<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 15, 1996
------------
REPUBLIC INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-9787 73-1105145
------ ----------
(Commission (I.R.S. Employer
File Number) Identification No.)
200 East Las Olas Boulevard
Suite 1400
Fort Lauderdale, Florida 33301
--------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (954) 627-6000
---------------
N.A.
- ------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
Item 5. Other Events.
REPORTING OF CERTAIN FINANCIAL INFORMATION FOR REGISTRATION AND OTHER PURPOSES.
The Registrant is filing as Exhibit 99 to this Current Report on Form 8-K the
following audited consolidated financial statements which have been restated to
reflect the mergers with The Denver Fire Reporter & Protective Co. and a
related company affiliated by common ownership and management (collectively,
"Denver Alarm") and Incendere, Inc. and certain waste companies (collectively,
"Schaubach") controlled by Dwight C. Schaubach which were accounted for under
the pooling of interests method of accounting and are hereby incorporated
into the Registrant's Registration Statements on Form S-3, file numbers
33-61649, 33-62489, 33-63735, 33-65289 and 333-01757, and on Form S-8, file
number 33-93742.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
None.
(b) Exhibits
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule for the Year Ended December 31, 1995
(Restated) (for SEC use only).
99 Restated Consolidated Financial Statements
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
REPUBLIC INDUSTRIES, INC.
By: /s/ Gregory K. Fairbanks
-----------------------------------
Gregory K. Fairbanks
Executive Vice President
and Chief Financial Officer
Date: May 15, 1996
------------
4
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into the previously
filed Registration Statements of Republic Industries, Inc. on Forms S-3
(Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289 and 333-01757) and
S-8 (Registration No. 33-93742).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 15, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 161,248
<SECURITIES> 0
<RECEIVABLES> 40,348
<ALLOWANCES> 2,559
<INVENTORY> 0
<CURRENT-ASSETS> 214,271
<PP&E> 283,719
<DEPRECIATION> 88,785
<TOTAL-ASSETS> 558,054
<CURRENT-LIABILITIES> 73,455
<BONDS> 0
0
0
<COMMON> 1,579
<OTHER-SE> 434,809
<TOTAL-LIABILITY-AND-EQUITY> 558,054
<SALES> 295,165
<TOTAL-REVENUES> 295,165
<CGS> 192,213
<TOTAL-COSTS> 192,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,117
<INCOME-PRETAX> 39,540
<INCOME-TAX> 16,166
<INCOME-CONTINUING> 23,374
<DISCONTINUED> (293)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,081
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
<PAGE> 1
Exhibit 99
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
RESTATED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants............................ 2
Consolidated Balance Sheets as of December 31, 1995 and 1994 (Restated)....... 3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 (Restated)................................. 4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993 (Restated)................................. 5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 (Restated)................................. 6
Notes to Consolidated Financial Statements (Restated)......................... 7
</TABLE>
<PAGE> 2
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 of
Republic Industries, Inc. (a Delaware corporation, formerly Republic Waste
Industries, Inc.) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows (restated) for each of the three years in the period ended December 31,
1995. 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 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 15, 1996.
2
<PAGE> 3
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (RESTATED)
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------------------
ASSETS 1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 161,248 $ 11,485
Accounts receivable, less allowance for doubtful accounts of
$2,559 and $1,581, respectively . . . . . . . . . . . . . . . . . 37,789 26,159
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,429 2,735
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 11,805 6,493
---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . 214,271 46,872
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 194,934 141,126
Investment in subscriber accounts, net of accumulated amortization
of $11,446 and $6,977, respectively . . . . . . . . . . . . . . . . . . . 41,540 24,193
Intangible assets, net of accumulated amortization of $7,561 and $3,212,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,736 15,605
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . - 20,292
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,573 9,119
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 558,054 $ 257,207
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,255 $ 12,829
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 22,008 11,635
Current portion of deferred revenue . . . . . . . . . . . . . . . . 25,555 13,892
Current maturities of long-term debt and notes payable . . . . . . 2,087 11,210
Current portion of accrued environmental and landfill costs . . . . 2,925 1,404
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 3,625 1,281
---------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 73,455 52,251
Long-term debt and notes payable, net of current maturities . . . . . . . . . 3,791 40,703
Deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . 18,012 20,353
Accrued environmental and landfill costs, net of current portion . . . . . . 8,386 8,244
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,046 11,597
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,976 8,841
---------- ----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . 121,666 141,989
---------- ----------
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; 500,000,000 and
100,000,000 shares authorized, respectively; 157,941,870 and
96,456,334 issued, respectively . . . . . . . . . . . . . . . . . 1,579 965
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 402,983 109,301
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 31,826 5,625
Notes receivable arising from stock purchase agreements . . . . . . - (673)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . 436,388 115,218
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $ 558,054 $ 257,207
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $ 295,165 $ 218,173 $ 182,495
Expenses:
Cost of operations . . . . . . . . . . . . . . . . 192,213 143,375 121,640
Selling, general and administrative . . . . . . . 63,010 49,245 46,477
Restructuring and unusual charges . . . . . . . . - - 10,040
----------- ---------- ----------
Operating income . . . . . . . . . . . . . . . . . . . . . 39,942 25,553 4,338
Interest and other income . . . . . . . . . . . . . . . . . 5,715 1,081 760
Interest expense . . . . . . . . . . . . . . . . . . . . . (6,117) (4,487) (2,936)
----------- ---------- ----------
Income from continuing operations before income taxes . . 39,540 22,147 2,162
Income tax provision . . . . . . . . . . . . . . . . . . . 16,166 5,298 2,493
----------- ---------- ----------
Income (loss) from continuing operations . . . . . . . . . 23,374 16,849 (331)
Discontinued operations:
Income (loss) from discontinued operations, net of
income tax benefit of $193, $0 and $210,
respectively . . . . . . . . . . . . . . . . . . . (293) 2,684 (14,579)
----------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 23,081 $ 19,533 $ (14,910)
=========== ========== ==========
Primary earnings (loss) per common and common equivalent
share:
Continuing operations . . . . . . . . . . . . . . $ 0.18 $ 0.17 $ -
Discontinued operations . . . . . . . . . . . . . - 0.03 (0.15)
----------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ 0.18 $ 0.20 $ (0.15)
=========== ========== ==========
Fully diluted earnings (loss) per common and common
equivalent share:
Continuing operations . . . . . . . . . . . . . . $ 0.17 $ 0.17 $ -
Discontinued operations . . . . . . . . . . . . . - 0.03 (0.15)
----------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ 0.17 $ 0.20 $ (0.15)
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (RESTATED)
(In thousands)
<TABLE>
Notes
Receivable
Arising
Retained From
Additional Earnings Stock
Common Paid-In (Accumulated Purchase
Stock Capital Deficit) Agreements
--------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 . . . . . . $ 968 $ 103,353 $ 17,423 $ (673)
Contributions to capital from pooled
entities . . . . . . . . . . . . . . - 4,167 - -
Distributions to former stockholders
of acquired companies . . . . . . - - (6,350) -
Other . . . . . . . . . . . . . . . . - (679) (418) -
Net loss . . . . . . . . . . . . . . . - - (14,910) -
------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1993 . . . . . . 968 106,841 (4,255) (673)
Distributions to former stockholders
of acquired companies . . . . . . . - - (9,671) -
Other . . . . . . . . . . . . . . . . (3) 2,460 18 -
Net income . . . . . . . . . . . . . . - - 19,533 -
------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1994 . . . . . . 965 109,301 5,625 (673)
Sales of common stock . . . . . . . . 415 231,616 - -
Stock issued in acquisitions . . . . 172 82,811 - -
Exercise of stock options and -
warrants, including tax benefit
of $4,068 . . . . . . . . . . . . . 28 13,346 -
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 stockholders
of acquired companies . . . . . . . - - (9,718) -
Other . . . . . . . . . . . . . . . . (1) 2,214 112 -
Net income . . . . . . . . . . . . . - - 23,081 -
------- ---------- ----------- --------
BALANCE AT DECEMBER 31, 1995 . . . . . $ 1,579 $ 402,983 $ 31,826 $ -
======= ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Income (loss) from continuing operations . . . . . . . . $ 23,374 $ 16,849 $ (331)
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 . . . . . . . 22,673 19,525 15,591
Provision for doubtful accounts . . . . . . . . . . 1,505 858 936
Provision for accrued environmental and
landfill costs . . . . . . . . . . . . . . . . . . 400 377 215
Gain on the sale of equipment . . . . . . . . . . . . (311) (286) (143)
Changes in assets and liabilities, net of effects
from business acquisitions:
Accounts receivable . . . . . . . . . . . . . . . (6,654) (3,612) (3,006)
Prepaid expenses and other assets . . . . . . . . . (2,617) (708) (2,348)
Accounts payable and accrued liabilities . . . . . . 1,530 2,681 251
Income taxes payable . . . . . . . . . . . . . . . 4,932 2,171 534
Deferred revenue and other liabilities . . . . . . (13,356) (10,985) (2,928)
-------- -------- -------
Net cash provided by continuing operations . . . . . . 31,476 26,870 18,811
-------- -------- -------
CASH USED BY DISCONTINUED OPERATIONS . . . . . . . . . . . (261) (736) (4,360)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired . . . . . . (7,304) (4,776) (5,664)
Purchases of property and equipment . . . . . . . . . . (52,915) (23,383) (13,317)
Investment in subscriber accounts . . . . . . . . . . . (15,980) (17,512) (9,569)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 126 (901) (2,357)
-------- -------- --------
Net cash used in investing activities . . . . . . . . . (76,073) (46,572) (30,907)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock . . . . . . . . . . . . . . . . . . 232,031 - -
Exercise of stock options and warrants . . . . . . . . . 9,306 - -
Capital contribution to Republic Environmental
Systems, Inc. . . . . . . . . . . . . . . . . . . . . . (2,520) - -
Payments of long-term debt and notes payable . . . . . . . (86,667) (17,950) (16,035)
Proceeds from long-term debt and notes payable . . . . . . 29,784 21,717 23,201
Proceeds from financing arrangements . . . . . . . . . . 24,747 27,070 15,473
Distributions to former stockholders of acquired
companies . . . . . . . . . . . . . . . . . . . . . . . (7,434) (9,041) (6,044)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (4,626) (1,240) 615
--------- -------- --------
Net cash provided by financing activities . . . . . . . . 194,621 20,556 17,210
--------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . 149,763 118 754
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 11,485 11,367 10,613
--------- -------- --------
END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 161,248 $ 11,485 $ 11,367
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE> 7
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Accordingly, as discussed
in Note 9, this segment has been accounted for as a discontinued operation
and the accompanying Consolidated Financial Statements presented herein
have been restated to report separately the net assets and operating
results of these discontinued operations.
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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. The most significant estimates made in the
preparation of the accompanying Consolidated Financial
Statements are estimated future cost requirements for closure and
post-closure monitoring and maintenance for the Company's solid waste
facilities and estimated customer lives utilized in amortizing the
investment in subscriber accounts with respect to the Company's electronic
security services segment. Although the Company believes its estimates are
appropriate, changes in assumptions utilized in preparing such estimates
could cause these estimates to change in the near term.
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; United Waste Service, Inc. ("United")
and Southland Environmental Services, Inc. ("Southland"), with which the
Company merged in October 1995; 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"), with which the Company merged in November 1995; and The Denver
Fire Reporter & Protective Co. and affiliate ("Denver Alarm") and
Incendere, Inc. and affiliates ("Schaubach"), with which the Company merged
in February 1996. These transactions were accounted for under the pooling
of interests method of accounting and, accordingly, the Consolidated
Financial Statements have been restated as if the Company and Kertz,
United, Southland, Duncan, GDS, Fennell, Scott, Denver Alarm and Schaubach
(collectively, the "Pooled Entities") had operated as one entity since
inception. See Note 2 for further discussion of these transactions.
All per share data and number of common shares for all periods included
in the financial statements and notes thereto have been retroactively
adjusted to reflect a two-for-one stock split in the form of a 100% stock
dividend declared in May 1996, as more fully described in Note 13.
OTHER CURRENT ASSETS. Other current assets consist primarily of
short-term notes receivable and inventories. Inventories consist
principally of equipment parts, compost materials and supplies and are
valued under a method which approximates the lower of cost (first-in,
first-out) or market. At December 31, 1995 and 1994, other current assets
included inventories of $4,482,000 and $4,104,000, 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.
7
<PAGE> 8
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
The Company revises the estimated useful lives of property and
equipment acquired through its business acquisitions to conform with its
policies regarding property and equipment. Depreciation is provided over
the estimated useful lives of the assets involved using the straight-line
method. The estimated useful lives are: twenty to forty years for
buildings and improvements, three to fifteen years for 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. These costs are depleted based on consumed airspace. No general
and administrative costs are capitalized as landfills and landfill
improvements.
A summary of property and equipment at December 31 is shown below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land, landfills and improvements . . . . . . . . . . $ 92,983 $ 84,864
Vehicles and equipment . . . . . . . . . . . . . . . 157,140 106,881
Buildings and improvements . . . . . . . . . . . . . 24,573 17,127
Furniture and fixtures . . . . . . . . . . . . . . . 9,023 8,128
--------- --------
283,719 217,000
Less accumulated depreciation, amortization
and depletion . . . . . . . . . . . . . . . . . . (88,785) (75,874)
--------- --------
$ 194,934 $141,126
========= ========
</TABLE>
INVESTMENT IN SUBSCRIBER ACCOUNTS, NET. Investment in subscriber
accounts, net consists of capitalized direct labor and material costs
associated with new monitoring contracts installed by the Company's electronic
security services business and the cost of acquired subscriber accounts.
The costs are amortized over periods ranging from eight to twelve
years (based on the historical customer attrition rates) on a straight-line
basis.
INTANGIBLE ASSETS. Intangible assets consist primarily of the cost of
acquired businesses in excess of the fair value of net tangible assets
acquired. The cost in excess of the fair value of net tangible assets is
amortized over the lesser of the estimated life or forty years on a
straight-line basis. Amortization expense related to intangible assets was
$2,328,000, $1,333,000 and $973,000 in 1995, 1994 and 1993, respectively.
The Company continually evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful life of
intangible assets or whether the remaining balance of intangible assets should
be evaluated for possible impairment. The Company uses an estimate of the
related undiscounted net income over the remaining life of the intangible
assets in measuring their recoverability.
DEFERRED REVENUE. Deferred revenue consists primarily of proceeds from
the factoring of electronic security monitoring contracts by one of the
Company's acquired security businesses. The use of factoring was discontinued
by the Company subsequent to the date of acquisition. Revenue is recognized
over the period services are provided.
8
<PAGE> 9
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
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. 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. Excluding existing accruals at the end of 1995,
approximately $7,871,000 of such costs are to be expensed over the remaining
lives of these facilities. The Company estimates its future cost requirements
for closure and post-closure monitoring and maintenance for its solid waste
facilities based on its interpretation of the technical standards of the United
States Environmental Protection Agency's Subtitle D regulations. These
estimates do not take into account discounts for the present value of such
total estimated costs. 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 method 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.
As discussed in Note 7, 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.
REVENUE RECOGNITION. The Company recognizes revenue in the period
services are provided or products are sold.
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 2, and other non-cash transactions are
excluded from the Statements of Cash Flows.
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, 1995 and 1994.
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 in which the Company's services are provided, as well as their
dispersion across many different geographic areas. As a result, at December
31, 1995, the Company does not consider itself to have any significant
concentrations of credit risk.
FUTURE ACCOUNTING PRONOUNCEMENTS. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which requires adoption in 1996. SFAS
No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed. The Company believes the adoption of SFAS No. 121
will not have a material effect on the Company's financial condition or results
of operations. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based
9
<PAGE> 10
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
Compensation", which requires adoption in 1996. SFAS No. 123 requires that the
Company's financial statements include certain disclosures about stock-based
employee compensation arrangements and permits the adoption of a change in
accounting for such arrangements. Changes in accounting for stock-based
compensation are optional and the Company plans to adopt only the disclosure
requirements in 1996.
2. BUSINESS COMBINATIONS
In August 1995, the Company merged with Kertz, which provides
electronic security monitoring and maintenance predominantly in the South
Florida area. In October 1995, the Company merged with United and Southland.
United provides solid waste collection, transfer and recycling services in the
Atlanta, Georgia metropolitan area, and Southland provides solid waste
collection services in the Northeast Florida area. In November 1995, the
Company merged with Duncan, GDS, Fennell and Scott. Duncan provides solid
waste collection and recycling services in the Dallas-Fort Worth metropolitan
area and throughout west Texas and also operates two landfills. GDS provides
solid waste collection and recycling services throughout western North
Carolina. Fennell is a full-service solid waste management company, providing
services in and around Charleston and Greenville, South Carolina and also owns
a landfill. Scott is an electronic security alarm company, providing
installation, 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. In February 1996, the Company merged with Denver Alarm and
Schaubach. Denver Alarm is an electronic security alarm company providing
installation, monitoring and maintenance services throughout Colorado.
Schaubach provides solid waste collection and recycling services in
southeastern Virginia and eastern North Carolina and provides transportation of
medical waste throughout the Mid-Atlantic states. The Company issued an
aggregate of 42,084,872 shares of the Company's common stock, $.01 par value
per share, ("Common Stock") for the acquisitions of the Pooled Entities. These
acquisitions were 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 the Pooled Entities had operated as
one entity since inception.
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>
Year Ended December 31,
---------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
The Company . . . . . . . . . . . . . . . . . . $ 87,167 $ 48,766 $ 41,095
Pooled Entities . . . . . . . . . . . . . . . . 207,998 169,407 141,400
--------- --------- ---------
$ 295,165 $ 218,173 $ 182,495
========= ========= =========
Net income (loss) :
The Company . . . . . . . . . . . . . . . . . . $ 8,794 $ 11,187 $ (18,484)
Pooled Entities . . . . . . . . . . . . . . . . 14,287 8,346 3,574
--------- --------- ---------
$ 23,081 $ 19,533 $ (14,910)
========= ========= =========
</TABLE>
In August 1995, the Company acquired all of the outstanding shares of
capital 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 16,000,000 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 from January 1, 1993 to December 31, 1995, have been
accounted for under the purchase method of accounting.
10
<PAGE> 11
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
The Company's unaudited pro forma consolidated results of operations
for the years ended December 31, assuming the acquisition of HMC had occurred
at the beginning of each of the periods presented are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . $ 328,366 $ 266,176
========== ==========
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . $ 40,914 $ 25,712
========== ==========
Net income from continuing operations . . . . . . . . $ 24,226 $ 19,059
========== ==========
Fully diluted earnings per common and common
equivalent share from continuing operations . . . . $ 0.17 $ 0.17
========== ==========
Weighted average common and common
equivalent shares . . . . . . . . . . . . . . . . 146,780 112,920
========== ==========
</TABLE>
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of January 1, 1994.
The preliminary purchase price allocation for the HMC acquisition 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>
11
<PAGE> 12
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
In March 1996, the Company acquired substantially all of the assets of
Mid-American Waste Systems of Georgia, Inc. and affiliates ("Mid-American
Georgia") for a purchase price of approximately $52,000,000. At closing, the
Company issued an aggregate of 3,400,000 shares of Common Stock valued at
approximately $46,750,000 and will settle the remaining balance (after taking
into account closing adjustments) within 60 days using additional Common Stock
or cash. Mid-American Georgia owns and operates a landfill, provides solid
waste collection and recycling services to commercial, residential and
industrial customers, and operates two transfer stations, in certain areas of
the greater metropolitan Atlanta, Georgia area. The acquisition of
Mid-American Georgia will be accounted for under the purchase method of
accounting.
On May 8, 1996, after approval by a special committee of disinterested
members of the Company's Board of Directors, the Company entered into a
definitive agreement which provides for the acquisition of AutoNation
Incorporated ("AutoNation"). In connection with the execution of the definitive
agreement, the parties also entered into a loan agreement whereby the Company
will provide a line of credit to AutoNation until consummation of the
acquisition of AutoNation by the Company. AutoNation is a privately-owned
corporation developing a chain of megastores for the sale of
reconditioned-to-be-like-new vehicles in a customer friendly environment and is
partially owned by H. Wayne Huizenga, the Company's Chairman and Chief
Executive Officer, and certain other officers and directors of the Company. The
proposed transaction is subject to final approval by the shareholders of
Republic, and other customary closing conditions, including regulatory
approvals. It is contemplated that the Company will issue 17,467,248 shares of
its Common Stock in connection with the transaction.
3. LONG-TERM DEBT AND NOTES PAYABLE
In connection with the equity investment and private placement
transactions, as discussed in Note 5, the Company received approximately
$232,000,000 in cash, a portion of which was used to repay a portion of the
Company's outstanding borrowings.
Long-term debt and notes payable consisted of the following at
December 31:
<TABLE>
<CAPTION> 1995 1994
--------- ---------
<S> <C> <C>
Revolving credit facility, secured by the stock of the
Company's subsidiaries, interest at prime or
at a Eurodollar rate plus 1.5%, principal
repaid in 1995 . . . . . . . . . . . . . . . . . . . $ - $ 12,600
Notes to banks and financial institutions, secured by
equipment and other assets, interest ranging
from 7.2% to 13.0%, principal
due in 1996 - 2001 . . . . . . . . . . . . . . . . . 4,590 31,937
Other notes, secured by equipment and other assets,
interest ranging from 8.3% to 9.0% . . . . . . . . . 1,288 7,376
--------- ---------
$ 5,878 $ 51,913
Less current maturities . . . . . . . . . . . . . . . (2,087) (11,210)
--------- ---------
$ 3,791 $ 40,703
========= =========
</TABLE>
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. At December 31, 1995, the Company had standby letters of
credit of $5,386,000 which reduce availability under this facility. The Credit
Agreement requires, among other items, that the Company maintain certain
financial ratios and comply with certain financial
12
<PAGE> 13
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
covenants. Interest is payable monthly and generally determined using either a
competitive bid feature or a LIBOR based rate. As of December 31, 1995, the
Company was in compliance with all covenants under the Credit Agreement.
At December 31, 1995, aggregate maturities of long-term debt were as
follows:
<TABLE>
<S> <C>
1996.......................................... $2,087
1997.......................................... 1,193
1998.......................................... 1,001
1999.......................................... 726
2000.......................................... 735
Thereafter.................................... 136
------
$5,878
======
</TABLE>
The Company made interest payments of approximately $5,894,000,
$4,373,000 and $2,688,000 in 1995, 1994 and 1993, respectively.
4. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and
between the tax basis of assets and liabilities and their reported amounts in
the financial statements.
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 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 for the years ended December 31 are shown below:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . $ 9,778 $ 5,270 $ 2,815
State . . . . . . . . . . . . . . . . . . . . 1,038 751 405
-------- ------- -------
10,816 6,021 3,220
Federal deferred . . . . . . . . . . . . . . . . 6,187 2,482 (1,969)
Tax reserve adjustments . . . . . . . . . . . . (837) (1,963) -
Change in valuation allowance . . . . . . . . . - (1,242) 1,242
-------- ------- -------
Income tax provision . . . . . . . . . . . . . . $ 16,166 $ 5,298 $ 2,493
======== ======= =======
</TABLE>
Net operating loss 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.
13
<PAGE> 14
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 for the years ended December 31 is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . 35.0% 34.0% 34.0%
Amortization of goodwill . . . . . . . . . . . 1.2 .4 3.6
State income taxes, net of federal benefit . . 2.5 3.0 14.4
Tax reserve adjustments . . . . . . . . . . . . (2.1) (8.9) -
Change in valuation allowance . . . . . . . . . - (5.1) 47.3
Other, net . . . . . . . . . . . . . . . . . . 4.3 .5 16.0
---- ---- -----
Effective tax rate . . . . . . . . . . . . . 40.9% 23.9% 115.3%
==== ==== =====
</TABLE>
Components of the net deferred income tax liability at December 31
are shown below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis . . . . . . . . . $25,507 $23,773
Deferred costs . . . . . . . . . . . . . . . . . . . . 8,067 8,954
------- -------
33,574 32,727
------- -------
Deferred income tax assets:
Net operating losses . . . . . . . . . . . . . . . . . (3,837) (5,186)
Deferred revenue . . . . . . . . . . . . . . . . . . . (10,353) (11,240)
Accrued environmental and landfill costs . . . . . . . (2,842) (2,761)
Accruals not currently deductible . . . . . . . . . . . (1,496) (1,943)
------- -------
(18,528) (21,130)
------- -------
Valuation allowance . . . . . . . . . . . . . . . . . . . . - -
------- -------
Net deferred income tax liability . . . . . . . . . . . . . $15,046 $11,597
======= =======
</TABLE>
At December 31, 1995, the Company had available federal net operating
loss carryforwards of approximately $11,000,000 which begin to expire in the
year 2006.
The Company made income tax payments of approximately $4,839,000,
$2,278,000 and $1,260,000 in 1995, 1994 and 1993, respectively.
5. STOCKHOLDERS' EQUITY
In August 1995, the Company sold an aggregate of 16,700,000 shares of
Common Stock and warrants to purchase an additional 33,400,000 shares of Common
Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation
controlled by Michael G. DeGroote, former Chairman of the Board, President and
Chief Executive Officer of Republic), Harris W. Hudson, and certain of their
assigns for an aggregate purchase price of $37,500,000. Mr. Huizenga is the
Chairman of the Board and Chief Executive Officer of the Company; Mr. DeGroote
is the Vice Chairman of the Board of the Company and Mr. Hudson is President
and a Director of the Company. The warrants are exercisable at prices ranging
from $2.25 to $3.50 per share. In August 1995, the Company issued and sold an
additional 2,000,000 shares of Common Stock each to Mr. Huizenga and John J.
Melk (a Director of the Company) for $6.63 per share for aggregate proceeds
of approximately $26,500,000.
In July 1995, the Company sold 10,800,000 shares of Common Stock in a
private placement transaction for $6.63 per share, resulting in net proceeds
of approximately $69,000,000 after deducting expenses, fees and commissions.
In
14
<PAGE> 15
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
September 1995, the Company sold 10,000,000 shares of Common Stock in an
additional private placement transaction for $10.13 per share resulting in net
proceeds of approximately $99,000,000.
As a result of the transactions discussed above, the Company received
approximately $232,000,000 in cash proceeds. The Company used a portion of
these proceeds to repay all outstanding borrowings under its revolving line of
credit facility and a portion of the debt of the Pooled Entities.
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.
6. 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 years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C>
Options and warrants outstanding
at beginning of year . . . . . . . . 6,786 6,394 14,854
Granted . . . . . . . . . . . . . . . . . 44,874 752 2,034
Exercised . . . . . . . . . . . . . . . . (2,804) - -
Canceled . . . . . . . . . . . . . . . . (322) (360) (664)
Expired . . . . . . . . . . . . . . . . . - - (9,830)
------- ------ -------
Options and warrants outstanding at
end of year . . . . . . . . . . . . . 48,534 6,786 6,394
======= ====== =======
Average price of options and warrants
exercised . . . . . . . . . . . . . . $ 4.02 $ - $ -
Average price of options and warrants
outstanding at end of year . . . . . $ 4.77 $ 3.80 $ 3.99
Prices of options and warrants $ 1.25 to $ 1.25 to $ 1.25 to
outstanding at end of year . . . . . $ 15.50 $ 7.25 $ 7.25
Vested options and warrants at end of
year . . . . . . . . . . . . . . . . 39,038 3,656 2,800
Options available for future grants at
end of year . . . . . . . . . . . . . 4,344 5,698 5,690
</TABLE>
7. 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 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 $16,000,000. In August 1993, the Court rendered
a ruling favorable to the Company which
15
<PAGE> 16
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
GI appealed. In March 1995, the United States Court of Appeals
for the Ninth Circuit vacated the August 1993 decision and remanded the case
for further proceedings. The Court has commenced proceedings that may lead to
a trial on damages.
Subsequent to the commencement of the Company's litigation in this
matter, 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 it is owed from GI, plus interest and costs.
Western Waste Industries, Inc. ("Western") filed an action against the
Company and others on July 20, 1990 alleging 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 was scheduled for trial in May 1996, but by stipulation of the parties the
trial date has been postponed pending the outcome of settlement discussions.
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.
The Company is currently conducting active discussions with all
appropriate California regulatory agencies in order to obtain a variance under
California regulations to reclassify the Filters as a special waste so they
may 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 closed. In the event that the variance is not granted,
remedial measures may be required 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) if so, 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,
16
<PAGE> 17
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
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 in
this mattter has been stayed until November 1996, at which time the Company
expects to be able to quantify more accurately the level of damages it has
suffered. The Company believes it will prevail, but no amounts have been
accrued for any recovery of damages.
While the results of the legal and environmental 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. 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.
LEASE COMMITMENTS. The Company and its subsidiaries lease portions of
their premises and certain equipment under various operating lease agreements.
At December 31, 1995, total minimum rental commitments becoming payable under
all operating leases are as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . $ 1,940
1997 . . . . . . . . . . . . . . . . . . . . . . . $ 1,285
1998 . . . . . . . . . . . . . . . . . . . . . . . $ 733
1999 . . . . . . . . . . . . . . . . . . . . . . . $ 401
2000 . . . . . . . . . . . . . . . . . . . . . . . $ 119
Thereafter . . . . . . . . . . . . . . . . . . . . $ 94
</TABLE>
Total rental expense incurred under operating leases was $4,344,000, $3,672,000
and $2,688,000 in 1995, 1994 and 1993, respectively.
8. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are 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 years 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.
17
<PAGE> 18
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
The computations of weighted average common and common equivalent
shares used in the calculation of primary and fully diluted earnings per share
for the years ended December 31 are presented below :
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Primary:
Common shares outstanding . . . . . . . . . . . . . . 157,942 96,458 96,782
Common equivalent shares . . . . . . . . . . . . . . . 53,104 164 320
Weighted average treasury shares purchased . . . . . . (14,202) 298 -
Effect of using weighted average common and common
equivalent shares outstanding . . . . . . . . . . (66,300) - -
------- ------ ------
130,544 96,920 97,102
======= ====== ======
Fully diluted:
Common shares outstanding . . . . . . . . . . . . . . 157,942 96,458 96,782
Common equivalent shares . . . . . . . . . . . . . . . 53,104 164 320
Weighted average treasury shares purchased . . . . . . (7,646) 298 -
Effect of using weighted average common and common
equivalent shares outstanding. . . . . . . . . . . (66,000) - -
------- ------ ------
137,400 96,920 97,102
======= ====== ======
</TABLE>
9. DISCONTINUED OPERATIONS
In 1994, the Company announced the contemplation of a plan to spin-off
RESI, its hazardous waste services segment. This segment of the Company's
business has been accounted for as a discontinued operation and, accordingly,
the Company restated its Consolidated Financial Statements presented prior to
that date to report separately the operating results of these discontinued
operations. In April 1995, Republic stockholders received one share of common
stock of RESI for every ten 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 Republic stockholders (the "Distribution"). Revenue
of the discontinued operations of RESI was $12,148,000, $46,599,000 and
$61,617,000 in 1995, 1994 and 1993, respectively. The net income (loss) of the
discontinued operations of RESI was ($ 293,000), $2,684,000 and ($14,579,000)
in 1995, 1994 and 1993, respectively.
In connection with the Distribution, the Company entered into a
distribution agreement with RESI which sets forth the terms of the
Distribution. Under this agreement, Republic contributed the intercompany
balance to RESI's equity at the date of the Distribution. In April 1995,
Republic contributed approximately $2,500,000 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 $23,600,000.
10. RESTRUCTURING AND UNUSUAL CHARGES
In the fourth quarter of 1993, the Company recorded restructuring and
unusual charges of $10,040,000 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
18
<PAGE> 19
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
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.
11. OPERATIONS BY INDUSTRY SEGMENT
The Company is a diversified services company which primarily provides
integrated solid waste disposal, collection and recycling services to public
and private sector customers through residential, commercial and industrial
service. 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 following tables present financial information regarding the
Company's different industry segments for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Solid waste services . . . . . . . . . . . . . $ 245,339 $ 176,260 $ 146,107
Electronic security services . . . . . . . . . 49,826 41,913 36,388
--------- --------- ---------
$ 295,165 $ 218,173 $ 182,495
========= ========= =========
Operating income:
Solid waste services . . . . . . . . . . . . . $ 31,687 $ 23,201 $ 4,224
Electronic security services . . . . . . . . . 8,255 2,352 114
--------- --------- ---------
$ 39,942 $ 25,553 $ 4,338
========= ========= =========
Depreciation, depletion and amortization:
Solid waste services . . . . . . . . . . . . . $ 17,727 $ 15,414 $ 13,238
Electronic security services . . . . . . . . . 4,946 4,111 2,353
--------- --------- ---------
$ 22,673 $ 19,525 $ 15,591
========= ========= =========
Capital expenditures and investment in subscriber accounts:
Solid waste services . . . . . . . . . . . . . $ 51,436 $ 22,620 $ 12,243
Electronic security services . . . . . . . . . 17,459 18,275 10,643
--------- --------- ---------
$ 68,895 $ 40,895 $ 22,886
========= ========= =========
Assets:
Solid waste services . . . . . . . . . . . . . $ 514,220 $ 202,468 $ 179,837
Electronic security services . . . . . . . . . 43,834 34,447 20,678
Net assets of discontinued operations . . . . . - 20,292 16,872
--------- --------- ---------
$ 558,054 $ 257,207 $ 217,387
========= ========= =========
</TABLE>
19
<PAGE> 20
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) - CONTINUED
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the
Consolidated Statements of Operations by quarter for 1995 and 1994.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue 1995 $ 63,094 $ 69,531 $ 78,054 $ 84,486
1994 $ 50,131 $ 54,088 $ 56,070 $ 57,884
Gross profit 1995 $ 22,183 $ 24,211 $ 24,133 $ 32,425
1994 $ 17,066 $ 17,593 $ 19,723 $ 20,416
Income from continuing 1995 $ 3,780 $ 4,088 $ 5,076 $ 10,430
operations 1994 $ 2,878 $ 4,261 $ 5,097 $ 4,613
Net income 1995 $ 4,288 $ 4,088 $ 5,076 $ 9,629
1994 $ 2,732 $ 5,088 $ 6,085 $ 5,628
Earnings per share from 1995 $ 0.04 $ 0.04 $ 0.03 $ 0.05
continuing operations 1994 $ 0.03 $ 0.04 $ 0.05 $ 0.05
</TABLE>
13. SUBSEQUENT EVENTS
On May 10, 1996, the Board of Directors declared a two-for-one split of
the Company's Common Stock in the form of a 100% stock dividend, payable June
8, 1996, to holders of record on May 28, 1996. As a result, $790,000 (par
value of the shares issued pursuant to the stock split) has been transferred
from additional paid-in capital to common stock.
The Company's Certificate of Incorporation has been amended to increase
the number of authorized shares of Common Stock from 350,000,000 shares to
500,000,000 shares following approval by shareholders at the Company's annual
meeting which took place on May 10, 1996.
20
