Officer of the
Company since May 1991, and had served as Senior Chairman of the Board of the
Company from May 1991 to August 1991. He served as Chairman of the Board and
President of the Company from August 1991 until August 3, 1995. Mr. DeGroote
owned a
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controlling interest in Laidlaw Inc. ("Laidlaw"), a Canadian company, from 1959
until he sold his interest in 1988. Laidlaw is the third largest waste service
company in North America and the largest operator of school buses with over
28,000 vehicles. Mr. DeGroote served as the Chairman of the Board and Chief
Executive Officer of Laidlaw from 1959 until June 1990, when he resigned from
those positions to pursue personal business matters. Mr. DeGroote has served as
a Director of Gulf Canada Resources Ltd. ("Gulf Canada") since May 1995.
Harris W. Hudson has served as the President and a Director of the Company
since August 3, 1995. From May 21, 1995 until August 3, 1995, Mr. Hudson had
served as a consultant to the Company. Mr. Hudson founded and since inception in
1983 has served as Chairman of the Board, Chief Executive Officer and President
of HMC, which was acquired by the Company on August 3, 1995. From 1964 to 1982,
Mr. Hudson served as Vice President of Waste Management of Florida, Inc., a
subsidiary of Waste Management, and its predecessor.
J.P. Bryan has served as a Director of the Company since May 1991 and also
was a Director of the Company from August 1990 until March 1991. Since January
1995, Mr. Bryan has served as President and Chief Executive Officer of Gulf
Canada, which is engaged in oil and gas exploration and production. Since 1981,
Mr. Bryan has served as the Chairman of the Board and Chief Executive Officer of
Torch Energy Advisors Inc., a subsidiary of Torchmark Corporation, engaged in
the management of institutional holdings in energy-related fields and has, since
March 1990, held the same positions with Nuevo Energy Company, a company
involved in the oil and gas industry. Mr. Bryan also currently serves on the
Board of Directors of Bellweather Exploration Company, an oil and gas
exploration company.
Rick L. Burdick has been a Director of the Company since May 1991. Since
June 1995, Mr. Burdick has served as a Director of J. Ray McDermott, S.A. Mr.
Burdick is the sole shareholder of a professional corporation which is a partner
in the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., a limited
liability partnership including professional corporations.
John J. Melk has served as a Director of the Company since August 3, 1995.
Mr. Melk has been Chairman and Chief Executive Officer of H20 Plus Inc., a bath
and skin care product and retail business, since 1988. Mr. Melk has been a
private investor in various businesses since March 1984 and prior to March 1984,
he held various positions with Waste Management and its subsidiaries, including
President of Waste Management International, plc., a subsidiary of Waste
Management. Mr. Melk also serves as a Director of Psychemedics Corporation. From
February 1987 until March 1989 and from May 1993 until September 1994, Mr. Melk
served as a director of Blockbuster. He also served as the Vice Chairman of
Blockbuster from February 1987 until March 1989.
George D. Johnson, Jr., has served as a director of the Company since
November 27, 1995. Mr. Johnson presently is President, Chief Executive Officer
and a director of ESA. From 1993 until 1995, Mr. Johnson served in various
executive positions with Blockbuster Entertainment Group and, prior to its
merger with Viacom, with Blockbuster, including as President of the Consumer
Products Division, and also as a Director of Blockbuster. From 1987 until 1993,
Mr. Johnson was the managing general partner of WJB Video, becoming the largest
Blockbuster franchisee with over 200 video stores prior to a merger with
Blockbuster in 1993. He is also a Director of Duke Power Company and of Viacom.
Gregory K. Fairbanks has served as an Executive Vice President and the
Chief Financial Officer of the Company since August 3, 1995. From May 21, 1995
until August 3, 1995, Mr. Fairbanks served as a consultant to the Company. From
September 1994 to May 21, 1995, Mr. Fairbanks was a consultant to the
Blockbuster Entertainment Group, a division of Viacom. Mr. Fairbanks served as a
Senior Vice President and the Chief Financial Officer of Blockbuster from June
1992 through September 1994. He also served as the Treasurer of Blockbuster from
March 1993 until September 1994. From October 1980 until he joined Blockbuster
in June 1992, Mr. Fairbanks served in a number of finance related capacities for
Waste Management International, plc., the latest as Chief Financial Officer
(from 1987 through 1992) and Executive Vice President (from 1991 through 1992).
Prior to October 1980, Mr. Fairbanks was employed by Arthur Andersen LLP, an
international public accounting firm, for approximately four years.
36
<PAGE> 39
Donald E. Koogler has served as an Executive Vice President and the Chief
Operating Officer of the Company since May 1991. From May 1991 until August 3,
1995, Mr. Koogler also served as a Director of the Company. In September 1990,
Mr. Koogler founded K&K Investment and Consulting Services and served as its
President until May 1991. Mr. Koogler joined Laidlaw as a Vice President in 1985
and became an Executive Vice President in October 1987. Mr. Koogler also served
as Vice President of Waste Management, Inc. from 1980 until 1985. Mr. Koogler
has been employed in the solid waste industry for over 25 years, in various
executive positions.
J. Ronald Castell joined the Company as a Vice President on August 3, 1995,
and was promoted to Senior Vice President on October 2, 1995. From September
1994 until joining the Company, he served as a consultant to Viacom. Prior to
that, Mr. Castell was Senior Vice President of Programming and Communications
for Blockbuster from August 1991 until September 1994 and was Senior Vice
President of Programming and Merchandising from February 1989 until August 1991.
From October 1985 to February 1989, he was Vice President of Marketing and
Merchandising at Erol's, then a chain of two hundred video stores headquartered
in the Washington, D.C. area.
Robert A. Guerin became Senior Vice President of the Company on August 3,
1995. From September 1994 until joining the Company, he served as a consultant
to Viacom. Prior to that, Mr. Guerin was Senior Vice President of Domestic
Franchising for Blockbuster from January 1992 until September 1994, was Senior
Vice President of Administration and Development for Blockbuster from October
1989 until December 1991, and was a Vice President of Blockbuster from March
1988 until October 1989. From March 1986 to March 1988, Mr. Guerin served as
Vice President and Region Manager of Waste Management of North America, Inc., a
subsidiary of Waste Management, where he was responsible for operations with
over 6,000 employees. From June 1982 to March 1986, he served as President of
Wells Fargo Armored Service Corp., a transporter of currency and valuables with
over 7,000 employees.
Richard L. Handley joined the Company on October 2, 1995 as a Senior Vice
President and the General Counsel. From June 1993 until joining the Company, he
was a principal of Randolph Management Group, Inc., a management consulting firm
specializing in the environmental industry. Prior to that, Mr. Handley was Vice
President, Secretary and General Counsel of The Brand Companies, Inc., an
environmental services company, from July 1990 until May 1993, Associate General
Counsel of Waste Management of North America, Inc. from January 1987 to June
1990, and legal counsel to Waste Management Energy Systems, Inc., a
waste-to-energy company, from September 1985 to January 1987, all of which
companies were affiliates or subsidiaries of Waste Management. Prior to
September 1985, Mr. Handley was a lawyer in private practice in Chicago,
Illinois.
Robert J. Henninger, Jr. has served as a Senior Vice President of the
Company since October 2, 1995. From September 1994 until joining the Company, he
served as a consultant to Viacom, and from July 1994 until September 1994, he
served as Senior Vice President and Chief Administrative Officer of Blockbuster.
Prior to July 1994, Mr. Henninger was employed by Arthur Andersen LLP, an
international public accounting firm, for 23 years, and had been Managing
Partner of the firm's Fort Lauderdale, Florida office since 1984.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established three committees, the Executive
Committee, the Audit Committee and the Compensation Committee. The Executive
Committee consisted of Messrs. DeGroote and Burdick until August 3, 1995, and
since that date has consisted of Messrs. Huizenga, Hudson and DeGroote. The
Executive Committee has full authority to exercise all the powers of the Board
of Directors between meetings of the Board of Directors, except as reserved by
the Board of Directors. The Executive Committee does not have the power to elect
or remove officers, approve a merger of the Company, recommend a sale of
substantially all of the Company's assets, recommend a dissolution of the
Company, amend the Company's By-laws or Certificate of Incorporation, declare
dividends on the Company's outstanding securities, or, except as expressly
authorized by the Board, issue any Common Stock or preferred stock. By action of
the Board of Directors on August 3, 1995, the Executive Committee has certain
limited authority to approve the issuance of Common Stock in connection with
certain types of mergers and acquisitions by the Company.
37
<PAGE> 40
The Audit Committee consisted of Messrs. Koogler, Bryan and Burdick until
August 3, 1995, and since that date has consisted of Messrs. Bryan, Burdick and
DeGroote. The Audit Committee has the power to oversee the retention,
performance and compensation of the independent public accountants for the
Company, and the establishment and oversight of such systems of internal
accounting and auditing control as it deems appropriate.
The Compensation Committee, which was established by the Board of Directors
in February 1993, consisted of Messrs. DeGroote and Burdick until August 3,
1995, and since that date has consisted of Messrs. Melk, DeGroote and Bryan. The
Compensation Committee reviews the Company's compensation philosophy and
programs, exercises authority with respect to the payment of salaries and
incentive compensation to directors and officers, and administers the Company's
1991 Stock Option Plan and 1995 Employee Stock Option Plan.
38
<PAGE> 41
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was established by the Board of Directors in
February 1993 and Messrs. DeGroote and Burdick were appointed to the
Compensation Committee at that time. Mr. DeGroote was the Chairman of the Board,
President and Chief Executive Officer of the Company until August 3, 1995. On
August 3, 1995, the Board of Directors appointed Mr. DeGroote as its Vice
Chairman (a non-officer position), and appointed three of its non-employee
directors, Messrs. Melk, DeGroote and Bryan to the Compensation Committee.
Mr. Burdick is the sole shareholder of a professional corporation which is
a partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. which
renders legal services to the Company.
COMPENSATION TABLES
The following tables set forth information with respect to those persons
who were (i) the individuals who served as the Chief Executive Officer during
the year ended December 31, 1995, and (ii) the most highly compensated executive
officers of the Company at December 31, 1995 whose total annual salary and bonus
exceeded $100,000 for the year (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL
--------------------------------------- WARRANTS/OPTIONS OTHER
OTHER ANNUAL TO PURCHASE COMMON COMPEN-
NAME AND PRINCIPAL POSITION(6) YEAR SALARY BONUS COMPENSATION STOCK SATION
- ------------------------------------- ---- ---------- --------- ------------ ------------------ --------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga.................... 1995 -- -- -- 1,500,000 --
(Chairman and Chief Executive 1994 -- -- -- -- --
Officer)(1) 1993 -- -- -- -- --
Michael G. Degroote.................. 1995 -- -- -- 50,000 --
(Former Chairman, President and 1994 -- -- -- -- --
Chief Executive Officer)(2) 1993 -- -- -- -- --
Harris W. Hudson..................... 1995 $ 112,122 -- -- 401,010 --
(President)(3) 1994 -- -- -- -- --
1993 -- -- -- -- --
Donald E. Koogler.................... 1995 $ 232,967 -- $ 14,559(4) 358,642 --
(Executive Vice President and 1994 --(5) -- -- 240,000 --
Chief Operating Officer) 1993 $ 228,752 -- -- 240,000 --
</TABLE>
- ---------------
(1) Mr. Huizenga's employment with the Company began August 3, 1995, and he is
not paid any cash salary or bonus.
(2) On August 3, 1995, Mr. DeGroote resigned his position of Chairman, President
and Chief Executive Officer and was appointed as Vice Chairman of the
Company. Mr. DeGroote did not receive any cash salary or bonus as an
officer of the Company.
(3) Mr. Hudson's employment with the Company began August 3, 1995.
(4) Consists of reimbursements to Mr. Koogler for the expenses incurred by him
upon relocation to Fort Lauderdale, Florida in August 1995, due to the
relocation of the Company's corporate office.
(5) Mr. Koogler elected to defer the receipt of 1994 compensation totaling
$235,425 until January 1, 1997.
(6) Due to mid-year hirings and resignations, no other executive officer
received more than $100,000 in compensation in 1995.
39
<PAGE> 42
OPTION/WARRANT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/WARRANTS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM
OPTIONS/WARRANTS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- --------------------------------- ---------------- ---------------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga................ 1,000,000 18.2% $24.75 August 2004 $13,640,000 $33,650,000
(Chairman and Chief Executive 500,000 9.1% $20.25 October 2005 $ 6,365,000 $16,150,000
Officer)
Michael G. DeGroote.............. 50,000 0.9% $24.75 August 2005 $ 742,000 $ 1,974,500
(Former Chairman, President and
Chief Executive Officer)
Harris W. Hudson................. 251,010 4.6% $24.75 August 2004 $ 3,423,776 $ 8,446,487
(President)
Donald E. Koogler................ 100,000 1.8% $3.875 May 2002 $ 156,000 $ 370,000
(Executive Vice President and 78,642 1.4% $24.75 August 2004 $ 1,072,677 $ 2,646,303
Chief Operating Officer)
</TABLE>
AGGREGATED OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS AT OPTIONS/WARRANTS AT DECEMBER
SHARES DECEMBER 31, 1995 31, 1995
ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga....................... -- -- 1,500,000 -- $19,312,500 --
(Chairman and Chief Executive Officer)
Michael G. DeGroote..................... -- -- 850,000 200,000 $22,268,750 $ 5,425,000
MGD Holdings, Ltd. (Former Chairman,
President and Chief Executive Officer)
Harris W. Hudson........................ -- -- -- 401,010 -- $ 7,692,739
(President)
Donald E. Koogler....................... -- -- 120,000 238,642 $ 3,855,000 $ 6,047,053
(Executive Vice President and
Chief Operating Officer)
</TABLE>
EXECUTIVE WARRANTS
The Board of Directors approved the issuance of warrants to Messrs. Koogler
and Gowland for the purchase of shares of Common Stock at an exercise price
based on the market price of Common Stock on the date of issuance (the
"Executive Warrants") as compensation for their continued service as officers of
the Company. In connection with the Distribution of RESI, Mr. Gowland resigned
as a Senior Vice President of the Company; however, the Company agreed not to
terminate his Executive Warrants given his position with RESI. Executive
Warrants are exercisable, with respect to each portion vested, for a period of
four years following such vesting. Each of Messrs. Koogler and Gowland was
required to execute a non-competition agreement in connection with the Executive
Warrants.
Donald E. Koogler. Mr. Koogler was granted Executive Warrants to purchase
300,000 shares of Common Stock at an exercise price of $9.00 per share in 1991.
Mr. Koogler's warrants vested in increments of 20% per year over a five year
period with the first 20% (or 60,000 warrants) having vested May 31, 1992. In
May 1993, the Company canceled the unvested portion of Mr. Koogler's Executive
Warrants (or 240,000 warrants) and re-issued to Mr. Koogler Executive Warrants
to purchase 240,000 shares of Common Stock at an exercise price of $4.00 per
share. The grant of Executive Warrants in 1993 to Mr. Koogler vests in
increments of 25% per year over a four year period with 75% (or 180,000
warrants) having vested as of May 31, 1995.
40
<PAGE> 43
Douglas R. Gowland. Mr. Gowland had been granted Executive Warrants to
purchase 300,000 shares of Common Stock at an exercise price of $12.75 per
share. Mr. Gowland's warrants vested in increments of 5/12 of 20% (25,000
warrants) on May 31, 1992, 20% per year over the subsequent four years through
May 31, 1996, and the remaining 7/12 of 20% vest December 31, 1996. In May 1993,
the Company canceled the unvested portion of Mr. Gowland's Executive Warrants
(or 275,000 warrants) and re-issued to Mr. Gowland Executive Warrants to
purchase 275,000 shares of Common Stock at an exercise price of $4.00 per share.
The grant of Executive Warrants in 1993 to Mr. Gowland vests in increments of
60,000 warrants per annual period beginning May 31, 1992 and the remaining
35,000 vest at December 31, 1996. As of May 31, 1995, Executive Warrants to
purchase 180,000 shares of Common Stock had vested.
1994 NON-EMPLOYEE DIRECTOR WARRANTS
In May 1994 and 1995, the Board of Directors and stockholders of the
Company approved the issuance of warrants to purchase 50,000 shares of Common
Stock at an exercise price of $2.69 per share to each of Messrs. Bryan and
Burdick, each non-employee directors of the Company, as compensation for
continuing service on the Board of Directors (the "Non-Employee Director
Warrants"). The Non-Employee Director Warrants vest over a five year period in
increments of 20%, commencing on May 31, 1995, are exercisable for a period of
four years after vesting and terminate on or about the termination of the
non-employee director's service as a director of the Company. On August 3, 1995,
the Board of Directors approved an amendment to the Non-Employee Director
Warrants to accelerate the vesting of all of the Non-Employee Director Warrants
and make them immediately exercisable in full. Such amendment to the
Non-Employee Director Warrants became effective upon approval of the Company's
stockholders, which was obtained on November 28, 1995.
CONSULTING AGREEMENTS
On May 21, 1995, the Company entered into Consulting Agreements with
Messrs. Hudson and Fairbanks pursuant to which such individuals provide
consulting services to the Company. In connection therewith, the Company granted
each of Messrs. Hudson and Fairbanks options to purchase 150,000 and 100,000
shares of Common Stock, respectively, at an exercise price of $3.875 per share,
under the Company's 1991 Stock Option Plan. These options vest at a rate of
one-third per year over a three-year period from the date of grant. On August 3,
1995, upon being appointed as officers of the Company, the Board of Directors
terminated the Consulting Agreements and amended the stock option grants to
allow Messrs. Hudson and Fairbanks' options to continue to vest through their
tenure of service as employees of the Company.
CHIEF EXECUTIVE OFFICER OPTIONS
On August 3, 1995, the Compensation Committee of the Board of Directors
approved a grant of options under the Company's 1991 Stock Option Plan to
purchase 1,000,000 shares of Common Stock exercisable at a price of $24.75 per
share, and on October 27, 1995, the Compensation Committee approved an
additional grant of options under the Company's 1995 Stock Option Plan to
purchase 500,000 shares of Common Stock exercisable at $20.25 per share, to Mr.
Huizenga for his services to be performed as Chairman and Chief Executive
Officer of the Company (the "CEO Options"). The CEO Options vested immediately
and are presently exercisable in full. Mr. Huizenga will not be paid any cash
salary or bonuses for his services to the Company, given his substantial
ownership position in the Company. Accordingly, any benefit realized by Mr.
Huizenga from his compensation arrangement will be derived solely from increases
in the value of the Common Stock of the Company, giving him an additional
incentive in the success of the Company.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
On August 3, 1995, the Board of Directors approved amendments to the 1995
Non-Employee Director Stock Option Plan of the Company (the "Director Plan")
principally to provide for an automatic grant of an option to purchase 50,000
shares of Common Stock to each member of the Board of Directors who becomes or
joins the Board as a non-employee director, and to further provide an additional
automatic grant of an option to purchase 10,000 shares of Common Stock on the
first day of each fiscal year thereafter to each non-employee director
continuing to serve on the Board at such dates. All options granted under the
Director Plan,
41
<PAGE> 44
as amended, will be fully vested and immediately exercisable in full. Under the
Director Plan, as amended, each automatic grant of options to a non-employee
director remains exercisable so long as such Director remains a member of the
Board, and are exercisable at a price per share equal to the market value of a
share of Common Stock on Nasdaq as of the date it was automatically granted. In
accordance with the Director Plan, as amended, on August 3, 1995, Messrs.
DeGroote and Melk each received an automatic grant of options to purchase 50,000
shares of Common Stock at an exercise price of $24.75 per share, on November 27,
1995, Mr. Johnson received an automatic grant of an option to purchase 50,000
shares of Common Stock at an exercise price of $24.50 per share, and on January
2, 1996, Messrs. Bryan, Burdick, DeGroote, Johnson and Melk each received an
automatic grant of options to purchase 10,000 shares of Common Stock at an
exercise price of $36.125 per share. The amendment to the Director Plan, and the
automatic grants made thereunder to Messrs. DeGroote, Melk and Johnson became
effective upon approval of the Company's stockholders, which was obtained on
November 28, 1995.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of January 29, 1996, by (i) each person who is
known by the Company to own beneficially 5% or more of Common Stock, (ii) each
director of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table and (iv) all directors and executive officers of
the Company as a group. Share amounts and percentages shown for each entity,
individual or group in the table are adjusted to give effect to shares of Common
Stock that are not outstanding but may be acquired by a person upon exercise of
all options and warrants exercisable by such entity, individual or group within
60 days of January 29, 1996. However, such shares of Common Stock are not deemed
to be outstanding for the purpose of computing the percentage of outstanding
shares beneficially owned by any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
NAME AND ADDRESS ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT
- ---------------------------------------------------------------------- ---------- -------
<S> <C> <C>
H. Wayne Huizenga(1).................................................. 14,498,608 16.9%
200 South Andrews Avenue
Fort Lauderdale, Florida 33301
MGD Holdings Ltd.(2).................................................. 12,700,000 16.4%
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Westbury (Bermuda) Ltd.(3)............................................ 4,050,000 5.1%
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Michael G. DeGroote(4)................................................ 16,810,000 21%
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Harris W. Hudson(5)................................................... 9,800,000 12.6%
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
Gregory K. Fairbanks(6)............................................... 300,000 *
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
NAME AND ADDRESS ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT
- ---------------------------------------------------------------------- ---------- -------
<S> <C> <C>
Donald E. Koogler(7).................................................. 120,000 *
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
J.P. Bryan(8)......................................................... 85,000 *
401 9th Avenue, S.W.
Calgary, Alberta, Canada T2P2H7
Rick L. Burdick(9).................................................... 60,000 *
1900 Pennzoil Place
711 Louisiana Street
Houston, TX 77002
John J. Melk(10)...................................................... 1,920,000 2.5%
676 North Michigan Ave., Suite 4000
Chicago, Illinois 60611
George D. Johnson, Jr.(11)............................................ 360,000 *
200 South Andrews Ave., 6th Floor
Fort Lauderdale, FL 33301
All directors and executive officers as a group (13 persons).......... 44,553,607 48.4%
</TABLE>
- ---------------
* Less than 1 percent
(1) The aggregate amount of Common Stock beneficially owned by Mr. Huizenga
consists of (a) 4,498,608 shares owned directly by him, (b) 500,000 shares
held by his wife, (c) presently exercisable warrants to purchase 4,000,000,
2,000,000 and 2,000,000 shares of Common Stock at exercise prices of $4.50,
$5.50 and $7.00 per share, respectively, and (d) vested options to purchase
1,000,000 and 500,000 shares of Common Stock at exercise prices of $24.75
and $20.25 per share, respectively. Mr. Huizenga disclaims beneficial
ownership of the shares held by his wife.
(2) The aggregate amount of Common Stock beneficially owned by MGD Holdings, a
Bermuda corporation controlled by Mr. DeGroote, consists of 11,900,000
shares directly owned by MGD Holdings. MGD Holdings also owns Management
Warrants to purchase up to 1,000,000 shares of Common Stock at an exercise
price of $9.00 per share, 800,000 of which have vested as of the date
hereof.
(3) The aggregate amount of Common Stock beneficially owned by Westbury
(Bermuda) Ltd., a Bermuda corporation controlled by Mr. DeGroote
("Westbury"), consists of 1,350,000 shares owned directly by it and
presently exercisable warrants to purchase 1,350,000, 675,000 and 675,000
shares of Common Stock at exercise prices of $4.50, $5.50 and $7.00 per
share, respectively.
(4) The aggregate amount of Common Stock beneficially owned by Mr. DeGroote
consists of the shares beneficially owned by MGD Holdings and Westbury, and
vested options to purchase 50,000 and 10,000 shares of Common Stock at
exercise prices of $24.75 and $36.125 per share, respectively. Mr. DeGroote
is the sole stockholder, the President and a director of MGD Holdings and
Westbury.
(5) The aggregate amount of Common Stock beneficially owned by Mr. Hudson
consists of 8,600,000 shares owned directly by him and presently
exercisable warrants to purchase 600,000, 300,000 and 300,000 shares of
Common Stock at exercise prices of $4.50, $5.50 and $7.00 per share,
respectively.
(6) The aggregate amount of Common Stock to be beneficially owned by Mr.
Fairbanks consists of 100,000 shares owned by Mr. Fairbanks and his wife as
tenants by the entireties, and presently exercisable warrants owned by Mr.
Fairbanks to purchase 100,000, 50,000 and 50,000 shares of Common Stock at
exercise prices of $4.50, $5.50 and $7.00 per share, respectively.
(7) The aggregate amount of Common Stock beneficially owned by Mr. Koogler
consists of executive warrants to purchase 180,000 shares of Common Stock
at an exercise price of $4.00 per share, 120,000 of which have vested as of
the date hereof.
(8) The aggregate amount of Common Stock beneficially owned by Mr. Bryan
consists of (a) an option to purchase 25,000 shares of Common Stock at an
exercise price of $10.25 per share, (b) presently exercisable warrants to
purchase 50,000 shares of Common Stock at an exercise price of $2.69 per
share,
43
<PAGE> 46
and (c) vested options to purchase 10,000 shares of Common Stock at an
exercise price of $36.125 per share.
(9) The aggregate amount of Common Stock beneficially owned by Mr. Burdick
consists of presently exercisable warrants to purchase 50,000 shares of
Common Stock at an exercise price of $2.69 per share, and vested options to
purchase 10,000 shares of Common Stock at an exercise price of $36.125 per
share.
(10) The aggregate amount of Common Stock beneficially owned by Mr. Melk
consists of (a) 800,001 shares owned by JJM Republic Limited Partnership,
of which Mr. Melk is the general partner and his three adult children are
limited partners, (b) 799,999 shares owned by JLM Republic Limited
Partnership, of which Mr. Melk's wife is the general partner and his three
adult children are limited partners, (c) vested warrants to purchase
100,000, 50,000 and 50,000 shares of Common Stock at exercise prices of
$4.50, $5.50 and $7.00 per share, respectively, (d) vested options to
purchase 50,000 and 10,000 shares of Common Stock at exercise prices of
$24.75 and $36.125 per share, respectively, and (e) 60,000 shares owned by
his wife. Mr. Melk disclaims beneficial ownership of the 799,999 owned by
JLM Republic Limited Partnership and of the 60,000 shares owned by his
wife.
(11) The aggregate amount of Common Stock beneficially owned by Mr. Johnson
consists of (a) 100,000 shares of Common Stock owned directly by him, (b)
vested warrants to purchase 100,000, 50,000 and 50,000 shares of Common
Stock at exercise prices of $4.50, $5.50 and $7.00 per share, respectively,
and (c) vested options to purchase 50,000 and 10,000 shares of Common Stock
at exercise prices of $24.50 and $36.125 per share, respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain agreements and transactions between
or among the Company and certain related parties. It is the Company's policy to
enter into transactions with related parties on terms that, on the whole, are no
less favorable than those that would be available from unaffiliated parties.
Based on the Company's experience in the waste industry and the terms of its
transactions with unaffiliated parties, it is the Company's belief that all of
the transactions described below involving the Company met that standard at the
time such transactions were effected.
MANAGEMENT AGREEMENT AND MANAGEMENT WARRANTS
In June 1991, the Company entered into a management agreement (the
"Management Agreement") with MGD Holdings in which MGD Holdings provides
executive, operational and management services to the Company. Warrants dated as
of June 7, 1991, to purchase 1,150,000 shares of Common Stock were issued by the
Company to MGD Holdings at an exercise price of $9.00 per share (the "Management
Warrants") for services to be rendered pursuant to the Management Agreement. In
1992, Management Warrants to purchase 150,000 shares of Common Stock were
assigned by MGD Holdings to a former employee of MGD Holdings who is currently
an unrelated third party. The Management Warrants vest at the rate of 20% per
year over a five year period. Currently, Management Warrants to purchase 800,000
shares of Common Stock have vested. The Management Warrants are exercisable,
with respect to each portion vested, for a period of four years following such
vesting. The Management Agreement may be terminated by either party under
certain circumstances. Mr. Huizenga, the Company's Chairman and Chief Executive
Officer since August 3, 1995, has the authority, under certain contractual
commitments, to cause the Company to terminate the Management Agreement. In the
event of termination of the Management Agreement by the Company, the holder will
become vested in all remaining Management Warrants; however, in the event of
termination by MGD Holdings, the holder will forfeit all remaining unvested
Management Warrants. The Management Warrants also fully vest in the event of the
death or incapacity of Mr. DeGroote, the President and sole stockholder of MGD
Holdings, or the loss of effective control of the Company by MGD Holdings.
TRANSACTIONS AND OTHER EVENTS
Until November 1, 1995, Mr. Hudson indirectly owned 5 parcels of real
property in various locations in Florida which were leased to various
subsidiaries of HMC, a subsidiary of the Company. Such leases were
44
<PAGE> 47
entered into several years prior to the August 3, 1995 acquisition of HMC by the
Company. Total lease payments aggregated approximately $27,000 per month. In
October 1995, the Company commissioned independent appraisals of each parcel. On
October 27, 1995, the Company's Board of Directors, absent Mr. Hudson, reviewed
the resulting appraisal reports and considered the alternatives available to the
Company, including purchasing one or more of the appraised parcels indirectly
from Mr. Hudson at their appraised value, continuing to lease one or more of
such parcels indirectly from Mr. Hudson or obtaining alternative parcels.
Following such review, the Board of Directors, absent Mr. Hudson, and with Mr.
Huizenga abstaining, approved the purchase of all 5 parcels for an aggregate
purchase price of $3.295 million, less debt assumed, which was the aggregate
appraised value of such parcels.
After August 3, 1995, the Company began making payments to Huizenga
Holdings, Inc. ("Holdings"), a corporation owned by Mr. Huizenga, for the
business use of certain aircraft owned by Holdings. In 1995, the Company made
payments to Holdings totaling $417,447 for the business use of such aircraft.
Also in 1995, Holdings made payments to the Company totalling $72,270 for the
business use of certain aircraft owned by the Company. The Company believes that
the terms of its use of the aircraft are more favorable to the Company than it
could have obtained from an unaffiliated party and expects to continue to use
the aircraft on such terms in the future.
DESCRIPTION OF CAPITAL STOCK
The First Amended and Restated Certificate of Incorporation of the Company,
as amended (the "Certificate of Incorporation"), authorizes capital stock
consisting of 350,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of preferred stock ("Preferred Stock"). There were 76,467,793
shares of Common Stock, and no shares of Preferred Stock, issued and outstanding
as of January 29, 1996. The following summary description of the capital stock
of the Company is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Company, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Common Stock. The holders of shares of Common Stock have equal pro rata
rights to dividends if, as and when declared by the Company's Board of
Directors; do not have any preemptive subscription or conversion rights; and
have one vote per share on all matters upon which the stockholders of the
Company may vote at all meetings of stockholders. There are no redemption or
sinking fund provisions applicable to the Common Stock. The holders of the
Common Stock of the Company do not have cumulative voting rights. As a result,
the holders of a majority of the shares voting for the election of directors can
elect all the members of the Board of Directors.
Preferred Stock. No shares of Preferred Stock are currently outstanding.
The Board of Directors is authorized to divide the Preferred Stock into series
and, with respect to each series, to determine the dividend rights, dividend
rate, conversion rights, voting rights, redemption rights and terms, liquidation
preferences, the number of shares constituting the series, the designation of
such series and such other rights, qualifications, limitations or restrictions
as the Board of Directors may determine. The Board of Directors could, without
shareholder approval, issue Preferred Stock with voting rights and other rights
that could adversely affect the voting power of holders of Common Stock and such
stock could be used to prevent a hostile takeover of the Company. The Company
has no present plans to issue any shares of Preferred Stock.
Certificate of Incorporation and Bylaws. The Certificate of Incorporation
was amended on November 28, 1995 to (i) change the Company's name to Republic
Industries, Inc., and (ii) to eliminate all provisions relating to
classification of the members of the Board of Directors. The directors of the
Company are elected each year at the annual meeting of the stockholders for
terms of one year and until their successors are elected and qualified; existing
directors may nominate and elect qualified persons to fill vacancies on the
Board of Directors. The Company's Bylaws provide that directors may be removed
for cause by vote of two-thirds of the other directors or by vote of a majority
of stockholders, and may be removed without cause by the vote of a majority of
stockholders at a meeting called for such purpose.
45
<PAGE> 48
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Common Stock is First Interstate Bank of Texas, N.A.
PLAN OF DISTRIBUTION
The 5,072,596 shares of Common Stock covered by this Prospectus are
available for use in future acquisitions of other businesses, properties or
equity and/or debt securities in business combination transactions, which may
relate to businesses similar or dissimilar to the Company's businesses. The
consideration offered by the company in such acquisitions in addition to the
shares of Common Stock offered by this Prospectus may include cash, debt or
other securities (which may be convertible into shares of Common Stock covered
by this prospectus), or assumption by the Company of liabilities of the business
being acquired, or a combination thereof. It is contemplated that the terms of
each acquisition will be determined by negotiations between the Company and the
management or the owners of the businesses or properties to be acquired or the
owners of the securities (including newly issued securities) to be acquired,
with the Company taking into account the quality of management, the past and
potential earning power and growth of the businesses, properties or equity
and/or debt securities to be acquired, and other relevant factors. It is
anticipated that shares of Common Stock issued in acquisitions will be valued at
a price reasonably related to the market value of the Common Stock at the time
the basic terms of the acquisition are tentatively agreed upon or at or about
the time or times of delivery of the shares.
With the consent of the Company, this Prospectus may also be used by
persons or entities who have received or will receive from the Company Common
Stock covered by this Prospectus in connection with acquisitions of businesses,
properties or securities and who may wish to sell such stock under circumstances
requiring or making desirable its use and by certain donees of such persons or
entities. The Company's consent to such use may be conditioned upon such persons
or entities agreeing not to offer more than a specified number of shares
following amendments to this Prospectus, which the Company may agree to use its
best efforts to prepare and file at certain intervals. The Company may require
that any such offering be effected in an organized manner through securities
dealers.
Sales by means of this Prospectus by persons other than the Company may be
made from time to time privately at prices to be individually negotiated with
the purchasers, or publicly through transactions on Nasdaq (which may involve
crosses and block transactions), other exchanges or in the over-the-counter
market, at prices reasonably related to market prices at the time of sale or at
negotiated prices. Broker-dealers participating in such transactions may act as
agent or as principal and may receive commissions from the purchasers as well as
from the sellers. The Company may indemnify any broker-dealer participating in
such transactions against certain liabilities, including liabilities under the
Securities Act. Profits, commissions and discounts on sales by persons who may
be deemed to be underwriters within the meaning of the Securities Act may be
deemed underwriting compensation under the Securities Act.
Stockholders may also offer shares of stock issued in past and future
acquisitions or purchased from the Company by means of prospectuses under other
registration statements or pursuant to exemptions from the registration
requirements of the Securities Act, including sales which meet the requirements
of Rule 144 or 145(d) under the Securities Act, and stockholders should seek the
advice of their own counsel with respect to the legal requirements for such
sales.
LEGAL MATTERS AND EXPERTS
The validity of the Shares offered hereby will be passed upon for the
Company by Akerman, Senterfitt & Eidson, P.A. Attorneys employed by Akerman,
Senterfitt & Eidson, P.A. beneficially owned an aggregate of 303,800 shares of
Common Stock as of the date of this Prospectus.
The consolidated financial statements, schedule and supplemental
consolidated financial statements for the Company as of December 31, 1994 and
1993, the combined financial statements of HMC as of September 30, 1994 and
1993, and the combined financial statements of Scott as of December 31, 1994,
appearing in this Prospectus and in the Registration Statement have been audited
by Arthur Andersen LLP,
46
<PAGE> 49
independent certified public accountants, to the extent and for the periods as
indicated in their reports with respect thereto. The financial statements and
schedules referred to above have been included herein in reliance upon authority
of said firm as experts in accounting and auditing in giving said reports.
The consolidated financial statements of Southland as of September 30, 1995
and 1994, appearing in this Prospectus and in the Registration Statement have
been audited by Grenadier, Appleby, Collins & Company, independent certified
public accountants, as indicated in their report with respect thereto, and have
been included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
The financial statements of United as of September 30, 1995 and 1994,
appearing in this Prospectus and in the Registration Statement have been audited
by Jones and Kolb, independent certified public accountants, as indicated in
their report with respect thereto, and have been included herein in reliance
upon authority of said firm as experts in accounting and auditing in giving said
report.
The combined financial statements of Duncan as of June 30, 1995 and 1994,
appearing in this Prospectus and in the Registration Statement have been audited
by Hendrix, Sutton & Associates LLP, independent certified public accountants,
as indicated in their report with respect thereto, and have been included herein
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
The consolidated financial statements of GDS as of September 30, 1995,
appearing in this Prospectus and in the Registration Statement have been audited
by Farris, Cooke & Associates, P.A., independent certified public accountants,
as indicated in their report with respect thereto, and have been included herein
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
The combined financial statements of Fennell as of December 31, 1994,
appearing in this Prospectus and in the Registration Statement have been audited
by Gamble, Givens & Moody, P.A., independent certified public accountants, as
indicated in their report with respect thereto, and have been included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
47
<PAGE> 50
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.............................. F-4
Consolidated Balance Sheets as of December 31, 1994 and 1993 (Restated)......... F-6
Consolidated Statements of Operations for the Years Ended December 31, 1994,
1993 and 1992 (Restated)....................................................... F-7
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1993 and 1992 (Restated)................................................. F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1993 and 1992 (Restated)....................................................... F-9
Notes to Consolidated Financial Statements (Restated)........................... F-10
Supplemental Consolidated Balance Sheets as of September 30, 1995 (unaudited)
and December 31, 1994 and 1993................................................. F-28
Supplemental Consolidated Statements of Operations for the Nine Months Ended
September 30, 1995 and 1994 (unaudited) and the Years Ended December 31, 1994,
1993 and 1992.................................................................. F-29
Supplemental Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992............................................... F-30
Supplemental Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 (unaudited) and the Years Ended December 31, 1994,
1993 and 1992.................................................................. F-31
Notes to Supplemental Consolidated Financial Statements......................... F-32
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1995
(unaudited) and December 31, 1994 (Restated)................................... F-50
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1995 and 1994 (Restated)............................ F-51
Unaudited Condensed Consolidated Statement of Stockholders' Equity for the Nine
Months Ended September 30, 1995................................................ F-52
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1995 and 1994 (Restated)................................... F-53
Notes to Unaudited Condensed Consolidated Financial Statements.................. F-54
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND
ENVIROCYCLE, INC.
Report of Independent Certified Public Accountants.............................. F-61
Combined Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994
and 1993...................................................................... F-62
Combined Statements of Income for the Nine Months Ended June 30, 1995 and 1994
(unaudited) and the Years Ended September 30, 1994, 1993 and 1992.............. F-63
Combined Statements of Stockholders' Equity for the Years Ended September 30,
1994, 1993 and 1992............................................................ F-64
Combined Statements of Cash Flows for the Nine Months Ended June 30, 1995 and
1994 (unaudited) and the Years Ended September 30, 1994, 1993 and 1992......... F-65
Notes to Combined Financial Statements.......................................... F-66
</TABLE>
F-1
<PAGE> 51
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Independent Auditors' Report.................................................... F-74
Consolidated Balance Sheets as of September 30, 1995 and 1994................... F-75
Consolidated Statements of Income for the Years Ended September 30, 1995 and
1994........................................................................... F-76
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
September 30, 1995 and 1994.................................................... F-77
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995 and
1994........................................................................... F-78
Notes to Consolidated Financial Statements...................................... F-79
UNITED WASTE SERVICE, INC.
Independent Accountants' Report................................................. F-87
Balance Sheets as of September 30, 1995 and 1994................................ F-88
Statements of Income for the Years Ended September 30, 1995 and 1994............ F-89
Statements of Changes in Stockholders' Deficiency for the Years Ended September
30, 1995 and 1994.............................................................. F-90
Statements of Cash Flows for the Years Ended September 30, 1995 and 1994........ F-91
Notes to Financial Statements................................................... F-92
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
Report of Independent Certified Public Accountants.............................. F-96
Combined Balance Sheets as of September 30, 1995 (unaudited) and June 30, 1995
and 1994...................................................................... F-97
Combined Statements of Income and Retained Earnings for the Three Months Ended
September 30, 1995 and 1994 (unaudited) and the Years Ended June 30, 1995 and
1994........................................................................... F-98
Combined Statements of Cash Flows for the Three Months Ended September 30, 1995
and 1994 (unaudited) and the Years Ended June 30, 1995 and 1994................ F-99
Notes to Combined Financial Statements.......................................... F-100
GARBAGE DISPOSAL SERVICE, INC.
Independent Auditors' Report.................................................... F-107
Consolidated Balance Sheet as of September 30, 1995............................. F-108
Consolidated Statement of Operations and Retained Earnings for the Year Ended
September 30, 1995............................................................ F-109
Consolidated Statement of Cash Flows for the Year Ended September 30, 1995...... F-110
Notes to Consolidated Financial Statements...................................... F-111
FENNELL CONTAINER CO., INC. AND AFFILIATES
Independent Auditor's Report.................................................... F-117
Combined Balance Sheets as of September 30, 1995 (unaudited) and December 31,
1994........................................................................... F-118
Combined Statements of Income and Retained Earnings for the Nine Months Ended
September 30, 1995 and 1994 (unaudited) and the Year Ended December 31, 1994... F-119
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1995
and 1994 (unaudited) and the Year Ended December 31, 1994...................... F-120
Notes to the Combined Financial Statements...................................... F-122
CANA FIRST CORPORATION D/B/A SCOTT SECURITY SYSTEMS AND AFFILIATES
Report of Independent Certified Public Accountants.............................. F-127
Combined Balance Sheets as of September 30, 1995 (unaudited) and December 31,
1994........................................................................... F-128
Combined Statements of Operations for the Nine Months Ended September 30, 1995
and 1994 (unaudited) and the Year Ended December 31, 1994...................... F-129
Combined Statements of Shareholders' Deficit for the Year Ended December 31,
1994........................................................................... F-130
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1995
and 1994 (unaudited) and the Year Ended December 31, 1994...................... F-131
Notes to Combined Financial Statements.......................................... F-132
</TABLE>
F-2
<PAGE> 52
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Pro Forma Financial Statements................. F-136
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Nine
Months Ended September 30, 1995................................................ F-137
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year
Ended December 31, 1994........................................................ F-138
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements........ F-139
</TABLE>
F-3
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Republic Industries, Inc.:
We have audited the accompanying consolidated balance sheets (restated) of
Republic Industries, Inc. (a Delaware corporation, formerly Republic Waste
Industries, Inc.) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity and cash
flows (all restated) for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Republic Industries, Inc.
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1, the consolidated financial statements of Republic
Industries, Inc. for each of the three years in the period ended December 31,
1994, have been restated to give recognition to the merger with Kertz Security
Systems II, Inc. and Kertz Security Systems, Inc. on August 28, 1995, which was
accounted for as a pooling of interests.
We have also audited the accompanying supplemental consolidated balance
sheets of Republic Industries, Inc. and subsidiaries as of December 31, 1994 and
1993, and the related supplemental consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These supplemental consolidated statements give
retroactive effect to the mergers with United Waste Service, Inc. on October 11,
1995; Southland Environmental Services, Inc. on October 17, 1995; and Garbage
Disposal Service, Inc.; J.C. Duncan Company, Inc. and affiliates; Fennell
Container Company, Inc. and affiliates and Scott Security Systems and affiliates
all on November 30, 1995, all of which have been accounted for as poolings of
interests as described in Note 1 to the supplemental consolidated financial
statements. These supplemental financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
supplemental financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
F-4
<PAGE> 54
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Republic Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, after giving retroactive effect to the
mergers with United Waste Service, Inc. on October 11, 1995; Southland
Environmental Services, Inc. on October 17, 1995; and Garbage Disposal Service,
Inc.; J.C. Duncan Company, Inc. and affiliates; Fennell Container Company, Inc.
and affiliates and Scott Security Systems and affiliates all on November 30,
1995, as described in Note 1 to the supplemental consolidated financial
statements, all in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
December 19, 1995.
F-5
<PAGE> 55
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (RESTATED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
-------- --------
(IN THOUSANDS, EXCEPT
SHARE
AND PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 3,084 $ 3,822
Accounts receivable, less allowance for doubtful accounts of $445
and $469, respectively.......................................... 8,004 6,158
Prepaid expenses................................................... 1,135 1,161
Other current assets............................................... 3,053 3,056
-------- --------
TOTAL CURRENT ASSETS....................................... 15,276 14,197
Property and equipment, net.......................................... 86,902 84,299
Goodwill, net of accumulated amortization of $710 and $481,
respectively....................................................... 11,307 6,946
Net assets of discontinued operations................................ 20,292 16,872
Other assets......................................................... 1,145 1,360
-------- --------
TOTAL ASSETS............................................... $134,922 $123,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................... $ 3,614 $ 2,949
Accrued liabilities................................................ 4,553 3,287
Notes payable...................................................... 394 661
Current maturities of long-term debt............................... 1,571 1,753
Current portion of accrued environmental and landfill costs........ 1,404 1,715
Income taxes payable............................................... 160 351
-------- --------
TOTAL CURRENT LIABILITIES.................................. 11,696 10,716
Long-term debt, net of current maturities............................ 15,152 14,512
Accrued environmental and landfill costs, net of current portion..... 8,244 8,757
Deferred income taxes................................................ 11,272 11,344
-------- --------
TOTAL LIABILITIES.......................................... 46,364 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; 28,275,731, and 28,438,388 issued, respectively..... 283 284
Additional paid-in capital......................................... 104,312 105,154
Accumulated deficit................................................ (15,364) (26,420)
Notes receivable arising from stock purchase agreements............ (673) (673)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................. 88,558 78,345
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $134,922 $123,674
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 56
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue......................................................... $61,709 $ 56,817 $ 48,979
Expenses:
Cost of operations............................................ 37,692 33,237 28,808
Selling, general and administrative........................... 14,314 16,107 14,725
Restructuring and unusual charges............................. -- 10,040 2,250
Other (income) expense:
Interest and other income..................................... (154) (167) (2,452)
Interest expense.............................................. 1,198 733 518
------- -------- --------
53,050 59,950 43,849
------- -------- --------
Income (loss) from continuing operations before income taxes.... 8,659 (3,133) 5,130
Income tax provision............................................ 53 208 253
------- -------- --------
Income (loss) from continuing operations........................ 8,606 (3,341) 4,877
Discontinued operations:
Income (loss) from discontinued operations, net of income tax
benefit of $0, $210 and $123, respectively................. 2,684 (14,579) (1,117)
Loss on disposition........................................... -- -- (17,563)
------- -------- --------
2,684 (14,579) (18,680)
------- -------- --------
Net income (loss)............................................... $11,290 $(17,920) $(13,803)
======= ======== ========
Earnings (loss) per common and common equivalent share:
Continuing operations......................................... $ 0.30 $ (0.12) $ 0.18
Discontinued operations....................................... 0.10 (0.51) (0.68)
------- -------- --------
Net income (loss)............................................. $ 0.40 $ (0.63) $ (0.50)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 57
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (RESTATED)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
RETAINED ARISING
ADDITIONAL EARNINGS FROM STOCK
COMMON PAID-IN (ACCUMULATED PURCHASE
STOCK CAPITAL DEFICIT) AGREEMENTS
------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991...................... $258 $ 89,938 $ 7,225 $ (698)
Exercise of MGD warrants, net of expenses....... 20 10,980 -- --
Exercise of stock options and related tax
benefits..................................... 1 1,745 -- --
Shares issued for business acquisitions......... 5 2,959 -- --
Contributions of property....................... -- 178 -- --
Collections on notes receivable................. -- -- -- 25
Foreign currency translation adjustment......... -- -- (983) --
Other........................................... -- (105) -- --
Net loss........................................ -- -- (13,803) --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1992...................... 284 105,695 (7,561) (673)
Cancellation of shares held in escrow issued for
an acquisition............................... (1) (944) -- --
Shares issued for contingent consideration...... 1 265 -- --
Distributions to former shareholders of acquired
companies.................................... -- -- (467) --
Foreign currency translation adjustment......... -- -- (472) --
Other........................................... -- 138 -- --
Net loss........................................ -- -- (17,920) --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1993...................... 284 105,154 (26,420) (673)
Shares issued for contingent consideration, net
of shares returned in settlement............. 2 (2) -- --
Purchases of treasury stock..................... (3) (853) -- --
Distributions to former shareholders of acquired
companies.................................... -- -- (252) --
Foreign currency translation adjustment......... -- -- 18 --
Other........................................... -- 13 -- --
Net income...................................... -- -- 11,290 --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1994...................... $283 $ 104,312 $(15,364) $ (673)
====== ======== ========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 58
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Income (loss) from continuing operations................................. $ 8,606 $(3,341) $ 4,877
Adjustments to reconcile income (loss) from continuing operations to net
cash provided by continuing operations:
Restructuring and unusual charges...................................... -- 10,040 --
Depreciation, depletion and amortization............................... 4,960 4,142 2,944
Provision for doubtful accounts........................................ 174 371 161
Provision for accrued environmental and landfill costs................. 377 215 76
(Gain) loss on the sale of equipment................................... (247) 5 (769)
Gain on sale of marketable securities.................................. -- -- (2,000)
Changes in assets and liabilities, net of effects from business
acquisitions:
Accounts receivable.................................................... (235) (838) (748)
Prepaid expenses and other assets...................................... 182 (1,565) (112)
Accounts payable and accrued liabilities............................... (584) (2,625) 698
Income taxes payable................................................... (191) (688) 1,585
Other liabilities...................................................... (944) 1,147 (886)
------- ------- --------
Net cash provided by continuing operations........................ 12,098 6,863 5,826
------- ------- --------
CASH USED IN DISCONTINUED OPERATIONS....................................... (736) (4,360) (17,610)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired.............................. (4,059) (5,664) (2,899)
Purchases of property and equipment...................................... (5,935) (4,330) (10,818)
Proceeds from the sale of equipment...................................... 585 132 1,010
Purchases of marketable securities....................................... -- -- (7,554)
Proceeds from the sale of marketable securities.......................... -- -- 9,554
------- ------- --------
Net cash used in investing activities............................. (9,409) (9,862) (10,707)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt and notes payable............................. (7,456) (7,592) (14,580)
Proceeds from long-term debt and notes payable........................... 5,873 16,229 13,313
Purchases of treasury stock.............................................. (856) -- --
Distributions to former shareholders of acquired businesses.............. (252) (467) --
Payments of debt issuance costs.......................................... -- (494) --
Proceeds from issuances of common stock.................................. -- -- 11,466
Payments of common stock issuance costs.................................. -- -- (78)
Payments received on notes receivable arising from stock purchase
agreements............................................................. -- -- 648
------- ------- --------
Net cash provided by (used in) financing activities............... (2,691) 7,676 10,769
------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... (738) 317 (11,722)
CASH AND CASH EQUIVALENTS:
Beginning of year........................................................ 3,822 3,505 15,227
------- ------- --------
End of year.............................................................. $ 3,084 $ 3,822 $ 3,505
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest................................................................. $ 1,064 $ 588 $ 497
Income taxes............................................................. $ 424 $ 312 $ 557
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases of $281 and $487 were financed in the years ended
December 31, 1993 and 1992, respectively, by borrowings and capitalized lease
obligations. Additionally, property of $178 was contributed to the Company in
the year ended December 31, 1992.
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 59
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Republic Industries, Inc. (formerly Republic
Waste Industries, Inc.) and its wholly-owned subsidiaries ("Republic" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated. In 1994, the Board of Directors authorized management to pursue a
plan to distribute its hazardous waste services segment, Republic Environmental
Systems, Inc. ("RESI"), to Republic stockholders. In February 1995, the Board of
Directors approved this distribution to Republic stockholders. Accordingly, as
discussed in Note 2, this segment has been accounted for as a discontinued
operation and the accompanying consolidated financial statements for all periods
presented have been restated to report separately the net assets and operating
results of these discontinued operations.
The accompanying consolidated financial statements include the financial
position and results of operations of Kertz Security Systems II, Inc. and Kertz
Security Systems, Inc. (collectively, "Kertz"), with which the Company merged in
August 1995. This transaction was accounted for under the pooling of interests
method of accounting and, accordingly, the accompanying consolidated financial
statements have been restated as if the Company and Kertz had operated as one
entity since inception. See Note 3, Business Combinations, for a further
discussion of this transaction.
Revenue Recognition. The Company recognizes revenue as services are
provided.
Marketable Securities. The Company purchases marketable securities for
investment purposes which are recorded at the lower of cost or market. The
Company includes gains and losses incurred in connection with marketable
securities in interest and other income. In 1992, the Company realized gains on
marketable securities purchased and subsequently sold during the year. The
Company currently holds no equity securities as defined under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Other Current Assets. Inventories consisting principally of equipment
parts, compost materials and supplies are valued under a method which
approximates the lower of cost (first-in, first-out) or market. At December 31,
1994 and 1993, other current assets included inventories of $2,056,000 and
$1,769,000, respectively.
Property and Equipment. Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in current operations.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions as of the effective date of the
acquisition to conform with its policies regarding property and equipment.
Depreciation is provided over the estimated useful lives of the assets involved
using the straight-line method. The estimated useful lives are: twenty to forty
years for buildings and improvements, five to fifteen years for vehicles and
equipment and five to ten years for furniture and fixtures. Landfills are stated
at cost and are depleted based on consumed airspace. Landfill improvements
include direct costs incurred to obtain a landfill permit and direct costs
incurred to construct and develop the site, and these costs are also depleted
based on consumed airspace. No general and administrative costs are capitalized
as landfills and landfill improvements.
Accrued Liabilities. The Company provides accruals for estimated insurance
claims for the self-funded portion of its insurance plans. At December 31, 1994
and 1993, insurance claims reserves of $926,000 and $665,000, respectively, were
included in accrued liabilities.
Accrued Environmental and Landfill Costs. Accrued environmental and
landfill costs include landfill site closure and post-closure costs. Landfill
site closure and post-closure costs include costs to be incurred for
F-10
<PAGE> 60
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
final closure of the landfills and costs for providing required post-closure
monitoring and maintenance of landfills. These costs are accrued based on
consumed airspace. The Company estimates its future cost requirements for
closure and post-closure monitoring and maintenance for its solid waste
facilities based on its interpretation of the technical standards of the United
States Environmental Protection Agency's Subtitle D regulations. These estimates
do not take into account discounts for the present value of such total estimated
costs. Environmental costs are accrued by the Company through a charge to income
in the appropriate period for known and anticipated environmental liabilities.
Income Taxes. The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," which the Company adopted in 1992,
the effect of which was not material. Accordingly, deferred income taxes have
been provided to show the effect of temporary differences between the
recognition of revenues and expenses for financial and income tax reporting
purposes and between the tax basis of assets and liabilities and their reported
amounts in the financial statements.
Goodwill. Goodwill is amortized over the lesser of the estimated life or
forty years, on a straight-line basis. Amortization expense related to goodwill
and other intangible assets was $423,000, $244,000 and $142,000 in 1994, 1993
and 1992, respectively.
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
F-11
<PAGE> 61
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
maturities. Under this method the Company's fair value of long-term debt was not
significantly different than the stated value at December 31, 1994 and 1993.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying consolidated balance sheets. The Company's management believes that
the likelihood of performance under these financial instruments is minimal and
expects no material losses to occur in connection with these financial
instruments.
Concentrations of Credit Risk. Concentrations of credit risk with respect
to trade receivables are limited due to the wide variety of customers and
markets into which the Company's services are provided, as well as their
dispersion across many different geographic areas. As a result, as of December
31, 1994, the Company does not consider itself to have any significant
concentrations of credit risk.
2. DISCONTINUED OPERATIONS
Spin-off of The Hazardous Waste Services Segment in 1994. In July 1994,
the Company announced the contemplation of a plan to exit the hazardous waste
services segment of the environmental industry, and in October 1994, the Board
of Directors authorized management to pursue such plan, subject to final
approval from the Board of Directors and the resolution of certain legal and
financial requirements. The plan provides for the combination of the Company's
hazardous waste services operations in its wholly-owned subsidiary, RESI, and
the distribution of the stock of RESI to the stockholders of record of Republic
(the "Distribution"). On April 26, 1995, Republic stockholders received one
share of common stock of RESI for every five shares of the Company's common
stock, $.01 par value per share ("Common Stock"), owned on April 21, 1995 in
connection with the spin-off of RESI. Approximately 5,400,000 RESI shares were
distributed to the Company's stockholders. RESI's common stock commenced trading
on the Nasdaq National Market on April 27, 1995 under the trading symbol "RESI."
The Company has had no direct ownership interest in RESI since the Distribution.
The hazardous waste services segment of the Company's business has been
accounted for as a discontinued operation and, accordingly, the accompanying
consolidated financial statements of the Company have been restated to report
separately the net assets and operating results of these discontinued
operations. A summary of the net assets of this segment is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Current assets................................................... $13,595 $14,735
Non-current assets............................................... 26,347 34,783
------- -------
Total assets........................................... 39,942 49,518
------- -------
Current liabilities.............................................. 13,040 14,465
Non-current liabilities.......................................... 6,610 18,181
------- -------
Total liabilities...................................... 19,650 32,646
------- -------
Net assets of discontinued operations............................ $20,292 $16,872
======= =======
</TABLE>
F-12
<PAGE> 62
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
A summary of the operating results of the Company's hazardous waste
services segment is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Revenue.................................................. $46,599 $ 61,617 $74,668
Expenses:
Cost of operations..................................... 33,377 47,028 54,634
Selling, general and administrative.................... 10,349 13,480 15,141
Restructuring and unusual charges...................... 8,484 14,906 577
------- -------- -------
Operating income (loss).................................. (5,611) (13,797) 4,316
Other expense, net of other income....................... 353 992 1,327
------- -------- -------
Income (loss) before extraordinary gain and income
taxes.................................................. (5,964) (14,789) 2,989
Income tax provision (benefit)........................... (3,092) (210) 1,442
------- -------- -------
Income (loss) before extraordinary gain.................. (2,872) (14,579) 1,547
Extraordinary gain on conversion of debt, net of income
tax provision of $3,092................................ 5,556 -- --
------- -------- -------
Net income (loss)........................................ $ 2,684 $(14,579) $ 1,547
======= ======== =======
</TABLE>
In connection with the Distribution, the Company has entered into the
Distribution Agreement with RESI which sets forth the terms of the Distribution.
Under this agreement, Republic contributed the intercompany balance to RESI's
equity at the date of the Distribution. In April 1995, Republic contributed
approximately $2,500,000 to RESI to repay certain indebtedness of RESI and to
provide working capital to RESI. Additionally, the Company reclassified
approximately $36,300,000 to retained earnings from additional paid-in capital
in 1995 to effect the spin-off under Delaware law. As a result of these
transactions, the Company's equity at the date of the Distribution was reduced
by approximately $23,000,000.
The Company has also entered into various agreements with RESI which govern
certain matters between the two parties such as ongoing corporate services to be
provided by the Company to RESI, insurance coverage for RESI for a certain
period after the date of the Distribution, treatment of various tax matters for
periods through the date of the Distribution, responsibility for any adjustments
as a result of audit by any taxing authority and indemnification between both
parties. Republic has agreed to continue to provide certain corporate services,
including insurance, administration, human resources management, financial
reporting and tax, legal and environmental engineering services to RESI after
the Distribution until terminated by either party. The Corporate Services
Agreement is expected to be terminated by the end of 1995. During 1994, 1993 and
1992, the Company allocated expenses for these services to RESI totaling
$851,000, $839,000 and $739,000, respectively, on a basis that approximated the
cost of actual services provided.
Since 1992, RESI has participated in the Company's combined risk management
programs for property and casualty insurance and will continue to do so until
the expiration of the Company's existing policies in June 1995. In 1994, 1993
and 1992, the Company charged RESI for annual premiums and reported losses of
$1,678,000, $1,745,000 and $1,116,000, respectively. RESI has agreed to
indemnify the Company against increases in current losses and any future losses
incurred in connection with RESI's participation in these programs.
Sale of Demolition and Excavation Subsidiary in 1992. In 1992, the Company
sold its demolition and excavation subsidiary, Republic Environmental Services,
Inc. ("RES Demolition") and recorded a non-cash loss on disposition of
$17,600,000. This segment of the Company's business was accounted for as a
discontinued operation and, accordingly, the Company's consolidated financial
statements report separately
F-13
<PAGE> 63
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
the operating results of these discontinued operations through the date of sale
in 1992. In 1992, revenues and net loss of the discontinued operations of RES
Demolition were $2,900,000 and $2,700,000, respectively.
3. BUSINESS COMBINATIONS
In August 1995, the Company merged with Kertz. Under the terms of the
agreement, the Company issued 1,090,000 shares of Common Stock in exchange for
all of the outstanding shares of common stock of Kertz. The transaction was
accounted for under the pooling of interests method of accounting and,
accordingly, the accompanying consolidated financial statements have been
restated as if the Company and Kertz had operated as one entity since inception.
Kertz provides electronic security monitoring and maintenance predominately in
the South Florida, Tampa and Orlando areas.
Details of the results of operations of the previously separate companies
for the periods prior to the combination are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Revenue:
The Company....................................... $48,766 $ 41,095 $ 35,341
Kertz............................................. 12,943 15,722 13,638
------- -------- --------
$61,709 $ 56,817 $ 48,979
======= ======== ========
Net income (loss):
The Company....................................... $11,187 $(18,484) $(14,004)
Kertz............................................. 103 564 201
------- -------- --------
$11,290 $(17,920) $(13,803)
======= ======== ========
</TABLE>
From January 1, 1992 through December 31, 1994, the Company acquired six
businesses, all of which were accounted for under the purchase method of
accounting with the exception of RESI [formerly known as Stout Environmental,
Inc. ("Stout")], which was accounted for as a pooling of interests. The
businesses accounted for under the purchase method of accounting were acquired
for a combination of cash and shares of the Company's Common Stock. The value of
the Common Stock reflects the market value of the Company's Common Stock at the
closing of each acquisition, adjusted to account for restrictions common to
unregistered securities and for registration rights, if applicable. The final
determination of the cost of certain of the Company's acquisitions is subject to
the resolution of certain contingencies, primarily the determination of
contingent consideration payable as described in Note 9. The operating results
of the acquired businesses accounted for under the purchase method of accounting
have been included in the consolidated financial statements from the dates of
acquisition.
The following table sets forth the purchase price of the Company's
acquisitions accounted for under the purchase method of accounting (in
thousands):
<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
F-14
<PAGE> 64
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenue as reported...................................... $61,709 $56,817 $48,979
Revenue of businesses acquired........................... 2,890 10,389 6,808
------- ------- -------
Pro forma revenue........................................ $64,599 $67,206 $55,787
======= ======= =======
Income (loss) from continuing operations as reported..... $ 8,606 $(3,341) $ 4,877
Net income of businesses acquired........................ 97 353 443
Pro forma adjustments (A)................................ 126 (11) 113
------- ------- -------
Pro forma income (loss) from continuing operations....... $ 8,829 $(2,999) $ 5,433
======= ======= =======
Earnings (loss) per common and common equivalent share
from continuing operations as reported................. $ 0.30 $ (0.12) $ 0.18
Effect of businesses acquired and pro forma
adjustments............................................ 0.01 0.01 0.02
------- ------- -------
Pro forma earnings (loss) per common and common
equivalent share from continuing operations............ $ 0.31 $ (0.11) $ 0.20
======= ======= =======
Weighted average common and common equivalent shares as
reported............................................... 28,507 28,598 27,441
Effect of shares issued for business acquisitions........ -- -- 349
------- ------- -------
Pro forma weighted average common and common equivalent
shares................................................. 28,507 28,598 27,790
======= ======= =======
</TABLE>
- ---------------
(A) Pro forma adjustments include: (i) depreciation expense resulting from the
additional value assigned to acquired assets computed in accordance with
the Company's accounting policies; (ii) contractual reductions of former
owners' and officers' salaries and (iii) adjustments to the income tax
provision to reflect the Company's effective tax rate.
F-15
<PAGE> 65
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of January 1, 1992.
4. RESTRUCTURING AND UNUSUAL CHARGES
In the fourth quarter of 1993, the Company recorded restructuring and
unusual charges of $10,000,000 based on the Company's reevaluation of each of
its solid waste operations. As a result of this reevaluation, the Company
decided to close one of its facilities due to low waste volumes and abandon its
permitting effort at another facility because of limited market opportunity in
that area and delays in the permitting process. In accordance with industry
standards, the Company provides for closure and post-closure over the life of a
facility. Accordingly, the Company fully provided for these costs on the closed
facility. The provision for closure and post-closure and the write-off of
property and equipment and accumulated permitting costs associated with these
facilities totaled $6,600,000. In conjunction with the reevaluation, the Company
also decided to terminate certain contracts and employees. Costs related to
employee relocations and terminations and other contract terminations totaled
$1,200,000. In addition, the Company also reevaluated its exposure related to
litigation and environmental matters and provided additional accruals
aggregating $2,200,000 for the costs to defend or settle certain litigation and
environmental matters.
In March 1992, the Company acquired Stout in a merger transaction accounted
for in accordance with the pooling of interests method. In connection with the
merger, the Company incurred substantial legal, accounting, consulting and
financing costs aggregating $2,200,000, which was recorded as an unusual charge.
5. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The computation of weighted average common and common equivalent shares
used in the calculation of earnings (loss) per share, as restated, is shown
below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Common shares outstanding................................ 28,276 28,438 28,371
Effect of using weighted average common shares
outstanding during the year............................ -- -- (1,116)
Common shares issuable under options, warrants and
earn-out agreements.................................... 82 160 186
Weighted average effect of treasury stock purchases...... 149 -- --
------ ------ ------
Weighted average common and common equivalent shares..... 28,507 28,598 27,441
====== ====== ======
</TABLE>
The difference between shares for primary and fully diluted earnings (loss)
per common and common equivalent share was not significant for the periods
presented.
F-16
<PAGE> 66
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
6. PROPERTY AND EQUIPMENT
A summary of property and equipment, as restated, is shown below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Land, landfills and improvements................................ $ 80,601 $77,562
Vehicles and equipment.......................................... 15,340 13,108
Buildings and improvements...................................... 3,158 1,656
Furniture and fixtures.......................................... 746 672
-------- -------
99,845 92,998
Less accumulated depreciation and depletion................ (12,943) (8,699)
-------- -------
$ 86,902 $84,299
======== =======
</TABLE>
7. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
The Company owns and operates nine solid waste landfills in the United
States. The Company is responsible for closure and post-closure monitoring and
maintenance costs at these landfills which are currently operating. Closure and
post-closure costs are provided in accordance with Subtitle D regulations.
Estimated aggregate closure and post-closure costs are to be fully accrued for
these landfills at the time that such facilities cease to accept waste and are
closed. Considering existing accruals at the end of 1994, approximately
$7,600,000 of such costs are to be expensed over the remaining lives of these
facilities. Included with the accrued costs associated with landfills at
December 31, 1994 is $179,000 related to post-closure activities at a closed
solid waste landfill formerly owned by the Company.
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.
F-17
<PAGE> 67
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Long-Term Debt. Long-term debt, as restated, consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
------- -------
<S> <C> <C>
Revolving credit facility, secured by the stock of the Company's
subsidiaries, interest payable quarterly, at prime or at a
Eurodollar rate plus 1.5% (8.3% as of December 31, 1994), due
September 1996................................................... $12,600 $12,200
Notes to banks and financial institutions, secured by equipment and
other assets, interest ranging from 7.0% to 12.9% (weighted
average interest rate of 7.2% as of December 31, 1994), payable
monthly through 1998............................................. 1,305 1,914
Other notes, secured by equipment and other assets, interest
ranging from 4.0% to 11.5% (weighted average interest rate of
6.0% as of December 31, 1994), payable monthly through 2004...... 2,818 2,151
------- -------
16,723 16,265
Less current maturities............................................ (1,571) (1,753)
------- -------
$15,152 $14,512
======= =======
</TABLE>
In September 1993, the Company entered into a revolving credit facility
agreement with a U.S. commercial bank in the amount of $25,000,000, which
includes a line of credit with $10,000,000 available for standby letters of
credit. At December 31, 1994, the Company had standby letters of credit of
$5,591,000 outstanding under this facility and $6,809,000 available under the
revolving credit facility. In 1995, the Company extended the due date from
September 1996 to December 1997 and increased the availability under this
facility to $35,000,000. The credit agreement requires the Company, among other
restrictions, to meet certain financial ratios and places certain limitations on
dividend payments and other borrowing. As of December 31, 1994, the Company was
in compliance with all covenants under the credit agreement.
In connection with the equity investment and private placement
transactions, as discussed in Note 15, Subsequent Events, the Company received
approximately $232,000,000 in cash during the three months ended September 30,
1995. The Company used a portion of these proceeds to repay all outstanding
borrowings under the revolving credit facility totaling approximately
$15,500,000 plus interest expense in August 1995. In December 1995, the Company
entered into a credit agreement (the "Credit Agreement") with certain banks
pursuant to which such banks have agreed to advance the Company on an unsecured
basis an aggregate of $250,000,000 for a term of 36 months. Outstanding
advances, if any, are payable at the expiration of the 36-month term. The Credit
Agreement requires, among other items, that the Company maintain certain
financial ratios and comply with certain financial covenants. Interest is
payable monthly and generally determined using either a competitive bid feature
or a LIBOR based rate. The Credit Agreement replaces the 1993 revolving credit
arrangement among the Company and certain other banks.
At December 31, 1994, aggregate maturities of long-term debt, as restated,
were as follows (in thousands):
<TABLE>
<S> <C>
1995....................................................................... $ 1,571
1996....................................................................... 13,156
1997....................................................................... 677
1998....................................................................... 591
1999....................................................................... 316
Thereafter................................................................. 412
-------
$16,723
=======
</TABLE>
F-18
<PAGE> 68
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings. On May 3, 1991, the Company filed an action against
G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the United
States District Court for the Central District of California (the "Court"). The
Company requested a declaratory judgment that it did not anticipatorily breach a
merger agreement (the "Merger Agreement") between the Company and GI and that
the Merger Agreement had been properly terminated. The Company also sought to
recover $600,000 from GI, plus interest and costs, with respect to a certain
financial guaranty provided by Republic in 1990 for the benefit of GI. In
response to the Company's action, GI filed a counterclaim alleging that the
Company breached the Merger Agreement and that it had suffered damages in excess
of $16,000,000. In August 1993, the Court rendered a ruling in favor of Republic
and found that GI did not meet its burden in proving that it could have
performed its obligations under the Merger Agreement. GI appealed that decision
in September 1993. In March 1995, the United States Court of Appeals for the
Ninth Circuit (the "Court of Appeals") vacated the August 1993 decision and
remanded the case back to the Court for a hearing on damages. The Company filed
a motion for reconsideration and suggestion of en banc consideration with the
Court of Appeals in an effort to restore the original ruling denying GI's claim.
On May 12, 1995, the Court of Appeals denied the motion and suggestion. The
Company has filed a petition for writ of certiorari with the United States
Supreme Court, which was denied. The Court has commenced proceedings that may
lead to a trial on damages.
Subsequent to the Company's seeking recovery from GI for the guaranty, GI
filed for protection under Chapter 11 of the Bankruptcy Code. The Company is a
secured creditor and anticipates a complete recovery of the $600,000, plus
interest and costs, including attorneys' fees.
On November 9, 1992, A&B Investors, Inc. ("A&B") filed an action against
the Company in the District Court of Harris County, Texas alleging, among other
claims, breach of contract and securities fraud. On July 14, 1995, this matter
was resolved in an out-of-court settlement which did not have a material effect
on the Company's results of operations or consolidated financial position.
Western Waste Industries, Inc. ("Western") filed an action against the
Company and others on July 20, 1990 for various causes of action including
interference with business relations and seeks $24,000,000 in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case is currently scheduled for trial in March 1996.
While the results of the legal proceedings described above and other
proceedings which arose in the normal course of business cannot be predicted
with certainty, management believes that losses, if any, resulting from the
ultimate resolution of these matters will not have a material adverse effect on
the Company's results of operations or consolidated financial position.
Environmental Matters. The Company's solid waste and environmental
services activities are conducted in the context of a developing and changing
statutory and regulatory framework, aggressive government enforcement and a
highly visible political environment. Governmental regulation of the waste
management industry requires the Company to obtain and retain numerous
governmental permits to conduct various aspects of its operations. These permits
are subject to revocation, modification or denial. The costs and other capital
expenditures which may be required to obtain or retain the applicable permits or
comply with applicable regulations could be significant.
In 1992, the Company received notices from Imperial County, California (the
"County") and the California Department of Toxic Substances Control ("DTSC")
that spent filter elements (the "Filters") from geothermal power plants, which
had been deposited at the Company's Imperial Landfill for approximately five
years, were classified as hazardous waste under California environmental
regulations. Under United States EPA regulations, the Filters are not deemed
hazardous waste as they are associated with the production of geothermal energy.
F-19
<PAGE> 69
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
In February 1993, the DTSC denied the Company's October 1992 request to
classify the Filters as "special waste" under California regulations. DTSC's
denial indicated that the Filters met all technical and analytical requirements
for reclassification as a special waste, but that a procedural requirement
related to the timing of the reclassification request was not met. The Company
is currently conducting active discussions with all appropriate California
regulatory agencies in order to seek a variance under California regulations
which will reclassify the Filters as a special waste, irrespective of the
reclassification application submittal timing issue, and allow the Filters to be
left in the landfill. If this occurs, the state, regional and local regulatory
agencies may nevertheless require that the affected area of the landfill be
capped and that the affected area accept no additional waste. A decision on the
reclassification issue is expected by Spring of 1996. In the event that the
variance is not granted, the Regional Water Quality Control Board and Integrated
Waste Management Board will determine what remedial measures must be taken based
on the Filters' classification as a California hazardous waste. One of those
measures could include the removal of the Filters or the closure of a portion of
the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses the Company incurs associated with the
resolution of this matter, including loss of airspace at the landfill, in the
United States District Court for the Southern District of California, alleging
claims for CERCLA response costs recovery and intentional misrepresentation
among other claims. The Company seeks to recover actual expenses and punitive
damages. Discovery and regulatory studies are proceeding. The Company believes
it will prevail, but no amounts have been accrued for any recovery of damages.
Although it is possible that losses exceeding amounts already recorded may
be incurred upon the ultimate resolution of the environmental matters described
above, management believes that such losses, if any, will not have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position.
Operating Lease Commitments. The Company and its subsidiaries lease
portions of their premises and certain equipment under various operating lease
agreements. At December 31, 1994, total minimum rental commitments becoming
payable under all operating leases, as restated, are as follows (in thousands):
<TABLE>
<S> <C>
1995.............................................................. $562
1996.............................................................. 470
1997.............................................................. 338
1998.............................................................. 104
1999.............................................................. 53
Thereafter........................................................ 27
</TABLE>
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
F-20
<PAGE> 70
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
common stock and, in some cases, additional cash to the sellers of those
businesses based on the attainment of certain earnings levels and other
contingencies. During the years ended December 31, 1994, 1993 and 1992, the
Company has issued approximately 29,000, 160,000 and 186,000 shares of common
stock and paid $623,000, $432,000 and $40,000, respectively, for the attainment
of such earnings levels. These amounts have been capitalized as additional
purchase price. The maximum contingent consideration to be earned over the next
eight years as of December 31, 1994 consists of approximately 406,000 shares of
the Company's common stock and $412,000. Under the terms of an acquisition
agreement, the Company has agreed to pay additional consideration to the former
owners of a landfill site of a maximum of $2,500,000 upon the expansion of the
landfill airspace by up to 2,500,000 cubic yards.
Other Matters. At December 31, 1994, the Company had made cash deposits
into escrow accounts which total $735,000 in connection with landfill closure
and certain other obligations, of which $656,000 was included in cash and cash
equivalents and $79,000 was included in other assets. Additionally, the Company
has bonding facilities for the issuance of payment, performance and bid bonds,
of which $1,684,000 in bonds were outstanding at December 31, 1994. The Company
also has facilities available for the issuance of standby letters of credit, of
which $3,980,000 in letters of credit were outstanding at December 31, 1994.
10. STOCKHOLDERS' EQUITY
Preferred Stock. The Company has 5,000,000 authorized shares of preferred
stock, $.01 par value per share, none of which are issued or outstanding. The
Board of Directors has the authority to issue the preferred stock in one or more
series and to establish the rights, preferences and dividends.
Treasury Stock. In October 1993, the Board of Directors authorized the
Company to repurchase up to 1,300,000 shares of its outstanding Common Stock,
through October 1994, as deemed appropriate by management. Through October 1994,
281,000 shares were repurchased for an aggregate value of $856,000. In October
1994, the Board of Directors authorized management to continue the repurchase
program and to repurchase up to an additional 1,300,000 shares of its
outstanding Common Stock, through October 1995. The repurchasing of shares was
intended to achieve a more favorable balance between the market supply of the
shares and market demand, as well as take advantage of the relatively low price
of the Company's Common Stock. Repurchases have been effected at prevailing
market prices from time to time on the open market. The repurchased shares
represent additions to treasury stock. In October 1994, the Board of Directors
authorized the retirement of the 281,000 shares held in treasury, which were
retired in the fourth quarter of 1994. In December 1994, 28,993 shares of the
Company's Common Stock were returned to the Company in a settlement with a
former owner of one of its subsidiaries. These shares represented additions to
treasury stock and were subsequently retired in December 1994. The Company's
stock repurchase program expired in October 1995 and the Company does not
currently plan to repurchase any additional Common Stock.
1991 Stock Option Plan. In October 1991, the Board of Directors approved a
stock option plan (the "1991 Plan"), which was subsequently approved by the
Company's stockholders at the 1992 Annual Meeting of Stockholders, under which
employees and officers of the Company or any of its subsidiaries or parent
corporations and members of the Board of Directors of the Company may be awarded
options to purchase common shares. A maximum of 5,000,000 common shares, less
shares issued or purchased pursuant to the 1990 Stock Option and Stock Purchase
Plan (the "1990 Plan") as discussed below, have been reserved for issuance to
participants in the 1991 Plan in the form of stock options. The option price
under the 1991 Plan is to be determined by the Board of Directors but shall not
be less than the fair market value of the common shares on the date the stock
option is granted. Options are subject to adjustment upon certain changes in the
capital structure of the Company, such as a stock dividend, stock split or other
similar events.
1990 Stock Option and Stock Purchase Plan. In April 1990, the Board of
Directors approved a stock option and stock purchase plan for certain key
employees, directors, consultants and advisors. A maximum of 2,500,000 shares of
Common Stock were reserved for issuance to participants in the plan in the form
of either
F-21
<PAGE> 71
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
stock options or stock purchases, as determined by the Compensation Committee.
Options granted under the plan expire ten years from the date of grant and vest
over varying periods as determined by the Compensation Committee. During the
year ended December 31, 1990, 700,000 shares were purchased at $2.50 to $4.50
per share. When shares were purchased under the 1990 Plan, the participant paid
the par value of the shares in cash, and issued a nonrecourse promissory note to
the Company for the balance of the purchase price. These promissory notes along
with interest are due ten years from the date of issuance and are collateralized
by the shares purchased. During 1992, the Company received payment of $648,000
on notes receivable arising from stock purchase agreements pursuant to the 1990
Plan. The 1990 Plan has been replaced by the 1991 Plan, as discussed above.
Activity under the Company's 1990 and 1991 stock option plans during each
of the two years in the period ended December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1990 PLAN 1991 PLAN TOTAL OPTION PRICE
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992.......... 598,000 348,500 946,500 $2.50-$14.50
Granted................................. 100,000 401,900 501,900 $4.00-$12.50
Cancelled............................... -- (331,900) (331,900) $7.25-$10.63
--------- --------- ---------
Outstanding at December 31, 1993.......... 698,000 418,500 1,116,500 $2.50-$14.50
Granted................................. -- 176,000 176,000 $2.69-$ 3.38
Cancelled............................... (50,000) (130,500) (180,500) $2.69-$10.63
--------- --------- ---------
Outstanding at December 31, 1994.......... 648,000 464,000 1,112,000 $2.50-$14.50
======= ======== ========
Exercisable at December 31, 1994.......... 648,000 113,450 761,450 $9.92(A)
======= ======== ========
Available for future grant at
December 31, 1993....................... 763,000 2,081,500 2,844,500
Cancelled............................... 50,000 130,500 180,500
Granted................................. -- (176,000) (176,000)
--------- --------- ---------
Available for future grant at
December 31, 1994....................... 813,000 2,036,000 2,849,000
======= ======== ========
</TABLE>
- ---------------
(A) Represents the weighted average option price of options exercisable at
December 31, 1994.
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.
F-22
<PAGE> 72
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
11. INCOME TAXES
The Company files a consolidated federal income tax return which includes
the operations of all acquired businesses for periods subsequent to the dates of
the acquisitions. Acquired companies each file a "short-period" federal tax
return through their respective acquisition dates. Kertz elected Subchapter S
corporation status for income tax reporting purposes on July 1, 1993. For
purposes of these consolidated financial statements, federal and state income
taxes have been provided as if Kertz had filed Subchapter C corporation tax
returns for the pre-acquisition periods, and the current income tax expense is
reflected as an increase to additional paid-in capital. The Subchapter S
corporation status of Kertz was terminated effective with the closing date of
the acquisition.
The components of the income tax provision related to continuing
operations, as restated, are shown below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................ $ 194 $ 342 $ 2,266
State.................................................. 253 141 127
------- ------- -------
447 483 2,393
Federal deferred......................................... 2,811 (1,517) (602)
Tax reserve adjustments.................................. (1,963) -- (1,538)
Change in valuation allowance............................ (1,242) 1,242 --
------- ------- -------
Income tax provision..................................... $ 53 $ 208 $ 253
======= ======= =======
</TABLE>
In addition to the above, the Company recorded an income tax benefit of
$210,000 and $123,000 in 1993 and 1992, respectively, related to its
discontinued operations.
In 1992, the Company changed its method of accounting for income taxes from
the method required under SFAS No. 96 to the method required under SFAS No. 109.
Since the approach under both statements is similar, there was no significant
income effect of the change on the recording of income taxes. Under SFAS No.
109, deferred tax assets or liabilities at the end of each period are determined
by applying the current tax rate to the difference between the financial
reporting and income tax basis of assets and liabilities.
Net operating loss ("NOL") carryforwards are recognized under SFAS No. 109
unless it is "more likely than not" that they will not be realized. In 1993, the
Company recorded a $1,242,000 valuation allowance related to the realization of
deferred tax assets generated as a result of the 1993 restructuring and unusual
charges. This valuation allowance was recorded due to the uncertainty
surrounding the future utilization of such deferred tax assets. In 1994, the
valuation allowance was eliminated based on the expected realization of such
deferred tax assets.
In the years immediately following an acquisition, the Company provides
income taxes at the statutory income tax rate applied to pre-tax income. As part
of its tax planning to reduce effective tax rates and cash outlays for taxes,
the Company employs a number of strategies such as combining entities to reduce
state income taxes, claiming tax credits not previously claimed and recapturing
taxes previously paid by acquired companies. At such time as these reductions in
the Company's deferred tax liabilities are determined to be realizable, the
impact of the reduction is recorded as tax reserve adjustments in the tax
provision.
F-23
<PAGE> 73
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate as reported in the accompanying consolidated statements of
operations, as restated, is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate............................ 34.0% (34.0)% 34.0%
Amortization of goodwill..................................... 1.1 3.0 1.0
State income taxes, net of federal benefit................... 2.1 3.6 0.3
Tax reserve adjustments...................................... (22.7) -- (30.0)
Change in valuation allowance................................ (14.3) 33.2 --
Other, net................................................... 0.4 0.8 (0.4)
----- ----- -----
Effective tax rate......................................... 0.6% 6.6% 4.9%
===== ===== =====
</TABLE>
Components of the net deferred income tax liability, as restated, are shown
below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- --------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis........................... $19,940 $ 20,400
Book capitalization of costs expensed for tax................... -- 31
------- --------
19,940 20,431
------- --------
Deferred income tax assets:
Net operating losses............................................ (5,185) (5,890)
Accrued environmental and landfill costs........................ (2,761) (3,054)
Accruals not currently deductible............................... (722) (1,385)
------- --------
(8,668) (10,329)
------- --------
11,272 10,102
Valuation allowance............................................... -- 1,242
------- --------
Net deferred income tax liability................................. $11,272 $ 11,344
======= ========
</TABLE>
At December 31, 1994, the Company had available U.S. NOL carryforwards of
approximately $15,249,000 which expire $7,994,000, $6,342,000 and $913,000 in
the years 2006, 2007 and 2008, respectively.
12. RELATED PARTY TRANSACTIONS
The Company has entered into an agreement to lease office space for one of
its subsidiaries with the former owner of this subsidiary who is a current
officer of this subsidiary. The Company also utilizes companies affiliated with
former owners of acquired businesses who are current officers of the Company's
subsidiaries for hauling and other services. Aggregate payments for leases and
such services were $132,000, $1,139,000 and $827,000 in 1994, 1993 and 1992,
respectively. In September 1993, the Company internalized a portion of these
hauling services through the acquisition of substantially all of the assets of a
hauling company owned by an officer of a subsidiary of the Company for $370,000
cash.
F-24
<PAGE> 74
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
13. OPERATIONS BY INDUSTRY SEGMENT
The following tables present information, as restated, regarding the
Company's different industry segments based on the historical operations of the
Company (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue
Solid waste services................................. $ 48,766 $ 41,095 $ 35,341
Electronic security services......................... 12,943 15,722 13,638
-------- -------- --------
$ 61,709 $ 56,817 $ 48,979
======== ======== ========
Operating income (loss)
Solid waste services................................. $ 9,490 $ (3,179) $ 2,840
Electronic security services......................... 213 612 356
Interest and other income (expense), net............... (1,044) (566) 1,934
-------- -------- --------
Income (loss) from continuing operations before
income taxes......................................... $ 8,659 $ (3,133) $ 5,130
======== ======== ========
Depreciation, depletion and amortization
Solid waste services................................. $ 4,748 $ 3,940 $ 2,822
Electronic security services......................... 212 202 122
-------- -------- --------
$ 4,960 $ 4,142 $ 2,944
======== ======== ========
Capital expenditures
Solid waste services................................. $ 5,452 $ 3,701 $ 10,414
Electronic security services......................... 483 629 404
-------- -------- --------
$ 5,935 $ 4,330 $ 10,818
======== ======== ========
Identifiable assets
Solid waste services................................. $112,149 $104,364 $ 99,574
Electronic security services......................... 2,481 2,438 1,639
-------- -------- --------
Total identifiable assets.................... 114,630 106,802 101,213
Net assets of discontinued operations.................. 20,292 16,872 28,533
-------- -------- --------
Total assets................................. $134,922 $123,674 $129,746
======== ======== ========
</TABLE>
F-25
<PAGE> 75
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter, as restated, for 1994 and 1993.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue............................................ 1994 $14,544 $16,234 $15,006 $ 15,925
1993 12,933 14,967 14,462 14,455
Gross profit....................................... 1994 5,964 6,090 5,761 6,202
1993 5,520 6,205 6,002 5,853
Income (loss) from continuing operations........... 1994 1,439 2,572 3,067 1,528
1993 1,139 1,385 1,694 (7,559)(a)
Net income (loss).................................. 1994 1,293 3,399 4,055 2,543
1993 668 1,280 2,092 (21,960)
Earnings (loss) per share from continuing
operations....................................... 1994 0.05 0.09 0.11 0.05
1993 0.04 0.05 0.06 (0.27)(a)
</TABLE>
- ---------------
(a) As discussed in Note 4, restructuring and unusual charges of $10,000,000
were recorded by the Company in the fourth quarter of 1993 to reorganize its
operations.
15. SUBSEQUENT EVENTS
Equity Investment by H. Wayne Huizenga and Associates, Westbury (Bermuda)
Ltd. and Harris W. Hudson. On May 21, 1995, the Company agreed to issue and
sell in aggregate 8,350,000 shares of Common Stock and warrants to purchase an
additional 16,700,000 shares of Common Stock to Mr. H. Wayne Huizenga, Westbury
(Bermuda) Ltd. (a Bermuda corporation controlled by Mr. Michael G. DeGroote,
then Chairman of the Board, President and Chief Executive Officer of Republic)
and Mr. Harris W. Hudson, and certain of their assigns for an aggregate purchase
price of $37,500,000. The warrants are exercisable at prices ranging from $4.50
to $7.00 per share effective August 3, 1995. In July 1995, the Company agreed to
sell an additional 1,000,000 shares of Common Stock each to Mr. Huizenga and Mr.
John J. Melk for $13.25 per share for aggregate proceeds of $26,500,000. These
transactions were completed on August 3, 1995.
On August 3, 1995, in connection with the equity investment, Mr. Huizenga
was elected Chairman of the Board of Directors and Chief Executive Officer of
Republic and Mr. DeGroote, former Chairman of the Board, President and Chief
Executive Officer of the Company, was elected Vice Chairman of the Board.
Additionally, Mr. Hudson was appointed as President of the Company and as a
member of the Board of Directors.
Private Placement Transactions. In July 1995, the Company sold 5,400,000
shares of Common Stock in a private placement transaction for $13.25 per share,
resulting in net proceeds of approximately $69,000,000 after deducting expenses,
fees and commissions. In September 1995, the Company sold 5,000,000 shares of
Common Stock in an additional private placement transaction for $20.25 per share
resulting in net proceeds of approximately $99,000,000 after deducting expenses,
fees and commissions.
As a result of the transactions discussed above, the Company received
approximately $232,000,000 in cash during the three months ended September 30,
1995. The Company used a portion of these proceeds to repay all outstanding
borrowings under its revolving line of credit facility and debt of Hudson
Management Corporation and Envirocycle, Inc. (collectively, "HMC") and Kertz
during the same period.
F-26
<PAGE> 76
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Acquisition of Hudson Management Corporation and Envirocycle, Inc. In
August 1995, the Company issued 8,000,000 shares of Common Stock in exchange for
all of the outstanding shares of common stock of HMC, which was owned by Mr.
Hudson. HMC, as the third largest solid waste management company in Florida,
provides solid waste collection and recycling services to commercial, industrial
and residential customers. The acquisition was accounted for under the purchase
method of accounting. Subsequent to the acquisition, the Company repaid
substantially all of the outstanding debt of HMC which totaled approximately
$11,000,000.
Acquisition of United Waste Service, Inc. In October 1995, the Company
acquired all of the outstanding common stock of United Waste Service, Inc.
("United") in exchange for 1,500,000 shares of Common Stock. United provides
solid waste collection, transfer and recycling services in the Atlanta, Georgia
metropolitan area. This acquisition will be accounted for under the
pooling-of-interests method of accounting.
Acquisition of Southland Environmental Services, Inc. In October 1995, the
Company acquired all of the outstanding common stock of Southland Environmental
Services, Inc. ("Southland") in exchange for 2,600,000 shares of Common Stock.
Southland provides solid waste collection services in the Northeast Florida area
and owns a transfer station, a construction and demolition landfill and provides
composting and recycling services. This acquisition was accounted for under the
pooling-of-interests method of accounting.
Acquisition of J.C. Duncan Company, Inc. In November 1995, the Company
acquired all of the outstanding common stock of J.C. Duncan Company, Inc. and
affiliates (collectively, "Duncan") in exchange for 5,256,055 shares of Common
Stock. Duncan provides solid waste collection and recycling services in the
Dallas-Fort Worth metropolitan area and throughout west Texas, and also operates
two landfills. This acquisition will be accounted for under the
pooling-of-interests method of accounting.
Acquisition of Garbage Disposal Service, Inc. In November 1995, the
Company issued 3,003,000 shares of Common Stock in exchange for all of the
outstanding common stock of Garbage Disposal Service, Inc. ("GDS") which
provides solid waste collection and recycling services throughout western North
Carolina. This acquisition will be accounted for under the pooling-of-interests
method of accounting.
Acquisition of Fennell Container Co., Inc. In November 1995, the Company
acquired all of the outstanding common stock of Fennell Container Co., Inc. and
affiliates (collectively, "Fennell") in exchange for 3,111,111 shares of Common
Stock. Fennell is a full-service solid waste management company, providing waste
collection, recycling and environmental services in and around Charleston and
Greenville, South Carolina. Additionally, Fennell owns a landfill which is in
the final stages of construction and is scheduled to begin accepting waste under
its new permit in early 1996. This acquisition will be accounted for under the
pooling-of-interests method of accounting.
Acquisition of Scott Security Systems. In November 1995, the Company
issued 1,567,818 shares of Common Stock in exchange for all of the outstanding
common stock of Scott Security Systems and affiliates (collectively, "Scott").
Scott is an electronic security alarm company, providing monitoring and
maintenance in Jacksonville, Orlando and Tallahassee, Florida, as well as other
metropolitan areas in the southeastern U.S., including Charlotte, North
Carolina, Savannah, Georgia and Nashville, Tennessee. This acquisition will be
accounted for under the pooling-of-interests method of accounting.
F-27
<PAGE> 77
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1995 1994 1993
------------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ $ 216,102 $ 10,031 $ 9,290
Accounts receivable, less allowance for doubtful accounts
of $1,996 (unaudited), $1,055 and $1,016,
respectively.......................................... 33,134 21,610 17,434
Prepaid expenses......................................... 3,563 2,559 2,710
Current portion of deferred installation costs........... 4,732 2,360 1,535
Other current assets..................................... 6,955 5,043 4,748
------------- -------- --------
TOTAL CURRENT ASSETS............................. 264,486 41,603 35,717
Property and equipment, net................................ 175,313 134,506 126,107
Goodwill, net of accumulated amortization of $3,608
(unaudited), $3,212 and $2,219,respectively.............. 91,464 15,605 9,910
Deferred installation costs, net of current portion........ 27,157 21,833 8,512
Net assets of discontinued operations...................... -- 20,292 16,872
Other assets............................................... 10,920 8,526 6,755
------------- -------- --------
TOTAL ASSETS..................................... $ 569,340 $242,365 $203,873
========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable......................................... $ 17,454 $ 11,777 $ 10,366
Accrued liabilities...................................... 20,026 9,675 6,076
Current portion of deferred revenue...................... 22,462 12,255 5,853
Current maturities of long-term debt and notes payable... 11,520 10,097 9,913
Current portion of accrued environmental and landfill
costs................................................. 1,008 1,404 1,715
Income taxes payable..................................... 1,570 1,281 568
------------- -------- --------
TOTAL CURRENT LIABILITIES........................ 74,040 46,489 34,491
Long-term debt, net of current maturities.................. 42,166 43,991 41,596
Deferred revenue, net of current portion................... 17,030 20,353 10,913
Accrued environmental and landfill costs, net of current
portion.................................................. 6,612 8,244 8,757
Deferred income taxes...................................... 13,907 11,510 11,444
Other liabilities.......................................... 3,103 1,948 367
------------- -------- --------
TOTAL LIABILITIES................................ 156,858 132,535 107,568
------------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)..................... -- -- --
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 per share; 5,000,000
shares authorized; none issued........................ -- -- --
Common stock, par value $0.01 per share; 350,000,000,
100,000,000 and 100,000,000 shares authorized,
respectively; 75,059,040 (unaudited), 45,313,715, and
45,476,372 issued, respectively....................... 750 453 454
Additional paid-in capital............................... 383,425 105,586 104,674
Retained earnings (accumulated deficit).................. 28,307 4,464 (8,150)
Notes receivable arising from stock purchase
agreements............................................ -- (673) (673)
------------- -------- --------
TOTAL STOCKHOLDERS' EQUITY....................... 412,482 109,830 96,305
------------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 569,340 $242,365 $203,873
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-28
<PAGE> 78
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue................................... $185,207 $140,988 $187,111 $154,301 $134,440
Expenses:
Cost of operations...................... 123,805 94,304 123,877 104,720 92,092
Selling, general and administrative..... 40,549 30,716 41,730 38,854 31,796
Restructuring and unusual charges....... -- -- -- 10,040 2,250
Other (income) expense:
Interest and other income............... (2,710) (784) (989) (712) (3,075)
Interest expense........................ 3,951 2,852 4,222 2,685 2,329
-------- -------- -------- -------- --------
165,595 127,088 168,840 155,587 125,392
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes..................... 19,612 13,900 18,271 (1,286) 9,048
Income tax provision...................... 6,985 2,822 3,839 1,187 2,086
-------- -------- -------- -------- --------
Income (loss) from continuing
operations.............................. 12,627 11,078 14,432 (2,473) 6,962
-------- -------- -------- -------- --------
Discontinued operations:
Income (loss) from discontinued
operations, net of income tax benefit
of $298 (unaudited), $0 (unaudited),
$0, $210 and $123, respectively...... 508 1,669 2,684 (14,579) (1,117)
Loss on disposition..................... -- -- -- -- (17,563)
-------- -------- -------- -------- --------
508 1,669 2,684 (14,579) (18,680)
-------- -------- -------- -------- --------
Net income (loss)....................... $ 13,135 $ 12,747 $ 17,116 $(17,052) $(11,718)
======== ======== ======== ======== ========
Primary earnings (loss) per common and
common equivalent share:
Continuing operations................... $ 0.24 $ 0.24 $ 0.32 $ (0.05) $ 0.16
Discontinued operations................. 0.01 0.04 0.06 (0.32) (0.42)
-------- -------- -------- -------- --------
Net income (loss)....................... $ 0.25 $ 0.28 $ 0.38 $ (0.37) $ (0.26)
======== ======== ======== ======== ========
Fully diluted earnings (loss) per common
and common equivalent share:
Continuing operations................... $ 0.23 $ 0.24 $ 0.32 $ (0.05) $ 0.16
Discontinued operations................. 0.01 0.04 0.06 (0.32) (0.42)
-------- -------- -------- -------- --------
Net income (loss)....................... $ 0.24 $ 0.28 $ 0.38 $ (0.37) $ (0.26)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-29
<PAGE> 79
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
RETAINED ARISING
ADDITIONAL EARNINGS FROM STOCK
COMMON PAID-IN (ACCUMULATED PURCHASE
STOCK CAPITAL DEFICIT) AGREEMENTS
------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991........................ $428 $ 85,550 $ 27,222 $ (698)
Exercise of MGD warrants, net of expenses......... 20 10,980 -- --
Exercise of stock options and related tax
benefits....................................... 1 1,745 -- --
Shares issued for business acquisitions........... 5 2,959 -- --
Contributions to capital from pooled entities..... -- 864 50 --
Distributions to former shareholders of acquired
companies...................................... -- -- (2,173) --
Collections on notes receivable................... -- -- -- 25
Foreign currency translation adjustment........... -- -- (983) --
Capital contributions equal to the current income
taxes of S-Corporations........................ -- 365 -- --
Net loss.......................................... -- -- (11,718) --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1992........................ 454 102,463 12,398 (673)
Cancellation of shares held in escrow issued for
an acquisition................................. (1) (944) -- --
Shares issued for contingent consideration........ 1 265 -- --
Contributions to capital from pooled entities..... -- 2,060 -- --
Distributions to former shareholders of acquired
companies...................................... -- -- (3,078) --
Foreign currency translation adjustment........... -- -- (472) --
Capital contributions equal to the current income
taxes of S-Corporations........................ -- 830 54 --
Net loss.......................................... -- -- (17,052) --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1993........................ 454 104,674 (8,150) (673)
Shares issued for contingent consideration, net of
shares returned in settlement.................. 2 (2) -- --
Purchases and retirements of treasury stock....... (3) (853) -- --
Contributions to capital from pooled entities..... -- 586 -- --
Distributions to former shareholders of acquired
companies...................................... -- -- (4,520) --
Foreign currency translation adjustment........... -- -- 18 --
Capital contributions equal to the current income
taxes of S-Corporations........................ -- 1,181 -- --
Net income........................................ -- -- 17,116 --
------ ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1994........................ $453 $ 105,586 $ 4,464 $ (673)
====== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-30
<PAGE> 80
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Income (loss) from continuing operations....................... $ 12,627 $ 11,078 $ 14,432 $ (1,549) $ 6,962
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing operations:
Restructuring and unusual charges............................ -- -- -- 10,040 --
Depreciation, depletion and amortization..................... 13,893.. 10,865 14,764 12,634 10,377
Provision for doubtful accounts.............................. 679 448 315 480 487
Provision for accrued environmental and landfill costs....... 255 308 377 215 76
Gain on the sale of equipment................................ (347) (240) (285) (148) (1,047)
Gain on sale of marketable securities........................ -- -- -- -- (2,000)
Changes in assets and liabilities, net of effects from
business acquisitions:
Accounts receivable........................................ (4,804) (2,070) (2,997) (2,434) (3,153)
Prepaid expenses and other assets.......................... (2,979) (707) (395) (2,307) (273)
Accounts payable and accrued liabilities................... 4,525 1,225 2,263 (52) 2,158
Income taxes payable....................................... (659) 212 712 (772) 1,906
Other liabilities.......................................... 2,238 546 301 595 (329)
-------- -------- -------- -------- --------
Net cash provided by continuing operations................. 25,428 21,665 29,487 16,702 15,164
-------- -------- -------- -------- --------
CASH PROVIDED BY (USED BY) DISCONTINUED
OPERATIONS..................................................... (261) 1,279 (736) (4,360) (17,610)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired.................... (6,099) (1,493) (4,776) (5,664) (4,003)
Purchases of property and equipment............................ (25,935) (18,434) (22,656) (13,103) (21,109)
Proceeds from the sale of equipment............................ 1,175 1,305 1,439 994 1,369
Capitalized installation costs................................. (7,696) (9,669) (14,146) (7,768) (1,611)
Other investments.............................................. (1,013) 84 (819) (2,233) 91
Purchases of marketable securities............................. -- -- -- -- (7,554)
Proceeds from the sale of marketable securities................ -- -- -- -- 9,554
-------- -------- -------- -------- --------
Net cash used in investing activities.......................... (39,568) (28,207) (40,958) (27,774) (23,263)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants......................... 6,333 -- -- -- --
Capital contribution to Republic Environmental Systems, Inc.... (2,520) -- ..... -- -- --
Payments of long-term debt and notes payable................... (40,110) (12,746) (16,474) (14,552) (21,195)
Proceeds from long-term debt and notes payable................. 21,838.. 13,024 19,453 21,414 22,549
Proceeds from financing arrangements........................... 5,276 11,707 15,729 11,153 1,588
Purchases of treasury stock.................................... (222) (856) (856) -- --
Contributions to capital from pooled entities.................. 283 353 301 964 686
Distributions to former shareholders of acquired businesses.... (3,127) (4,291) (5,205) (2,933) (1,942)
Payments of debt issuance costs................................ -- -- -- (494) --
Sales of common stock.......................................... 232,048 -- -- -- 11,466
Payments of common stock issuance costs........................ -- -- -- -- (78)
Payments received on notes receivable arising from stock
purchase agreements.......................................... 673 -- -- -- 648
-------- -------- -------- -------- --------
Net cash provided by financing activities...................... 220,472 7,191 12,948 15,552 13,722
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. 206,071 1,928 741 120 (11,987)
CASH AND CASH EQUIVALENTS:
Beginning of period............................................ 10,031 9,290 9,290 9,170 21,157
-------- -------- -------- -------- --------
End of period.................................................. $216,102 $ 11,218 $ 10,031 $ 9,290 $ 9,170
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest....................................................... $ 2,815 $ 2,236 $ 4,152 $ 2,422 $ 3,002
Income taxes................................................... $ 3,590 $ 2,004 $ 2,278 $ 1,260 $ 1,507
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases of $1,443, $1,867 and $2,873 were financed in the years
ended December 31, 1994, 1993 and 1992, respectively, by borrowings and
capitalized lease obligations.
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-31
<PAGE> 81
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying supplemental consolidated
financial statements include the accounts of Republic Industries, Inc. (formerly
Republic Waste Industries, Inc.) and its wholly-owned subsidiaries ("Republic"
or the "Company"). All significant intercompany accounts and transactions have
been eliminated. In 1994, the Board of Directors authorized management to pursue
a plan to distribute its hazardous waste services segment, Republic
Environmental Systems, Inc. ("RESI"), to Republic stockholders. In February
1995, the Board of Directors approved this distribution to Republic
stockholders. Accordingly, as discussed in Note 2, this segment has been
accounted for as a discontinued operation and the accompanying supplemental
consolidated financial statements for all periods presented have been restated
to report separately the net assets and operating results of these discontinued
operations.
In the opinion of management, the unaudited supplemental consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the consolidated financial
position of the Company at September 30, 1995, and the consolidated results of
their operations and cash flows for the nine months ended September 30, 1995 and
1994.
The accompanying supplemental consolidated financial statements include the
financial position and results of operations of Kertz Security Systems II, Inc.
and Kertz Security Systems, Inc. (collectively, "Kertz"), with which the Company
merged in August 1995. This transaction was accounted for under the pooling of
interests method of accounting and, accordingly, the accompanying supplemental
consolidated financial statements have been restated as if the Company and Kertz
had operated as one entity since inception. See Note 3, Business Combinations,
for a further discussion of this transaction.
Supplemental Consolidated Financial Statements. The accompanying
supplemental consolidated financial statements give retroactive effect to the
mergers with United Waste Service, Inc. ("United") and Southland Environmental
Services, Inc. ("Southland"), which took place in October 1995, and J.C. Duncan
Company, Inc. and affiliates ("Duncan"), Garbage Disposal Service, Inc. ("GDS"),
Fennell Container Co., Inc. and affiliates ("Fennell") and Scott Security
Systems and affiliates ("Scott"), which took place in November 1995. These
transactions were accounted for under the pooling of interests method of
accounting. See Note 3, Business Combinations, for further discussion of these
transactions.
For the years ended December 31, 1994, 1993 and 1992, United, Southland,
and GDS were consolidated for their fiscal years ended on September 30. In
connection with the United, Southland and GDS mergers, effective January 1,
1995, the Company has changed the year ends of United, Southland and GDS to
conform with that of the Company. The results of operations for United,
Southland and GDS for the three months ended December 31, 1994 have been
reported as a direct credit to the Company's retained earnings. Such amount was
not material to the supplemental consolidated financial position and results of
operations of the Company.
Revenue Recognition. The Company recognizes revenue as services are
provided.
Marketable Securities. The Company purchases marketable securities for
investment purposes which are recorded at the lower of cost or market. The
Company includes gains and losses incurred in connection with marketable
securities in interest and other income. In 1992, the Company realized gains on
marketable securities purchased and subsequently sold during the year. The
Company currently holds no equity securities as defined under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Other Current Assets. Inventories consisting principally of equipment
parts, compost materials and supplies are valued under a method which
approximates the lower of cost (first-in, first-out) or market. At December 31,
1994 and 1993, other current assets included inventories of $3,360,000 and
$3,252,000, respectively.
F-32
<PAGE> 82
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment. Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in current operations.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions as of the effective date of the
acquisition to conform with its policies regarding property and equipment.
Depreciation is provided over the estimated useful lives of the assets involved
using the straight-line method. The estimated useful lives are: twenty to forty
years for buildings and improvements, three to fifteen years for vehicles and
equipment and five to ten years for furniture and fixtures. Landfills are stated
at cost and are depleted based on consumed airspace. Landfill improvements
include direct costs incurred to obtain a landfill permit and direct costs
incurred to construct and develop the site, and these costs are also depleted
based on consumed airspace. No general and administrative costs are capitalized
as landfills and landfill improvements.
Accrued Liabilities. The Company provides accruals for estimated insurance
claims for the self-funded portion of its insurance plans. At December 31, 1994
and 1993, insurance claims reserves of $1,009,000 and $701,000, respectively,
were included in accrued liabilities.
Accrued Environmental and Landfill Costs. Accrued environmental and
landfill costs include landfill site closure and post-closure costs. Landfill
site closure and post-closure costs include costs to be incurred for final
closure of the landfills and costs for providing required post-closure
monitoring and maintenance of landfills. These costs are accrued based on
consumed airspace. The Company estimates its future cost requirements for
closure and post-closure monitoring and maintenance for its solid waste
facilities based on its interpretation of the technical standards of the United
States Environmental Protection Agency's Subtitle D regulations. These estimates
do not take into account discounts for the present value of such total estimated
costs. Environmental costs are accrued by the Company through a charge to income
in the appropriate period for known and anticipated environmental liabilities.
Income Taxes. The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," which the Company adopted in 1992,
the effect of which was not material. Accordingly, deferred income taxes have
been provided to show the effect of temporary differences between the
recognition of revenues and expenses for financial and income tax reporting
purposes and between the tax basis of assets and liabilities and their reported
amounts in the financial statements.
Goodwill. Goodwill is amortized over the lesser of the estimated life or
forty years, on a straight-line basis. Amortization expense related to goodwill
and other intangible assets was $1,252,000, $939,000 and $701,000 in 1994, 1993
and 1992, respectively.
Deferred Installation Costs. Deferred installation costs represent
capitalized direct labor and material costs associated with new monitoring
contracts installed by the Company.
The costs are amortized based on an estimated customer life determined by
the historical attrition rates. The amortization method applies the attrition
rate (converted to an estimated useful life) to the entire net book value of the
account base at the beginning of each period adjusted for additions and
divestitures during the period. These costs are being amortized over periods
ranging from eight to twelve years.
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
F-33
<PAGE> 83
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value of each asset and liability. For a one-year period subsequent to the
acquisition date, the estimates are refined if additional facts become known
regarding contingencies that existed at the date of acquisition. At the end of
the one-year period following the date of acquisition, the estimates are
finalized and no other entries are made to purchase accounting.
Acquisitions accounted for under the pooling of interests method of
accounting are included retroactively in the Company's financial statements as
if the companies had operated as one entity since inception.
Statements of Cash Flows. The Company considers all highly liquid
investments with purchased maturities of three months or less to be cash
equivalents. The effect of non-cash transactions related to business
combinations, as discussed in Note 3, and other non-cash transactions are
excluded from the statements of cash flows.
Foreign Currency Translation. All asset and liability accounts of foreign
subsidiaries are translated to U.S. dollars at the rate of exchange in effect at
the balance sheet date. All income statement accounts of foreign subsidiaries
are translated at average exchange rates during the year. Resulting translation
adjustments arising from these translations are charged or credited directly to
stockholders' equity. Gain or loss on foreign currency transactions are included
in income as incurred. There was no material effect on foreign cash balances of
foreign currency translations in 1994 and 1993. All of the Company's foreign
subsidiaries are a part of the hazardous waste services segment of the Company.
In connection with the spin-off of the hazardous waste services segment, as
discussed in Note 2, this segment of the Company's business has been accounted
for as a discontinued operation.
Fair Value of Financial Instruments. The book values of cash, trade
accounts receivable, trade accounts payable and financial instruments included
in other current assets and other assets approximate their fair values
principally because of the short-term maturities of these instruments. The fair
value of the Company's long-term debt is estimated based on the current rates
offered to the Company for debt of similar terms and maturities. Under this
method the Company's fair value of long-term debt was not significantly
different than the stated value at December 31, 1994 and 1993.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying supplemental consolidated balance sheets. The Company's management
believes that the likelihood of performance under these financial instruments is
minimal and expects no material losses to occur in connection with these
financial instruments.
Concentrations of Credit Risk. Concentrations of credit risk with respect
to trade receivables are limited due to the wide variety of customers and
markets into which the Company's services are provided, as well as their
dispersion across many different geographic areas. As a result, as of December
31, 1994, the Company does not consider itself to have any significant
concentrations of credit risk.
2. DISCONTINUED OPERATIONS
Spin-Off of The Hazardous Waste Services Segment in 1994. In July 1994,
the Company announced the contemplation of a plan to exit the hazardous waste
services segment of the environmental industry, and in October 1994, the Board
of Directors authorized management to pursue such plan, subject to final
approval from the Board of Directors and the resolution of certain legal and
financial requirements. The plan provides for the combination of the Company's
hazardous waste services operations in its wholly-owned subsidiary, RESI, and
the distribution of the stock of RESI to the stockholders of record of Republic
(the "Distribution"). On April 26, 1995, Republic stockholders received one
share of common stock of RESI for every five shares of Common Stock of Republic
owned on April 21, 1995 in connection with the spin-off of RESI. Approximately
5,400,000 RESI shares were distributed to the Company's stockholders. RESI's
common stock commenced trading on the Nasdaq National Market on April 27, 1995
under the trading symbol "RESI." The Company has had no direct ownership
interest in RESI since the Distribution.
F-34
<PAGE> 84
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The hazardous waste services segment of the Company's business has been
accounted for as a discontinued operation and, accordingly, the accompanying
supplemental consolidated financial statements of the Company have been restated
to report separately the net assets and operating results of these discontinued
operations. A summary of the net assets of this segment is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Current assets................................................... $13,595 $14,735
Non-current assets............................................... 26,347 34,783
------- -------
Total assets........................................... 39,942 49,518
------- -------
Current liabilities.............................................. 13,040 14,465
Non-current liabilities.......................................... 6,610 18,181
------- -------
Total liabilities...................................... 19,650 32,646
------- -------
Net assets of discontinued operations............................ $20,292 $16,872
======= =======
</TABLE>
A summary of the operating results of the Company's hazardous waste
services segment is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Revenue.................................................. $46,599 $ 61,617 $74,668
Expenses:
Cost of operations..................................... 33,377 47,028 54,634
Selling, general and administrative.................... 10,349 13,480 15,141
Restructuring and unusual charges...................... 8,484 14,906 577
------- -------- -------
Operating income (loss).................................. (5,611) (13,797) 4,316
Other expense, net of other income....................... 353 992 1,327
------- -------- -------
Income (loss) before extraordinary gain and income
taxes.................................................. (5,964) (14,789) 2,989
Income tax provision (benefit)........................... (3,092) (210) 1,442
------- -------- -------
Income (loss) before extraordinary gain.................. (2,872) (14,579) 1,547
Extraordinary gain on conversion of debt, net of income
tax provision of $3,092................................ 5,556 -- --
------- -------- -------
Net income (loss)........................................ $ 2,684 $(14,579) $ 1,547
======= ======== =======
</TABLE>
In connection with the Distribution, the Company has entered into the
Distribution Agreement with RESI which sets forth the terms of the Distribution.
Under this agreement, Republic contributed the intercompany balance to RESI's
equity at the date of the Distribution. In April 1995, Republic contributed
approximately $2,500,000 to RESI to repay certain indebtedness of RESI and to
provide working capital to RESI. Additionally, the Company reclassified
approximately $36,300,000 to retained earnings from additional paid-in capital
in 1995 to effect the spin-off under Delaware law. As a result of these
transactions, the Company's equity at the date of the Distribution was reduced
by approximately $23,000,000.
The Company has also entered into various agreements with RESI which govern
certain matters between the two parties such as ongoing corporate services to be
provided by the Company to RESI, insurance coverage for RESI for a certain
period after the date of the Distribution, treatment of various tax matters for
periods through the date of the Distribution, responsibility for any adjustments
as a result of audit by any taxing authority and indemnification between both
parties. Republic has agreed to continue to provide certain corporate services,
including insurance, administration, human resources management, financial
reporting and
F-35
<PAGE> 85
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tax, legal and environmental engineering services to RESI after the Distribution
until terminated by either party. The Corporate Services Agreement is expected
to be terminated by the end of 1995. During 1994, 1993 and 1992, the Company
allocated expenses for these services to RESI totaling $851,000, $839,000 and
$739,000, respectively, on a basis that approximated the cost of actual services
provided.
Since 1992, RESI has participated in the Company's combined risk management
programs for property and casualty insurance and will continue to do so until
the expiration of the Company's existing policies in June 1995. In 1994, 1993
and 1992, the Company charged RESI for annual premiums and reported losses of
$1,678,000, $1,745,000 and $1,116,000, respectively. RESI has agreed to
indemnify the Company against increases in current losses and any future losses
incurred in connection with RESI's participation in these programs.
Sale of Demolition and Excavation Subsidiary in 1992. In 1992, the Company
sold its demolition and excavation subsidiary, Republic Environmental Services,
Inc. ("RES Demolition") and recorded a non-cash loss on disposition of
$17,600,000. This segment of the Company's business was accounted for as a
discontinued operation and, accordingly, the Company's supplemental consolidated
financial statements report separately the operating results of these
discontinued operations through the date of sale in 1992. In 1992, revenues and
net loss of the discontinued operations of RES Demolition were $2,900,000 and
$2,700,000, respectively.
3. BUSINESS COMBINATIONS
In August 1995, the Company merged with Kertz. In October 1995, the Company
merged with United and Southland. In November 1995, the Company merged with
Duncan, GDS, Fennell and Scott. The Company issued 1,090,000 shares of the
Company's common stock, $.01 par value per share, ("Common Stock") in exchange
for all of the outstanding shares of common stock of Kertz, which provides
electronic security monitoring and maintenance predominantly in the South
Florida, Tampa and Orlando areas. The Company issued 1,500,000 shares of Common
Stock in exchange for all of the outstanding common stock of United which
provides solid waste collection, transfer and recycling services in the Atlanta,
Georgia metropolitan area. The Company issued 2,600,000 shares of Common Stock
in exchange for all of the outstanding common stock of Southland which provides
solid waste collection services in the Northeast Florida area. The Company
issued 5,256,055 shares of Common Stock in exchange for all of the outstanding
common stock of Duncan which provides solid waste collection and recycling
services in the Dallas-Fort Worth metropolitan area and throughout west Texas
and also operates two landfills. The Company issued 3,003,000 shares of Common
Stock in exchange for all of the outstanding common stock of GDS which provides
solid waste collection and recycling services throughout western North Carolina.
The Company issued 3,111,111 shares of Common Stock in exchange for all of the
outstanding common stock of Fennell which is a full-service solid waste
management company, providing services in and around Charleston and Greenville,
South Carolina and also owns a landfill. The Company issued 1,567,818 shares of
Common Stock in exchange for all of the outstanding common stock of Scott which
is an electronic security alarm company, providing monitoring and maintenance
services in Jacksonville, Orlando and Tallahassee, Florida, and other
metropolitan areas in the southeastern United States, including Charlotte, North
Carolina, Savannah, Georgia and Nashville, Tennessee. These transactions were
accounted for under the pooling of interests method of accounting and,
accordingly, the accompanying supplemental consolidated financial statements
have been retroactively adjusted as if Kertz, United, Southland, Duncan, GDS,
Fennell and Scott (the "Pooled Entities") and the Company had operated as one
entity since inception.
F-36
<PAGE> 86
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of the results of operations of the Company and the Pooled Entities
for the periods prior to the combinations are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
The Company....................... $ 55,945 $ 36,307 $ 48,766 $ 41,095 $ 35,341
Pooled entities................... 129,262 104,681 138,345 113,206 99,099
-------- -------- -------- -------- --------
$185,207 $140,988 $187,111 $154,301 $134,440
======== ======== ======== ======== ========
Net income (loss):
The Company....................... $ 7,134 $ 8,117 $ 11,187 $(18,484) $(14,004)
Pooled entities................... 6,001 4,630 5,929 1,432 2,286
-------- -------- -------- -------- --------
$ 13,135 $ 12,747 $ 17,116 $(17,052) $(11,718)
======== ======== ======== ======== ========
</TABLE>
From January 1, 1992 through December 31, 1994, the Company acquired seven
businesses, all of which were accounted for under the purchase method of
accounting. The businesses accounted for under the purchase method of accounting
were acquired for a combination of cash and shares of the Company's Common
Stock. The value of the Common Stock reflects the market value of the Company's
Common Stock at the closing of each acquisition, adjusted to account for
restrictions common to unregistered securities and for registration rights, if
applicable. The final determination of the cost of certain of the Company's
acquisitions is subject to the resolution of certain contingencies, primarily
the determination of contingent consideration payable as described in Note 9.
The operating results of the acquired businesses accounted for under the
purchase method of accounting have been included in the supplemental
consolidated financial statements from the dates of acquisition. The pro forma
effect of these acquisitions is not material to the supplemental consolidated
results of operations for all periods presented.
In August 1995, the Company acquired all of the outstanding shares of
common stock of Hudson Management Corporation and Envirocycle, Inc.
(collectively, "HMC"). The purchase price paid by the Company was approximately
$72,800,000 and consisted of 8,000,000 shares of Common Stock. HMC, as the third
largest solid waste management company in Florida, provides solid waste
collection and recycling services to commercial, industrial and residential
customers. This acquisition, as well as several other minor business
combinations in 1995, has been accounted for under the purchase method of
accounting and, accordingly, is included in the Company's supplemental
consolidated financial statements from the date of acquisition.
The Company's consolidated results of operations on an unaudited pro forma
basis assuming the acquisition of HMC had occurred at the beginning of each of
the periods presented are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------------- ------------
<S> <C> <C>
Revenue................................................. $ 218,408 $235,114
============== ==========
Income from continuing operations before income taxes... $ 21,254 $ 21,277
============== ==========
Net income.............................................. $ 13,612 $ 16,169
============== ==========
Fully diluted earnings per common and common equivalent
share................................................. $ 0.22 $ 0.30
============== ==========
Pro forma weighted average common and common equivalent
shares................................................ 62,909 53,545
============== ==========
</TABLE>
F-37
<PAGE> 87
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of January 1, 1992.
The following table sets forth the purchase price of the Company's
acquisitions accounted for under the purchase method of accounting (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------
1995 1994 1994 1993 1992
------- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash (net of cash acquired).................. $ 6,099 $1,493 $4,776 $5,664 $4,003
Common stock (including contingent
consideration earned)...................... 72,800 -- 105 266 2,964
------- ------ ------ ------ ------
$78,899 $1,493 $4,881 $5,930 $6,967
======= ====== ====== ====== ======
</TABLE>
As discussed in Note 9, the Company also paid additional consideration to
the sellers of previously completed acquisitions for the attainment of certain
earnings levels as specified in the respective acquisition agreements.
4. RESTRUCTURING AND UNUSUAL CHARGES
In the fourth quarter of 1993, the Company recorded restructuring and
unusual charges of $10,000,000 based on the Company's reevaluation of each of
its solid waste operations. As a result of this reevaluation, the Company
decided to close one of its facilities due to low waste volumes and abandon its
permitting effort at another facility because of limited market opportunity in
that area and delays in the permitting process. In accordance with industry
standards, the Company provides for closure and post-closure over the life of a
facility. Accordingly, the Company fully provided for these costs on the closed
facility. The provision for closure and post-closure and the write-off of
property and equipment and accumulated permitting costs associated with these
facilities totaled $6,600,000. In conjunction with the reevaluation, the Company
also decided to terminate certain contracts and employees. Costs related to
employee relocations and terminations and other contract terminations totaled
$1,200,000. In addition, the Company also reevaluated its exposure related to
litigation and environmental matters and provided additional accruals
aggregating $2,200,000 for the costs to defend or settle certain litigation and
environmental matters.
In March 1992, the Company acquired Stout Environmental, Inc. in a merger
transaction accounted for in accordance with the pooling-of-interests method. In
connection with the merger, the Company incurred substantial legal, accounting,
consulting and financing costs aggregating $2,200,000, which was recorded as an
unusual charge.
5. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is based on the combined
weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise or conversion
of warrants and options. In computing earnings per common and common equivalent
share, the Company currently utilizes the modified treasury stock method and in
the prior year used the treasury stock method. When using the modified treasury
stock method, the proceeds from the assumed exercise of all warrants and options
are assumed to be applied to first purchase 20% of the outstanding common stock,
then to reduce outstanding indebtedness and the remaining proceeds are assumed
to be invested in U.S. government securities or commercial paper.
F-38
<PAGE> 88
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computation of weighted average common and common equivalent shares
used in the calculation of primary and fully diluted earnings per share are
shown below:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------
1995 1994 1994 1993 1992
------- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Primary:
Common shares outstanding.................. 75,059 45,343 45,314 45,476 45,409
Common equivalent shares................... 20,546 60 82 160 186
Weighted average treasury shares
purchased............................... (4,115) -- 149 -- --
Effect of using weighted average common and
common equivalent shares outstanding.... (38,553) 160 -- -- (1,116)
------- ------ ------ ------ ------
52,937 45,563 45,545 45,636 44,479
======= ====== ====== ====== ======
Fully diluted:
Common shares outstanding.................. 75,059 45,343 45,314 45,476 45,409
Common equivalent shares................... 21,008 60 82 160 186
Weighted average treasury shares
purchased............................... (2,651) -- 149 -- --
Effect of using weighted average common and
common equivalent shares outstanding.... (38,507) 160 -- -- (1,116)
------- ------ ------ ------ ------
54,909 45,563 45,545 45,636 44,479
======= ====== ====== ====== ======
</TABLE>
6. PROPERTY AND EQUIPMENT
A summary of property and equipment is shown below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1995 1994 1993
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Land, landfills and improvements..................... $ 89,551 $ 84,864 $ 81,601
Vehicles and equipment............................... 139,290 95,760 81,035
Buildings and improvements........................... 20,564 16,174 16,586
Furniture and fixtures............................... 7,386 6,496 5,634
------------- -------- --------
256,791 203,294 184,856
Less accumulated depreciation and depletion........ (81,478) (68,788) (58,749)
------------- -------- --------
$ 175,313 $134,506 $126,107
========== ======== ========
</TABLE>
7. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
The Company owns and operates twelve solid waste landfills in the United
States. The Company is responsible for closure and post-closure monitoring and
maintenance costs at these landfills which are currently operating. Closure and
post-closure costs are provided in accordance with Subtitle D regulations.
Estimated aggregate closure and post-closure costs are to be fully accrued for
these landfills at the time that such facilities cease to accept waste and are
closed. Considering existing accruals at the end of 1994, approximately
$7,600,000 of such costs are to be expensed over the remaining lives of these
facilities. Included with the accrued costs associated with landfills at
December 31, 1994 is $179,000 related to post-closure activities at a closed
solid waste landfill formerly owned by the Company.
F-39
<PAGE> 89
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 9, the Company is involved in litigation and is
subject to ongoing environmental investigations by certain regulatory agencies,
as well as other claims and disputes that could result in additional litigation
which are in the normal course of business.
For a discussion of the Company's significant accounting policies related
to these environmental and landfill costs, see Note 1 -- "Summary of Significant
Accounting Policies -- Accrued Environmental and Landfill Costs".
8. NOTES PAYABLE AND LONG-TERM DEBT
Short-Term Borrowings and Notes Payable. Notes payable at December 31,
1994 and 1993 consisted primarily of short-term insurance premium financing.
Long-Term Debt. Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1995 1994 1993
------------- -------- -------
<S> <C> <C> <C>
Revolving credit facility, secured by the stock of the
Company's subsidiaries, interest payable quarterly,
at prime or at a Eurodollar rate plus 1.5% (8.3% as
of December 31, 1994), due September 1996........... $ -- $ 12,600 $12,200
Notes to banks and financial institutions, secured by
equipment and other assets, interest ranging from
6.0% to 12.9% (weighted average interest rate of
7.2% as of December 31, 1994), payable monthly
through 2003........................................ 34,825 28,815 21,742
Notes payable to former stockholders of acquired
companies, secured by common stock of the acquired
companies, interest at 9.5%, payable monthly through
2004................................................ 7,267 6,058 6,114
Other notes, secured by equipment and other assets,
interest ranging from 4.0% to 16.93% (weighted
average interest rate of 6.0% as of December 31,
1994), payable monthly through 2011................. 11,594 6,615 11,453
------------- -------- -------
53,686 54,088 51,509
Less current maturities............................... (11,520) (10,097) (9,913)
------------- -------- -------
$ 42,166 $ 43,991 $41,596
========== ======== =======
</TABLE>
In September 1993, the Company entered into a revolving credit facility
agreement with a U.S. commercial bank in the amount of $25,000,000, which
includes a line of credit with $10,000,000 available for standby letters of
credit. At December 31, 1994, the Company had standby letters of credit of
$5,591,000 outstanding under this facility and $6,809,000 available under the
revolving credit facility. In 1995, the Company extended the due date from
September 1996 to December 1997 and increased the availability under this
facility to $35,000,000. The credit agreement requires the Company, among other
restrictions, to meet certain financial ratios and places certain limitations on
dividend payments and other borrowings. As of December 31, 1994, the Company was
in compliance with all covenants under the credit agreement.
In connection with the equity investment and private placement
transactions, as discussed in Note 10, Stockholders' Equity, the Company
received approximately $232,000,000 in cash during the three months ended
September 30, 1995. The Company used a portion of these proceeds to repay all
outstanding borrowings under the revolving credit facility totaling
approximately $15,500,000 plus interest expense in August 1995. In December
1995, the Company entered into a credit agreement (the "Credit Agreement") with
certain banks pursuant to which such banks have agreed to advance the Company on
an unsecured basis an aggregate of
F-40
<PAGE> 90
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$250,000,000 for a term of 36 months. Outstanding advances, if any, are payable
at the expiration of the 36-month term. The Credit Agreement requires, among
other items, that the Company maintain certain financial ratios and comply with
certain financial covenants. Interest is payable monthly and generally
determined using either a competitive bid feature or a LIBOR based rate. The
Credit Agreement replaces the 1993 revolving credit arrangement among the
Company and certain other banks.
At December 31, 1994, aggregate maturities of long-term debt were as
follows (in thousands):
<TABLE>
<S> <C>
1995............................................................... $10,097
1996............................................................... 19,934
1997............................................................... 7,354
1998............................................................... 5,046
1999............................................................... 2,762
Thereafter......................................................... 8,895
-------
$54,088
=======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings. On May 3, 1991, the Company filed an action against
G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the United
States District Court for the Central District of California (the "Court"). The
Company requested a declaratory judgment that it did not anticipatorily breach a
merger agreement (the "Merger Agreement") between the Company and GI and that
the Merger Agreement had been properly terminated. The Company also sought to
recover $600,000 from GI, plus interest and costs, with respect to a certain
financial guaranty provided by Republic in 1990 for the benefit of GI. In
response to the Company's action, GI filed a counterclaim alleging that the
Company breached the Merger Agreement and that it had suffered damages in excess
of $16,000,000. In August 1993, the Court rendered a ruling in favor of Republic
and found that GI did not meet its burden in proving that it could have
performed its obligations under the Merger Agreement. GI appealed that decision
in September 1993. In March 1995, the United States Court of Appeals for the
Ninth Circuit (the "Court of Appeals") vacated the August 1993 decision and
remanded the case back to the Court for a hearing on damages. The Company filed
a motion for reconsideration and suggestion of en banc consideration with the
Court of Appeals in an effort to restore the original ruling denying GI's claim.
On May 12, 1995, the Court of Appeals denied the motion and suggestion. The
Company filed a petition for writ of certiorari with the United States Supreme
Court, which was denied. The Court has commenced proceedings that may lead to a
trial on damages.
Subsequent to the Company's seeking recovery from GI for the guaranty, GI
filed for protection under Chapter 11 of the Bankruptcy Code. The Company is a
secured creditor and anticipates a complete recovery of the $600,000, plus
interest and costs, including attorneys' fees.
On November 9, 1992, A&B Investors, Inc. ("A&B") filed an action against
the Company in the District Court of Harris County, Texas alleging, among other
claims, breach of contract and securities fraud. On July 14, 1995, this matter
was resolved in an out-of-court settlement which did not have a material effect
on the Company's supplemental consolidated results of operations or financial
position.
Western Waste Industries, Inc. ("Western") filed an action against the
Company and others on July 20, 1990 for various causes of action including
interference with business relations and seeks $24,000,000 in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case is currently scheduled for trial in March 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,
F-41
<PAGE> 91
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resulting from the ultimate resolution of these matters will not have a material
adverse effect on the Company's supplemental consolidated results of operations
or financial position.
Environmental Matters. The Company's solid waste and environmental
services activities are conducted in the context of a developing and changing
statutory and regulatory framework, aggressive government enforcement and a
highly visible political environment. Governmental regulation of the waste
management industry requires the Company to obtain and retain numerous
governmental permits to conduct various aspects of its operations. These permits
are subject to revocation, modification or denial. The costs and other capital
expenditures which may be required to obtain or retain the applicable permits or
comply with applicable regulations could be significant.
In 1992, the Company received notices from Imperial County, California (the
"County") and the California Department of Toxic Substances Control ("DTSC")
that spent filter elements (the "Filters") from geothermal power plants, which
had been deposited at the Company's Imperial Landfill for approximately five
years, were classified as hazardous waste under California environmental
regulations. Under United States EPA regulations, the Filters are not deemed
hazardous waste as they are associated with the production of geothermal energy.
In February 1993, the DTSC denied the Company's October 1992 request to
classify the Filters as "special waste" under California regulations. DTSC's
denial indicated that the Filters met all technical and analytical requirements
for reclassification as a special waste, but that a procedural requirement
related to the timing of the reclassification request was not met. The Company
is currently conducting active discussions with all appropriate California
regulatory agencies in order to seek a variance under California regulations
which will reclassify the Filters as a special waste, irrespective of the
reclassification application submittal timing issue, and allow the Filters to be
left in the landfill. If this occurs, the state, regional and local regulatory
agencies may nevertheless require that the affected area of the landfill be
capped and that the affected area accept no additional waste. A decision on the
reclassification issue is expected by the Spring of 1996. In the event that the
variance is not granted, the Regional Water Quality Control Board and Integrated
Waste Management Board will determine what remedial measures must be taken based
on the Filters' classification as a California hazardous waste. One of those
measures could include the removal of the Filters or the closure of a portion of
the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses the Company incurs associated with the
resolution of this matter, including loss of airspace at the landfill, in the
United States District Court for the Southern District of California, alleging
claims for CERCLA response costs recovery and intentional misrepresentation
among other claims. The Company seeks to recover actual expenses and punitive
damages. Discovery and regulatory studies are proceeding. The Company believes
it will prevail, but no amounts have been accrued for any recovery of damages.
Although it is possible that losses exceeding amounts already recorded may
be incurred upon the ultimate resolution of the environmental matters described
above, management believes that such losses, if any, will not have a material
adverse effect on the Company's supplemental consolidated results of operations
or financial position.
F-42
<PAGE> 92
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating Lease Commitments. The Company and its subsidiaries lease
portions of their premises and certain equipment under various operating lease
agreements. At December 31, 1994, total minimum rental commitments becoming
payable under all operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1995................................................................ $2,492
1996................................................................ 2,293
1997................................................................ 1,400
1998................................................................ 528
1999................................................................ 197
Thereafter.......................................................... 261
</TABLE>
Total rental expense incurred under operating leases was $3,318,000,
$2,344,000 and $1,736,000 in 1994, 1993 and 1992, respectively.
Postretirement Benefits. The Company does not provide postretirement or
postemployment benefits to its employees and, accordingly, has not reflected any
cost arising from the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Effective January 1, 1994, the Company
instituted a defined contribution 401(k) savings plan for employees meeting
certain employment requirements. Under the plan, the Company may, at its
discretion, match a portion of employee contributions based on the profitability
and growth of the Company. No contributions under this plan were made by the
Company in 1994.
Contingent Consideration. In certain of the business acquisitions
accounted for as purchases, the Company has agreed to issue contingent
consideration in the form of additional shares of the Company's common stock
and, in some cases, additional cash to the sellers of those businesses based on
the attainment of certain earnings levels and other contingencies. During the
years ended December 31, 1994, 1993 and 1992, the Company has issued
approximately 29,000, 160,000 and 186,000 shares of common stock and paid
$623,000, $432,000 and $40,000, respectively, for the attainment of such
earnings levels. These amounts have been capitalized as additional purchase
price. The maximum contingent consideration to be earned over the next eight
years as of December 31, 1994 consists of approximately 406,000 shares of the
Company's common stock and $412,000. Under the terms of an acquisition
agreement, the Company has agreed to pay additional consideration to the former
owners of a landfill site of a maximum of $2,500,000 upon the expansion of the
landfill airspace by up to 2,500,000 cubic yards.
Other Matters. At December 31, 1994, the Company had made cash deposits
into escrow accounts which total $735,000 in connection with landfill closure
and certain other obligations, of which $656,000 was included in cash and cash
equivalents and $79,000 was included in other assets. Additionally, the Company
has bonding facilities for the issuance of payment, performance and bid bonds,
of which $3,945,000 in bonds were outstanding at December 31, 1994. The Company
also has facilities available for the issuance of standby letters of credit, of
which $4,027,000 in letters of credit were outstanding at December 31, 1994.
10. STOCKHOLDERS' EQUITY
Equity Investment By H. Wayne Huizenga And Associates, Westbury (Bermuda)
Ltd. And Harris W. Hudson. On May 21, 1995, the Company agreed to issue and
sell in aggregate 8,350,000 shares of Common Stock and warrants to purchase an
additional 16,700,000 shares of Common Stock to Mr. H. Wayne Huizenga, Westbury
(Bermuda) Ltd. (a Bermuda corporation controlled by Mr. Michael G. DeGroote,
then Chairman of the Board, President and Chief Executive Officer of Republic)
and Mr. Harris W. Hudson, and certain of their assigns for an aggregate purchase
price of $37,500,000. The warrants are exercisable at prices ranging from $4.50
to $7.00 per share effective August 3, 1995. In July 1995, the Company agreed to
sell an additional 1,000,000 shares of Common Stock each to Mr. Huizenga and Mr.
John J. Melk for $13.25 per share for aggregate proceeds of $26,500,000. These
transactions were completed on August 3, 1995.
F-43
<PAGE> 93
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 3, 1995, in connection with the equity investment, Mr. Huizenga
was elected Chairman of the Board of Directors and Chief Executive Officer of
Republic and Mr. DeGroote, former Chairman of the Board, President and Chief
Executive Officer of the Company, was elected Vice Chairman of the Board.
Additionally, Mr. Hudson was appointed as President of the Company and as a
member of the Board of Directors.
Private Placement Transactions. In July 1995, the Company sold 5,400,000
shares of Common Stock in a private placement transaction for $13.25 per share,
resulting in net proceeds of approximately $69,000,000 after deducting expenses,
fees and commissions. In September 1995, the Company sold 5,000,000 shares of
Common Stock in an additional private placement transaction for $20.25 per share
resulting in net proceeds of approximately $99,000,000 after deducting expenses,
fees and commissions.
As a result of the transactions discussed above, the Company received
approximately $232,000,000 in cash during the three months ended September 30,
1995. The Company used a portion of these proceeds to repay all outstanding
borrowings under its revolving line of credit facility and debt of the Pooled
Entities.
Preferred Stock. The Company has 5,000,000 authorized shares of preferred
stock, $.01 par value per share, none of which are issued or outstanding. The
Board of Directors has the authority to issue the preferred stock in one or more
series and to establish the rights, preferences and dividends.
Treasury Stock. In October 1993, the Board of Directors authorized the
Company to repurchase up to 1,300,000 shares of its outstanding Common Stock,
through October 1994, as deemed appropriate by management. Through October 1994,
281,000 shares were repurchased for an aggregate value of $856,000. In October
1994, the Board of Directors authorized management to continue the repurchase
program and to repurchase up to an additional 1,300,000 shares of its
outstanding Common Stock, through October 1995. The repurchasing of shares is
intended to achieve a more favorable balance between the market supply of the
shares and market demand, as well as take advantage of the relatively low price
of the Company's Common Stock. Repurchases have been effected at prevailing
market prices from time to time on the open market. The repurchased shares
represent additions to treasury stock. In October 1994, the Board of Directors
authorized the retirement of the 281,000 shares held in treasury, which were
retired in the fourth quarter of 1994. In December 1994, 28,993 shares of the
Company's Common Stock were returned to the Company in a settlement with a
former owner of one of its 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
F-44
<PAGE> 94
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share. When shares were purchased under the 1990 Plan, the participant paid the
par value of the shares in cash, and issued a nonrecourse promissory note to the
Company for the balance of the purchase price. These promissory notes along with
interest are due ten years from the date of issuance and are collateralized by
the shares purchased. During 1992, the Company received payment of $648,000 on
notes receivable arising from stock purchase agreements pursuant to the 1990
Plan. The 1990 Plan has been replaced by the 1991 Plan, as discussed above.
Activity under the Company's 1990 and 1991 stock option plans during each
of the two years in the period ended December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1990 PLAN 1991 PLAN TOTAL OPTION PRICE
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992.......... 598,000 348,500 946,500 $2.50-$14.50
Granted................................. 100,000 401,900 501,900 $4.00-$12.50
Cancelled............................... -- (331,900) (331,900) $7.25-$10.63
--------- --------- ---------
Outstanding at December 31, 1993.......... 698,000 418,500 1,116,500 $2.50-$14.50
Granted................................. -- 176,000 176,000 $2.69- $3.38
Cancelled............................... (50,000) (130,500) (180,500) $2.69-$10.63
--------- --------- ---------
Outstanding at December 31, 1994.......... 648,000 464,000 1,112,000 $2.50-$14.50
======= ======== ========
Exercisable at December 31, 1994.......... 648,000 113,450 761,450 $9.92(A)
======= ======== ========
Available for future grant at December 31,
1993.................................... 763,000 2,081,500 2,844,500
Cancelled............................... 50,000 130,500 180,500
Granted................................. -- (176,000) (176,000)
--------- --------- ---------
Available for future grant at December 31,
1994.................................... 813,000 2,036,000 2,849,000
======= ======== ========
</TABLE>
- ---------------
(A) Represents the weighted average option price of options exercisable at
December 31, 1994.
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.
F-45
<PAGE> 95
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The Company files a consolidated federal income tax return which includes
the operations of the Pooled Entities for periods subsequent to the dates of the
acquisitions. The Pooled Entities each file a "short-period" federal tax return
through their respective acquisition dates. Certain of the Pooled Entities were
subchapter S corporations for income tax purposes prior to their acquisition by
the Company. For purposes of these supplemental consolidated financial
statements, federal and state income taxes have been provided as if these
companies had filed subchapter C corporation tax returns for the pre-acquisition
periods, and the current income tax expense is reflected as an increase to
additional paid-in capital. The Subchapter S corporation status of these
companies was terminated effective with the closing date of the acquisitions.
The components of the income tax provision related to continuing operations
are shown below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................. $ 3,973 $ 1,664 $ 3,798
State................................................... 618 279 311
------- ------- -------
4,591 1,943 4,109
Federal deferred.......................................... 2,453 (1,998) (485)
Tax reserve adjustments................................... (1,963) -- (1,538)
Change in valuation allowance............................. (1,242) 1,242 --
------- ------- -------
Income tax provision...................................... $ 3,839 $ 1,187 $ 2,086
======= ======= =======
</TABLE>
In addition to the above, the Company recorded an income tax benefit of
$210,000 and $123,000 in 1993 and 1992, respectively, related to its
discontinued operations.
In 1992, the Company changed its method of accounting for income taxes from
the method required under SFAS No. 96 to the method required under SFAS No. 109.
Since the approach under both statements is similar, there was no significant
income effect of the change on the recording of income taxes. Under SFAS No.
109, deferred tax assets or liabilities at the end of each period are determined
by applying the current tax rate to the difference between the financial
reporting and income tax basis of assets and liabilities.
Net operating loss ("NOL") carryforwards are recognized under SFAS No. 109
unless it is "more likely than not" that they will not be realized. In 1993, the
Company recorded a $1,242,000 valuation allowance related to the realization of
deferred tax assets generated as a result of the 1993 restructuring and unusual
charges. This valuation allowance was recorded due to the uncertainty
surrounding the future utilization of such deferred tax assets. In 1994, the
valuation allowance was eliminated based on the expected realization of such
deferred tax assets.
In the years immediately following an acquisition, the Company provides
income taxes at the statutory income tax rate applied to pre-tax income. As part
of its tax planning to reduce effective tax rates and cash outlays for taxes,
the Company employs a number of strategies such as combining entities to reduce
state income taxes, claiming tax credits not previously claimed and recapturing
taxes previously paid by acquired companies. At such time as these reductions in
the Company's deferred tax liabilities are determined to be realizable, the
impact of the reduction is recorded as tax reserve adjustments in the tax
provision. The Company's unaudited income tax provision for the first quarter of
1995 was offset by such adjustments. The Company's unaudited income tax
provision for the nine months ended September 30, 1994 was partially offset by
reductions in valuation allowance, as well as tax reserve adjustments.
F-46
<PAGE> 96
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate as reported in the accompanying supplemental consolidated
statements of operations is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate............................. 34.0% (34.0)% 34.0%
Amortization of goodwill...................................... .5 11.6 .5
State income taxes, net of federal benefit.................... 3.0 30.6 3.1
Tax reserve adjustments....................................... (10.7) (24.9) (16.6)
Change in valuation allowance................................. (6.2) 151.1 --
Other, net.................................................... .4 (42.1) 2.1
----- ----- -----
Effective tax rate.......................................... 21.0% 92.3% 23.1%
===== ===== =====
</TABLE>
Components of the net deferred income tax liability are shown below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis........................ $ 22,930 $ 22,617
Deferred costs............................................... 8,954 3,753
-------- --------
31,884 26,370
-------- --------
Deferred income tax assets:
Net operating losses......................................... (5,186) (5,890)
Deferred revenue............................................. (11,240) (5,420)
Accrued environmental and landfill costs..................... (2,761) (3,054)
Accruals not currently deductible............................ (1,187) (1,804)
-------- --------
(20,374) (16,168)
-------- --------
Valuation allowance............................................ -- 1,242
-------- --------
Net deferred income tax liability.............................. $ 11,510 $ 11,444
======== ========
</TABLE>
At December 31, 1994, the Company had available U.S. NOL carryforwards of
approximately $15,249,000 which expire $7,994,000, $6,342,000 and $913,000 in
the years 2006, 2007 and 2008, respectively.
12. RELATED PARTY TRANSACTIONS
The Company has entered into an agreement to lease office space for one of
its subsidiaries with the former owner of this subsidiary who is a current
officer of this subsidiary. The Company also utilizes companies affiliated with
former owners of acquired businesses who are current officers of the Company's
subsidiaries for hauling and other services. Aggregate payments for leases and
such services were $132,000, $1,139,000 and $827,000 in 1994, 1993 and 1992,
respectively. In September 1993, the Company internalized a portion of these
hauling services through the acquisition of substantially all of the assets of a
hauling company owned by an officer of a subsidiary of the Company for $370,000
cash.
F-47
<PAGE> 97
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OPERATIONS BY INDUSTRY SEGMENT
The following tables present information regarding the Company's different
industry segments based on the historical operations of the Company (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue
Solid waste services................................. $161,237 $133,711 $117,497
Electronic security services......................... 25,874 20,590 16,943
-------- -------- --------
$187,111 $154,301 $134,440
======== ======== ========
Operating income (loss)
Solid waste services................................. $ 22,661 $ 3,376 $ 7,859
Electronic security services......................... (1,157) (2,689) 443
Interest and other income (expense), net............... (3,233) (1,973) 746
-------- -------- --------
Income (loss) from continuing operations before
income taxes......................................... $ 18,271 $ (1,286) $ 9,048
======== ======== ========
Depreciation, depletion and amortization
Solid waste services................................. $ 14,161 $ 12,229 $ 10,178
Electronic security services......................... 603 405 199
-------- -------- --------
$ 14,764 $ 12,634 $ 10,377
======== ======== ========
Capital expenditures
Solid waste services................................. $ 22,031 $ 12,098 $ 20,592
Electronic security services......................... 625 1,005 517
-------- -------- --------
$ 22,656 $ 13,103 $ 21,109
======== ======== ========
Identifiable assets
Solid waste services................................. $193,079 $172,248 $160,134
Electronic security services......................... 28,994 14,753 4,524
-------- -------- --------
Total identifiable assets.................... 222,073 187,001 164,658
Net assets of discontinued operations.................. 20,292 16,872 28,533
-------- -------- --------
Total assets................................. $242,365 $203,873 $193,191
======== ======== ========
</TABLE>
F-48
<PAGE> 98
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Supplemental
Consolidated Statements of Operations by quarter for 1994 and 1993.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue................................ 1994 $42,189 $46,483 $48,047 $ 50,392
1993 35,465 38,720 40,243 39,873
Gross profit........................... 1994 14,085 14,771 16,731 17,647
1993 11,068 12,632 13,297 12,584
Income (loss) from continuing
operations........................... 1994 2,252 3,681 4,459 4,040
1993 1,389 2,294 2,265 (8,421)(a)
Net income (loss)...................... 1994 2,106 4,508 5,447 5,055
1993 918 2,189 2,663 (22,822)
Earnings (loss) per share from
continuing operations................ 1994 0.05 0.08 0.10 0.09
1993 0.03 0.05 0.05 (0.18)(a)
</TABLE>
- ---------------
(a) As discussed in Note 4, restructuring and unusual charges of $10,000,000
were recorded by the Company in the fourth quarter of 1993 to reorganize its
operations.
F-49
<PAGE> 99
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(RESTATED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 208,026 $ 3,084
Accounts receivable, less allowance for doubtful accounts of $934
and $445, respectively.......................................... 15,973 8,004
Prepaid expenses................................................... 1,991 1,135
Other current assets............................................... 3,692 3,053
------------- ------------
Total current assets....................................... 229,682 15,276
Property and equipment, net.......................................... 110,940 86,902
Intangible assets, net of accumulated amortization of $1,267 and
$710, respectively................................................. 84,764 11,307
Net assets of discontinued operations................................ -- 20,292
Other assets......................................................... 3,240 1,145
------------- ------------
Total assets............................................... $ 428,626 $134,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................... $ 7,779 $ 3,614
Accrued liabilities................................................ 12,612 5,099
Current maturities of long-term debt and notes payable............. -- 1,419
Current portion of accrued environmental and landfill costs........ 1,008 1,404
Other current liabilities.......................................... 416 160
------------- ------------
Total current liabilities.................................. 21,815 11,696
Long-term debt, net of current maturities............................ -- 13,663
Accrued environmental and landfill costs, net of current portion..... 6,612 8,244
Deferred income taxes................................................ 10,831 11,272
Other liabilities.................................................... 2,569 1,489
------------- ------------
Total liabilities.......................................... 41,827 46,364
------------- ------------
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.01 per share; 5,000,000 shares
authorized; none issued......................................... -- --
Common stock, par value $0.01 per share; 350,000,000 shares
authorized; 58,021,056 and 28,275,731 issued, respectively...... 580 283
Additional paid-in capital......................................... 381,863 104,312
Retained earnings (accumulated deficit) since January 1, 1990...... 4,356 (15,364)
Notes receivable arising from stock purchase agreements............ -- (673)
------------- ------------
Total stockholders' equity................................. 386,799 88,558
------------- ------------
Total liabilities and stockholders' equity................. $ 428,626 $134,922
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-50
<PAGE> 100
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1995 1994 1995 1994
------- ---------- ------- ----------
(RESTATED) (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue................................................. $28,525 $ 15,741 $64,226 $ 46,519
Expenses:
Cost of operations.................................... 19,406 9,283 41,964 28,007
Selling, general and administrative................... 5,212 3,551 12,144 11,081
Other (income) expense:
Interest and other income............................. (1,454) (21) (1,622) (129)
Interest expense...................................... 239 258 1,055 852
------- ---------- ------- ----------
23,403 13,071 53,541 39,811
------- ---------- ------- ----------
Income from continuing operations before income taxes... 5,122 2,670 10,685 6,708
Income tax provision.................................... 2,019 13 3,687 40
------- ---------- ------- ----------
Income from continuing operations....................... 3,103 2,657 6,998 6,668
Income from discontinued operations, net of income tax
provision of $0, $0, $298 and $0, respectively........ -- 988 508 1,669
------- ---------- ------- ----------
Net income.............................................. $ 3,103 $ 3,645 $ 7,506 $ 8,337
======= ======== ======= ========
Primary earnings per common and common equivalent share:
Continuing operations................................. $ 0.06 $ 0.09 $ 0.20 $ 0.23
Discontinued operations............................... -- 0.04 0.02 0.06
------- ---------- ------- ----------
Net income............................................ $ 0.06 $ 0.13 $ 0.22 $ 0.29
======= ======== ======= ========
Fully diluted earnings per common and common equivalent
share:
Continuing operations................................. $ 0.06 $ 0.09 $ 0.19 $ 0.23
Discontinued operations............................... -- 0.04 0.01 0.06
------- ---------- ------- ----------
Net income............................................ $ 0.06 $ 0.13 $ 0.20 $ 0.29
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-51
<PAGE> 101
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED NOTES
EARNINGS RECEIVABLE
(ACCUMULATED ARISING
DEFICIT) FROM
ADDITIONAL SINCE STOCK
COMMON PAID-IN JANUARY 1, PURCHASE
STOCK CAPITAL 1990 AGREEMENTS
------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1994, (Restated)............ $283 $ 104,312 $(15,364) $ (673)
Stock issued in acquisitions........................ 80 72,720 -- --
Sales of common stock............................... 208 231,840 -- --
Purchases and retirements of treasury stock......... (1) (221) -- --
Exercise of stock options and warrants.............. 10 9,339 -- --
Payments received on notes.......................... -- -- -- 673
Reclassification of additional paid-in capital to
effect the spin-off............................... -- (36,305) 36,305 --
Spin-off of Republic Environmental Systems, Inc..... -- -- (23,579) --
Distributions to former owners of acquired
companies......................................... -- -- (512) --
Other............................................... -- 178 -- --
Net income.......................................... -- -- 7,506 --
------ ---------- ------------ ----------
Balance at September 30, 1995....................... $580 $ 381,863 $ 4,356 $ --
====== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-52
<PAGE> 102
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1994
-------- ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations.................................... $ 6,998 $ 6,668
Adjustments to reconcile income from continuing operations to net
cash provided by operations:
Depreciation, depletion and amortization.......................... 4,806 3,543
Provision for doubtful accounts................................... 184 124
Provision for accrued environmental and landfill costs............ 255 308
Gain on the sale of property and equipment........................ (60) (245)
Changes in assets and liabilities, net of effects from business
combinations:
Accounts receivable............................................... (1,672) (78)
Prepaid expenses and other assets................................. (1,730) (185)
Accounts payable and accrued liabilities.......................... (1,000) (1,085)
Income taxes payable.............................................. (711) (125)
Other liabilities................................................. 1,423 (679)
-------- ----------
Net cash provided by continuing operations................... 8,493 8,246
-------- ----------
Cash provided by (used in) discontinued operations..................... (261) 1,279
-------- ----------
Cash flows from investing activities:
Net cash used in business combinations............................... (1,867) (756)
Purchases of property and equipment.................................. (11,298) (4,550)
Proceeds from the sale of property and equipment..................... 622 521
Other investments.................................................... (1,293) --
-------- ----------
Net cash used in investing activities........................ (13,836) (4,785)
-------- ----------
Cash flows from financing activities:
Exercise of stock options and warrants............................... 6,333 --
Sales of common stock................................................ 232,048 --
Repayments received on notes receivable arising from stock purchase
agreements........................................................ 673 --
Capital contribution to Republic Environmental Systems, Inc. ........ (2,520) --
Distribution to former shareholders of acquired businesses........... (512) (200)
Purchases of treasury stock.......................................... (222) (856)
Payments of long-term debt and notes payable......................... (30,620) (5,144)
Proceeds from long-term debt and notes payable....................... 5,366 2,034
-------- ----------
Net cash provided by (used in) financing activities.......... 210,546 (4,166)
-------- ----------
Increase in cash and cash equivalents.................................. 204,942 574
Cash and cash equivalents:
Beginning of period.................................................. 3,084 3,822
-------- ----------
End of period........................................................ $208,026 $ 4,396
======== ========
Supplemental disclosure of cash paid for:
Interest............................................................. $ 924 $ 743
Income taxes......................................................... $ 650 $ 336
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-53
<PAGE> 103
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Republic Industries, Inc. and its wholly-owned
subsidiaries (the "Company") and have been prepared by the Company without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts and transactions have been eliminated.
Certain information related to the Company's organization, significant
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted. These unaudited condensed consolidated financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to fairly state the financial
position and the results of operations for the periods presented and the
disclosures herein are adequate to make the information presented not
misleading. Operating results for interim periods are not necessarily indicative
of the results that can be expected for a full year. These interim financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained in the Company's most recent Annual
Report on Form 10-K as well as the Company's audited supplemental financial
statements subsequently filed on Form 8-K.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.
The accompanying financial statements also include the financial position
and results of operations of Kertz Security Systems II, Inc. and Kertz Security
Systems, Inc. (collectively, "Kertz"), with which the Company merged in August
1995. This transaction has been accounted for under the pooling of interests
method of accounting and, accordingly, these financial statements and notes
thereto have been restated as if the companies had operated as one entity since
inception. See Note 2, Business Combinations, for a further discussion of this
transaction.
As discussed in Note 3, Spin-off of RESI, the Company spun-off its
hazardous waste services segment, Republic Environmental Systems, Inc. ("RESI"),
to the Company's stockholders in April 1995 (the "Distribution"). Accordingly,
this segment was accounted for as a discontinued operation and the accompanying
financial statements have been restated to report separately the net assets and
operating results of RESI prior to the distribution date.
2. BUSINESS COMBINATIONS
In August 1995, the Company acquired all of the outstanding shares of
common stock of Hudson Management Corporation and Envirocycle, Inc.
(collectively, "HMC"), each of which was owned by Harris W. Hudson, President of
the Company. The purchase price paid by the Company was approximately
$72,800,000 and consisted of 8,000,000 shares of the Company's common stock,
$.01 par value ("Common Stock"). HMC, as the third largest solid waste
management company in Florida, provides solid waste collection and recycling
services to commercial, industrial and residential customers. This acquisition
has been accounted for under the purchase method of accounting and, accordingly,
is included in the Company's financial statements from the date of acquisition.
F-54
<PAGE> 104
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's consolidated results of operations on an unaudited pro forma
basis assuming the acquisition of HMC had occurred at the beginning of each of
the periods presented are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1995 1994
------- -------
<S> <C> <C>
Revenue............................................................ $97,427 $80,574
======= =======
Income from continuing operations before income taxes.............. $12,327 $ 8,903
======= =======
Net income......................................................... $ 8,524 $ 9,670
======= =======
Fully diluted earnings per common and common equivalent share...... $ 0.23 $ 0.27
======= =======
</TABLE>
The preliminary purchase price allocation for the HMC acquisition during
the nine months ended September 30, 1995, was as follows:
<TABLE>
<S> <C>
Property and equipment.................................................... $ 16,910
Intangible assets......................................................... 71,110
Working capital deficiency................................................ (6,602)
Long-term debt assumed.................................................... (8,618)
--------
Common stock issued....................................................... $ 72,800
========
</TABLE>
In August 1995, the Company issued 1,090,000 shares of Common Stock in
exchange for all of the outstanding 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 merger with Kertz has been accounted for under the
pooling of interests method of accounting and, accordingly, the accompanying
financial statements have been restated for all periods as if the companies had
operated as one entity since inception.
Details of the results of operations of the previously separate companies
for the periods before the pooling of interests combination was consummated are
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1995 1994
------- -------
<S> <C> <C>
Revenue:
The Company...................................................... $55,945 $36,307
Kertz............................................................ 8,281 10,212
------- -------
$64,226 $46,519
======= =======
Net Income:
The Company...................................................... $ 7,134 $ 8,117
Kertz............................................................ 372 220
------- -------
$ 7,506 $ 8,337
======= =======
</TABLE>
3. SPIN-OFF OF RESI
On April 26, 1995, the Company's stockholders received one share of common
stock of the Company's hazardous waste subsidiary, RESI, for every five shares
of Common Stock owned on April 21, 1995 in connection with the spin-off of RESI.
Approximately 5,400,000 RESI shares were distributed. RESI's
F-55
<PAGE> 105
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock commenced trading on the Nasdaq National Market on April 27, 1995
under the trading symbol "RESI." The Company has had no direct ownership
interest in RESI since the Distribution.
The hazardous waste services segment of the Company's business was
accounted for as a discontinued operation and, accordingly, the accompanying
consolidated financial statements of the Company have been restated to report
separately the net assets and operating results of these discontinued operations
prior to the distribution date. Revenue of the discontinued operations was
$11,856,000, $12,148,000 and $34,108,000 for three months ended September 30,
1994 and the nine months ended September 30, 1995 and 1994, respectively. Net
income of the discontinued operations was $988,000, $508,000 and $1,669,000 for
the three months ended September 30, 1994 and the nine months ended September
30, 1995 and 1994, respectively.
In connection with the Distribution, the Company entered into a
distribution agreement with RESI which set forth the terms of the Distribution.
Under this agreement, the Company contributed the intercompany balance to RESI's
equity at the date of the Distribution. In April 1995, the Company contributed
approximately $2,500,000 to RESI to repay RESI's indebtedness and to provide
working capital to RESI. Additionally, the Company reclassified approximately
$36,300,000 to retained earnings from additional paid-in capital to effect the
spin-off under Delaware law. As a result of these transactions, the Company's
equity at the date of the Distribution was reduced by approximately $23,000,000.
The Company has also entered into various agreements with RESI which govern
certain matters between the two parties such as ongoing corporate services to be
provided by the Company to RESI, property and casualty insurance coverage for
RESI through June 30, 1995, treatment of various tax matters for periods through
the date of the Distribution and indemnification between both parties. The
Corporate Services Agreement is expected to be terminated by the end of 1995.
4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is based on the combined
weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise or conversion
of warrants and options. In computing earnings per common and common equivalent
share, the Company currently utilizes the modified treasury stock method and in
the prior year used the treasury stock method. When using the modified treasury
stock method, the proceeds from the assumed exercise of all warrants and options
are assumed to be applied to first purchase 20% of the outstanding common stock,
then to reduce outstanding indebtedness and the remaining proceeds are assumed
to be invested in U.S. government securities or commercial paper.
F-56
<PAGE> 106
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computations of weighted average common and common equivalent shares
used in the calculations of primary and fully diluted earnings per share are
shown below:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1995 1994 1995 1994
------- ------ ------- ------
<S> <C> <C> <C> <C>
Primary:
Common shares outstanding................... 58,021 28,305 58,021 28,305
Common equivalent shares.................... 20,879 95 20,546 60
Weighted average treasury shares
purchased................................ (4,495) -- (4,115) --
Effect of using weighted average common and
common equivalent shares outstanding..... (19,406) 70 (38,553) 160
------- ------ ------- ------
54,999 28,470 35,899 28,525
======= ====== ======= ======
Fully diluted:
Common shares outstanding................... 58,021 28,305 58,021 28,305
Common equivalent shares.................... 20,979 -- 21,008 --
Weighted average treasury shares
purchased................................ (4,217) 95 (2,651) 60
Effect of using weighted average common and
common equivalent shares outstanding..... (19,469) 70 (38,507) 160
------- ------ ------- ------
55,314 28,470 37,871 28,525
======= ====== ======= ======
</TABLE>
5. PROPERTY AND EQUIPMENT
A summary of property and equipment is shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Land, landfills and improvements............................. $ 83,552 $ 80,601
Vehicles and equipment....................................... 39,956 15,340
Buildings and improvements................................... 3,255 3,158
Furniture and fixtures....................................... 837 746
------------- ------------
127,600 99,845
Less accumulated depreciation and depletion................ (16,660) (12,943)
------------- ------------
$ 110,940 $ 86,902
========== ==========
</TABLE>
F-57
<PAGE> 107
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<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% at December
31, 1994).................................................. $ -- $ 12,600
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)......................................... -- 1,305
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)........................... -- 1,177
------------- ------------
-- 15,082
Less current maturities and notes payable.................... -- (1,419)
------------- ------------
$ -- $ 13,663
========== ==========
</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. In May 1995, the Company extended the due date from September 1996 to
December 1997 and increased the availability under this facility to $35,000,000.
In connection with the equity investment and private placement transactions, as
discussed in Note 7, Stockholders' Equity, the Company received approximately
$232,000,000 in cash during the three months ended September 30, 1995. The
Company used a portion of these proceeds to repay all outstanding borrowings
under the revolving credit facility totaling approximately $15,500,000 plus
interest expense in August 1995. In December 1995, the Company entered into a
credit agreement (the "Credit Agreement") with certain banks pursuant to which
such banks have agreed to advance the Company on an unsecured basis an aggregate
of $250,000,000 for a term of 36 months. Outstanding advances, if any, are
payable at the expiration of the 36-month term. The Credit Agreement requires,
among other items, that the Company maintain certain financial ratios and comply
with certain financial covenants. Interest is payable monthly and generally
determined using either a competitive bid feature or a LIBOR based rate. The
Credit Agreement replaces the 1993 revolving credit arrangement among the
Company and certain other banks.
7. STOCKHOLDERS' EQUITY
In August 1995, the Company issued and sold an aggregate of 8,350,000
shares of Common Stock and warrants to purchase an additional 16,700,000 shares
of Common Stock to Mr. H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda
corporation controlled by Mr. Michael G. DeGroote, former Chairman of the Board,
President and Chief Executive Officer of the Company) and Mr. Harris W. Hudson,
and certain of their assigns for an aggregate purchase price of $37,500,000. The
warrants are exercisable at prices ranging from $4.50 to $7.00 per share
effective August 1995. In August 1995, the Company issued and sold an additional
1,000,000 shares of Common Stock each to Mr. Huizenga and Mr. John J. Melk, a
director since August 3, 1995, for $13.25 per share for aggregate proceeds of
$26,500,000.
In August 1995, in connection with these equity investments, Mr. Huizenga
was elected Chairman of the Board of Directors and Chief Executive Officer of
the Company and Mr. DeGroote was elected Vice Chairman of the Board.
Additionally, Mr. Hudson was appointed as President of the Company and as a
member of the Board of Directors and Mr. Melk was named as a member of the Board
of Directors.
F-58
<PAGE> 108
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1995, the Company sold 5,400,000 shares of Common Stock in a
private placement transaction for $13.25 per share, resulting in net proceeds of
approximately $69,000,000 after deducting expenses, fees and commissions. In
September 1995, the Company sold 5,000,000 shares of Common Stock in an
additional private placement transaction for $20.25 per share resulting in net
proceeds of approximately $99,000,000 after deducting expenses, fees and
commissions.
As a result of the transactions discussed above, the Company received
approximately $232,000,000 in cash during the three months ended September 30,
1995. The Company used a portion of these proceeds to repay all outstanding
borrowings under its revolving line of credit facility and debt of HMC and Kertz
during the same period.
In October 1994, the Board of Directors authorized the Company to continue
its stock repurchase program and repurchase up to 1,300,000 shares or 4.8% of
its outstanding Common Stock through October 1995. Through July 1995, 65,000
shares were repurchased for an aggregate value of $222,000 and were subsequently
retired. The Company's stock repurchase program expired in October 1995.
In August 1995, the Company's shareholders approved an increase in the
number of authorized shares of Common Stock from 100,000,000 to 350,000,000.
8. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common
Stock may be granted to key employees and directors of the Company. Options
granted under the plans are non-qualified and are granted at a price equal to
the fair market value of the Common Stock at the date of grant.
A summary of stock option and warrant transactions for the nine months
ended September 30, 1995 is as follows:
<TABLE>
<S> <C>
Options and warrants outstanding at December 31, 1994.................. 3,393
Options granted and warrants sold...................................... 19,858
Options and warrants exercised......................................... (1,026)
Options and warrants cancelled......................................... (161)
------------
Options and warrants outstanding at September 30, 1995................. 22,064
===========
Average price of options and warrants exercised........................ $7.44
Prices of options and warrants outstanding at September 30, 1995....... $2.50-$24.75
Average price of options and warrants outstanding at September 30,
1995................................................................. $7.92
Vested options and warrants at September 30, 1995...................... 19,162
Options available for future grants at September 30, 1995.............. 4,750
</TABLE>
See Note 7, Stockholders' Equity, for a discussion related to the sale of
Common Stock and warrants in August 1995.
9. INCOME TAXES
As part of its tax planning to reduce cash outlays for taxes, the Company
employs a number of strategies such as combining entities to reduce state income
taxes and recapturing taxes previously paid by acquired companies, among others.
When the Company determines that deferred tax assets for which it had previously
recorded no benefit are realizable, the impact is recorded as "tax reserve
adjustments" in the tax provision. The Company's 38% income tax provision for
the first quarter of 1995 was partially offset by such adjustments. Accordingly,
the Company's income tax provision for the nine months ended September 30, 1995
was reduced to 35%, while the income tax provision for the three months ended
September 30, 1995 was 39%. The
F-59
<PAGE> 109
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's 38% tax provision for the three and nine months ended September 30,
1994 was partially offset by tax reserve adjustments and a change in the
valuation allowance.
10. SUBSEQUENT EVENTS
In October 1995, the Company acquired all of the outstanding common stock
of United Waste Service, Inc. ("United") in exchange for 1,500,000 shares of
Common Stock. United provides solid waste collection, transfer and recycling
services in the Atlanta, Georgia metropolitan area and serves over 8,000
residential and commercial customers.
In October 1995, the Company issued 2,600,000 shares of Common Stock in
exchange for all of the outstanding common stock of Southland Environmental
Services, Inc. ("Southland"). Southland provides solid waste collection services
in the Northeast Florida area serving over 70,000 residential and commercial
customers.
In November 1995, the Company acquired all of the outstanding common stock
of J.C. Duncan Company, Inc. and affiliates (collectively, "Duncan") in exchange
for 5,256,055 shares of Common Stock. Duncan provides solid waste collection and
recycling services in the Dallas-Fort Worth metropolitan area and throughout
west Texas, and also operates two landfills.
In November 1995, the Company issued 3,003,000 shares of Common Stock in
exchange for all of the outstanding common stock of Garbage Disposal Service,
Inc. ("GDS") which provides solid waste collection and recycling services
throughout western North Carolina.
In November 1995, the Company acquired all of the outstanding common stock
of Fennell Container Co., Inc. and affiliates (collectively, "Fennell") in
exchange for 3,111,111 shares of Common Stock. Fennell is a full-service solid
waste management company, providing waste collection, recycling and
environmental services in and around Charleston and Greenville, South Carolina.
Additionally, Fennell owns a landfill which is in the final stages of
construction and is scheduled to begin accepting waste under its new permit in
early 1996.
In November 1995, the Company issued 1,567,818 shares of Common Stock in
exchange for all of the outstanding common stock of Scott Security Systems and
affiliates (collectively, "Scott"). Scott is an electronic security alarm
company, providing monitoring and maintenance in Jacksonville, Orlando and
Tallahassee, Florida, as well as other metropolitan areas in the southeastern
U.S., including Charlotte, North Carolina, Savannah, Georgia and Nashville,
Tennessee.
The United, Southland, Duncan, GDS, Fennell and Scott mergers will be
accounted for under the pooling of interests method of accounting. The Company's
unaudited pro forma consolidated results of operations, assuming the United,
Southland, Duncan, GDS, Fennell and Scott mergers had been consummated as of
September 30, 1995, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Revenue........................................................ $185,207 $140,988
======== ========
Net income..................................................... $ 13,135 $ 12,747
======== ========
Fully diluted earnings per common and common equivalent
share........................................................ $ 0.24 $ 0.28
======== ========
</TABLE>
F-60
<PAGE> 110
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Boards of Directors of
Hudson Management Corporation
and Envirocycle, Inc.:
We have audited the accompanying combined balance sheets of Hudson
Management Corporation and subsidiaries and Envirocycle, Inc. (a Florida
corporation and a Florida S-corporation, respectively, affiliated through common
ownership) as of September 30, 1994 and 1993, and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1994. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hudson Management
Corporation and subsidiaries and Envirocycle, Inc. as of September 30, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1994, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 1, 1995 (except with respect to the
matter discussed in Note 10,
as to which the date is
August 3, 1995).
F-61
<PAGE> 111
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------------
1995 1994 1993
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................... $ 630 $ 538 $ 2,007
Accounts receivable, less allowance for doubtful
accounts of $510 (unaudited), $330 and $220,
respectively......................................... 5,765 5,371 4,400
Prepaid expenses and other.............................. 1,353 1,179 634
Deferred income taxes................................... 864 845 911
----------- ------- -------
Total current assets............................ 8,612 7,933 7,952
PROPERTY AND EQUIPMENT, net............................... 18,589 14,088 11,405
INTANGIBLE ASSETS, net.................................... 2,679 2,557 2,669
OTHER ASSETS.............................................. 51 58 50
----------- ------- -------
Total assets.................................... $29,931 $24,636 $22,076
=========== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 2,725 $ 2,556 $ 2,170
Current portion of long-term debt....................... 3,596 2,736 3,263
Deferred revenue and other credits...................... 2,316 1,930 1,702
Accrued liabilities..................................... 4,294 3,243 3,291
Customer deposits....................................... 135 145 135
----------- ------- -------
Total current liabilities....................... 13,066 10,610 10,561
DEFERRED INCOME TAXES..................................... 1,320 1,471 1,369
LONG-TERM DEBT, less current portion...................... 8,937 7,022 4,570
----------- ------- -------
Total liabilities............................... 23,323 19,103 16,500
----------- ------- -------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 6, 7 and 10)
STOCKHOLDERS' EQUITY:
Capital stock........................................... -- -- --
Additional paid-in capital.............................. 73 73 73
Retained earnings....................................... 6,535 5,460 5,503
----------- ------- -------
Total stockholders' equity...................... 6,608 5,533 5,576
----------- ------- -------
Total liabilities and stockholders' equity...... $29,931 $24,636 $22,076
=========== ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-62
<PAGE> 112
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS FOR THE YEAR
ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------- ---------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE.......................................... $41,439 $34,055 $48,003 $45,582 $38,788
OPERATING EXPENSES:
Cost of operations............................. 29,957 24,154 35,048 32,025 27,738
Selling, general and administrative............ 7,328 7,377 9,444 8,573 8,305
INTEREST EXPENSE................................. 474 329 505 552 737
------- ------- ------- ------- -------
37,759 31,860 44,997 41,150 36,780
------- ------- ------- ------- -------
Income before income taxes............. 3,680 2,195 3,006 4,432 2,008
INCOME TAX PROVISION............................. 455 254 377 901 874
------- ------- ------- ------- -------
Net income............................. 3,225 1,941 2,629 3,531 1,134
UNAUDITED PRO FORMA ADJUSTMENT TO REFLECT INCOME
TAXES FOR ENVIROCYCLE, INC. (Note 1)........... 1,014 608 892 952 54
------- ------- ------- ------- -------
Unaudited pro forma net income (Note
1)................................... $ 2,211 $ 1,333 $ 1,737 $ 2,579 $ 1,080
======= ======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-63
<PAGE> 113
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------- ---------- --------
<S> <C> <C> <C>
BALANCE, September 30, 1991................................ $ -- $ 73 $ 1,893
Net income............................................... -- -- 1,134
Stockholder distributions................................ -- -- (220)
------- --- --------
BALANCE, September 30, 1992................................ -- 73 2,807
Net income............................................... -- -- 3,531
Stockholder distributions................................ -- -- (835)
------- --- --------
BALANCE, September 30, 1993................................ -- 73 5,503
Net income............................................... -- -- 2,629
Stockholder distributions................................ -- -- (2,672)
------- --- --------
BALANCE, September 30, 1994................................ $ -- $ 73 $ 5,460
====== ========= ========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-64
<PAGE> 114
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS FOR THE YEARS
ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------- ---------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 3,225 $ 1,941 $ 2,629 $ 3,531 $ 1,134
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization............... 2,013 1,950 2,614 2,495 2,642
Deferred income tax provision (benefit)..... (170) 134 168 (156) 115
Gain on disposition of property and
equipment................................. (8) -- (82) (2) --
Changes in assets and liabilities --
(Increase) decrease in:
Accounts receivable.................... (686) (583) (971) (488) (563)
Prepaid expenses and other............. (180) (1,282) (545) (15) (11)
Other assets........................... 7 (3) (8) 42 58
Increase (decrease) in:
Accounts payable....................... 542 (250) 386 (447) 930
Deferred revenue and other credits..... 446 185 228 59 529
Accrued liabilities.................... 1,025 960 (48) 44 867
Customer deposits...................... (7) 4 10 2 2
------- ------- ------- ------- -------
Total adjustments...................... 2,982 1,115 1,752 1,534 4,569
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 6,207 3,056 4,381 5,065 5,703
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposition of
property and equipment...................... $ 6 $ 294 $ 327 $ 35 $ --
Purchases of property and equipment............ (6,502) (4,625) (5,380) (2,759) (4,303)
Purchases of intangible assets................. (201) (50) (50) -- (11)
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (6,697) (4,381) (5,103) (2,724) (4,314)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt............................. 5,386 5,917 6,441 2,396 3,261
Principal repayments on debt................... (2,626) (4,353) (4,516) (4,262) (3,216)
Stockholder distributions...................... (2,922) (1,230) (2,672) (835) (220)
------- ------- ------- ------- -------
Net cash used in financing
activities........................... (162) 334 (747) (2,701) (175)
------- ------- ------- ------- -------
EFFECT OF ENVIROCYCLE, INC. CHANGE IN CASH FOR
THE PERIOD OCTOBER 1 - DECEMBER 31 (Note 1).... 744 (109) -- -- --
------- ------- ------- ------- -------
Net increase (decrease) in cash........ 92 (1,100) (1,469) (360) 1,214
CASH, beginning of period........................ 538 2,007 2,007 2,367 1,153
------- ------- ------- ------- -------
CASH, end of period.............................. $ 630 $ 907 $ 538 $ 2,007 $ 2,367
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH PAID FOR:
Interest....................................... $ 575 $ 420 $ 591 $ 658 $ 804
Income taxes................................... $ 58 $ 404 $ 730 $ 948 $ 824
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-65
<PAGE> 115
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE JUNE 30, 1995 AND
1994 PERIODS IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination --
The combined financial statements include the accounts of Hudson Management
Corporation and its wholly-owned subsidiaries and Envirocycle, Inc. (together,
the "Companies"), which are affiliated through common ownership. All material
intercompany transactions between Hudson Management Corporation, its
subsidiaries and Envirocycle, Inc. have been eliminated.
The accounts of Envirocycle, Inc. have been combined on the basis of a
calendar year and include the years ended December 31, 1994 and 1993 and the
period from commencement of operations (March 23, 1992) through December 31,
1992. For comparative purposes, the unaudited combined statements of income and
cash flows for the nine month periods ended June 30, 1995 and 1994 include the
accounts of Envirocycle, Inc. for the periods from October 1 through June 30.
In the opinion of management, the unaudited combined financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the combined financial position of the Companies at
June 30, 1995, and the combined results of their operations and cash flows for
the nine months ended June 30, 1995 and 1994.
Revenue Recognition --
Collection services may be billed up to four months in advance. Revenue on
such advance billings is deferred until services are performed. Such amounts are
included in deferred revenue and other credits in the accompanying combined
balance sheets.
Property and Equipment --
The Companies provide for depreciation using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Vehicles...................................................... 5-7 years
Containers and compactors..................................... 10 years
Equipment..................................................... 5-7 years
Leasehold improvements........................................ 5-7 years
Buildings..................................................... 31.5-40 years
</TABLE>
Maintenance and repairs are charged to expense when incurred. Additions and
major renewals are capitalized.
Depreciation and amortization expense for property and equipment for the
years ended September 30, 1994, 1993 and 1992 was $2,452,000, $2,216,000 and
$2,039,000, respectively.
Intangible Assets --
Intangible assets consist of the cost of purchased businesses in excess of
the market value of net assets acquired (goodwill), the costs of certain
franchise service areas obtained as part of businesses acquired, and noncompete
agreements obtained from former owners and management of businesses acquired.
F-66
<PAGE> 116
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets are amortized using the straight-line method over their
estimated useful lives and are comprised of the following as of September 30,
1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
USEFUL LIVES 1994 1993
------------ ------ ------
<S> <C> <C> <C>
Goodwill............................................ 40 years $2,585 $2,585
Franchise agreements................................ 4-16 years 666 674
Customer lists...................................... 5 years 10 10
Noncompete agreements............................... 5-15 years 51 311
------ ------
3,312 3,580
Less accumulated amortization....................... (755) (911)
------ ------
$2,557 $2,669
====== ======
</TABLE>
The Companies continually evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Companies use an estimate of the related
undiscounted net income over the remaining life of intangible assets in
measuring whether the intangible assets are recoverable.
Amortization expense for intangible assets was $162,000, $279,000 and
$603,000 in 1994, 1993 and 1992, respectively.
Accrued Liabilities --
The Companies accrue estimated insurance claims for the self-funded portion
of their workers' compensation and health insurance plans. At September 30, 1994
and 1993, insurance claim reserves of $2,101,000 and $2,199,000, respectively,
were included in accrued liabilities.
Income Taxes --
Hudson Management Corporation accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Accordingly, deferred income taxes have been provided for the
effect of temporary differences between the income tax bases of assets and
liabilities and their reported amounts in the combined financial statements.
For the nine months ended June 30, 1995 and 1994, income taxes have been
provided based upon Hudson Management Corporation's anticipated effective annual
income tax rate.
Envirocycle, Inc. has elected S-corporation status for income tax reporting
purposes since its inception in 1992. Therefore, since that date, net income and
the related differences that arise in the recording of income and expense items
for financial reporting and income tax reporting purposes are included in the
individual tax returns of the stockholders of Envirocycle, Inc.
Upon closing of the merger transactions described in Note 10, Envirocycle,
Inc. will no longer be eligible for S-corporation status. At that time, deferred
income taxes will be recorded in accordance with SFAS No. 109 and an adjustment
to record Envirocycle, Inc. retained earnings as a capital contribution will be
recorded. Although the ultimate amount is not presently determinable, if
deferred taxes were recorded at June 30, 1995, retained earnings would be
decreased by approximately $46,000 (unaudited). In addition, $1,453,000
(unaudited) of retained earnings at June 30, 1995 would have been reclassified
to additional paid-in capital.
F-67
<PAGE> 117
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma effect of converting Envirocycle, Inc. from
S-corporation status is as follows (in thousands):
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
BALANCE, June 30, 1995 (unaudited)................ $ -- $ 73 $ 6,535
Recording of deferred tax liability............... -- -- (46)
Reclassification of retained earnings to
additional paid-in capital...................... -- 1,453 (1,453)
------ ---------- --------
$ -- $1,526 $ 5,036
======== ========= ========
</TABLE>
The unaudited pro forma adjustment to reflect income taxes for Envirocycle,
Inc. included in the accompanying combined statements of income is for
informational purposes only. Income taxes have been provided at an estimated
effective tax rate of 40%.
Environmental Costs --
The Companies are subject to environmental laws and regulations that have
been enacted in response to technological advances and increased concern over
environmental issues. These regulations are administered by the Environmental
Protection Agency and various other federal, state and local environmental,
transportation, health and safety agencies. The Companies have not incurred any
material environmental costs nor experienced any significant regulatory problems
in the past and believe that they are in substantial compliance with all
applicable rules and regulations. Future environmental liabilities, if any,
would be recorded in the period in which they become probable and can be
reasonably estimated.
Concentrations of Credit Risk --
The Companies provide solid waste collection and recycling services to
commercial, industrial and residential customers located in the State of Florida
primarily through franchise agreements with municipalities. Depending on the
terms of the franchise agreements, the Companies either bill services to the
municipality or directly to the customer. Deposits are generally received from
residential customers billed directly by the Companies. As of September 30, 1994
and 1993, approximately 33% and 44% of outstanding accounts receivable,
respectively, were due directly from municipalities while the remainder was due
directly from individual customers. The Companies continually evaluate the
collectibility of accounts receivable and maintain allowances for potential
credit losses. Overall, the Companies believe their credit exposure is minimal
given the creditworthiness of municipal customers and the wide dispersion of
non-municipal bill customers.
Additionally, the Companies provide services to a major municipality
customer which comprised 25%, 23% and 26% of combined revenues in 1994, 1993 and
1992, respectively.
F-68
<PAGE> 118
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT:
A summary of property and equipment is shown below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Land................................................... $ 505 $ 510
Vehicles............................................... 13,328 12,337
Containers and compactors.............................. 8,495 7,006
Equipment.............................................. 1,546 1,189
Leasehold improvements................................. 1,109 938
Buildings.............................................. 1,268 1,183
-------- --------
26,251 23,163
Less accumulated depreciation and amortization......... (12,163) (11,758)
-------- --------
$ 14,088 $ 11,405
======== ========
</TABLE>
(3) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks, interest adjusts based on fluctuations
in the banks' prime lending rate (7.75% at September 30,
1994), due 1994-2000, collateralized by substantially all
property and equipment and other assets, publicly traded
common stock owned by the Companies' stockholders and the
personal guarantee of a stockholder.......................... $ 7,642 $ 6,813
Mortgage note payable monthly at $3,350 principal plus interest
at 10% through January 1999, at which time the remaining
principal balance is due. This note is collateralized by the
Company's real property with a net book value of
approximately $1,161,000 and $1,091,000 as of September 30,
1994 and 1993, respectively.................................. 566 606
Note payable to stockholder, unsecured, interest only at 9%
payable semi-annually, principal balance due December 1997... 1,154 --
Note payable to stockholder, unsecured, payable at $1,478 per
month principal plus interest at the prime lending rate
(7.75% at September 30, 1994) through February 1997, at which
time the remaining principal balance is due.................. 216 234
Other notes payable............................................ 180 180
------- -------
9,758 7,833
Less current portion of long-term debt......................... (2,736) (3,263)
------- -------
$ 7,022 $ 4,570
======= =======
</TABLE>
The Companies had a $2.0 million working capital line of credit with a bank
which expired February 28, 1995. Borrowings under the line of credit were
immediately converted to term notes payable. At September 30, 1994, the
Companies had approximately $380,000 available under the line of credit. Upon
expiration of
F-69
<PAGE> 119
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the line of credit on February 28, 1995, the Companies obtained a $1.5 million
line of credit expiring February 28, 1996.
The following are estimated aggregate future debt principal payments as of
September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
------------------------------------------------------------------
<S> <C>
1995............................................................ $2,736
1996............................................................ 1,936
1997............................................................ 2,102
1998............................................................ 2,197
1999............................................................ 787
------
$9,758
======
</TABLE>
(4) RELATED PARTY TRANSACTIONS:
The Companies lease various office and garage space and land from a
stockholder. The operating leases expire at various dates through September 1998
and provide for monthly rentals of approximately $30,000 with a provision for a
rental increase each year based on the consumer price index.
During the years presented, there were funds advanced to and received from
a stockholder. At September 30, 1994 and 1993, there were notes payable to such
stockholder totaling $1,370,000 and $234,000, respectively (see Note 3).
Hudson Management Corporation has utilized the personal guarantee and
certain assets of a stockholder as well as certain assets of a person related to
Companies' stockholders as additional collateral on a significant portion of
their debt (see Notes 3 and 10).
(5) LEASES:
In addition to the related party leases discussed above, the Companies
lease corporate office space at a base rental amount of $4,300 per month through
September 1995. Also, the Companies must pay their share of the operating
expenses for the building which were estimated to be $1,300 per month through
September 1995. Subsequent to September 30, 1994, this lease was renewed (and
additional space was obtained) for a base rental amount of $4,700 per month
through January 2000, plus a share of building operating expenses estimated to
be $2,900 per month. Total rent expense for the years ended September 30, 1994,
1993 and 1992 was approximately $482,000, $384,000 and $372,000, respectively
(including related party leases of approximately $350,000, $317,000 and
$304,000, respectively).
F-70
<PAGE> 120
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate future minimum lease payments (including related party
leases and the lease renewal described above) are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
------------------------------------------------------------------
<S> <C>
1995............................................................ $ 436
1996............................................................ 304
1997............................................................ 304
1998............................................................ 304
1999............................................................ 91
Thereafter...................................................... 30
------
$1,469
======
</TABLE>
(6) INCOME TAXES:
The components of the income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993 1992
---- ------ ----
<S> <C> <C> <C>
Current:
Federal................................................... $182 $ 945 $677
State..................................................... 27 112 82
---- ------ ----
209 1,057 759
---- ------ ----
Deferred:
Federal................................................... 143 (139) 14
State..................................................... 25 (17) 101
---- ------ ----
168 (156) 115
---- ------ ----
$377 $ 901 $874
==== ====== ====
</TABLE>
A reconciliation of the statutory federal income tax rate to the Companies'
actual and pro forma effective tax rates as reported in the accompanying
combined statements of income is shown below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
ACTUAL PRO FORMA (UNAUDITED)
--------------------------- -------------------------
1994 1993 1992 1994 1993 1992
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
rate......................... 34.0% 34.0% 34.0% 34.0% 34.0% 34.0%
Amortization of goodwill....... 0.8 0.6 1.0 0.8 0.6 1.0
State income taxes, net of
federal benefit.............. 1.1 1.4 6.0 4.1 3.5 6.1
Nondeductible expenses......... 2.0 1.4 3.0 2.0 1.4 3.0
Envirocycle, Inc. earnings
(S-corporation).............. (25.2) (18.3) (2.3) -- -- --
Other, net..................... (0.2) 1.2 1.8 1.3 2.3 2.1
------ ------ ----- ----- ----- -----
Effective tax rate........... 12.5% 20.3% 43.5% 42.2% 41.8% 46.2%
====== ====== ===== ===== ===== =====
</TABLE>
F-71
<PAGE> 121
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, Hudson Management Corporation adopted SFAS No. 109 with no
material impact. Under SFAS No. 109, deferred tax assets or liabilities at the
end of each period are determined by applying the current tax rate to the
difference between the financial reporting and income tax bases of assets and
liabilities.
Components of the net deferred income tax liability are shown below (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1993
------- -------
<S> <C> <C>
Deferred income tax liability:
Book basis in property over tax basis.................. $(1,471) $(1,369)
------- -------
Deferred income tax assets:
Non-deductible self insurance reserves................. 779 816
Non-deductible allowance for doubtful accounts......... 57 83
Other, net............................................. 9 12
------- -------
845 911
------- -------
Net deferred income tax liability...................... $ (626) $ (458)
======= =======
</TABLE>
Prepaid expenses and other as of September 30, 1994 include current income
taxes receivable totaling approximately $464,000.
The Companies' federal income tax returns for 1993 are currently under
examination by the Internal Revenue Service. In the opinion of the Companies'
management, the outcome of such examination will not have a material impact on
the combined financial position and results of operations of the Companies.
(7) COMMITMENTS AND CONTINGENCIES:
The Companies provide commercial, industrial and residential waste
collection and recycling services under terms of contracts or franchise
agreements with several governmental agencies (municipalities and counties).
Among other things, these contracts and agreements specify the terms and
conditions of performance, rates, geographical boundaries and types of services
to be provided. The contracts and agreements expire at various times through
September 2002 and, in most cases, must be competitively bid for renewal.
The Companies have adopted a maximum premium group health insurance plan.
The plan calls for the Companies to pay approximately $65 per employee each
month to a third party administrator. This payment is used to purchase stop loss
insurance, group life insurance, and pay the fees of the third party
administrator, who processes all claims. The Companies are then responsible for
paying all claims up to the stop loss limits which are $30,000 per year per
individual or an aggregate amount equal to a maximum premium amount per
employee, per year. The Companies have accrued their estimate of the claims
liability under the plan which management believes is adequate to cover claims
incurred as of September 30, 1994 and 1993.
The Companies participate in a workers' compensation employers' self
insurance plan. The Companies' maximum liability under the self insurance plan
is limited to a percentage of the standard premium, as defined. Reserves are
estimated for both reported and unreported claims using industry loss
development factors. Revisions to estimated reserves are recorded in the period
in which they become known. The estimated workers' compensation reserves as of
September 30, 1994 and 1993 totaling $2,071,000 and $2,169,000, respectively,
represent management's best estimate, and in the opinion of the Companies'
management, any future adjustments to estimated reserves will not have a
material impact on the combined financial statements.
F-72
<PAGE> 122
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1994, the Companies had a $2.0 million letter of credit
line with a bank of which $1.0 million has been used to guarantee the payment of
claims under the Companies' workers' compensation self insurance plan.
In the normal course of business, the Companies have performance and surety
bonds which are not reflected in the accompanying combined balance sheets. The
aggregate value of these off balance sheet financial instruments totaled
approximately $5.3 million at September 30, 1994. The Companies' management
believes that the likelihood of performance under these financial instruments is
minimal and expects no material losses to occur in connection with these
financial instruments.
The Companies are involved in certain legal actions and claims arising in
the ordinary course of business. Based on advice of legal counsel, it is the
opinion of management that such litigation and claims will be resolved without
material effect on the Companies' combined financial position.
(8) 401(K) SAVINGS PLAN:
Employees of the Companies may participate in a Section 401(k) savings
plan, whereby the employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting certain age and length-of-service requirements.
Effective January 1, 1995, the Companies elected to provide an employer matching
contribution of 10% of each employee's contribution for fiscal 1995. The
Companies made no matching contribution to the plan in 1994, 1993 or 1992.
(9) STOCKHOLDERS' EQUITY:
Capital stock consists of the following authorized, issued and outstanding
shares as of September 30, 1994 and 1993:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED PAR
AUTHORIZED AND OUTSTANDING VALUE AMOUNT
---------- --------------- ----- ------
<S> <C> <C> <C> <C>
Hudson Management Corporation..... 500 200 $ 1 $200
Envirocycle, Inc.................. 1,000 100 1 100
------
$300
=======
</TABLE>
(10) SUBSEQUENT EVENT:
On May 21, 1995, the Companies entered into merger agreements with Republic
Industries, Inc. ("Republic") whereby Republic would acquire all of the
outstanding capital stock of the Companies for eight million shares of Republic
common stock. The merger agreements were consummated on August 3, 1995 upon
approval by Republic's stockholders and regulatory agencies and completion of
other customary closing conditions.
F-73
<PAGE> 123
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, 1995 and 1994,
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, 1995
and 1994, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Jacksonville, Florida
December 22, 1995
F-74
<PAGE> 124
SOUTHLAND ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.............................................................. $ 808,590 $ 483,193
Accounts receivable -- trade...................................... 3,963,288 2,844,357
Allowance for doubtful accounts................................... (134,238) (168,220)
Accounts receivable -- other...................................... 473,133 101,941
Prepaid expenses.................................................. 578,566 339,914
Refundable taxes.................................................. 109,368 231,261
Deferred income tax benefits...................................... 428,985 51,298
Other current assets.............................................. 145,403 68,491
----------- -----------
6,373,095 3,952,235
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT, at cost............................. 20,236,724 15,955,667
Less accumulated depreciation..................................... (8,246,423) (6,319,630)
----------- -----------
11,990,301 9,636,037
----------- -----------
OTHER ASSETS
Notes receivable.................................................. 325,307 429,810
Cost in excess of net assets acquired -- net...................... 1,738,510 484,568
Other intangibles -- net.......................................... 121,377 196,829
Deposits and other................................................ 172,834 92,313
----------- -----------
2,358,028 1,203,520
----------- -----------
$20,721,424 $14,791,792
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable -- bank............................................. $ 1,000 $ 1,000
Notes payable -- stockholders..................................... -- 44,568
Current maturities of long-term notes payable..................... 2,099,514 1,856,414
Accounts payable.................................................. 1,923,220 1,487,077
Other accrued liabilities......................................... 2,055,419 671,848
Deferred revenue.................................................. 471,686 681,766
----------- -----------
6,550,839 4,742,673
----------- -----------
LONG-TERM LIABILITIES
Long-term notes payable........................................... 8,296,307 5,627,306
Deferred income taxes............................................. 1,075,363 740,976
----------- -----------
9,371,670 6,368,282
----------- -----------
15,922,509 11,110,955
----------- -----------
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
Additional paid-in capital........................................ 1,664,224 1,664,224
Retained earnings................................................. 2,534,691 1,416,613
----------- -----------
4,798,915 3,680,837
----------- -----------
$20,721,424 $14,791,792
========== ==========
</TABLE>
Read accompanying notes to the financial statements.
F-75
<PAGE> 125
SOUTHLAND ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Collection services............................................... $17,569,729 $13,178,645
Recycling services................................................ 9,883,129 4,558,860
Landfill and composting operations................................ 1,099,555 3,116,624
----------- -----------
28,552,413 20,854,129
----------- -----------
EXPENSES
Operating expenses................................................ 19,561,023 14,335,026
Depreciation and amortization..................................... 2,333,326 1,701,377
Selling, general and administrative............................... 3,428,020 2,547,112
----------- -----------
25,322,369 18,583,515
----------- -----------
INCOME FROM OPERATIONS.............................................. 3,230,044 2,270,614
OTHER INCOME (EXPENSES)
Interest expense.................................................. (1,099,120) (514,416)
Miscellaneous -- net.............................................. (177,046) 57,475
----------- -----------
(1,276,166) (456,941)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES............................ 1,953,878 1,813,673
PROVISION FOR INCOME TAXES.......................................... 835,800 688,200
----------- -----------
NET INCOME.......................................................... $ 1,118,078 $ 1,125,473
========== ==========
</TABLE>
Read accompanying notes to the financial statements.
F-76
<PAGE> 126
SOUTHLAND ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
Net income..................................... -- -- 1,118,078 1,118,078
-------- ---------- ---------- ----------
BALANCES, September 30, 1995..................... $600,000 $1,664,224 $2,534,691 $4,798,915
======== ========= ========= =========
</TABLE>
Read accompanying notes to the financial statements.
F-77
<PAGE> 127
SOUTHLAND ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 1,118,078 $ 1,125,473
Noncash items included in net income:
Depreciation and amortization.................................. 2,333,326 1,701,377
Net loss on disposal of property and equipment................. 23,736 3,927
Deferred taxes................................................. (43,302) 148,250
Provision for uncollectible notes receivable................... 70,729 --
Net increase in trade and other receivables....................... (1,611,887) (797,363)
Net decrease (increase) in trade notes receivable................. 4,580 (362,786)
(Increase) decrease in inventory, prepaid expenses and other
current assets................................................. (236,500) 26,854
Net decrease (increase) in refundable taxes....................... 121,893 (123,079)
Increase in accounts payable...................................... 436,143 426,705
Increase (decrease) in other accrued liabilities.................. 1,383,571 (67,454)
(Decrease) increase in deferred revenue........................... (210,080) 77,644
----------- -----------
Net cash provided by operating activities...................... 3,390,287 2,159,548
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment...................... 301,951 143,283
Purchase of property and equipment................................ (2,704,801) (3,791,931)
Increase in deposits and other assets............................. (160,800) (63,822)
Business acquisition.............................................. (2,853,550) --
----------- -----------
Net cash used by investing activities.......................... (5,417,200) (3,712,470)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of stockholder loan..................................... (44,568) (109,456)
Proceeds from long-term debt...................................... 7,957,557 3,967,269
Principal payments on long-term debt and capital lease
obligations.................................................... (5,560,679) (2,135,509)
----------- -----------
Net cash provided by financing activities...................... 2,352,310 1,722,304
----------- -----------
NET INCREASE IN CASH................................................ $ 325,397 $ 169,382
CASH -- BEGINNING OF YEAR........................................... 483,193 313,811
----------- -----------
CASH -- END OF YEAR................................................. $ 808,590 $ 483,193
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Notes payable and capital lease obligations incurred for purchase
of property and equipment...................................... $ 515,233 $ 1,215,944
========== ==========
Adjustment to purchase price of recycling company................. $ -- $ 75,901
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest............................ $ 786,057 $ 514,416
========== ==========
Cash paid during the year for income taxes........................ $ 951,450 $ 561,760
========== ==========
</TABLE>
Read accompanying notes to the financial statements.
F-78
<PAGE> 128
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,
1995 and 1994 include the accounts of Southland Environmental Services, Inc.
("SES") and its wholly-owned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated.
On March 29, 1995, the Company purchased contract rights to provide
residential collection services under contracts with the City of Jacksonville
and certain assets from a 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. As a result of this 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.
This acquisition was accounted for as a purchase and, accordingly, the net
acquisition costs have been allocated to the assets acquired based upon their
fair market value at the acquisition date as follows:
<TABLE>
<S> <C>
Property and equipment................................................... $1,533,420
Cost in excess of assets acquired........................................ 1,318,930
Other assets............................................................. 1,200
----------
$2,853,550
=========
</TABLE>
The operating results of the acquired business have been included in the
consolidated financial statements from the date of acquisition.
Cash
Cash includes all cash balances and highly liquid investments in money
market accounts. The Company places its temporary cash investments with a high
quality financial institution. At times, such investments may be in excess of
FDIC insurance limits. The Company does not believe it is exposed to any
significant credit risk on cash and cash equivalents.
Inventory
Inventories consisting primarily of recyclable material are valued at the
lower of cost, determined on the first-in, first-out method, or market and are
classified as other current assets in the consolidated financial statements.
Property, Plant and Equipment
The cost of property, plant, and equipment is depreciated over the
estimated useful lives of the related assets. Depreciation is computed using the
straight-line method for financial reporting purposes and on the modified and
accelerated cost recovery systems for income tax purposes.
Maintenance and repairs are charged to expense as incurred. Betterments and
renewals are capitalized. The asset cost and accumulated depreciation are
removed from the accounts for assets sold or retired, and any resulting gain or
loss is included in consolidated net income.
F-79
<PAGE> 129
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated useful lives of assets for the purpose of computing
depreciation are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements................................................... 15-31
Vehicles and heavy equipment................................................. 3-8
Containers and compactors.................................................... 5-8
Recycling equipment.......................................................... 7-8
Furniture and equipment...................................................... 5-7
</TABLE>
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for temporary differences between the basis of
assets and liabilities for financial statement and income tax purposes.
Deferred Revenue
Amounts billed to customers in advance of the service provided are deferred
and are not recognized as earned revenue until the period in which the service
is performed.
Amortization
Costs in excess of net assets acquired resulted from the acquisition of
businesses and is being amortized on the straight-line basis over periods of
seventeen and twenty years. Accumulated amortization was $104,280 and $39,292 at
September 30, 1995 and 1994, respectively.
Other intangibles include 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, 1995
and 1994, was $162,699 and $368,827, respectively.
Amortization expense for the years ended September 30, 1995 and 1994, was
$259,441 and $114,904, respectively.
Reclassification
Certain reclassifications have been made in the September 30, 1994
consolidated financial statements to conform to classifications used in the
September 30, 1995 consolidated financial statements.
2. CONSOLIDATED SUBSIDIARIES
The Company 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. 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. provides residential waste
collection to approximately 55,000 homes in Duval County under a contract
expiring in September, 2001. Management expects this contract to be
renewed.
F-80
<PAGE> 130
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. operates a recycling facility which
processes and markets recyclable materials, predominately office paper and
cardboard, collected from commercial customers.
Enviro-Comp Services, Inc. operates a yard waste/mulching and
composting facility under a contract with the City of Jacksonville which
expires September, 2001 with provision that the city may extend the
contract for two additional five year terms. Payments are made to the
Company by the City based on a rate per ton for yard waste delivered to the
facility for processing.
During 1994, the contract with the City was amended to permit the
establishment of an additional processing facility on Company owned land. The
City agreed to reimburse the Company for the construction cost of the new
facility not to exceed $650,000. The agreement provides for immediate cash
payments of $270,000 and execution of a note to the Company payable monthly over
five years with interest at 5.25% for the remaining costs. In addition, the City
will share equally in the profits from the sale of each truck load of processed
material after deduction of certain defined costs.
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>
1995 1994
--------- --------
<S> <C> <C>
Installment notes receivable from retail equipment sales;
aggregate monthly payments of $2,581 including interest at
10.4% to 26.7%;
due through September, 1999 (net of deferred interest income
of $21,315)................................................... $ 87,425 $ 74,529
Receivable from a municipality; monthly payments of $6,075 with
interest at 5.25%; due through March, 2000.................... 351,995 364,520
Note receivable from an individual; monthly payments of $677
including interest at 9%; due through August, 2013;
collateralized by land and building........................... -- 74,033
Other notes..................................................... $ 1,281 $ 4,511
--------- --------
440,701 517,593
Less: current portion........................................... (115,394) (87,783)
--------- --------
$ 325,307 $429,810
========= ========
</TABLE>
The current portion of notes receivable is included in accounts
receivable -- other on the consolidated balance sheets.
The note receivable from an individual is in default and was fully reserved
during 1995. This write-down was necessitated by the likelihood of an adjustment
to the fair market value of the property collateralizing the note resulting from
the potential of environmental remediation.
4. REFUNDABLE TAXES
In 1994, a subsidiary 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
F-81
<PAGE> 131
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $109,368
and $56,261 at September 30, 1995 and 1994, respectively.
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land and land improvements.................................. $ 1,498,689 $ 1,204,062
Buildings and improvements.................................. 1,400,856 824,547
Vehicles and heavy equipment................................ 12,368,511 10,242,124
Containers and compactors................................... 3,164,967 2,366,457
Recycling equipment......................................... 987,573 781,555
Furniture and equipment..................................... 816,128 536,922
----------- -----------
20,236,724 15,955,667
Less: accumulated depreciation.............................. (8,246,423) (6,319,630)
----------- -----------
$11,990,301 $ 9,636,037
========== ==========
</TABLE>
Depreciation expense for the years ended September 30, 1995 and 1994, was
$2,073,885 and $1,586,473, respectively.
6. NOTES PAYABLE -- BANK
The Company has a $500,000 revolving line of credit with a bank bearing
interest at 1/2% above the bank's prime interest rate. Borrowings against the
line of credit were $1,000 at September 30, 1995 and 1994. 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, 1995, 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, 1995.
7. NOTES PAYABLE -- STOCKHOLDERS
Notes payable -- stockholders are unsecured, have no fixed payment terms,
bear interest at the applicable federal rate, and are subordinated to bank notes
payable.
F-82
<PAGE> 132
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM NOTES PAYABLE
Long-term notes payable consisted of the following at September 30:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<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
$329,000 at September 30, 1995.................................... $ 300,417 $ 325,417
Notes payable to bank; monthly payments aggregating $123,940 plus
interest varying from prime plus 1/2% to 10.35% fixed; due
through September, 2005; collateralized by substantially all
property, plant, and equipment.................................... 8,333,399 4,652,381
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
$550,000 at September 30, 1995.................................... 116,954 120,491
Capital lease obligations with monthly payments aggregating $14,299
at rates from 5.595% to 12.43%; due through December, 1997;
collateralized by vehicles and equipment with a net book value of
$111,500 at September 30, 1995.................................... 119,729 218,034
Equipment purchase notes payable to corporate lenders in monthly
installments aggregating $61,867 at rates from 5.90% to 10.50%;
due through October, 1999; collateralized by vehicles and
equipment with a net book value of $1,795,000 at September 30,
1995.............................................................. 1,474,917 2,001,429
Note payable to individual; monthly payments of $10,246 including
interest at 6 1/2%; due February, 1995............................ 50,405 165,968
----------- -----------
10,395,821 7,483,720
Less: current maturities............................................ (2,099,514) (1,856,414)
----------- -----------
$ 8,296,307 $ 5,627,306
========== ==========
</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, 1995, and 1994.
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.
During 1995, the Company entered into an interest rate exchange agreement
with a financial institution to limit its exposure for interest rate volatility.
The agreement involves transactions with principal balances of $4,238,528 at
September 30, 1995. The agreement effectively changes the Company's interest
rate exposure on that portion of its floating rate notes due May, 2001, to a
fixed 10.29% and expires April, 2000. The
F-83
<PAGE> 133
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company is exposed to credit loss in the event of non-performance by the other
party to the agreement. However, the Company does not anticipate non-performance
by the other party.
Maturities of long-term notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOTES CAPITAL
SEPTEMBER 30, PAYABLE LEASES TOTAL
-------------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
1996.............................................. $ 2,055,117 $ 44,397 $ 2,099,514
1997.............................................. 1,918,792 72,117 1,990,909
1998.............................................. 1,903,472 3,215 1,906,687
1999.............................................. 1,389,108 -- 1,389,108
2000.............................................. 1,054,626 -- 1,054,626
Thereafter........................................ 1,954,977 -- 1,954,977
----------- -------- -----------
$10,276,092 $119,729 $10,395,821
========== ======== ==========
</TABLE>
9. INCOME TAXES
The components of income tax expense for the years ended September 30 are
as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current.......................................................... $879,100 $539,950
Deferred......................................................... (43,300) 148,250
-------- --------
$835,800 $688,200
======== ========
</TABLE>
Temporary differences giving rise to the deferred liability and the
deferred tax asset consist primarily of the excess of depreciation for tax
purposes over the amount for financial reporting purposes and bad debt expense
and certain accrued expenses which have been recognized in the determination of
financial statement net income but not taxable income.
At September 30, 1995 and 1994, deferred tax liabilities recognized for
taxable temporary differences totaled $1,075,363 and $740,976, respectively.
Deferred tax assets recognized for deductible temporary differences totaled
$428,985 and $51,298, respectively.
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>
1995 1994
--------------------- ---------------------
PERCENT OF PERCENT OF
PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Tax at federal statutory rate.................. $664,300 34.0% $616,650 34.0%
State income tax, net of federal tax benefit... 84,500 4.3 52,000 2.9
Acquisition expense -- permanent difference.... 51,600 2.7 -- --
Other, net..................................... 35,400 1.8 19,550 1.0
-------- ----- -------- -----
$835,800 42.8% $688,200 37.9%
======== ======= ======== =======
</TABLE>
10. 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 $59,012 and
F-84
<PAGE> 134
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$50,749 for the years ended September 30, 1995, and 1994, respectively. In
addition, the Company, at its option, may contribute additional amounts to the
Plan.
11. 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 $32,000 which is included in prepaid expenses in 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.
The Company has previously relied on insurance company estimates to
determine its allowance for claims. During 1995, these claims were computed
actuarially. The effect of this change was to decrease net income by $92,600.
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.
The Company has accrued an estimate of the claim liability under the plan
which management believes is adequate to cover claims incurred as of September
30, 1995. At September 30, 1994, claim payments reached the maximum amount under
the aggregate stop-loss coverage prior to year-end, and no further liability
existed through the policy year ended October 31, 1994.
12. 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, 1995, were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
SEPTEMBER 30, LEASES LEASES
----------------------------------------------------------------- -------- ---------
<S> <C> <C>
1996.......................................................... $ 52,980 $ 95,845
1997.......................................................... 76,507 83,580
1998.......................................................... 3,251 48,000
1999.......................................................... -- --
2000.......................................................... -- --
-------- ---------
132,738 $ 227,425
========
Less: amounts attributable to interest........................... 13,009
--------
Present value of minimum lease payments (current portion
$44,397)....................................................... $119,729
========
</TABLE>
Rental expense for all operating leases amounted to $157,215 and $154,622
for the years ended September 30, 1995 and 1994, respectively.
At September 30, 1995, the Company had outstanding payment/performance
bonds of $3,367,880 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.
F-85
<PAGE> 135
SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1995 and 1994 were $359,936 and $366,524,
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 25.1% and 25.9% in 1995 and 1994,
respectively.
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of accounts receivable. Management believes
these risks are limited due to the large number of customers and contracts with
municipalities along with generally short payment terms.
The Company is subject to certain federal, state and local environmental
laws and regulations. The Company has not experienced any significant regulatory
problems, is not involved in litigation over 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.
13. SUBSEQUENT EVENTS
On August 24, 1995, the Company and its majority stockholder entered into a
definitive agreement with Republic Industries, Inc. ("Republic") under which
Republic would acquire all of the outstanding common stock of the Company in
exchange for 2.6 million shares of Republic common stock. The transaction was
consummated on October 17, 1995 and was accounted for by Republic under the
pooling-of-interest method of accounting.
In November, 1995, the Company retired all outstanding long-term notes
payable utilizing funds borrowed from Republic.
F-86
<PAGE> 136
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
United Waste Service, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of United Waste Service,
Inc. as of September 30, 1995 and 1994, and the related statements of income,
changes in stockholders' deficiency, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Waste Service, Inc.
as of September 30, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
JONES AND KOLB
December 4, 1995
F-87
<PAGE> 137
UNITED WASTE SERVICE, INC.
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including money market funds of $348 and $182,482 at September 30,
1995 and 1994, respectively (Note 2)...................................... $ 8,936 $ 325,434
Certificate of deposit...................................................... 49,515 47,148
Accounts receivable, net of allowance for doubtful accounts of $119,400 and
$19,400 at September 30, 1995 and 1994, respectively (Notes 2 and 3)...... 2,079,654 1,656,838
Receivable from officers (Note 5)........................................... 63,896 50,531
Other receivables........................................................... 92,974 105,784
Prepaid expenses............................................................ 80,778 96,168
Federal income tax deposit.................................................. 90,733 54,848
Other current assets........................................................ 27,472 36,408
----------- -----------
Total current assets................................................. 2,493,958 2,373,159
----------- -----------
PROPERTY AND EQUIPMENT, At cost (Notes 3 and 4):
Containers.................................................................. 5,385,572 4,619,094
Trucks and equipment........................................................ 6,317,808 5,474,903
Machinery and equipment..................................................... 271,254 153,521
Furniture and fixtures...................................................... 525,255 375,105
Leasehold improvements...................................................... 172,884 158,244
----------- -----------
Total................................................................ 12,672,773 10,780,867
Less accumulated depreciation........................................ 6,522,381 6,051,391
----------- -----------
Property and equipment, net.......................................... 6,150,392 4,729,476
----------- -----------
OTHER ASSETS -- Excess of cost over fair value of net tangible assets
acquired, net of accumulated amortization of $327,217 and $277,086 at
September 30, 1995 and 1994, respectively (Note 7).......................... 1,799,023 1,122,913
----------- -----------
TOTAL................................................................ $10,443,373 $ 8,225,548
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Line of credit (Note 2)..................................................... $ 800,000
Current maturities of notes payable (Note 3)................................ 768,706 $ 441,613
Current portion of capital lease obligations (Note 4)....................... 30,202
Accounts payable............................................................ 1,059,818 622,438
Accrued expenses............................................................ 608,843 498,409
Deferred sales.............................................................. 555,335 332,004
----------- -----------
Total current liabilities............................................ 3,822,904 1,894,464
----------- -----------
LONG-TERM OBLIGATIONS:
Notes payable, net of current portion (Note 3).............................. 8,008,779 7,661,671
Capital lease obligations (Note 4).......................................... 87,675
----------- -----------
Total long-term obligations.......................................... 8,096,454 7,661,671
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
STOCKHOLDERS' DEFICIENCY (Notes 3 and 7):
Common stock, $1 stated value, 10,000 shares authorized; 6,032 shares issued
and 332 shares outstanding in 1995; 6,011 shares issued and 311 shares
outstanding in 1994....................................................... 6,032 6,011
Paid-in capital............................................................. 845,085 505,405
Retained earnings........................................................... 4,042,898 4,527,997
----------- -----------
4,894,015 5,039,413
Less treasury stock -- 5,700 shares of common stock at cost (Note 5)........ (6,370,000) (6,370,000)
----------- -----------
Total stockholders' deficiency....................................... (1,475,985) (1,330,587)
----------- -----------
TOTAL................................................................ $10,443,373 $ 8,225,548
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-88
<PAGE> 138
UNITED WASTE SERVICE, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES.......................................................... $15,733,803 $13,759,979
COST OF OPERATIONS................................................ 12,486,721 10,386,367
----------- -----------
GROSS PROFIT...................................................... 3,247,082 3,373,612
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 5)............. 3,408,686 2,738,615
----------- -----------
OPERATING INCOME (LOSS)........................................... (161,604) 634,997
----------- -----------
OTHER INCOME (EXPENSE):
Interest income................................................. 9,538 8,726
Royalties....................................................... 1,143,287 1,137,283
Interest expense (Notes 3 and 4)................................ (774,867) (713,066)
Gain on sale of assets.......................................... 150,727 81,575
Miscellaneous................................................... 6,190 4,826
----------- -----------
Total other income (expense)............................ 534,875 519,344
----------- -----------
NET INCOME........................................................ $ 373,271 $ 1,154,341
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-89
<PAGE> 139
UNITED WASTE SERVICE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER STATED PAID-IN RETAINED TREASURY
OF SHARES VALUE CAPITAL EARNINGS STOCK TOTAL
--------- ------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993.... 6,007 $6,007 $452,896 $4,023,446 $(6,370,000) $(1,887,651)
Net income................... 1,154,341 1,154,341
Issuance of common stock..... 4 4 52,509 52,513
Stockholders'
distributions............. (649,790) (649,790)
--------- ------ -------- ---------- ----------- -----------
Balance, September 30, 1994.... 6,011 6,011 505,405 4,527,997 (6,370,000) (1,330,587)
Net income................... 373,271 373,271
Issuance of common stock
(Note 7).................. 21 21 339,680 339,701
Stockholders'
distributions............. (858,370) (858,370)
--------- ------ -------- ---------- ----------- -----------
Balance, September 30, 1995.... 6,032 $6,032 $845,085 $4,042,898 $(6,370,000) $(1,475,985)
======= ====== ======== ========= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-90
<PAGE> 140
UNITED WASTE SERVICE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others......................... $ 15,277,866 $ 13,626,441
Cash paid to suppliers and employees............................ (14,006,596) (12,018,526)
Interest received............................................... 9,538 8,726
Dividends received.............................................. 554 1,113
Royalties received.............................................. 1,156,097 1,047,548
Interest paid................................................... (763,191) (707,092)
Income taxes.................................................... (35,885) (23,847)
------------ ------------
Net cash provided by operating activities............... 1,638,383 1,934,363
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Robertson Sanitation, Inc........................ (124,434)
Purchase of property and equipment.............................. (2,009,966) (1,774,862)
Loans and advances to officers.................................. (22,202) (91,500)
Repayment of loans and advances to officers..................... 8,837 54,269
Proceeds from sale of assets.................................... 204,419 92,347
Increase in investment in certificate of deposit................ (2,367)
------------ ------------
Net cash used by investing activities................... (1,945,713) (1,719,746)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................................... 2,256,880 591,551
Payment of notes payable........................................ (1,407,678) (316,941)
Distributions to stockholders................................... (858,370) (649,790)
------------ ------------
Net cash used by financing activities................... (9,168) (375,180)
------------ ------------
NET DECREASE IN CASH.............................................. (316,498) (160,563)
Cash at beginning of year......................................... 325,434 485,997
------------ ------------
Cash at end of year............................................... $ 8,936 $ 325,434
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income...................................................... $ 373,271 $ 1,154,341
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................. 1,202,078 1,001,553
Amortization................................................. 50,131 35,000
Gain on sale of assets....................................... (150,727) (81,575)
Issuance of common stock as compensation..................... 80,885 52,513
Increase in accounts receivable.............................. (383,356) (225,493)
Decrease in other receivables................................ 14,521 34,126
Decrease in prepaid expenses................................. 15,390 79,817
Increase in federal tax deposit.............................. (35,885) (23,847)
Decrease (increase) in other current assets.................. 8,936 (13,938)
Increase (decrease) in accounts payable...................... 336,271 (326,787)
Increase in accrued expenses................................. 52,159 248,175
Increase in deferred sales................................... 74,709 478
------------ ------------
Net cash provided by operating activities............... $ 1,638,383 $ 1,934,363
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued as compensation............................. $ 80,885 $ 52,513
=========== ===========
Common stock issued for acquisition of Robertson Sanitation,
Inc. common stock (Note 7)................................... $ 258,816
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-91
<PAGE> 141
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. United Waste Service, Inc., a Georgia corporation formed November 17,
1970, provides waste disposal services to commercial and residential customers,
primarily in the Atlanta metropolitan area.
B. The Company uses the allowance method of accounting for accounts
receivable deemed to be uncollectible. Bad debt expense for the years ended
September 30, 1995 and 1994 was $152,926 and $32,383, respectively.
C. Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. Estimated useful lives
are as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIVES
------------------------------------------------------------------------ -------------
<S> <C>
Containers.............................................................. 7 years
Trucks and equipment.................................................... 5 to 7 years
Machinery and equipment................................................. 5 years
Furniture and fixtures.................................................. 5 years
Leasehold improvements.................................................. 5 years
</TABLE>
Depreciation expense for the years ended September 30, 1995 and 1994,
respectively, was $1,202,078 and $1,001,553.
D. The excess of cost over fair market value of net tangible assets
acquired consists of goodwill and customer lists. The goodwill is amortized
using the straight-line method over periods of 20 and 40 years. The customer
lists are amortized using the straight-line method over 20 years.
E. The Company recognizes revenues when the services are rendered. Revenues
billed prior to the performance of services are deferred and recorded as income
in the period in which the related services are rendered. Royalties included in
other income consist of amounts received in connection with a prior year sale of
the Company's interest in a waste disposal site.
F. The Company has elected S Corporation status for federal and state
income tax purposes, and the stockholders have consented to report the taxable
income of the Company on their individual income tax returns. As a result, no
federal or state income tax is imposed on the Company and, accordingly, the
financial statements do not reflect a provision for income taxes.
G. For purposes of cash flow presentation, the Company considers currency
on hand and demand deposits with financial institutions to be cash equivalents.
H. At September 30, 1995, the Company has cash and cash equivalents of
$792,762, including outstanding checks, deposited in one institution which
exceeds the $100,000 federally insured limit.
I. Certain amounts in the 1994 financial statements have been reclassified
to conform to the current year presentation.
2. LINE OF CREDIT
The Company entered into a line of credit agreement on January 31, 1995. At
September 30, 1995, the total amount available and the amount outstanding was
$800,000. The line of credit requires monthly interest only payments at the
lender's prime rate and is collateralized by accounts receivable and all deposit
accounts held by the lender. Subsequent to September 30, 1995, this line of
credit was paid in full (Note 9).
F-92
<PAGE> 142
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES PAYABLE
The following is a summary of notes payable:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Note payable to former stockholder, payable monthly at $27,160
including interest at 9.5% through November 2004,
collateralized by Company stock. ........................... $3,079,400 $3,111,116
Note payable to former stockholder, payable monthly at $25,730
including interest at 9.5% through November 2004,
collateralized by Company stock. ........................... 2,917,325 2,947,372
Note payable to bank, payable monthly at $41,738 including
interest at 6.46%, matures June 1, 1999, collateralized by
equipment and personal guarantees of the shareholders (see
Note 6). Subsequent to September 30, 1995, this note was
paid in full (Note 9). ..................................... 1,666,786 2,044,796
Note payable to bank, payable monthly at $8,030 including
interest at 9%, matures June 1, 2000, collateralized by
trucks. Subsequent to September 30, 1995, this note was paid
in full (Note 9). .......................................... 384,168
Note payable to bank, payable monthly at $8,735 including
interest at 9.12%, matures October 1, 1998, collateralized
by accounts receivable. Subsequent to September 30, 1995,
this note was paid in full (Note 9). ....................... 274,219
Note payable to bank, payable monthly at $15,828 including
interest at 8.69%, matures July 1998, collateralized by
equipment. Subsequent to September 30, 1995, this note was
paid in full (Note 9). ..................................... 455,587
---------- ----------
Subtotal.................................................... 8,777,485 8,103,284
Less current portion........................................ 768,706 441,613
---------- ----------
Long-term debt, net of current portion...................... $8,008,779 $7,661,671
========= =========
</TABLE>
Scheduled maturities of notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
------------------------------------------------------------------------- ----------
<S> <C>
September 30, 1996....................................................... $ 768,706
September 30, 1997....................................................... 840,206
September 30, 1998....................................................... 852,525
September 30, 1999....................................................... 554,685
September 30, 2000....................................................... 178,514
Thereafter............................................................... 5,582,849
</TABLE>
In addition, the Company has a $49,515 standby letter of credit for
worker's compensation claims which matures June 1, 1996 and has a fee of 75
basis points for the number of days outstanding. There was no amount due on the
letter of credit at September 30, 1995 or 1994.
4. LEASES
During the year ended September 30, 1995, the Company acquired certain
computer and other equipment under capital leases with terms of 36 to 60 months.
At September 30, 1995, the amount capitalized under these leases totaled
approximately $140,000 with accumulated depreciation of $11,600.
F-93
<PAGE> 143
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1995, the total future minimum rental payments under these
capital leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
September 30, 1996........................................................ $ 41,744
September 30, 1997........................................................ 41,744
September 30, 1998........................................................ 32,108
September 30, 1999........................................................ 23,953
September 30, 2000........................................................ 6,723
--------
Total........................................................... 146,272
Less amount representing interest....................................... 28,395
--------
Present value of lease payments......................................... 117,877
Less current portion.................................................... 30,202
--------
Long-term capital lease obligation.............................. $ 87,675
========
</TABLE>
5. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases facilities and equipment from entities owned or
administered by officers of the Company. Required monthly payments under the
terms of the leases are $55,000 through December 31, 1996. Rental expense
totaled $720,000 and $630,000 for the years ended September 30, 1995 and 1994,
respectively. Subsequent to September 30, 1995, the Company acquired this
property and therefore has no future obligations under these leases (see Note
9).
On October 1, 1989, the Company redeemed 370 shares of its common stock in
exchange for notes totaling $6,290,000, which are payable to the former majority
stockholders (see Note 3).
As of September 30, 1995 and 1994, respectively, the Company had loans due
from officers of $63,896 and $50,531.
6. PROFIT SHARING PLAN
The Company has a cash or deferred profit sharing plan in accordance with
Section 401(k) of the Internal Revenue Code. All employees are eligible to
participate in the plan after completion of one year of service and attainment
of 21 years of age.
Participants in the plan may make salary reduction contributions to the
plan in an amount not to exceed 15% of taxable compensation or $9,240 (or such
other amount as limited by the Internal Revenue Code) during any plan year. The
Company may make, at the discretion of its Board of Directors, a matching
contribution to the plan. During 1995 and 1994, plan contribution expense
totaled $192,728 and $104,536, respectively. At September 30, 1995, $100,500 of
the contribution was accrued and unpaid.
7. BUSINESS ACQUISITION
In April 1995, the Company acquired all of the outstanding common stock of
Robertson Sanitation, Inc., a residential waste disposal company, in exchange
for $124,434 in cash and 16 shares of the Company's common stock valued at
approximately $258,816. In connection with this acquisition, the Company
recorded intangible assets in the amount of $726,241, including goodwill and
customer lists. Employment contracts with terms of 24 months were also entered
into between the parties.
The acquisition has been accounted for utilizing the purchase method of
accounting, and the operations are included in the accompanying financial
statements subsequent to the acquisition.
F-94
<PAGE> 144
UNITED WASTE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. CONTINGENCIES
The note payable to bank is cross collateralized and cross defaulted with
loans made by the bank to companies with common ownership. In the event that any
of these related companies defaulted on such loans, the Company would be liable
for the amount due.
9. SUBSEQUENT EVENT
Subsequent to September 30, 1995, the Company merged with Republic
Industries, Inc. in a transaction accounted for as a pooling-of-interest. In
connection with the merger, the Company paid off the long-term debt owed to the
bank and also acquired its operating premises which were leased from a related
party.
F-95
<PAGE> 145
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Boards of Directors and Stockholders
J. C. DUNCAN COMPANY, INC. AND AFFILIATES
We have audited the accompanying combined balance sheets of J. C. DUNCAN
COMPANY, INC. AND AFFILIATES (affiliated through common ownership and common
management) as of June 30, 1995 and 1994, and the related combined statements of
income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall combined financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of J. C. DUNCAN
COMPANY, INC. AND AFFILIATES as of June 30, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
HENDRIX SUTTON & ASSOCIATES
A Limited Liability Partnership
Arlington, Texas
September 7, 1995 (except as to Note 14
which is as of November 11, 1995)
F-96
<PAGE> 146
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -----------------
1995 1995 1994
------------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 3,695 $ 4,263 $ 3,344
Accounts receivable, less allowance for doubtful accounts of
$177 (unaudited), $134 and $78............................ 3,377 3,005 2,481
Due from affiliates.......................................... 197 114 126
Investments.................................................. 119 119 --
Refundable income taxes...................................... 667 158 56
Prepaid insurance and other expenses......................... 808 1,312 1,048
Inventories of tires and repair supplies..................... 402 656 599
------------- ------- -------
Total current assets................................. 9,265 9,627 7,654
------------- ------- -------
Property and equipment, net.................................... 14,892 13,430 11,984
------------- ------- -------
Other assets:
Investments.................................................. 1,674 1,724 1,867
Cash value of life insurance................................. 1,592 1,480 980
Advances to affiliates....................................... 1,127 1,146 1,208
Intangibles, net............................................. 878 904 658
Notes receivable............................................. 652 656 1,054
Deferred tax benefit......................................... 254 254 282
Other........................................................ 82 25 41
------------- ------- -------
Total other assets................................... 6,259 6,189 6,090
------------- ------- -------
$30,416 $29,246 $25,728
========== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......................... $ 1,423 $ 1,684 $ 1,416
Accounts payable............................................. 2,041 2,767 2,080
Accrued liabilities.......................................... 3,561 1,508 989
Income taxes payable......................................... -- 352 406
Customer deposits............................................ 795 767 715
Deferred income taxes........................................ 175 172 145
------------- ------- -------
Total current liabilities............................ 7,995 7,250 5,751
------------- ------- -------
Other liabilities:
Long-term debt, less current maturities...................... 5,116 3,830 4,471
Deferred compensation........................................ 534 522 430
Deferred income taxes........................................ 237 171 139
------------- ------- -------
Total other liabilities.............................. 5,887 4,523 5,040
------------- ------- -------
Commitments and contingencies (Notes 8 and 13)
Stockholders' equity:
Common stock................................................. 58 58 58
Retained earnings............................................ 16,476 17,415 14,879
------------- ------- -------
Total stockholders' equity........................... 16,534 17,473 14,937
------------- ------- -------
$30,416 $29,246 $25,728
========== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-97
<PAGE> 147
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED JUNE
SEPTEMBER 30, 30,
----------------- -----------------
1995 1994 1995 1994
------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues........................................ $ 9,559 $ 8,486 $34,323 $30,136
------- ------- ------- -------
Costs and expenses:
Operating............................................... 6,275 5,337 20,832 19,441
General and administrative.............................. 1,683 1,223 6,164 4,816
Depreciation and amortization........................... 912 702 2,908 2,379
Contribution to profit sharing plan..................... 61 45 246 173
Merger costs............................................ 2,047 -- -- --
------- ------- ------- -------
Total costs and expenses........................ 10,978 7,307 30,150 26,809
------- ------- ------- -------
Operating income (1,419) 1,179 4,173 3,327
Other income (expense):
Gain on disposal of assets.............................. 16 25 112 59
Interest expense........................................ (118) (84) (416) (205)
Interest and other income............................... 108 88 461 212
------- ------- ------- -------
Income (loss) before income taxes (benefit)............... (1,413) 1,208 4,330 3,393
Income taxes (benefit).................................... (474) 492 1,794 1,266
------- ------- ------- -------
Net income (loss)......................................... (939) 716 2,536 2,127
Retained earnings at beginning of period.................. 17,415 14,879 14,879 12,752
------- ------- ------- -------
Retained earnings at end of period........................ $16,476 $15,595 $17,415 $14,879
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-98
<PAGE> 148
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------- -------------------
1995 1994 1995 1994
------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (939) $ 716 $ 2,536 $ 2,127
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 912 702 2,908 2,379
Gain on disposal of assets....................... (16) (25) (112) (59)
Deferred compensation............................ 12 36 92 76
Deferred income tax provision (benefit).......... 69 10 87 (26)
Changes in assets and liabilities:
Accounts receivable............................ (372) 631 (524) (821)
Refundable income taxes........................ (509) 56 (102) 206
Prepaid insurance and other expenses........... 504 42 (264) 301
Inventories.................................... 254 4 (57) (11)
Cash value of life insurance and other
assets...................................... (163) (860) (522) (550)
Accounts payable............................... (726) (583) 687 (243)
Accrued liabilities............................ 2,053 (223) 519 (80)
Income taxes payable........................... (352) (30) (54) 328
Customer deposits.............................. 28 10 52 55
------- ------- ------- -------
Net cash provided by operating activities... 755 486 5,246 3,682
------- ------- ------- -------
Cash flows from investing activities:
Acquisitions of property and equipment.............. (2,369) (1,019) (4,503) (4,616)
Acquisitions of intangibles......................... -- (68) (297) (658)
Proceeds from sales of property and equipment....... 31 25 350 214
Decrease (increase) in investments.................. 50 (146) 24 (27)
Decrease (increase) in advances to affiliates....... (64) (740) 74 (151)
Decrease (increase) in notes receivable............. 4 1,054 398 (962)
------- ------- ------- -------
Net cash used by investing activities....... (2,348) (894) (3,954) (6,200)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of notes payable............. 1,646 557 1,570 3,983
Reductions in notes payable......................... (621) (636) (1,943) (1,326)
------- ------- ------- -------
Net cash provided (used) by financing
activities................................ 1,025 (79) (373) 2,657
------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................... (568) (487) 919 139
Cash and cash equivalents at beginning of period...... 4,263 3,344 3,344 3,205
------- ------- ------- -------
Cash and cash equivalents at end of period............ $ 3,695 $ 2,857 $ 4,263 $ 3,344
======= ======= ======= =======
Supplemental cash flow information cash paid during
the period for:
Income taxes........................................ $ 317 $ 462 $ 1,862 $ 724
======= ======= ======= =======
Interest............................................ $ 118 $ 84 $ 403 $ 166
======= ======= ======= =======
Noncash investing and financing activities:
Property and equipment acquired with debt........... $ -- $ -- $ -- $ 984
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-99
<PAGE> 149
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General and Principles of Combination
The accompanying combined financial statements include the accounts of J.
C. Duncan Company, Inc.; its wholly-owned subsidiary, Arlington Disposal
Company, Inc.; Grand Prairie Disposal Company, Inc.; Trashaway Services, Inc.;
Tos-It Service Company, Inc.; Wes Tex Waste Services, Inc.; Pantego Service
Company; and E & E Truck Leasing; (collectively, the "Companies") which are
affiliated through common ownership and common management. All of the Companies
are corporations with the exceptions of Pantego Service Company and E & E Truck
Leasing which are partnerships. The financial position and results of operations
of the partnerships are not significant to the combined financial position and
combined results of operations of the Companies. All material intercompany
balances and transactions have been eliminated in combination.
In the opinion of management, the unaudited combined financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the combined financial position of the Companies at
September 30, 1995, and the combined results of their operations and their cash
flows for the three months ended September 30, 1995 and 1994.
The Companies provide solid waste collection and recycling services to
commercial, industrial and residential customers located in the state of Texas.
In addition, the Companies operate two sanitary landfills.
Financial Instruments and Credit Risk Concentrations
Financial instruments which are potentially subject to concentrations of
credit risk consist principally of cash, cash equivalents, marketable
securities, and accounts and notes receivable. Cash and cash equivalents are
placed with high credit quality financial institutions to minimize risk.
Marketable securities consist of high credit quality or insured debt
instruments. Notes receivable are secured by equipment. Accounts receivable in
certain instances are secured by customer deposits. The Companies continually
evaluate the collectibility of accounts and notes receivable and maintain
allowances for potential credit losses.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates used in
preparing the accompanying combined financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include short term investments purchased with a
maturity of three months or less.
Investments
Investments include marketable securities and other investments.
Investments in marketable securities consist of debt securities which are
scheduled to mature at various dates from June 1996 through February 1998. The
securities are classified as "held to maturity" securities and are carried at
amortized cost which approximates market. Other investments are carried at cost.
F-100
<PAGE> 150
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories consist of tires and repair supplies and are carried at the
lower of cost or market. Cost is determined by the weighted average method.
Prepaid Insurance
Insurance premiums incurred are capitalized and amortized on a
straight-line basis over the term of the related insurance policy. Retroactive
adjustments to premiums incurred in previous years are recorded as additions or
reductions to insurance expense in the period the Companies receive notice of
the adjustment.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line and accelerated methods. The cost of maintenance and repairs
is charged to income as incurred; significant renewals and betterments are
capitalized.
Intangible Assets
Intangible assets consist of the cost in excess of fair value of net
tangible assets of acquired businesses (goodwill) and noncompete agreements.
Intangible assets are amortized using the straight-line method over their
estimated useful lives or the terms of the related agreements. The Companies
continually evaluate whether events and circumstances have occurred that may
warrant revision of the estimated useful lives of intangible assets or whether
the remaining balance of intangible assets should be evaluated for possible
impairment. No provision for any impairment of intangibles has been charged to
operations.
Income Taxes
The Companies utilize the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Provision for income taxes
(benefit) is the payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
2. REVENUES
The Companies' revenues are earned primarily through contracts with
municipalities. The contracts generally provide for the Companies to bill
residential services directly to the municipality and commercial and industrial
services directly to the customer. The contracts allow the Companies to bill for
services rendered on a monthly basis.
Revenues from major municipality customers accounted for the following
percentages of combined operating revenues for the years ended June 30:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Municipality A......................................................... 19% 18%
Municipality B......................................................... 7% 10%
</TABLE>
F-101
<PAGE> 151
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Municipalities accounting for 10 percent or more of combined accounts
receivable at June 30, 1995 or 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Municipality A......................................................... 4% 10%
Municipality B......................................................... 11% 11%
</TABLE>
3. BUSINESS ACQUISITION
During the year ended June 30, 1994, the Companies acquired a business
providing waste collection services in west Texas for approximately $2,102,000.
The acquisition was financed with the proceeds from the issuance of notes
payable. The acquisition was accounted for using the purchase method of
accounting and, accordingly, allocation of the purchase price to the net assets
acquired was based on estimated fair market values. The assets acquired included
property and equipment of approximately $1,440,000 and goodwill of $662,000. The
results of operations of the business acquired have been included in the
combined financial statements of the Companies since the date of the
acquisition. The pro forma effect of this acquisition is not material to the
combined financial statements.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994 DEPRECIABLE LIVES
-------- -------- -----------------
<S> <C> <C> <C>
Land.......................................... $ 867 $ 876
Building and improvements..................... 5,990 6,004 5 to 30 years
Landfill improvements......................... 384 -- Life of Landfill
Service vehicles.............................. 17,788 16,002 5 to 7 years
Containers.................................... 8,715 7,634 8 to 12 years
Office equipment and other.................... 2,544 2,293 3 to 7 years
-------- --------
36,288 32,809
Less accumulated depreciation................. (22,858) (20,825)
-------- --------
$ 13,430 $ 11,984
======== ========
</TABLE>
Depreciation for the years ended June 30, 1995 and 1994 amounted to
approximately $2,819,000 and $2,263,000, respectively.
During the period from July 1, 1995 through September 7, 1995, the
Companies purchased additional service vehicles at a cost of approximately
$1,572,000.
5. RELATED PARTY TRANSACTIONS
Amounts due from affiliates consist primarily of unsecured advances to
certain shareholders and employees of the Companies. Collections on these
advances are not anticipated during the year ending June 30, 1996.
The Companies purchase containers from an affiliated company. Such
purchases amounted to approximately $856,000 and $1,118,000 for the years ended
June 30, 1995 and 1994, respectively.
F-102
<PAGE> 152
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLES
Intangible assets consist of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1995 1994 USEFUL LIVES
---- ---- ------------
<S> <C> <C> <C>
Goodwill..................................................... $662 $662 40 years
Noncompete agreements........................................ 297 -- 3-5 years
---- ----
959 662
Less accumulated amortization................................ (55) (4)
---- ----
$904 $658
==== ====
</TABLE>
Amortization of intangibles for the years ended June 30, 1995 and 1994,
amounted to approximately $51,000 and $4,000, respectively.
7. NOTE RECEIVABLE
Note receivable at June 30, 1995 and 1994, consists of advances due from a
commercial enterprise. The advances and accrued interest at 10 percent are to be
repaid from future profits of the enterprise. The advances and any accrued
interest mature on January 20, 2004, and are secured by equipment.
The Companies have guaranteed the future rent obligations of the commercial
enterprise. Such future rent obligations amount to $236,000 at June 30, 1995.
8. LONG TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Notes payable to banks, principal of approximately $34,000 plus
interest at the banks' prime rate (9% at June 30, 1995) payable
monthly, maturing at various dates through December 2000,
collateralized by equipment and guaranteed by certain
stockholders of the Companies.................................... $ 1,417 $ 1,663
Notes payable to bank, principal and interest at 7% to 7.5% payable
in monthly installments of $35,800, maturing at various dates
through May 2001, collateralized by equipment and guaranteed by
certain stockholders of the Companies............................ 1,734 2,491
Notes payable to bank consisting of partial advances on term loans
totaling $2,423,245 which were fully funded subsequent to June
30, 1995, requiring monthly principal payments of $23,750 to
$49,185 and interest at the bank's Eurodollar rate (5.8% at June
30, 1995) plus 2.25% until maturity on July 12, 2000,
collateralized by equipment and guaranteed by a stockholder of
the Companies.................................................... 1,353 1,081
Notes payable to bank, principal of $12,100 and interest at the
bank's Eurodollar rate plus 2.25% payable monthly, maturing at
various dates through May 2000, collateralized by accounts
receivable and certain equipment and guaranteed by certain
stockholders of the Companies.................................... 690 --
Note obligation paid subsequent to June 30, 1995................... 228 --
Other notes payable................................................ 92 652
------- -------
5,514 5,887
Less current maturities............................................ (1,684) (1,416)
------- -------
$ 3,830 $ 4,471
======= =======
</TABLE>
F-103
<PAGE> 153
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long term debt, assuming full funding of the term loans had
occurred as of June 30, 1995, are as follows (in thousands):
<TABLE>
<S> <C>
1996........................................................................ $1,695
1997........................................................................ 1,460
1998........................................................................ 1,367
1999........................................................................ 1,063
2000........................................................................ 686
</TABLE>
9. STOCKHOLDERS' EQUITY
Common stock consists of the following authorized, issued and outstanding
shares as of June 30, 1995 and 1994:
<TABLE>
<CAPTION>
SHARES ISSUED
SHARES AND
AUTHORIZED OUTSTANDING PAR VALUE AMOUNT
---------- ------------- --------- -------
<S> <C> <C> <C> <C>
J.C. Duncan Company, Inc. and subsidiary............. 500 375.5 $ 100 $37,550
Grand Prairie Disposal Company, Inc. ................ 10,000 300 $ 10 3,000
Trashaway Services, Inc. ............................ 100,000 16,000 $ 1 16,000
Tos-It Service Company, Inc. ........................ 1,000 760 No Par 760
Wes Tex Waste Services, Inc. ........................ 1,000 1,000 $ 1 1,000
-------
$58,310
=======
</TABLE>
10. INCOME TAXES
Provision for income taxes consists of the following for the years ended
June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Current tax provision:
Federal.......................................................... $1,457 $1,099
State............................................................ 250 193
------ ------
1,707 1,292
------ ------
Deferred tax provision (benefit):
Federal.......................................................... 77 (23)
State............................................................ 10 (3)
------ ------
87 (26)
------ ------
$1,794 $1,266
====== ======
</TABLE>
Following is a reconciliation of the statutory federal income tax rate to
the actual tax rate of the Companies for the years ended June 30:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Statutory federal income tax rate...................................... 34.0% 34.0%
State income taxes, net of federal benefit............................. 3.8 3.5
Change in deferred tax valuation allowance............................. 3.0 1.9
Tax exempt income...................................................... (0.6) (1.0)
Other.................................................................. 1.2 (1.1)
---- ----
Effective tax rate........................................... 41.4% 37.3%
==== ====
</TABLE>
F-104
<PAGE> 154
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1995, one of the affiliates has net operating loss
carryforwards for tax purposes totaling approximately $777,000 which expire in
the years 2009 and 2010.
Components of the net deferred income tax liability are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis..................................... $(282) $(165)
Book basis in inventories over tax basis.................................. (216) (200)
----- -----
(498) (365)
----- -----
Deferred income tax assets:
Nondeductible allowances for doubtful accounts............................ 276 272
Nondeductible accrued vacation............................................ 73 72
Nondeductible deferred compensation....................................... 60 19
Net operating loss carryforwards.......................................... 129 65
Valuation allowance....................................................... (129) (65)
----- -----
409 363
----- -----
$ (89) $ (2)
===== =====
</TABLE>
11. COMPENSATION CONTRACTS
The Companies have entered into individual agreements with certain officers
and employees to provide benefits upon retirement, disability or death of the
individual. The agreements require the Companies to pay benefits equal to the
cash surrender value accumulated in the life insurance policy purchased by the
Companies on the individual. The retirement and disability benefits and any
earnings are payable over a 15 year period commencing one month after the date
of retirement or disability. The agreements further provide the Companies will
commence payments of an annual set amount to the individual's designated
beneficiary within twelve months from the date of death of the individual.
Payments are limited to the proceeds of the life insurance policy purchased on
the individual and earnings on such proceeds. The accumulated cash surrender
values in the life insurance policies are included in cash value of life
insurance and the amounts due under the agreements are included in deferred
compensation in the accompanying combined balance sheets.
12. EMPLOYEE BENEFIT PLANS
The Companies have a profit sharing plan covering employees which meet
certain length of service requirements. Contributions to the plan are made at
the discretion of the Companies' Boards of Directors. The plan also allows
eligible employees to make contributions to their account pursuant to a salary
reduction agreement.
The Companies have adopted a maximum premium group health insurance plan.
The plan calls for the Companies to pay approximately $21 per employee each
month to a third party administrator. Such payment is used to purchase stop loss
insurance, group life insurance, and pay the fees of the third party
administrator who processes all claims. The Companies are then responsible for
paying all claims up to the stop loss limits which amount to $100,000 per year
per individual or an aggregate amount equal to a maximum premium amount per
employee per year. The Companies have provided for the estimate of their claims
liability under the plan which management believes is adequate to cover claims
incurred as of June 30, 1995 and 1994.
F-105
<PAGE> 155
J.C. DUNCAN COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONTINGENCIES
The Companies are subject to extensive and evolving federal, state and
local environmental laws and regulations. These laws and regulations have been
enacted in response to technological advances and increased concern over
environmental issues. These regulations are administered by the Environmental
Protection Agency ("EPA") and various other federal, state and local
environmental, transportation, health and safety agencies. The Companies have
not experienced any significant regulatory problems in the past and believe that
they are in substantial compliance with all applicable rules and regulations.
Future environmental liabilities, if any, would be recorded in the period in
which they become probable and can be reasonably estimated.
The sanitary landfills operated by the Companies are subject to the EPA's
"Subtitle (D) Regulations". These regulations provide minimum design,
construction and operating standards for virtually all landfills in the United
States. The Subtitle (D) Regulations require every landfill to utilize the "best
available technology" with respect to cell preparation and lining, leachate
collection and treatment and ground water monitoring. In addition, adequate
financial assurances must be provided to cover closure costs and post-closure
monitoring costs for a period of up to thirty years after the landfill is
closed. As a result of the above described requirements, the Companies have
future financial obligations with regard to closure costs and post-closure
monitoring costs associated with the disposal sites they operate. The Companies
will accrue their portion of the estimated costs as airspace subject to the
Subtitle (D) Regulations is consumed. As of June 30, 1995, the Companies have
not consumed any airspace subject to Subtitle (D) Regulations. Accordingly, the
accompanying financial statements do not include any provision for estimated
costs relating to these future obligations.
The Companies are involved in certain legal actions and claims, the outcome
of which, in the opinion of management based on advice of legal counsel, will
not have a material impact on the combined financial position of the Companies.
Also, see Note 7.
14. MERGER AGREEMENT
On November 11, 1995, the Companies entered into a merger agreement with
Republic Industries, Inc. ("Republic") whereby Republic will acquire all of the
outstanding stock of the Companies for 5,256,055 shares of Republic common
stock. The merger agreement is subject to approval by Republic's stockholders
and regulatory agencies and other customary closing conditions. The business
combination will be accounted for utilizing the pooling-of-interests method.
F-106
<PAGE> 156
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Garbage Disposal Service, Inc.
Hickory, North Carolina
We have audited the accompanying consolidated balance sheets of Garbage
Disposal Service, Inc. and subsidiary as of September 30, 1995, and the related
consolidated statements of operations and retained earnings and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Garbage
Disposal Service, Inc. and subsidiary as of September 30, 1995, and the results
of its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
November 30, 1995
F-107
<PAGE> 157
GARBAGE DISPOSAL SERVICE, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash (Note A).......................................................................... $ 1,538,383
Accounts receivable:
Trade (net of allowance for doubtful accounts of $231,000) (Note A).................. 3,077,174
Officers and employees (Note B)...................................................... 22,816
Inventories (Note A)................................................................... 456,147
Prepaid expenses....................................................................... 35,419
------------
TOTAL CURRENT ASSETS............................................................ 5,129,939
------------
PROPERTY, PLANT, MACHINERY AND EQUIPMENT (Notes A, F and H):
Land and land improvements............................................................. 728,282
Leasehold improvements................................................................. 684,888
Containers, compactors and balers...................................................... 9,943,140
Trucks, loaders and motor vehicles..................................................... 8,847,434
Office and shop equipment.............................................................. 1,136,271
Recycling plant equipment.............................................................. 1,923,968
Recycling plant........................................................................ 1,068,837
------------
Total........................................................................... 24,332,820
Less allowance for depreciation........................................................ (10,516,794)
------------
PROPERTY, PLANT, MACHINERY AND EQUIPMENT, NET............................................ 13,816,026
------------
OTHER ASSETS:
Note receivable from stockholder -- officer (Note B)................................... 43,965
Cash surrender value of life insurance, net (Note C)................................... 274,109
Goodwill, net (Notes A, E and M)....................................................... 1,217,974
Intangible assets, net (Note D)........................................................ 11,785
Other assets........................................................................... 47,469
Deferred tax asset (Notes A and K)..................................................... 367,800
------------
TOTAL OTHER ASSETS.............................................................. 1,963,102
------------
TOTAL ASSETS.................................................................... $ 20,909,067
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Notes F and G)................................... $ 3,251,437
Capital lease obligation (Note H)...................................................... 126,385
Accounts payable....................................................................... 1,657,567
Accrued compensation................................................................... 484,491
Accrued retirement plan expense (Note I)............................................... 19,490
Other accrued expenses and liabilities................................................. 477,114
Income taxes payable................................................................... 1,004,765
------------
TOTAL CURRENT LIABILITIES....................................................... 7,021,249
LONG-TERM DEBT (Notes F and G)........................................................... 6,106,728
CAPITAL LEASE OBLIGATION (Note H)........................................................ 15,921
DEFERRED INCOME TAXES (Notes A and K).................................................... 2,050,100
------------
TOTAL LIABILITIES............................................................... 15,193,998
------------
COMMITMENTS AND CONTINGENCIES (Notes A, G and J)
STOCKHOLDERS' EQUITY: (Note G)
Preferred stock:
Class A, nonvoting, noncumulative, $100 par value, 4,000 shares authorized, 3,500
issued and outstanding.............................................................. 350,000
Class B, nonvoting, noncumulative, $100 par value, 1,000 shares authorized, 640
issued and outstanding.............................................................. 64,000
Class C, voting, noncumulative, $100 par value, 500 shares authorized,
420 issued and outstanding......................................................... 42,000
Nonvoting, common stock, $1 par value, 350,000 shares authorized, 279,000 shares issued
and outstanding...................................................................... 279,000
Retained earnings...................................................................... 4,980,069
------------
TOTAL STOCKHOLDERS' EQUITY...................................................... 5,715,069
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $ 20,909,067
=============
</TABLE>
The accompanying notes are an integral part of these statements.
F-108
<PAGE> 158
GARBAGE DISPOSAL SERVICE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
OPERATING INCOME.................................................... $29,712,283
DIRECT OPERATING EXPENSES (Note J).................................. $19,345,889
DEPRECIATION EXPENSE (Note A)....................................... 1,549,124 20,895,013
----------- -----------
GROSS MARGIN........................................................ 8,817,270
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Notes I and J)................................................... 4,381,040
DEPRECIATION EXPENSE (Note A)....................................... 133,560
AMORTIZATION EXPENSE (Notes D and E)................................ 97,115 4,611,715
----------- -----------
OPERATING PROFIT.................................................... 4,205,555
OTHER INCOME (EXPENSES):
Other income...................................................... 330,250
Interest expense.................................................. (870,589) (540,339)
----------- -----------
INCOME BEFORE INCOME TAXES.......................................... 3,665,216
PROVISION FOR INCOME TAXES (Notes A and K)
Current........................................................... 1,366,000
Deferred.......................................................... 315,300 1,681,300
----------- -----------
NET INCOME.......................................................... 1,983,916
RETAINED EARNINGS, BEGINNING........................................ 2,996,153
-----------
RETAINED EARNINGS, ENDING........................................... $ 4,980,069
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-109
<PAGE> 159
GARBAGE DISPOSAL SERVICE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 1,983,916
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 1,779,799
Increase in cash surrender value of life insurance......................... (41,850)
Gain on disposal of machinery and equipment................................ (16,337)
Deferred income taxes...................................................... 315,300
(Increase) decrease in:
Accounts receivable, net................................................. 103,943
Inventories.............................................................. (234,167)
Prepaid expenses......................................................... (5,674)
Other assets............................................................. 669
Increase (decrease) in:
Accounts payable......................................................... (118,338)
Accrued liabilities...................................................... 364,110
Income taxes payable..................................................... 711,333
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... 4,842,704
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, machinery and equipment.......................... (3,214,613)
Proceeds from sale of machinery and equipment................................. 137,469
Noncompete agreement payments................................................. (81,250)
Cash used to acquire subsidiary............................................... (391,473)
-----------
NET CASH USED IN INVESTING ACTIVITIES........................................... (3,549,867)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings...................................................... 1,745,973
Repayment of borrowings....................................................... (1,951,861)
Payments on capital lease obligations......................................... (47,520)
-----------
NET CASH USED IN FINANCING ACTIVITIES........................................... (253,408)
-----------
NET INCREASE IN CASH............................................................ 1,039,429
CASH, BEGINNING................................................................. 498,954
-----------
CASH, ENDING.................................................................... $ 1,538,383
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-110
<PAGE> 160
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995
A. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Garbage
Disposal Service, Inc. and D & L Waste, Inc., a wholly-owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The "Company" refers to Garbage Disposal Service, Inc. and its
consolidated subsidiary.
Operations
The Company is primarily engaged in the collection and transportation of
commercial and residential non-hazardous waste products and the collection and
processing of recyclable materials. The Company grants unsecured trade credit to
customers, substantially all of whom are located in the Southeastern United
States. The Company's cash is subject to risk of loss for the amounts in excess
of the Federal Deposit Insurance Corporation's (FDIC) depositor insurance
limits.
Inventories
Inventories, consisting of repair parts and fuel for the Company's trucks
and recyclable materials held for resale are valued at the lower of cost
(first-in, first-out method) or market. Market is computed based on current
market rate less selling expenses.
Property, Plant, Machinery and Equipment
Property, plant, machinery and equipment are stated at cost. Depreciation
is computed using the straight-line method for financial reporting purposes,
based on the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Land improvements....................................................... 15 years
Leasehold improvements.................................................. 10-40 years
Containers, compactors and balers....................................... 7-10 years
Trucks, loaders and motor vehicles...................................... 3-7 years
Office and shop equipment............................................... 5-8 years
Recycling plant equipment............................................... 10-20 years
Recycling plant......................................................... 30 years
</TABLE>
The containers, compactors and balers represent property provided to
customers as part of their service contracts and have an allowance for
depreciation at September 30, 1995 of approximately $4,649,675.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
and lives for financial statement and income tax purposes) and the use of the
allowance method for uncollectible accounts receivable. The deferred tax assets
and liabilities represent the future tax consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.
F-111
<PAGE> 161
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill
Goodwill resulted from the excess of the cost of acquiring D & L Waste,
Inc. over the fair market value of its net assets (see Note E) at the date of
acquisition and is being amortized on the straight-line method over 40 years.
Amortization expense charged to operations was $7,660 in 1995.
B. ACCOUNTS AND NOTE RECEIVABLE FROM STOCKHOLDER -- OFFICER
At September 30, 1995, the Company has $3,300 of accounts receivable from a
stockholder -- officer which represents accrued interest on a 10% demand note
receivable.
C. LIFE INSURANCE
As of September 30, 1995, the Company is the beneficiary of life insurance
policies on certain officers and stockholders, with face values aggregating
$4,025,000. The cash surrender value of these policies totals $203,396, net of
policy loans. In addition, the Company has an interest in other policies limited
to the cash surrender value in the amount of $70,713, resulting in total net
cash surrender value of $274,109.
D. INTANGIBLE ASSETS
The Company has acquired customer lists and covenants not to compete, when
purchasing existing businesses, at a total cost of $707,900. The lists and
covenants are being amortized over 60 months. At September 30, 1995, accumulated
amortization of such assets was $696,115.
E. ACQUISITION
On June 29, 1995 the Company purchased 100% of the shares outstanding of D
& L Waste, Inc. The acquisition has been accounted for as a purchase. The total
cost of the acquisition was approximately $2,439,000, which exceeded the fair
market value of the net assets by approximately $1,226,000 (see Note M).
F. LONG-TERM DEBT
The Company has the following long-term debt outstanding at September 30,
1995:
<TABLE>
<S> <C>
Various notes payable, $9,312 monthly including interest from 6.9% to
9.95% through May 2000, collateralized by certain vehicles............. $ 381,723
Note Payable to a bank, $28,750 monthly including interest at prime plus
1%, minimum of 7% through March 1998, collateralized by certain
vehicles and equipment and a stockholder's personal guarantee.......... 759,283
Note payable to a bank, $18,350 monthly plus interest at prime plus .25%
through February 2000, collateralized by certain vehicles and equipment
and a stockholder's personal guarantee................................. 971,551
Note payable to a finance company, $56,333 monthly including interest at
9.11% through May 1996, collateralized by certain vehicles and other
related equipment, certain equipment and a stockholder's personal
guarantee.............................................................. 435,650
Various notes payable, $15,614 monthly including interest from 7.85% to
9.75% through August 1999, collateralized by certain vehicles and a
stockholder's personal guarantee....................................... 420,007
</TABLE>
F-112
<PAGE> 162
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Note payable to a bank, $3,039 monthly plus interest at prime plus .50%
through September 1997, collateralized by certain vehicles and other
related equipment and a stockholder's personal guarantee............... 72,940
Note payable to a bank, $10,380 monthly including interest at prime plus
.25% through September 1996, collateralized by certain vehicles and
equipment and a stockholder's personal guarantee....................... 110,558
Note payable to a bank, $21,885 monthly including interest at prime plus
.50% through April 1999, collateralized by a first deed of trust and
stockholder's personal guarantee....................................... 809,202
Note payable to a governmental agency, $7,088 monthly including fees and
interest at 8.952% through March 2011, collateralized by a second deed
of trust and a stockholder's personal guarantee........................ 672,378
Notes payable to a finance company, $11,660 monthly including interest at
9.51% to 9.59% through August 1996, collateralized by certain vehicles
and other related equipment, certain equipment and a stockholder's
personal guarantee..................................................... 63,432
Note payable to a bank, $4,060 monthly including interest at prime plus
1% through March 1999, collateralized by certain equipment............. 151,574
Note payable to a bank, interest at 9.25% payable monthly, principal due
March 1996, collateralized by certain trucks and equipment............. 645,973
Various notes payable to finance companies, $73,674 monthly including
interest at 8.07% to 10.5% through August 1999, collateralized by
certain vehicles and other related equipment........................... 1,874,213
Note payable to an individual, $11,405 monthly including interest at 8%
through July 2005, collateralized by common stock of the Company's
subsidiary............................................................. 924,681
Note payable to an individual, interest payable monthly at 8%. Principal
payments of $125,000 January 1996 and $470,000 July 2000,
collateralized by common stock of the Company's subsidiary............. 595,000
Note payable to an individual, interest at payable monthly at 8%.
Principal to be repaid July 2000 collateralized by common stock of the
Company's subsidiary................................................... 470,000
----------
9,358,165
Less current maturities.................................................. 3,251,437
----------
Long-term debt........................................................... $6,106,728
=========
</TABLE>
Maturities of long-term debt for the years ending September 30 are as
follows:
<TABLE>
<S> <C>
1996......................................................... $3,251,437
1997......................................................... 1,815,720
1998......................................................... 1,315,642
1999......................................................... 733,562
2000......................................................... 1,153,709
Thereafter................................................... 1,088,095
----------
$9,358,165
=========
</TABLE>
F-113
<PAGE> 163
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. LOAN RESTRICTIONS
The various loan agreements contain certain restrictive covenants which
require the Company to meet certain minimum financial statement requirements and
restrict certain types of transactions, including the payment of dividends to
its stockholders. The Company also has a life insurance policy on a stockholder-
officer with a face value of $2,000,000 with a bank as the beneficiary.
H. CAPITAL LEASE OBLIGATION
The Company leases shop equipment and has included on the balance sheet
equipment with a capitalized cost of $463,643 and a related allowance for
depreciation of $106,398.
The following is a schedule of future minimum payments required under the
lease.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------
<S> <C>
1996.............................................................................. $132,068
1997.............................................................................. 10,561
1998.............................................................................. 6,592
--------
Total minimum lease payments...................................................... 149,221
Less amount representing interest................................................. 6,915
--------
Present value of lease payments................................................... 142,306
Less current portion.............................................................. 126,385
--------
Long-term portion................................................................. $ 15,921
========
</TABLE>
I. RETIREMENT SAVINGS PLAN
The Company has a retirement savings plan for its employees. All employees
over 20 years of age who meet the entry service requirements are eligible.
Contributions to the plan are determined on an annual basis. The Company's
minimum liability is one-half of an employee's contribution, not to exceed a
certain percentage of compensation as defined by the trustees of the plan.
Total contributions to the plan and plan expenses for the year ended
September 30, 1995 were $74,838. Eligible employees are vested in the Company's
contributions to the plan as follows:
<TABLE>
<CAPTION>
YEARS OF SERVICE PERCENT VESTED
------------------------------------------------------------ --------------
<S> <C>
0-2.................................................... 0
3..................................................... 20
4..................................................... 40
5..................................................... 60
6..................................................... 80
7..................................................... 100
</TABLE>
The Company may terminate the plan at will, with the assets of the plan
reverting to the employees.
J. RELATED PARTY TRANSACTIONS AND COMMITMENTS
During the year ended September 30, 1995 the Company leased its main
premises and other facilities from stockholders and directors. Monthly rent
under these leases totalled $39,533 a month. Subsequent to year-end, these
leased facilities were acquired by the Company.
F-114
<PAGE> 164
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leased certain equipment and vehicles from an affiliated
company. Monthly rent under these leases totalled $8,692. Subsequent to
year-end, these leased items were acquired by the Company.
The Company leases certain facilities with unrelated parties under leases
which expire in September 1996. Monthly rent under these leases total $11,200.
The Company leases certain equipment under leases with unrelated parties
for terms of 60 months which expire by 1998. The monthly rental under these
leases totals $3,098.
The Company leases certain vehicles under leases with unrelated parties for
terms of 60 months and expire by 1999. The monthly rental under these leases
totals $19,567 per month.
Rental expense for the year ended September 30, 1995 under the
aforementioned leases and other incidental leases was $560,349.
Future obligations over the terms of these leases at September 30, 1995 are
as follows:
<TABLE>
<S> <C>
1996........................................................... $399,360
1997........................................................... 174,160
1998........................................................... 101,426
1999........................................................... 14,065
--------
$689,011
========
</TABLE>
K. INCOME TAXES
Income tax expense consist of the following components:
<TABLE>
<S> <C>
Current income tax expense
Federal................................................................ $1,114,000
State.................................................................. 252,000
----------
Current provision for income taxes....................................... 1,366,000
----------
Deferred income tax expense
Federal................................................................ 229,900
State.................................................................. 137,500
AMT credits............................................................ (52,100)
Less valuation allowance............................................... --
----------
Deferred provision for income taxes...................................... 315,300
----------
Total provision for income taxes............................... $1,681,300
=========
</TABLE>
The Company's total deferred tax liabilities, deferred tax assets, and
deferred tax asset valuation allowances have been presented in the Company's
financial statements as follows:
<TABLE>
<S> <C>
Total current deferred tax assets........................................ $ 367,800
Less valuation allowance................................................. --
----------
Net current deferred tax asset........................................... $ 367,800
=========
Total noncurrent deferred income tax liability........................... $2,050,100
=========
</TABLE>
For tax return purposes, the Company has approximately $161,285 of
alternative minimum tax credits available to reduce future tax liabilities with
no expiration date.
F-115
<PAGE> 165
GARBAGE DISPOSAL SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
L. MAJOR CUSTOMER
The Company had sales to a major customer of its Georgia recycling division
of approximately $3,793,000, or 13% of total sales, for the year ended September
30, 1995.
M. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Cash paid for interest and income taxes is as follows:
<TABLE>
<S> <C>
Interest................................................................ $710,943
Income taxes............................................................ 339,367
Noncash transactions omitted from the Statements of Cash Flows:
Debt incurred in purchase of subsidiary................................. 359,050
Debt incurred to refinance existing debt................................ 448,388
--------
$807,438
========
</TABLE>
Details of D & L Waste, Inc. acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired......................................... $ 4,486,848
Goodwill.............................................................. 1,225,633
Liabilities assumed................................................... (3,273,493)
Debt incurred in acquiring subsidiary................................. (2,380,000)
-----------
Cash used in acquiring subsidiary..................................... $ 58,988
==========
</TABLE>
N. SUBSEQUENT EVENT
On November 1, 1995 the shareholders agreed to sell all of the outstanding
common stock of the Company in exchange for common stock of Republic Industries,
Inc. (the Acquiring Company). The acquisition qualified for accounting treatment
as a pooling-of-interest, with the Acquiring Company being the survivor.
F-116
<PAGE> 166
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
of the Fennell Companies
We have audited the accompanying combined balance sheet of the Fennell
Companies as of December 31, 1994, and the related combined statements of
income, retained earnings, and cash flows for the year then ended. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Fennell
Companies as of December 31, 1994, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
GAMBLE, GIVENS & MOODY P.A.
Charleston, South Carolina
November 20, 1995
F-117
<PAGE> 167
THE FENNELL COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................ $ 1,222,595 $ 1,397,166
Marketable securities................................................................ -- 252,868
Accounts receivable (net of allowance of $285,966 and $200,856 respectively)......... 3,551,571 2,996,903
Notes receivable -- current.......................................................... 183,078 91,735
Prepaid expenses..................................................................... 69,438 537,918
Due from related parties............................................................. 9,091 26,577
Interest receivable.................................................................. -- 4,685
Other current assets................................................................. 23,835 87,198
Due from stockholder................................................................. 58,109 --
------------- ------------
TOTAL CURRENT ASSETS........................................................... 5,117,717 5,395,050
FIXED ASSETS
Land................................................................................. 967,806 372,336
Truck and equipment.................................................................. 13,817,463 12,384,976
Tankers.............................................................................. 226,726 225,274
Automobiles.......................................................................... 203,554 237,260
Containers........................................................................... 6,457,754 5,876,370
Office and communications equipment.................................................. 1,093,885 895,031
Building............................................................................. 976,486 966,847
Leasehold improvements............................................................... 1,236,809 1,024,696
Shop equipment....................................................................... 244,927 188,799
------------- ------------
25,225,410 22,171,589
Less accumulated depreciation.................................................. 15,015,260 13,496,282
------------- ------------
NET FIXED ASSETS............................................................... 10,210,150 8,675,307
OTHER ASSETS
Investments.......................................................................... 123,750 --
Deposits............................................................................. 8,533 124,059
Loans to officers for life insurance premiums........................................ 691,337 608,747
Marketable securities................................................................ 88,350 80,987
Intangible assets (net of accumulated amortization of $1,189,482 and $889,294
respectively)...................................................................... 1,054,222 1,329,410
Organization costs................................................................... 4,877 --
------------- ------------
TOTAL OTHER ASSETS............................................................. 1,971,069 2,143,203
------------- ------------
TOTAL ASSETS................................................................... $17,298,936 $16,213,560
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt.................................................... $ 2,375,683 $ 2,475,014
Accounts payable..................................................................... 2,028,472 1,503,951
Accrued salaries and payroll taxes................................................... 321,588 166,710
Due to related companies............................................................. 712 79,448
Other current liabilities............................................................ 300,317 306,588
Due to stockholders.................................................................. 62,859 --
TOTAL CURRENT LIABILITIES...................................................... 5,089,631 4,531,711
LONG-TERM LIABILITIES
Long-term debt....................................................................... 5,977,506 6,027,248
------------- ------------
TOTAL LIABILITIES.............................................................. 11,067,137 10,558,959
STOCKHOLDERS' EQUITY
Common stock (Fennell Container -- $1 par value, 100,000 shares authorized, 55,000
shares issued and outstanding)..................................................... 55,000 55,000
Common stock (Fenn-Vac -- $10 par value, 10,000 shares authorized, 900 shares issued
and outstanding)................................................................... 9,000 9,000
Common stock (Fennell Waste -- $100 par value, 2,500 shares authorized, 2,450 shares
issued and outstanding)............................................................ 242,500 245,000
Common stock ($100 par value 100,000 shares authorized, 250 shares issued and
outstanding)....................................................................... 25,000 --
Owners equity -- George W. Fennell................................................... 504,086 372,336
Additional paid-in capital........................................................... 567 567
Retained earnings.................................................................... 5,406,473 4,990,888
Net unrealized (loss) on marketable securities....................................... (10,827) (18,190 )
------------- ------------
TOTAL STOCKHOLDERS' EQUITY..................................................... 6,231,799 5,654,601
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $17,298,936 $16,213,560
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE> 168
THE FENNELL COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
------------------------- DECEMBER 31,
1995 1994 1994
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE....................................... $19,150,076 $16,257,391 $ 22,043,328
EXPENSES
Operating............................................. 12,095,319 9,842,456 13,322,807
Selling and general and administrative................ 3,815,433 3,028,127 3,857,549
Depreciation and amortization......................... 1,817,075 1,603,204 2,639,987
Provision for bad debt................................ 285,966 288,925 94,820
Profit sharing........................................ -- -- 178,422
----------- ----------- ------------
TOTAL OPERATING EXPENSES...................... 18,013,793 14,762,712 20,093,585
----------- ----------- ------------
OPERATING INCOME.............................. 1,136,283 1,494,679 1,949,743
OTHER INCOME (EXPENSE)
Minority interest income.............................. 3,104 -- --
Interest income....................................... 89,106 34,606 56,199
Dividend income....................................... -- 1,380 1,860
Other income.......................................... 159,390 217,953 68,397
Interest expense...................................... (528,236) (405,532) (548,794)
Gain on sale of assets................................ 53,336 39,108 41,792
----------- ----------- ------------
TOTAL OTHER INCOME (EXPENSE).................. (223,300) (112,485) (380,546)
----------- ----------- ------------
NET INCOME.............................................. 912,983 1,382,194 1,569,197
RETAINED EARNINGS BEGINNING OF YEAR..................... 4,990,888 4,112,253 4,112,253
DISTRIBUTIONS TO STOCKHOLDERS........................... (493,011) (168,420) (690,562)
STOCK RETIREMENT........................................ (4,387) -- --
----------- ----------- ------------
RETAINED EARNINGS, END OF YEAR.......................... $ 5,406,473 $ 5,326,027 $ 4,990,888
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-119
<PAGE> 169
THE FENNELL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
--------------------------- DECEMBER 31,
1995 1994 1994
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers....................... $ 18,298,719 $ 15,673,130 $ 21,419,818
Interest and dividends received.................... 93,791 35,986 49,901
Other receipts..................................... 159,390 217,953 60,810
Cash paid to suppliers and employees............... (14,569,106) (11,762,776) (16,626,870)
Interest paid...................................... (528,236) (405,532) (559,461)
Reimbursements from related companies.............. -- -- 36,936
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 3,454,558 3,758,761 4,381,134
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investment securities...................... 252,868 -- --
Purchase of investment securities.................. -- -- (249,395)
Received from stockholders......................... 62,859 19,289 52,192
Payments received on notes receivable.............. -- 18,433 3,450
Cash payments for purchase of fixed assets......... (2,883,411) (3,993,957) (4,816,622)
Loans to officers for life insurance premiums...... (82,590) -- (95,383)
Deposits........................................... -- (48,942) (105,287)
Cash proceeds from sale of fixed assets............ 71,804 109,307 89,566
Additions to notes receivable...................... (91,343) (6,500) (6,500)
Advances to shareholders........................... (58,109) -- --
Purchase of minority interest...................... (15,359) -- --
Organizational costs............................... (4,877) -- --
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES...... (2,748,158) (3,902,370) (5,127,979)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock.................... 25,000 -- --
Proceeds from issuance of long-term debt........... 1,851,343 3,051,754 4,136,008
Principal payments on long-term debt............... (2,375,416) (1,808,499) (2,451,563)
Distributions to stockholders...................... (375,011) (168,420) (690,562)
Stock redemption................................... (6,887) -- --
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES......................................... (880,971) 1,074,835 993,883
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS............ (174,571) 931,226 247,038
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......... 1,397,166 1,150,128 1,150,128
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR............... $ 1,222,595 $ 2,081,354 $ 1,397,166
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE> 170
THE FENNELL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
----------------------- DECEMBER 31,
1995 1994 1994
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
NET INCOME.............................................. $ 912,983 $1,382,194 $1,569,197
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for bad debt............................... 285,966 288,925 94,820
Depreciation......................................... 1,827,853 1,585,394 2,216,245
Amortization......................................... 275,188 306,735 423,743
Income from minority interest........................ (3,104) -- --
(Gain) on sale of assets............................. (53,336) (39,108) (41,792)
(Increases) decreases in assets:
Accounts receivable................................ (851,357) (873,186) (702,991)
Prepaid expenses................................... 397,685 236,755 (69,001)
Interest receivable................................ 4,685 -- (4,685)
Other current assets............................... 70,860 5,957 (63,479)
Due from related companies......................... (61,250) 9,338 17,146
Increases (decreases) in liabilities:
Accounts payable................................... 615,612 920,941 814,683
Accrued salaries and payroll taxes................. 154,878 147,168 29,543
Due to related companies........................... -- -- 100,398
Other current liabilities.......................... (122,105) (212,352) (2,693)
---------- ---------- ------------
TOTAL ADJUSTMENTS............................... 2,541,575 2,376,567 2,811,937
---------- ---------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $3,454,558 $3,758,761 $4,381,134
========= ========= ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of business assets by assumption of debt as
described in note X.................................. $ -- $1,500,000 $1,500,000
Increase in value of marketable securities.............. 7,363 7,751 775
Decrease in value of marketable securities.............. -- -- --
Land purchased by shareholder included in combined
balance sheet........................................ 131,750 -- --
Land purchased by issuing a mortgage.................... 375,000 -- --
Equipment on which the company had a deposit was
transformed to a new company in exchange for a
minority interest ownership in the company........... 105,287 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-121
<PAGE> 171
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. Fennell Container Co., Inc., Fenn-Vac, Inc. and Fennell Waste
Systems, Inc. (the "Fennell Companies") are separate but related companies
controlled by George W. Fennell and under common management which have agreed to
merge with Republic Industries, Inc. (See Note XII.) This summary of significant
accounting policies of the Fennell Companies is to assist in understanding the
combined financial statements. The combined financial statements and notes are
the representation of the companies' management, who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the combined financial statements.
Combination Policy. The accompanying combined financial statements include
the accounts of the following companies:
<TABLE>
<CAPTION>
NAME LOCATION BUSINESS ACTIVITY
- --------------------------------- ---------------- ------------------------------------------
<S> <C> <C>
Fennell Container Co., Inc. ..... Charleston, SC Waste collection, hauling and recycling
Fennell Waste Systems, Inc. ..... Greer, SC Waste collection and hauling
Fenn-Vac, Inc. .................. Charleston, SC Containment, clean-up and hauling of
hazardous and non-hazardous waste
</TABLE>
All significant intercompany transactions have been eliminated in the
combination.
The companies grant credit to customers and, generally, no collateral is
required.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the companies consider all short-term debt securities purchased with an original
maturity of three months or less to be cash equivalents.
Fixed Assets. Fixed assets are stated at cost. Depreciation has been
provided by using straight-line or declining balance methods for financial
reporting purposes and accelerated cost recovery methods for federal income tax
purposes. Assets are depreciated over their estimated useful lives.
Income Taxes. The companies, with the consent of their shareholders, have
elected under the Internal Revenue Code to be S corporations. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the corporation's taxable income. Therefore, no provision
or liability for federal and state income taxes has been included in the
combined financial statements.
Intangible Assets. Intangible assets consist of values assigned to
contract rights ($1,218,704), the excess of cost over the assigned value of net
assets acquired ($130,000), and non-compete covenants ($870,000).
Intangibles are being amortized on a straight-line basis over their
estimated useful lives: seven years for contract rights; six years for the
excess of cost over value of net assets acquired; and the periods of the
covenants for such covenants.
II. MARKETABLE SECURITIES
Marketable securities held as available for sale are recorded at fair
value. Realized gains and losses are recorded in the statement of income and
retained earnings in the period they are earned. Unrealized gains and losses are
recognized as a component of stockholders' equity.
F-122
<PAGE> 172
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Cost and fair value of marketable debt and equity securities at December
31, 1994 are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- FAIR
COST GAINS (LOSSES) VALUE
--------- ----- -------- --------
<S> <C> <C> <C> <C>
Available for Sale:
Equity Securities.............................. $ 99,177 -- $(18,190) $ 80,987
U.S. Government................................ 505,271 -- -- 505,271
--------- ----- -------- --------
$ 604,448 -- $(18,190) $586,258
======== ==== ======== ========
</TABLE>
The fair values are included in the accompanying balance sheet under the
following captions:
<TABLE>
<S> <C>
Cash and cash equivalents................................................. $252,403
Marketable securities -- current.......................................... 252,868
Marketable securities -- other assets..................................... 80,987
--------
$586,258
========
</TABLE>
U.S. Government securities mature in 1995. The change in net unrealized
holding losses on securities available for sale in the amount of $775 has been
charged to stockholders' equity for the year ended December 31, 1994.
III. DEPOSIT
Fenn-Vac, Inc. has a $105,287 deposit on equipment that was not in service
at year end.
IV. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<S> <C>
Unsecured notes from various employees with interest rates and monthly
payments ranging from 10% to 12% and $25 to $100, respectively........... $ 6,550
Unsecured note from ECO Services, Inc. (a related company) with interest of
5.5% payable annually and principal payable on demand after July 2,
1995..................................................................... 85,185
-------
Notes receivable -- current................................................ $91,735
=======
</TABLE>
V. LONG-TERM DEBT
Long-term notes payable consist of the following:
<TABLE>
<S> <C>
Notes payable in monthly installments totaling $266,659 as of December
31, 1994 including interest ranging from 6% to 9.5%, collateralized by
certain property and equipment......................................... $8,502,262
Less current portion................................................... 2,475,014
----------
Long-term debt........................................................... $6,027,248
=========
</TABLE>
F-123
<PAGE> 173
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------------------------------------
<S> <C>
1995.............................................................. $2,475,014
1996.............................................................. 2,113,492
1997.............................................................. 1,750,170
1998.............................................................. 1,448,383
1999.............................................................. 715,203
----------
$8,502,262
=========
</TABLE>
The companies have loan commitments totaling $2,500,000 from NationsBank of
which $297,965 was unused at December 31, 1994. Loans with varying interest
rates are made for the purchase of equipment and the loans are collateralized by
the equipment. These are annual commitments and expire in April 1995.
The loan agreements with the bank include various covenants typical to such
agreements, including meeting certain financial benchmarks, limits on capital
spending, and prohibitions against additional debt, pledges of assets, and
changes in ownership and management. Additionally, Fennell Container Co., Inc.
and certain stockholders have guaranteed substantially all indebtedness.
VI. PROFIT-SHARING PLAN
The companies have qualified contributory profit-sharing plans for all
eligible employees. The plans provide for contributions by the companies in
amounts determined annually at the discretion of the stockholders. Contributions
totaled $172,000 for the year.
VII. RELATED PARTY TRANSACTIONS
Related parties for financial statement purposes at December 31, 1994
include Fenn-E-Let, Inc., ECO Services, Inc. and ECO Services of S.C., Inc.
which are owned in part by certain shareholders of the Fennell Companies.
A. Fennell Container Co., Inc. manages ECO Services of S.C., Inc. $102,946
is included in operating revenues for this service.
B. Fennell Container Co., Inc. holds a note from ECO Services, Inc., (See
note IV.)
C. Fennell Container Co., Inc. maintains a bank account for a medical
benefit plan covering the employees of the Fennell Companies and Fenn-E-Let,
Inc. (See note VIII.)
D. There are no repayment terms or interest provisions for the receivables
from or payables to related companies. Management anticipates settlement of
these accounts within a 12 month period.
E. Included in long-term debt are unsecured notes payable to a stockholder.
These notes bear interest at 7.5% to 7.75% and have monthly payments of $26,566
including interest. Balances of the notes at December 31, 1994 are $852,720.
F. Fennell Container Co., Inc. has made interest free loans to the
Irrevocable Trust of George W. Fennell for the purpose of paying life insurance
policy premiums. The loans are collateralized by an assignment of the life
insurance policies.
G. Fenn-Vac, Inc. has made interest free loans to its stockholders to pay
the premiums on life insurance policies. These policies are to be used to
finance certain provisions of buy-sell agreements upon the death of any officer.
The loans are collateralized by assignments for the policies.
F-124
<PAGE> 174
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
VIII. CONTINGENCIES
The Fennell Companies, in conjunction with Fenn-E-Let, Inc., have an
employee medical benefit plan to self-insure employees. Each company is liable
for $15,000 per individual employee with total aggregate expenses for all
companies, including Fenn-E-Let, Inc., not to exceed $400,000 annually. Amounts
above such expenses are covered by stop-loss insurance. All employees are
covered and are required to contribute $15 to $35 per week, depending on
coverage. Expenses incurred under this plan were $313,046 for 1994. Fennell
Container Co., Inc. maintains the bank account for this plan and the account
balance of $91,062 is included in cash and cash equivalents. Receivables and
liabilities relating to this bank account from Fenn-E-Let, Inc. are included in
"Due From/To Related Companies".
Fennell Container Co., Inc. has guaranteed loans from NationsBank to
Fenn-E-Let, Inc. The outstanding balance of the loans as of December 31, 1994 is
$181,285.
Russell E. Perkins, Jr., a former 11.11% shareholder in Fenn-Vac, Inc. and
a former 7% shareholder in Fennell Waste Systems, Inc. has asserted a claim
against the Companies and the shareholders in connection with the proposed
merger (Note XII). Randall Cook, a former 2% shareholder in Fennell Waste
Systems, Inc. has asserted a similar claim on similar grounds. No amounts have
been asserted with either claim.
IX. CONCENTRATIONS OF CREDIT RISK
At December 31, 1994, the carrying amount of the companies' bank deposits
was $1,138,036 and the bank balance was $1,082,294. Of the bank balance,
$300,000 was covered by FDIC insurance and $782,294 was uninsured.
X. PURCHASE OF BUSINESS ASSETS
On March 31, 1994, Fennell Container Co., Inc. purchased the assets of SCA
Services of South Carolina, Inc., a wholly owned subsidiary of Waste Management
of North America, Inc. The purchase price was allocated as follows:
<TABLE>
<S> <C>
Equipment................................................................ $ 900,000
Contracts................................................................ 750,000
Goodwill................................................................. 100,000
Non-compete covenant..................................................... 250,000
Fees and associated costs................................................ 10,345
----------
2,010,345
----------
Bank note................................................................ 1,500,000
Credit from seller for prepaids and pro rata accounts.................... 4,480
Cash outlay.............................................................. 505,865
----------
$2,010,345
=========
</TABLE>
The statement of income and retained earnings and cash flows for the year
ended December 31, 1994 include the operations of this business from March 31,
1994 through December 31, 1994.
F-125
<PAGE> 175
THE FENNELL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
XI. RECONCILIATION OF RETAINED EARNINGS
<TABLE>
<S> <C>
Accumulated Adjustments Accounts
Balance, January 1, 1994....................................................... $1,011,679
Taxable income................................................................. 1,157,195
Nondeductible expenses......................................................... (66,184)
Distribution to stockholders................................................... (690,562)
----------
Balance, December 31, 1994..................................................... 1,412,128
----------
Accumulated Earnings and Profits, December 31, 1994.............................. 3,432,794
----------
Tax Temporary Adjustments
Balance, January 1, 1994....................................................... (244,803)
Net additions (reductions)..................................................... 390,769
----------
Balance, December 31, 1994..................................................... 145,966
----------
Retained Earnings, December 31, 1994............................................. $4,990,888
=========
</TABLE>
XII. SUBSEQUENT EVENT
On November 13, 1995, the stockholders of the Fennell Companies entered
into a merger agreement with Republic Industries, Inc. ("Republic"). Under this
agreement, the stockholders will exchange their interest in the Fennell
Companies for stock in Republic and the Fennell Companies will survive as wholly
owned subsidiaries of Republic. This merger will be accounted for under the
pooling of interests method of accounting.
F-126
<PAGE> 176
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Cana First Corporation d/b/a
Scott Security Systems and affiliates:
We have audited the accompanying combined balance sheet of Cana First
Corporation d/b/a Scott Security Systems; Scott Alarm of Birmingham, Inc.; Scott
Alarm of Charlotte, Inc.; Scott Alarm of Cocoa, Inc.; Scott Alarm of Fort Myers,
Inc.; Scott Alarm of Gainesville, Inc.; Scott Alarm of Jensen Beach, Inc.; Scott
Alarm of Lakeland, Inc.; Scott Alarm of Nashville, Inc.; Scott Alarm of Orlando,
Inc.; Scott Alarm of Sarasota, Inc.; Scott Alarm of Savannah, Inc.; Scott Alarm
of St. Augustine, Inc.; Scott Alarm of Tallahassee, Inc.; Scott Alarm of Tampa
Bay, Inc.; Scott Alarm of West Palm Beach, Inc.; and TATS Corporation of Jax
d/b/a Scott Alarm Home Office (collectively, "Scott Security Systems"; all
Florida corporations affiliated through common ownership) as of December 31,
1994, and the related combined statements of operations, shareholders' deficit
and cash flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Scott Security Systems as of
December 31, 1994, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
November 30, 1995.
F-127
<PAGE> 177
SCOTT SECURITY SYSTEMS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................. $ 752,932 $ 453,723
Accounts receivable, net of allowance for doubtful accounts of
$115,462 (unaudited) and $60,550, respectively................. 706,786 723,320
Inventories....................................................... 153,527 215,935
Current portion of deferred installation costs.................... 4,732,174 2,359,976
Other............................................................. 236,139 21,977
------------- ------------
Total current assets...................................... 6,581,558 3,774,931
------------- ------------
PROPERTY AND EQUIPMENT, net......................................... 493,040 401,878
------------- ------------
OTHER ASSETS:
Deferred installation costs....................................... 27,157,083 21,832,849
Intangible asset, net of accumulated amortization of $308,593
(unaudited) and $212,462, respectively......................... 332,279 428,410
Net deferred income tax asset..................................... 309,968
Security deposits and other....................................... 92,376 75,032
------------- ------------
Total other assets........................................ 27,581,738 22,646,259
------------- ------------
Total assets.............................................. $ 34,656,336 $ 26,823,068
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................................. $ 946,405 $ 1,908,370
Accrued expenses.................................................. 1,267,303 1,236,147
Customer deposits................................................. 244,491 378,477
Due to shareholders............................................... 44,254 25,704
Current portion of deferred revenue............................... 18,623,322 10,024,746
Current portion of long-term debt................................. 259,484 27,006
Income taxes payable.............................................. 243,451 --
------------- ------------
Total current liabilities................................. 21,628,710 13,600,450
------------- ------------
LONG-TERM LIABILITIES:
Deferred revenue.................................................. 17,030,162 20,352,888
Long-term debt, net of current portion............................ 2,291,660 115,289
Net deferred income tax liability................................. 52,411 --
------------- ------------
Total long-term liabilities............................... 19,374,233 20,468,177
------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' DEFICIT (Note 6):
Common stock...................................................... 17,590 17,590
Additional paid-in capital........................................ 1,215,091 1,215,091
Accumulated deficit............................................... (7,579,288) (8,478,240)
------------- ------------
Total shareholders' deficit............................... (6,346,607) (7,245,559)
------------- ------------
Total liabilities and shareholders' deficit............... $ 34,656,336 $ 26,823,068
========== ==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
F-128
<PAGE> 178
SCOTT SECURITY SYSTEMS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
------------------------- DECEMBER 31,
1995 1994 1994
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
INSTALLATION, MONITORING AND SERVICE REVENUE............ $15,372,432 $ 8,614,598 $ 12,930,773
INSTALLATION, MONITORING AND SERVICE COST OF SALES...... 4,152,222 3,845,170 5,249,521
----------- ----------- ------------
Gross margin.......................................... 11,220,210 4,769,428 7,681,252
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............ 8,613,238 6,356,475 9,051,505
----------- ----------- ------------
Income (loss) from operations......................... 2,606,972 (1,587,047) (1,370,253)
INTEREST EXPENSE........................................ 227,800 27,207 34,749
----------- ----------- ------------
Income (loss) before income tax provision............. 2,379,172 (1,614,254) (1,405,002)
INCOME TAX PROVISION.................................... 317,684 193,223 310,861
----------- ----------- ------------
Net income (loss)..................................... 2,061,488 (1,807,477) (1,715,863)
UNAUDITED PRO FORMA ADJUSTMENT TO REFLECT THE PROVISION
(BENEFIT) ON INCOME TAXES ON S-CORPORATION EARNINGS
(LOSSES) (Note 1)..................................... 633,985 (838,925) (872,862)
----------- ----------- ------------
Unaudited pro forma net income (loss) (Note 1)........ $ 1,427,503 $ (968,552) $ (843,001)
========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
F-129
<PAGE> 179
SCOTT SECURITY SYSTEMS
COMBINED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993.................... $12,100 $ 688,941 $(4,448,887) $(3,747,846)
Issuances of common stock................... 5,490 526,150 -- 531,640
Net loss.................................... -- -- (1,715,863) (1,715,863)
Shareholder distributions................... -- -- (2,313,490) (2,313,490)
------- ---------- ----------- -----------
BALANCE, December 31, 1994.................... $17,590 $1,215,091 $(8,478,240) $(7,245,559)
======== ========= ============ ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
F-130
<PAGE> 180
SCOTT SECURITY SYSTEMS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------- YEAR ENDED
1995 1994 DECEMBER 31, 1994
----------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 2,061,488 $(1,807,477) $ (1,715,863)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 200,508 251,494 391,729
Provision for doubtful accounts................. 54,912 34,869 46,624
Deferred income tax provision................... 362,379 131,423 290,287
Changes in assets and liabilities:
Increase in accounts receivable............... (38,378) (121,936) (227,300)
Decrease in inventory......................... 62,408 205,312 179,240
Increase in security deposits and other....... (231,508) (157,906) (12,087)
Increase in accounts payable and accrued
expenses................................... (639,236) 880,818 1,561,527
Increase in customer deposits................. (133,986) 32,215 147,768
----------- ----------- -----------------
Net cash provided by (used in) operating
activities............................... 1,698,587 (551,188) 661,925
----------- ----------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (195,539) (125,322) (142,101)
Capitalized installation costs..................... (7,696,433) (9,669,498) (14,145,961)
----------- ----------- -----------------
Net cash used in investing activities...... (7,891,972) (9,794,820) (14,288,062)
----------- ----------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............. -- 300,000 300,000
Proceeds from borrowings from shareholders......... 2,379,279 -- 25,704
Proceeds from financing arrangements............... 5,275,851 11,707,285 15,729,016
Repayment of long-term debt........................ -- (13,123) (68,163)
Shareholder distributions.......................... (1,162,536) (1,525,621) (2,313,490)
----------- ----------- -----------------
Net cash provided by financing
activities............................... 6,492,594 10,468,541 13,673,067
----------- ----------- -----------------
NET INCREASE IN CASH................................. 299,209 122,533 46,930
CASH AT BEGINNING OF PERIOD.......................... 453,723 406,793 406,793
----------- ----------- -----------------
CASH AT END OF PERIOD................................ $ 752,932 $ 529,326 $ 453,723
========== ========== =============
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest........................................... $ 202,705 $ 62,856 $ 78,719
========== ========== =============
Income Taxes....................................... $ -- $ 6,682 $ 6,682
========== ========== =============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
F-131
<PAGE> 181
SCOTT SECURITY SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination. The combined financial statements include
the accounts of Cana First Corporation d/b/a Scott Security Systems; Scott Alarm
of Birmingham, Inc.; Scott Alarm of Charlotte, Inc.; Scott Alarm of Cocoa, Inc.;
Scott Alarm of Fort Myers, Inc.; Scott Alarm of Gainesville, Inc.; Scott Alarm
of Jensen Beach, Inc.; Scott Alarm of Lakeland, Inc.; Scott Alarm of Nashville,
Inc.; Scott Alarm of Orlando, Inc.; Scott Alarm of Sarasota, Inc.; Scott Alarm
of Savannah, Inc.; Scott Alarm of St. Augustine, Inc.; Scott Alarm of
Tallahassee, Inc.; Scott Alarm of Tampa Bay, Inc.; Scott Alarm of West Palm
Beach, Inc.; and TATS Corporation of Jax d/b/a Scott Alarm Home Office
(collectively, "Scott Security Systems" or the "Companies"), which are
affiliated through common ownership.
All material intercompany transactions between the Companies have been
eliminated.
In the opinion of management, the unaudited combined financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the combined financial position of the Companies at
September 30, 1995, and the combined results of their operations and cash flows
for the nine months ended September 30, 1995 and 1994.
(b) Revenue Recognition. The Companies install, monitor and service
security alarm systems sold under monitoring agreements with a three year base
term. Upon installation, the Companies generally sell their interest in the
initial three year base term of the monitoring agreements to a third party
finance company on a non-recourse basis after 30 days from the time of the sale.
The Companies retain the obligation to provide monitoring services over the
three year term. The Companies' interest in the customer accounts transfers back
to the Companies upon voluntary customer renewal after the expiration of the
three year base term. Installation, monitoring and service revenue under the
monitoring agreements are recognized as earned over the life of the contract.
(c) Allowance for Doubtful Accounts. Amounts determined to be
uncollectible by management are provided for in the financial statements in the
period in which such determination is made.
(d) Inventories. Inventories consist primarily of parts used in
installation and servicing. Inventories are stated at the lower of cost or
market, with cost being determined using the specific identification method.
(e) Property and Equipment. Property and equipment are recorded at cost.
Depreciation is computed using accelerated methods for all major asset classes
utilizing the following useful lives:
<TABLE>
<S> <C>
Computers and office equipment.......................................... 5 years
Vehicles................................................................ 5 years
Furniture and fixtures.................................................. 7 years
Building improvements................................................... 10-15 years
</TABLE>
Repairs and maintenance costs are expensed as incurred.
Depreciation and amortization expense on property and equipment was
approximately $264,000 in 1994.
(f) Deferred Installation Costs. The Companies install, monitor and
service security alarm systems sold under monitoring agreements with a three
year base term. The direct cost of equipment, commissions and labor associated
with system installations are deferred and amortized as a cost of sales on a
straight-line basis over the estimated customer life of eight years.
(g) Income Taxes. With the exception of Cana First Corporation, the
Companies have elected S-Corporation status (the "S-Corp. Companies") for income
tax reporting purposes. Accordingly, income or loss and the related differences
that arise in the recording of income and expense items for financial reporting
and income tax reporting purposes are included in the individual tax returns of
the shareholders of the S-Corp. Companies. The unaudited pro forma adjustment to
reflect income taxes on S-Corporation earnings included
F-132
<PAGE> 182
SCOTT SECURITY SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
in the accompanying combined statement of income is for informational purposes
only. Such unaudited pro forma income taxes have been provided to yield an
overall estimated pro forma income tax rate of 40 percent.
Cana First Corporation, a C-Corporation since its inception, accounts for
income taxes in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". Accordingly, deferred income
taxes have been provided for the effect of temporary differences between the
income tax bases of assets and liabilities and their reported amounts on the
combined financial statements (see Note 4).
For the nine months ended September 30, 1995 and 1994, income taxes have
been provided based upon Cana First Corporation's anticipated effective annual
income tax rate.
Upon closing of the merger transactions described in Note 7, the S-Corp.
Companies will no longer be eligible for S-Corporation status. At that time,
deferred income taxes will be recorded in accordance with SFAS No. 109. Although
the ultimate amount is not presently determinable, if deferred taxes were
recorded at September 30, 1995, the accumulated deficit would be reduced by
approximately $1,600,000 (unaudited).
(h) Intangible Assets. Intangible assets reflect the fair value of the
right granted by the majority shareholder to certain new Companies which were
opened to conduct business under the Scott Security Systems' name in exchange
for common stock issued to such majority shareholder. The right allows each new
Company to utilize the services and resources related to the product name. The
intangible asset for each Company is valued utilizing the estimated fair value
of equity shares issued. The intangible assets are being amortized over a period
of five years. Amortization expense for intangible assets was approximately
$128,000 in 1994.
2. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, as of December 31, 1994, consist of the
following:
<TABLE>
<S> <C>
Vehicles................................................................. $ 396,046
Computers and office equipment........................................... 203,004
Furniture and fixtures................................................... 170,176
Building improvements.................................................... 81,413
---------
850,639
Less: Accumulated depreciation and amortization.......................... (448,761)
---------
$ 401,878
=========
</TABLE>
3. LONG-TERM DEBT
At December 31, 1994, the Company had the following long-term indebtedness
outstanding:
<TABLE>
<S> <C>
Capital lease obligation to the Cit Group dated November 12, 1993, at an
interest rate of 8.99%, payable in monthly installments of $1,066, due
November 12, 2008, collateralized by certain property and equipment of
the Companies........................................................... $101,353
Other office equipment and vehicle capital lease obligations dated
1991-1994, at interest rates of 8.00% to 16.93%, payable monthly,
maturing through May 1999, collateralized by certain office equipment
and vehicles of the Companies........................................... 40,942
--------
142,295
Less: current portion..................................................... (27,006)
--------
$115,289
========
</TABLE>
F-133
<PAGE> 183
SCOTT SECURITY SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value of the equipment purchased under the capital leases
approximates the amount of the lease obligations (see Note 5).
4. INCOME TAXES
The components of the income tax provision, which primarily represents
federal taxes, are as follows (in thousands):
<TABLE>
<S> <C>
Current................................................................... $ 20,574
Deferred.................................................................. 290,287
--------
$310,861
========
</TABLE>
A reconciliation of income taxes at the statutory federal income tax rate
to the Companies' actual income tax provision as reported in the accompanying
combined statement of operations is shown below:
<TABLE>
<S> <C>
Federal income tax benefit at statutory rate of 34%...................... $(477,701)
Tax effect of S Corporation losses, net.................................. 735,740
State income taxes and other............................................. 52,822
---------
Actual income tax provision.................................... $ 310,861
=========
</TABLE>
Components of the net deferred income tax asset as of December 31, 1994 are
shown below:
<TABLE>
<S> <C>
Deferred income tax assets:
Deferred revenue...................................................... $ 2,430,210
Allowance for doubtful accounts....................................... 8,726
-----------
2,438,936
Deferred income tax liability:
Deferred installation costs........................................... (2,128,968)
-----------
Net deferred income tax asset........................................... $ 309,968
==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company has entered into capital leases for office equipment, vehicles,
and other assets and has leased other vehicles and office equipment under
operating leases. Future minimum lease payments with respect to leases in effect
at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ---------
<S> <C> <C>
1995............................................................. $ 40,067 $ 178,469
1996............................................................. 21,723 165,348
1997............................................................. 17,283 125,090
1998............................................................. 15,523 42,548
1999 and thereafter.............................................. 127,960 --
-------- ---------
222,556 511,455
Less: amount representing interest............................... (80,261) --
-------- ---------
$142,295 $ 511,455
======== ========
</TABLE>
Rent expense under operating leases totaled $349,562 in 1994.
The Companies are involved in certain legal actions and claims arising in
the ordinary course of business. Based on the advice of legal counsel, it is the
opinion of management that such litigation and claims will be resolved without a
material impact on the Companies' combined financial position or results of
operations.
F-134
<PAGE> 184
SCOTT SECURITY SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) SHAREHOLDERS' DEFICIT
Common stock consists of the following authorized, issued and outstanding
shares as of December 31, 1994:
<TABLE>
<CAPTION>
SHARES ISSUED
SHARES AND
COMPANY AUTHORIZED OUTSTANDING PAR VALUE AMOUNT
--------------------------------------------- ---------- ------------- --------- -------
<S> <C> <C> <C> <C>
Cana First Corporation d/b/a Scott Security
Systems.................................... 20,000 10,000 $ .10 $ 1,000
Scott Alarm of Birmingham, Inc............... 100,000 10,000 10 1,000
Scott Alarm of Charlotte, Inc................ 100,000 10,000 10 1,000
Scott Alarm of Cocoa, Inc.................... 100,000 10,000 10 1,000
Scott Alarm of Fort Myers, Inc............... 100,000 10,000 10 1,000
Scott Alarm of Gainesville, Inc.............. 100,000 20,000 10 2,000
Scott Alarm of Jensen Beach, Inc............. 100,000 14,900 10 1,490
Scott Alarm of Lakeland, Inc................. 100,000 10,000 10 1,000
Scott Alarm of Nashville, Inc................ 100,000 10,000 10 1,000
Scott Alarm of Orlando, Inc.................. 100,000 10,000 10 1,000
Scott Alarm of Sarasota, Inc................. 100,000 10,000 10 1,000
Scott Alarm of Savannah, Inc................. 100,000 10,000 10 1,000
Scott Alarm of St. Augustine, Inc............ 100,000 10,000 10 1,000
Scott Alarm of Tallahassee, Inc.............. 100,000 10,000 10 1,000
Scott Alarm of Tampa Bay, Inc................ 100,000 10,000 10 1,000
Scott Alarm of West Palm Beach, Inc.......... 100,000 10,000 10 1,000
TATS Corporation of Jax d/b/a Scott Alarm
Home Office................................ 100,000 1,000 10 100
---------- ------------- -------
1,620,000 175,900 $17,590
======== ========== =======
</TABLE>
(7) SUBSEQUENT EVENTS
In August 1995, certain of the Companies executed promissory notes totaling
approximately $2,406,000 with a major supplier to provide working capital.
Principal payments are due monthly beginning January 1996 through December 1998,
at one to five percent of the original principal balance. Interest is at prime
plus 2.5 percent, payable quarterly.
On November 30, 1995, the Companies merged with Republic Industries, Inc.
("Republic"), pursuant to a merger agreement, whereby Republic acquired all of
the outstanding capital stock of the Companies in exchange for approximately 1.6
million shares of Republic common stock.
F-135
<PAGE> 185
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., AND SUBSIDIARIES AND
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.
The following unaudited condensed consolidated pro forma financial
statements include the supplemental consolidated financial statements of
Republic Industries, Inc. and subsidiaries (the "Company") which include the
results of operations of the following entities: United Waste Service, Inc.
("United") and Southland Environmental Services, Inc. ("Southland"), with which
the Company merged in October 1995; and J.C. Duncan Company, Inc. ("Duncan"),
Garbage Disposal Service, Inc. ("GDS"), Fennell Container Company, Inc.
("Fennell") and Scott Security Systems ("Scott"), with which the Company merged
in November 1995. These transactions have been accounted for under the pooling
of interests method of accounting and, accordingly, the Company's supplemental
consolidated financial statements have been retroactively adjusted as if the
Company and United, Southland, Duncan, GDS, Fennell and Scott had operated as
one entity since inception.
The following unaudited condensed consolidated pro forma statements of
operations for the nine months ended September 30, 1995 and the year ended
December 31, 1994, present the pro forma results of continuing operations of the
Company as if the acquisition of Hudson Management Corporation and subsidiaries
and Envirocycle, Inc. ("HMC") had been consummated at the beginning of the
periods presented. The statements of operations also contain proforma
adjustments related to a series of equity transactions involving the sale of
common stock and warrants (the "Equity Transactions") as if the Equity
Transactions had occurred at the beginning of the periods presented. These
unaudited pro forma condensed consolidated financial statements should be read
in conjunction with the respective historical and supplemental consolidated
financial statements and notes thereto of the Company, HMC, United, Southland,
Duncan, GDS, Fennell and Scott.
The unaudited pro forma income from continuing operations per common and
common equivalent share is based on the combined weighted average number of
common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of warrants and options. Unless
otherwise presented, the difference between primary and fully diluted earnings
per share is not significant. In computing the unaudited pro forma income from
continuing operations per common and common equivalent share, the Company
utilizes the modified treasury stock method. When using the modified treasury
stock method, the proceeds from the assumed exercise of all warrants and options
are assumed to be applied to first purchase 20% of the outstanding common stock,
then to reduce outstanding indebtedness and the remaining proceeds are assumed
to be invested in U.S. government securities or commercial paper. The increase
to income from continuing operations, net of tax, from such interest savings and
interest income was $0 for the nine months ended September 30, 1995 and
approximately $1,509,000 for the year ended December 31, 1994.
The unaudited condensed consolidated pro forma financial statements were
prepared utilizing the accounting policies of the respective entities as
outlined in their historical financial statements except as described in the
accompanying notes. The acquisition of HMC was accounted for under the purchase
method of accounting. Accordingly, the unaudited condensed consolidated pro
forma financial statements reflect the Company's preliminary allocation of
purchase price of HMC which will be subject to further adjustments as the
Company finalizes the allocation of the purchase price in accordance with
generally accepted accounting principles. The unaudited pro forma condensed
consolidated results of operations do not necessarily reflect actual results
which would have occurred if the acquisition or Equity Transactions had taken
place on the assumed dates, nor are they necessarily indicative of the results
of future combined operations.
F-136
<PAGE> 186
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES AND
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE ------------------
COMPANY HMC COMBINED DR. CR. PRO FORMA
-------- ------- -------- ------ ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $185,207 $33,201 $218,408 $ 218,408
Expenses:
Cost of operations............... 123,805 21,772 145,577 $1,004(a) $ 289(b) 146,292
Selling, general and
administrative................ 40,549 9,298 49,847 447(c) 49,400
Other (income) expense:
Interest and other income........ (2,710) -- (2,710) (2,710)
Interest expense................. 3,951 489 4,440 4,440(d) --
-------- ------- -------- ------ ------ ---------
165,595 31,559 197,154 1,004 5,176 192,982
-------- ------- -------- ------ ------ ---------
Income from continuing operations
before income taxes.............. 19,612 1,642 21,254 1,004 5,176 25,426
Income tax provision............... 6,985 657 7,642 1,553(e) 9,195
-------- ------- -------- ------ ------ ---------
Income from continuing
operations....................... $ 12,627 $ 985 $ 13,612 $2,557 $5,176 $ 16,231
======== ======= ======== ====== ====== ========
Primary:
Earnings per share from
continuing operations......... $ 0.24 $ 0.21
======== ========
Weighted average common and
common equivalent shares
outstanding................... 52,937 75,883
======== ========
Fully Diluted:
Earnings per share from
continuing operations......... $ 0.23 $ 0.20
======== ========
Weighted average common and
common equivalent shares
outstanding................... 54,909 81,799
======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-137
<PAGE> 187
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES AND
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE -------------------
COMPANY HMC COMBINED DR. CR. PRO FORMA
-------- ------- -------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue........................... $187,111 $48,003 $235,114 $ 235,114
Expenses:
Cost of operations.............. 123,877 35,048 158,925 $ 1,722(a) $ 494(b) 160,153
Selling, general and
administrative............... 41,730 9,444 51,174 1,787(c) 49,387
Other (income) expense:
Interest and other income....... (989) -- (989) (989)
Interest expense................ 4,222 505 4,727 4,727(d) --
-------- ------- -------- ------- ------- ---------
168,840 44,997 213,837 1,722 7,008 208,551
-------- ------- -------- ------- ------- ---------
Income from continuing operations
before income taxes............. 18,271 3,006 21,277 1,722 7,008 26,563
Income tax provision.............. 3,839 1,269 5,108 1,882(e) 6,990
-------- ------- -------- ------- ------- ---------
Income from continuing
operations...................... $ 14,432 $ 1,737 $ 16,169 $ 3,604 $ 7,008 $ 19,573
======== ======= ======== ======= ======= ========
Earnings per share from continuing
operations...................... $ 0.32 $ 0.31
======== ========
Weighted average common and common
equivalent shares outstanding... 45,545 68,814
======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-138
<PAGE> 188
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(a) Represents a net adjustment related to the elimination of the historical
amortization of intangible assets and the recording of amortization, on a
straight-line basis, on the intangible assets resulting from the preliminary
purchase price allocation of HMC. Intangible assets resulting from the
purchase of HMC are being amortized over a 40 year life which approximates
the estimated useful life.
(b) Represents a reduction to depreciation expense resulting from the revision
of estimated lives of acquired property and equipment of HMC to conform with
the Company's policies.
(c) Represents the contractual reduction of salary and benefits of the sellers
of HMC.
(d) Represents the assumed interest savings on the payoff of all existing
indebtedness of the Company and HMC with the proceeds from the Equity
Transactions.
(e) Represents the incremental change in the combined entity's provision for
income taxes as a result of the pre-tax earnings of HMC and all pro forma
adjustments as described above.
F-139
<PAGE> 189
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by the
Registrant in connection with the filing of this Post-Effective Amendment No. 1
to this Registration Statement. All of such expenses are estimates.
<TABLE>
<S> <C>
Printing and Engraving Expenses.................................................... $30,000
Legal Fees and Expenses............................................................ 20,000
Accounting Fees and Expenses....................................................... 30,000
Blue Sky Fees and Expenses......................................................... 1,000
-------
Total.................................................................... $81,000
=======
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All transactions listed below involved the issuance of shares of Common
Stock and other securities of the Company prior to the commencement of the
offering of shares of Common Stock described in the foregoing Prospectus. Unless
otherwise indicated, all securities were issued by the Company in reliance upon
Section 4(2) of the Securities Act of 1933, as amended.
On January 30, 1996, in connection with the merger of Charleston Disposal
Systems, Inc. and its affiliates ("CDS"), the Company issued 300,000 shares of
common Stock to the shareholders of CDS in exchange for all of the issued and
outstanding capital stock of CDS.
On November 30, 1995, in connection with the merger of Duncan, the Company
issued 5,256,055 shares of Common Stock to the shareholders of Duncan in
exchange for all of the issued and outstanding capital stock of Duncan.
On November 30, 1995, in connection with the merger of GDS, the Company
issued 3,003,000 shares of Common Stock to the shareholders of GDS in exchange
for all of the issued and outstanding capital stock of GDS.
On November 30, 1995, in connection with the merger of Fennell, the Company
issued 3,111,111 shares of Common Stock to the shareholders of Fennell in
exchange for all of the issued and outstanding capital stock of Fennell.
On November 30, 1995, in connection with the merger of Scott, the Company
issued 1,567,818 shares of Common Stock to the shareholders of Scott in exchange
for all of the issued and outstanding capital stock of Scott.
On October 17, 1995, in connection with the merger of Southland, the
Company issued 2,600,000 shares of Common Stock to the shareholders of Southland
in exchange for all of the issued and outstanding capital stock of Southland.
On October 11, 1995, in connection with the merger of United, the Company
issued 1,500,000 shares of Common Stock to the shareholders of United in
exchange for all of the issued and outstanding capital stock of United.
On October 2, 1995, in connection with the merger of Reliable Sanitation,
Inc., a closely-held Florida corporation ("Reliable"), the Company issued
138,450 shares of Common Stock to the sole shareholder of Reliable in exchange
for all of the issued and outstanding capital stock of Reliable.
II-1
<PAGE> 190
On September 7, 1995, the Company issued and sold 5,000,000 shares of
Common Stock in a private placement to institutional and other accredited
investors, at an offering price of $20.25 per share. The shares were placed
through Allen & Company, Incorporated, for a commission of $0.25 per share on
all shares sold.
On August 28, 1995, in connection with the merger of Kertz, the Company
issued 1,090,000 shares of Common Stock to the shareholders of Kertz in exchange
for all of the issued and outstanding capital stock of Kertz.
On August 3, 1995, in connection with the merger of HMC, the Company issued
8,000,000 shares of Common Stock to the sole shareholder of HMC in exchange for
all of the issued and outstanding capital stock of HMC.
On August 3, 1995, the Company issued and sold to H. Wayne Huizenga,
Westbury (Bermuda) Ltd., and Harris W. Hudson, and their respective assigns, in
the aggregate, 10,350,000 shares of Common Stock, and warrants to purchase
16,700,000 shares of Common Stock at exercise prices ranging from $4.50 to $7.00
per share, for an aggregate purchase price of $64,075,000 pursuant to certain
stock purchase agreements.
On July 24, 1995, the Company issued and sold 5,400,000 shares of Common
Stock in a private placement to institutional and other accredited investors, at
an offering price of $13.25 per share. The shares were placed through Allen &
Company, Incorporated, for a commission of $0.25 per share on all shares sold.
On May 25, 1995, in connection with the attainment of a specified earnings
level by Cleveland Container Services, Inc. ("Cleveland Container"), for the
year ended December 31, 1994, the Company issued 34,375 shares of Common Stock
to the former owner of Cleveland Container.
On April 18, 1994, in connection with the attainment of a specific earnings
level by Cleveland Container, for the year ended December 31, 1993, the Company
issued 39,000 shares of Common Stock to the former owner of Cleveland Container.
On April 9, 1994, in connection with the attainment of a specified earnings
level by Living Earth Technology, Inc. ("Living Earth"), for the year ended
December 31, 1993, the Company issued 108,336 shares of Common Stock to the
former owners of Living Earth.
On April 1, 1993, in connection with the attainment of a specified earnings
level by Living Earth, for the year ended December 31, 1992, the Company issued
120,833 shares of Common Stock to the former owners of Living Earth.
On April 1, 1993, in connection with the attainment of a specified earnings
level by El Centro Sanitation Service company and Republic Imperial Acquisition
Corp. (collectively "El Centro"), for the year ended December 31, 1992, the
Company issued 24,595 shares of Common Stock to the former owners of El Centro.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) A list of the exhibits filed as part of this Registration Statement is
set forth in the Exhibit Index which immediately precedes such exhibits.
(b) Financial Statement Schedule
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants on Schedule........................ II-3
Schedule II -- Valuation and Qualifying Accounts and Reserves......................... II-4
</TABLE>
II-2
<PAGE> 191
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders and Board of Directors of Republic Industries, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements (restated) of Republic Industries, Inc.
included in this Registration Statement, and have issued our report thereon
dated December 19, 1995. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule (restated) listed in Item 16(b) hereof is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
December 19, 1995
II-3
<PAGE> 192
SCHEDULE II
REPUBLIC INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED ACCOUNTS BALANCE AT
CLASSIFICATIONS OF YEAR TO INCOME WRITTEN OFF OTHER(1) END OF YEAR
- --------------------------------------------- ---------- --------- ----------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1994....................................... $469 $ 174 $(202) $ 4 $ 445
1993....................................... 417 373 (404) 83 469
1992....................................... 268 312 (225) 62 417
</TABLE>
- ---------------
(1) Allowance of acquired businesses.
II-4
<PAGE> 193
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement;
iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Post-Effective Amendment to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Ft.
Lauderdale, State of Florida, on February 6, 1996.
REPUBLIC INDUSTRIES, INC.
By: /s/ MICHAEL R. CARPENTER
------------------------------------
Michael R. Carpenter, Vice President
and Controller
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ------------------
<S> <C> <C>
* Chairman of the Board and February 6, 1996
- --------------------------------------------- Chief Executive Officer
H. Wayne Huizenga (Principal Executive
Officer)
* President and Director February 6, 1996
- ---------------------------------------------
Harris W. Hudson
/s/ Gregory K. Fairbanks Executive Vice President and February 6, 1996
- --------------------------------------------- Chief Financial Officer
Gregory K. Fairbanks (Principal Financial
Officer)
* Vice President and Controller February 6, 1996
- --------------------------------------------- (Principal Accounting
Michael R. Carpenter Officer)
* Vice Chairman of the Board February 6, 1996
- ---------------------------------------------
Michael G. DeGroote
* Director February 6, 1996
- ---------------------------------------------
J.P. Bryan
* Director February 6, 1996
- ---------------------------------------------
Rick L. Burdick
* Director February 6, 1996
- ---------------------------------------------
John J. Melk
/s/ George D. Johnson, Jr. Director February 6, 1996
- ---------------------------------------------
George D. Johnson, Jr.
*By: /s/ Gregory K. Fairbanks
----------------------------------------
Gregory K. Fairbanks
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 195
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------
<C> <C> <S>
3.1 -- First Amended and Restated Certificate of Incorporation of Republic Industries,
Inc. (incorporated by reference from Exhibit 3.1 to the Registrant's
Registration Statement on Form S-3, file number 33-62489)
3.2 -- Certificate of Amendment to the First Amended and Restated Certificate of
Incorporation of Republic Industries, Inc. (incorporated by reference from
Exhibit 3.2 to the Registrant's Registration Statement on Form S-3, file number
33-65289).
3.3 -- Bylaws of Republic Waste Industries, Inc. (incorporated by reference from
Exhibit 3.2 to the Registrants' Registration Statement on Form S-3, file number
33-42530).
5.1** -- Opinion of Akerman, Senterfitt & Eidson, P.A. as to the validity of the Shares.
10.1 -- Management Agreement between Republic Waste Industries, Inc. and MGD Holdings
Ltd. (incorporated by reference from Exhibit 10.17 to the Registrant's
Registration Statement No. 33-42530 filed on September 13, 1991).
10.2 -- Warrant to Purchase 1,150,000 Shares of Republic Waste Industries, Inc. Common
Stock issued to MGD Holdings Ltd. (incorporated by reference from Exhibit 10.18
to the Registrant's Registration Statement No. 33-42530 filed on September 13,
1991).
10.3 -- Stock Exchange Agreement between Republic Waste Industries, Inc. and MGD
Holdings Ltd. (incorporated by reference from Exhibit 10.22 to the Registrant's
Registration Statement No. 33-42530 filed on September 13, 1991).
10.4 -- Republic Waste Industries, Inc. 1991 Stock Option Plan effective October 29,
1991 (incorporated by reference from Exhibit 10.42 to the Registrant's Form
10-K filed on March 30, 1993).
10.5 -- Form of Warrant to purchase 300,000 shares of Republic Waste Industries, Inc.
Common Stock, issued to Donald E. Koogler (incorporated by reference from
Exhibit 10.54 to the Registrant's Form 10-K filed on March 30, 1993).
10.6 -- Form of Warrant to purchase 300,000 shares of Republic Waste Industries, Inc.
Common Stock, issued to Douglas R. Gowland (incorporated by reference from
Exhibit 10.55 to the Registrant's Form 10-K filed on March 30, 1993).
10.7 -- Form of warrant to purchase 100,000 shares of Republic Waste Industries, Inc.
Common Stock issued to MGD Holdings Ltd. (incorporated by reference from
Exhibit 10.33 to the Registrant's Form 10-K for the year ended December 31,
1994).
10.8 -- Form of warrant to purchase 50,000 shares of Republic Waste Industries, Inc.
Common Stock issued to J.P. Bryan (incorporated by reference from Exhibit 10.34
to the Registrant's Form 10-K for the year ended December 31, 1994).
10.9 -- Form of Warrant to purchase 50,000 shares of Republic Waste Industries, Inc.
Common Stock issued to Rick L. Burdick (incorporated by reference from Exhibit
10.35 to the Registrant's Form 10-K for the year ended December 31, 1994).
10.10 -- Distribution Agreement dated February 14, 1995 between Republic Waste
Industries, Inc. and Republic Environmental Systems, Inc. (incorporated by
reference from Exhibit 10.36 to the Registrant's Form 10-K for the year ended
December 31, 1994).
10.11 -- Stock Purchase Agreement dated May 21, 1995 by and between H. Wayne Huizenga
and Republic Waste Industries, Inc. (incorporated by reference from Exhibit
(c)(1) to the Registrant's Form 8-K/A dated July 17, 1995).
</TABLE>
II-7
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------
<C> <C> <S>
10.12 -- Agreement and Plan of Merger dated May 21, 1995 by and among Republic Waste
Industries, Inc., Republic Hudson Acquisition Corporation, Hudson Management
Corporation and Harris W. Hudson and Bonnie J. Hudson (incorporated by
reference from Exhibit (c)(2) to the Registrant's Form 8-K/A dated July 17,
1995).
10.13 -- Agreement and Plan of Merger dated May 21, 1995 by and among Republic Waste
Industries, Inc., Republic Hudson Acquisition Corporation, Envirocycle, Inc.
and Harris W. Hudson and Bonnie J. Hudson (incorporated by reference from
Exhibit (c)(3) to the Registrant's Form 8-K/A dated July 17, 1995).
10.14 -- Stock Purchase Agreement dated May 21, 1995 by and between Harris W. Hudson and
Republic Waste Industries, Inc. (incorporated by reference from Exhibit (c)(4)
to the Registrant's Form 8-K/A dated July 17, 1995).
10.15 -- Stock Purchase Agreement dated May 21, 1995 by and between Westbury (Bermuda)
Ltd. and Republic Waste Industries, Inc. (incorporated by reference from
Exhibit (c)(5) to the Registrant's Form 8-K/A dated July 17, 1995).
10.16 -- Proxy dated as of May 21, 1995 by MGD Holdings Ltd. in favor of H. Wayne
Huizenga (See Exhibit D to the Huizenga Purchase Agreement) (incorporated by
reference from Exhibit (c)(6) to the Registrant's Form 8-K/A dated July 17,
1995).
10.17 -- Stockholder Stock Option Agreement dated as of May 21, 1995 by MGD Holdings
Ltd. in favor of H. Wayne Huizenga (See Exhibit C to the Huizenga Purchase
Agreement) (incorporated by reference from Exhibit (c)(7) to the Registrant's
Form 8-K/A dated July 17, 1995).
10.18 -- First Amendment to Stock Purchase Agreement dated July 17, 1995 by and between
Republic Waste Industries, Inc. and H. Wayne Huizenga (incorporated by
reference from Exhibit (c)(8) to the Registrant's Form 8-K/A dated July 17,
1995).
10.19** -- Republic Waste Industries, Inc. 1995 Employee Stock Option Plan.
10.20** -- Republic Waste Industries, Inc. 1995 Non-Employee Director Stock Option Plan.
10.21 -- Merger Agreement, dated August 24, 1995, among Republic Waste Industries, Inc.,
RS Mergersub, Inc., Southland Environmental Services, Inc., Felix A. Crawford,
individually and as Trustee of the Felix A. Crawford Revocable Living Trust,
and CFP, Ltd. (incorporated by reference from Exhibit (c)(1) to the
Registrant's Form 8-K, dated August 24, 1995).
10.22 -- Merger Agreement, dated as of August 24, 1995, among Republic Waste Industries,
Inc., RKSA, Inc., RKSA II, Inc., Kertz Security Systems, Inc., Kertz Security
Systems II, Inc., Leon H. Brauser, Michael Brauser, Robert Brauser and Joel
Brauser (incorporated by reference from Exhibit (c)(2.1) to the Registrant's
Form 8-K, dated August 28, 1995).
10.23 -- First Amendment to Merger Agreement, dated as of October 17, 1995, to Merger
Agreement dated as of August 24, 1995 among Republic Waste Industries, Inc.; RS
Mergersub, Inc.; Southland Environmental Services, Inc.; Felix A. Crawford,
individually and as trustee under the Felix A. Crawford Revocable Living Trust;
and CFP, Ltd. (incorporated by reference from Exhibit 2.2 to the Registrant's
Form 8-K, dated October 17, 1995).
10.24 -- Merger Agreement dated as of October 31, 1995 by and among Republic Waste
Industries, Inc.; RWI/GDS Mergersub, Inc.; Garbage Disposal Service, Inc.; Lee
G. Brown; and Mina Brown McLean (incorporated by reference from Exhibit 2.1 to
the Registrant's Form 8-K/A, dated November 30, 1995).
</TABLE>
II-8
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------
<C> <C> <S>
10.25 -- Merger Agreement dated as of November 11, 1995 by and among Republic Waste
Industries, Inc.; RWI/JCD Inc., RWI/Grand Inc., RWI/Trashaway Inc., RWI/Tos-It
Inc., RWI/WesTex Inc., RWI/Pantego I Inc.; RWI/Pantego II Inc., RWI/Trucking I
Inc., RWI/Trucking II Inc.; J.C. Duncan Company, Inc., Arlington Disposal
Company, Inc., Grand Prairie Disposal Company, Inc., Trashaway Services, Inc.,
Tos-It Service Company, Inc., Wes Tex Waste Services, Inc., Pantego Service
Company, Pantego I, Inc., Pantego II, Inc., E & E Truck Leasing, Ltd., EETL I,
Inc., EETL II, Inc.; and Robert C. Duncan, Jannette T. Duncan, Dan R. Duncan,
Debra A. Duncan, DeeDee Duncan Elliott, George Martin Duncan, Melinda Duncan
Vince, Robert C. Duncan as Trustee of the Robert C. Duncan Annuity Trusts No.'s
One, Two, Three and Four, and Jannette T. Duncan as Trustee of the Jannette T.
Duncan Annuity Trusts No.'s One, Two, Three and Four (incorporated by reference
from Exhibit 2.2 to the Registrant's Form 8-K/A, dated November 30, 1995).
10.26 -- Merger Agreement dated as of November 13, 1995 by and among Republic Waste
Industries, Inc.; RI/FCC Mergersub, Inc., RI/FWS Mergersub, Inc., RI/FV
Mergersub, Inc., RI/PD Mergersub, Inc. and RI/Investment Co., Inc.; Fennell
Waste Systems, Inc., Fennell Container Co., Inc., Fenn-Vac, Inc., Pepperhill
Development Co., Inc., and GF/WWF, Inc.; and George W. Fennell, Robert N.
Shepard, G. Scott Fennell, S. Allison Fennell, Debra A. Haschker, James R.
Bland, John H. Chapman, Jeffrey A. Forslund and Leo J. Zolnierowicz
(incorporated by reference from Exhibit 2.3 to the Registrant's Form 8-K/A,
dated November 30, 1995).
21.1* -- Subsidiaries of Republic Industries, Inc.
23.1 -- Consent of Akerman, Senterfitt & Eidson, P.A. (included in Exhibit 5.1 above).
23.2* -- Consent of Independent Public Accountants.
23.3* -- Consent of Independent Public Accountants.
23.4* -- Consent of Independent Public Accountants.
23.5* -- Consent of Independent Public Accountants.
23.6* -- Consent of Independent Public Accountants.
23.7* -- Consent of Independent Public Accountants.
24.1** -- Power of Attorney.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
II-9
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES AS OF FEBRUARY 2, 1996
The list of subsidiaries of Republic Industries, Inc. as of March 23, 1995
from Exhibit 22.1 to the Registrant's Form 10-K for the year ended December 31,
1994, is incorporated herein by reference. The following additional subsidiaries
have been added since such date:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ------------------------------------------------------------------ -------------------------
<S> <C>
Hudson Management Corporation..................................... Florida
Envirocycle, Inc.................................................. Florida
All Service Refuse Company, Inc................................... Florida
East Bay Sanitation Service, Inc.................................. Florida
Florida Refuse Services, Inc...................................... Florida
Gulf Coast Waste Services, Inc.................................... Florida
Sunburst Sanitation Corporation................................... Florida
Treasure Coast Refuse Corp........................................ Florida
Waste Collection Services Corporation............................. Florida
Kertz Security Systems, Inc....................................... Florida
Kertz Security Systems II, Inc.................................... Florida
Reliable Sanitation, Inc.......................................... Florida
Absolute Systems, Inc............................................. Florida
Assured Security Company.......................................... Florida
Garbage Disposal Service, Inc..................................... North Carolina
Southland Environmental Services, Inc............................. Florida
United Waste Service, Inc......................................... Georgia
Golden Communications, Inc........................................ Michigan
Northwest Florida Sanitation, Inc................................. Florida
J.C. Duncan Company, Inc.......................................... Texas
Arlington Disposal Company, Inc................................... Texas
Grand Prairie Disposal Company, Inc............................... Texas
Trashaway Services, Inc........................................... Texas
Tos-It Service Company, Inc....................................... Texas
Wes Tex Waste Services, Inc....................................... Texas
Pantego I, Inc.................................................... Texas
Pantego II, Inc................................................... Texas
EETL I, Inc....................................................... Texas
EETL II, Inc...................................................... Texas
Fennell Waste Systems, Inc........................................ South Carolina
Fennell Container Co., Inc........................................ South Carolina
Fenn-Vac, Inc..................................................... South Carolina
Pepperhill Development Co., Inc................................... South Carolina
GF/WWF, Inc....................................................... South Carolina
Cana First Corporation............................................ Florida
TATS Corporation of Jax........................................... Florida
Scott Alarm of Birmingham, Inc.................................... Florida
Scott Alarm of Orlando, Inc....................................... Florida
Scott Alarm of Charlotte, Inc..................................... Florida
Scott Alarm of Sarasota, Inc...................................... Florida
Scott Alarm of Cocoa, Inc......................................... Florida
Scott Alarm of Savanah, Inc....................................... Florida
Scott Alarm of Fort Myers, Inc.................................... Florida
Scott Alarm of Tallahassee, Inc................................... Florida
Scott Alarm of Gainesville, Inc................................... Florida
Scott Alarm of Tampa Bay, Inc..................................... Florida
Scott Alarm of Jensen Beach, Inc.................................. Florida
Scott Alarm of West Palm Beach, Inc............................... Florida
Scott Alarm of Lakeland, Inc...................................... Florida
Scott Alarm of Nashville, Inc..................................... Florida
Scott Alarm of St. Augustine, Inc................................. Florida
Charleston Disposal Systems, Inc.................................. South Carolina
CDS Environmental of Atlanta, Inc................................. Georgia
CDS Environmental, Inc. of Florida................................ Florida
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 5, 1996.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our firm) included in or made a part of
the Republic Industries, Inc. Post-Effective Amendment No. 1 to Form S-1
Registration Statement.
GRENADIER, APPLEBY, COLLINS & COMPANY
Jacksonville, Florida
February 2, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated December 4, 1995 on the Financial Statements of United Waste
Service, Inc. and to all references to our Firm included in or made a part of
this registration statement.
Jones and Kolb
Atlanta, Georgia
February 2, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our firm) included in or made a part of
this registration statement.
HENDRIX SUTTON & ASSOCIATES
A Limited Liability Partnership
Certified Public Accountants
Arlington, Texas
February 2, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our firm) included in or made a part of
this registration statement.
FARRIS, COOKE & ASSOCIATES, P.A.
Charlotte, North Carolina
February 2, 1996
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and all references to our firm) included in or made a part of
this registration statement.
Gamble, Givens & Moody, P.A.
Charleston, South Carolina
February 2, 1996
