-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WXYI+C4LoN5dtwiRWivD51PpEz9APnqeNZi6TiYXqbO6EJCslyC4Iz4Aonh6kQ8N gb1JLcAeawO4xFcke78dJg== 0000950144-96-001560.txt : 19960408 0000950144-96-001560.hdr.sgml : 19960408 ACCESSION NUMBER: 0000950144-96-001560 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960405 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC INDUSTRIES INC CENTRAL INDEX KEY: 0000350698 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 731105145 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-63209 FILM NUMBER: 96544873 BUSINESS ADDRESS: STREET 1: 200 E LAS OLAS BLVD STREET 2: STE 1400 CITY: FT. LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 3057618333 MAIL ADDRESS: STREET 1: 200 EAST LAS OLAS BLVD STREET 2: SUITE 1400 CITY: FT. LAUDERDALE STATE: FL ZIP: 33301 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC WASTE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC RESOURCES CORP DATE OF NAME CHANGE: 19900226 POS AM 1 REPUBLIC INDUSTRIES POST EFFECTIVE AMENDMENT NO. 2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 1996. REGISTRATION NO. 33-63209 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ REPUBLIC INDUSTRIES, INC. (Exact name of registrant as specified in its charter) ------------------------ DELAWARE 4953 73-1105145 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
200 EAST LAS OLAS BLVD., SUITE 1400 FORT LAUDERDALE, FLORIDA 33301 (954) 627-6000 (Address, including zip code, and telephone number, including area code of registrant's principal executive offices) --------------------- 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 (954) 627-6000 (305) 374-5600 (Name, address, including zip code, and telephone number, including area code, of agent for service)
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. / / - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 REPUBLIC INDUSTRIES, INC. (CROSS REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K)
LOCATION OR CAPTION ITEM NUMBER IN PROSPECTUS - ------------------------------------------------- ------------------------------------------- 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
3 PROSPECTUS 2,578,678 SHARES (REPUBLIC INDUSTRIES, INC. LOGO) COMMON STOCK --------------------- This Prospectus relates to an aggregate of 2,578,678 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 April 2, 1996, the last reported sales price for the Common Stock as reported by Nasdaq was $34.625 per share. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS" LOCATED ON PAGE 6 OF THIS PROSPECTUS. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. APRIL 5, 1996 4 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. --------------------- TABLE OF CONTENTS
PAGE ---- Available Information................. 2 Prospectus Summary.................... 3 Recent Developments................... 4 Risk Factors.......................... 5 Use of Proceeds....................... 10 Price Range of Common Stock and Dividend Policy..................... 10 Selected Financial Data............... 11 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 12 Business.............................. 19 Properties............................ 28 Legal and Administrative Proceedings......................... 28 Submission of Matters to a Vote of Security Holders...................... 30 Executive Compensation................ 35 Security Ownership of Certain Beneficial Owners and Management.... 38 Certain Relationships and Related Transactions........................ 40 Description of Capital Stock.......... 41 Plan of Distribution.................. 42 Legal Matters and Experts............. 42
--------------------- 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. 2 5 PROSPECTUS SUMMARY 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. As of December 31, 1995, the Company 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. The Company also currently provides collection service to over 780,000 residential, commercial and industrial customers, primarily in areas surrounding its landfill sites noted above and certain areas of Georgia, Maine, New Hampshire, and Virginia and throughout Florida. In addition, the Company provides related environmental services including 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 127,000 businesses and residences predominately in Florida and Colorado. In August 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 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 Executive Vice President and Chief Operating Officer. In November 1995, George D. Johnson, Jr. was added to the Company's Board of Directors. This new management team is implementing an aggressive growth strategy for the Company. 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" for a further discussion. 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 (954) 627-6000. 3 6 RECENT DEVELOPMENTS On March 29, 1996, the Company announced that it had entered into negotiations with AutoNation, Inc. ("AutoNation") regarding a possible transaction valued at approximately $250,000,000 in which the Company would acquire AutoNation. 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 1,700,000 shares of Common Stock valued at approximately $46,750,000 and will settle the remaining balance (after making certain closing adjustments), within 60 days using additional shares of 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. In February 1996, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of Incendere, Inc. and certain affiliated waste companies (collectively, "Schaubach") controlled by Dwight C. Schaubach. Schaubach provides solid waste collection and recycling services to residential, commercial and industrial customers in southeastern Virginia and eastern North Carolina and provides transportation of medical waste throughout the Mid-Atlantic states. In February 1996, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of certain electronic security companies known as Denver Burglar Alarm ("Denver Alarm"). Denver Alarm provides installation, monitoring and maintenance services to residential and commercial customers in Denver, Fort Collins, Boulder, Colorado Springs and Pueblo, Colorado. The Company issued an aggregate of 2,914,452 shares of Common Stock for the Schaubach and Denver Alarm acquisitions, both of which will be accounted for as pooling of interests business combinations. 4 7 RISK FACTORS An investment in the Shares being offered hereby involves a significant degree of risk. In addition to the other information set forth in this Prospectus, prospective purchasers of the Shares should consider carefully the following factors in evaluating an investment in the Company. Control Of The Company. H. Wayne Huizenga, Chairman of the Board and Chief Executive Officer of the Company, Michael G. DeGroote, Vice Chairman of the Board of the Company, Harris W. Hudson, a Director and the President of the Company (and Mr. Huizenga's brother-in-law), and John J. Melk, a Director of the Company, in the aggregate beneficially own directly and indirectly 41,078,720 shares of Common Stock (including shares beneficially owned by certain of their spouses, with respect to which they each respectively disclaim beneficial ownership, and including warrants and options exercisable within 60 days for an aggregate of 14,370,000 shares of Common Stock), as of March 31, 1996, or an aggregate of 42.1% 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 exercise all of such warrants and options and 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 80,972,053 shares of Common Stock, of which 18,145,000 shares 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 29,513,138 shares of Common Stock in various private business combination transactions, since July 1995. Since August 11, 1995, to the knowledge of the Company, approximately 25% of such shares have been sold into the public market under these shelf registration statements. 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. 5 8 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. 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. It may be anticipated that the Company will enter into additional industries unrelated to the solid waste services industry and if it does enter into any such industries, there can be no assurances 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 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 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 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 6 9 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. The Solid Waste Disposal Act ("SWDA"), as amended by the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and its implementing regulations establish a framework for regulating the storage, collection and disposal of non-hazardous solid wastes. They also require states to develop programs to ensure the safe disposal of solid wastes in sanitary landfills. Subtitle D establishes a framework for regulating the disposal of municipal 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, 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. All Subtitle D regulations are now in effect, except for the financial assurance requirements which the EPA has deferred to April 1, 1997. All of the Company's planned landfill expansions or new landfill development projects have been engineered to meet or exceed Subtitle D requirements. Operating and design criteria for existing operations have been modified to comply with these new regulations. Compliance with Subtitle D regulations has resulted in increased costs and may, in the future, require expenditures in addition to other costs normally associated with the Company's waste management activities. Hazardous Substances Liability. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("Superfund" or "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. 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 EPA's National Priorities List 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 properties which the Company may have owned or operated. If there is a release or threatened release of hazardous substances from a facility where the Company is an owner or operator, 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. CERCLA liability may also attach to the Company with regard to non-Company owned or operated facilities where the Company arranged for disposal or treatment of hazardous substances at, or transportation of hazardous substances to, such a facility, or where the Company was the waste transporter who selected such facility for treatment or disposal of hazardous substances. The costs of a CERCLA cleanup can be very expensive. Given the difficulty of obtaining insurance for environmental impairment liability, such liability could have a material impact on the Company's business and financial condition. Possible Lack of Environmental Liability Insurance Coverage. 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 7 10 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. 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 led by three large national waste management companies, several large second tier 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 services business competes with several large national companies, as well as numerous 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. Given this competitive business environment, there can be no assurance that the Company will be able to compete effectively in the future. 8 11 "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 Expansion. The existing subscriber base of the Company's electronic security systems business is geographically concentrated in certain metropolitan areas primarily located in Florida and Colorado. Accordingly, the performance of this business segment may be adversely affected by regional or local economic conditions, in addition to 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 required when expanding to a new geographic area. There can be no assurance that an expansion into new geographic areas would generate operating profits. 9 12 USE OF PROCEEDS This Prospectus relates solely to Shares being registered for issuance from time to time in connection with future acquisitions of other business, properties or equity and/or debt securities in business combination transactions. The Company will not receive any proceeds from the sale of such Shares but will pay all expenses related to the registration of the Shares. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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.
QUARTER ENDED HIGH LOW - ---------------------------------------------------------------------- ------- ------- 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............................................................ 34 26 3/4 June 30 (through April 2)........................................... 35 1/2 34 5/8
On April 2, 1996, the closing price of Common Stock as reported by Nasdaq was $34.625 per share. The number of record holders of the Common Stock as of March 31, 1996, was 2,110. Effective February 16, 1996, the Company voluntarily delisted the Common Stock from the Toronto Stock Exchange (the "TSE") due to a lack of trading volume on the TSE. Since commencement of operations as a waste management and environmental services company in December 1989, other than distributions to former stockholders of acquired companies, the Company has not declared or paid any cash dividends on its Common Stock and the Board of Directors does not currently anticipate that the Company will pay cash dividends on its Common Stock at any time in the foreseeable future. 10 13 SUMMARY CONSOLIDATED FINANCIAL DATA The following Summary Consolidated Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", the Company's Consolidated Financial Statements and Notes thereto and other financial information included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- INCOME STATEMENT DATA: 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ (In thousands, except per share data) Revenue . . . . . . . . . . . . . . . . . . . . . $ 260,315 $ 187,111 $154,301 $134,440 $ 117,711 Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . $ 36,684 $ 18,271 $ (1,286) $ 9,048 $ 6,055 Income (loss) from continuing operations . . . . $ 23,212 $ 14,432 $ (2,473) $ 6,962 $ 4,167 Earnings (loss) per common and common equivalent share from continuing operations . . $ 0.35 $ 0.32 $ (0.05) $ 0.16 $ 0.11 Weighted average common and common equivalent shares . . . . . . . . . . . 65,785 45,545 45,636 44,479 37,373 DECEMBER 31, -------------------------------------------------------- BALANCE SHEET DATA: 1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- (In thousands) Working capital (deficiency) . . . . . . . . . . $142,891 $ (7,184) $ 1,226 $ 2,992 $ 14,885 Short-term debt, including current maturities of long-term debt . . . . . . . . . $ - $ 10,035 $ 9,913 $ 9,222 $ 7,874 Long-term debt, net of current maturities . . . . $ - $ 37,995 $ 41,596 $ 30,086 $ 27,565 Stockholders' equity . . . . . . . . . . . . . . $436,387 $ 109,830 $ 96,305 $ 120,376 $ 119,426 Total assets . . . . . . . . . . . . . . . . . . $542,050 $ 242,365 $ 203,873 $ 190,068 $ 180,394
See Notes 2, 5, 9 and 10 of Notes to Consolidated Financial Statements included elsewhere in this Registration Statement for discussion of business combinations, various equity transactions, the Distribution of the hazardous waste services segment and restructuring charges and their effect on comparability of year-to-year data. See "Market Price Of and Dividends On the Registrant's Common Equity and Related Stockholder Matters" for a discussion of the Company's dividend policy. 11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with "Summary Consolidated Financial Data" and the Company's Consolidated Financial Statements and the Notes thereto. BUSINESS COMBINATIONS The Company's strategy is to aggressively grow its solid waste services business 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, resulting in a more diversified Company. The Company makes its decision to acquire or invest in businesses based on financial and strategic considerations. 12 15 Businesses acquired through December 31, 1995 and accounted for under the pooling of interests method of accounting have been included retroactively in the financial statements as if the companies had operated as one entity since inception. Businesses acquired through December 31, 1995 and accounted for under the purchase method of accounting are included in the financial statements from the date of acquisition. ACQUISITIONS COMPLETED DURING THE YEAR ENDED DECEMBER 31, 1995 In August 1995, the Company merged with Kertz Security Systems, Inc. and Kertz Security Systems II, Inc. (collectively, "Kertz"), which provides electronic security monitoring and maintenance predominantly in the South Florida area. In October 1995, the Company merged with United Waste Service, Inc. ("United") and Southland Environmental Services, Inc. ("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 J.C. Duncan Company, Inc. and related companies ("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Company, Inc. and several related companies (collectively, "Fennell") and Cana First Corporation and several related companies (collectively, "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 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. The Company issued an aggregate of 18,127,984 shares of Common Stock for the acquisitions of Kertz, United, Southland, Duncan, GDS, Fennell, and Scott (collectively, the "Pooled Entities"). The acquisitions of the Pooled Entities 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 the Pooled Entities had operated as one entity since inception. 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 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 from January 1, 1993 to December 31, 1995, have been accounted for under the purchase method of accounting. ACQUISITIONS COMPLETED SUBSEQUENT TO DECEMBER 31, 1995 In March 1996, the Company acquired substantially all of the assets of Mid-American Georgia for a purchase price of approximately $52,000,000. At closing, the Company issued an aggregate of 1,700,000 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 shares of 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. In February 1996, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of Schaubach. Schaubach provides solid waste collection and recycling services to residential, commercial and industrial customers in southeastern Virginia and eastern North Carolina and provides transportation of medical waste throughout the Mid-Atlantic states. In February 1996, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of Denver Alarm. Denver Alarm provides installation, monitoring and maintenance services to residential and commercial customers in Denver, Fort Collins, Boulder, Colorado Springs and Pueblo, Colorado. The Company issued an aggregate of 2,914,452 shares of Common Stock to acquire Schaubach and Denver Alarm both of which will be accounted for as pooling of interests business combinations. For further discussion of the Company's business combinations and acquisition strategy, see "Acquisitions" under the heading "Business" and Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Prospectus. 13 16 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 segment, Republic Environmental Systems, Inc. ("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 are reflected in the Consolidated Financial Statements for all periods presented as discontinued operations. Revenue The Company's revenue from its collection operations consists of fees from residential, commercial and industrial customers. The Company's revenue from landfill operations is comprised primarily of tipping fees charged to third parties. 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. The following table presents revenue data from the Company's different industry segments for the years ended December 31:
1995 1994 1993 ---- ---- ---- Solid waste services . . . . . . . . . . . . $226,815 $161,237 $133,711 Electronic security services . . . . . . . . 33,500 25,874 20,590 -------- --------- -------- $260,315 $187,111 $154,301 ======== ========= ========
The increase in revenue from the solid waste services segment for 1995 is primarily a result of the acquisition of HMC and other businesses, as well as internal growth and increased volume at existing operations. The increase for 1994 is primarily attributable to internal growth. The increases in revenue from the electronic security services segment for 1995 and 1994 are principally a result of an aggressive expansion plan targeted at generating new monitoring business. Operating Costs and Expenses Cost of operations for the Company's collection operations is variable and includes disposal, labor, fuel and equipment maintenance costs. 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 electronic security services business primarily consists of the labor and equipment associated with the sale, installation and monitoring of security systems. The following table sets forth the Company's total cost of operations and selling, general and administrative expenses as percentages of total revenue for the years ended December 31:
1995 1994 1993 ---- ---- ---- Cost of operations . . . . . . . . . . 65% 66% 68% Selling, general and administrative . . 21% 22% 25%
Cost of operations was $169,559,000, $123,877,000 and $104,720,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The increases are consistent with the increases in revenue for such periods. The decreases in cost of operations as a percentage of revenue for the years ended December 31, 1995 and 1994 are primarily a result of price increases and the implementation of cost reduction measures. 14 17 Selling, general and administrative expenses were $54,133,000, $41,730,000 and $38,854,000 for the years ended December 31, 1995, 1994 and 1993, respectively. These increases primarily reflect the growth of the Company's business through the acquisition of HMC and other businesses. The decreases in selling, general and administrative expenses as a percentage of revenue for the years ended December 31, 1995 and 1994 are largely due to the Company's continued commitment to reduce and control such expenses by implementing efficiencies within the Company's administrative functions. Restructuring and Unusual Charges In 1993, the Company recorded restructuring and unusual charges of $10,040,000 based on the Company's reevaluation of its solid waste operations. As a result of this reevaluation, the Company decided to terminate certain contracts, close one of its facilities due to low waste volumes and abandon its permitting effort at another facility because of limited market opportunity in that area and delays in the permitting process. The write-off of property and equipment and accumulated permitting costs associated with these facilities were included in these restructuring and unusual charges. In 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 10 of Notes to Consolidated Financial Statements. Interest and Other Income Interest and other income increased to $5,691,000 in 1995 from $989,000 in 1994 due to the increase in the Company's cash investments resulting from the proceeds from sales of Common Stock. For further discussion of the sales of Common Stock, see "Liquidity and Capital Resources" and Note 5 of Notes to Consolidated Financial Statements. Interest Expense Interest expense was $5,630,000, $4,222,000 and $2,685,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The increases are primarily due to higher average outstanding borrowings used to fund internal growth. All of the Company's outstanding borrowings were repaid during the latter half of 1995. Income Taxes The Company's income tax provision for 1995 and 1994 was partially offset by certain tax reserve adjustments resulting from 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. Additionally, the Company's 1994 income tax provision was offset by a 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. For further discussion of income taxes, see Note 4 of Notes to Consolidated Financial Statements. 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 15 18 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 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. 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. 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 1994 and 1993 have been restated to report separately the net assets and operating results of these discontinued operations. For further discussion of the Distribution, see Note 9 of Notes to Consolidated Financial Statements. 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. The Company's electronic security services operations are not materially impacted by seasonality. LIQUIDITY AND CAPITAL RESOURCES As previously discussed, the Company will continue to pursue acquisitions in the solid waste, electronic security services and other selected industries and anticipates financing acquisitions with the proceeds from the equity transactions mentioned below 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 in December 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. CASH FLOWS FROM OPERATING ACTIVITIES The Company's net cash flows from operating activities increased slightly during 1995 as a result of an increase in operating cash generated by its ongoing business. The Company used its operating cash flows during 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 in 1996. CASH FLOWS FROM INVESTING ACTIVITIES The Company made capital expenditures of approximately $48,885,000 during 1995 which included the purchase of new fixed assets, normal replacement of older property and the expansion of landfill sites. The Company also made expenditures of approximately $15,980,000 during 1995 related to the expansion of its electronic security services business through new installations and acquisitions of subscriber accounts. Management anticipates continuing to make capital expenditures for new equipment, upgrading existing equipment and facilities, the construction of new airspace and the installation of new security systems. The Company expects that these expenditures may increase in the future due to the internal growth of the Company and business combinations. 16 19 CASH FLOWS FROM FINANCING ACTIVITIES 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 Michael G. DeGroote), Harris W. 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. In August 1995, the Company issued and sold an additional 1,000,000 shares of Common Stock each to Mr. Huizenga and John J. Melk, for $13.25 per share for aggregate proceeds of approximately $26,500,000. 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. As a result of these transactions, the Company received approximately $232,000,000 in cash, a portion of which was used to repay all outstanding borrowings resulting in no long-term debt outstanding at December 31, 1995. FINANCIAL CONDITION The Company believes that its financial condition is strong and that it has the financial resources necessary to meet its anticipated financing needs. In addition to cash provided by operating activities and proceeds from the sales of Common Stock, the Company has availability under its new credit facility to fund internal growth and take advantage of acquisition opportunities. WORKING CAPITAL Working capital at December 31, 1995 amounted to $142,891,000 as compared to a deficit of ($7,184,000) at December 31, 1994. The increase in working capital is primarily the result of cash proceeds received from the sales of Common Stock. The Company believes working capital may decline in 1996 to lower levels as additional capital is used for the continued growth and expansion of the Company's business. Accounts receivable at December 31, 1995 were $32,780,000 as compared to $21,610,000 at December 31, 1994. The increase is primarily attributed to the acquisition of HMC and internal growth within the Company. Other current assets, which consists primarily of inventory and notes receivable, were $10,980,000 at December 31, 1995 as compared to $5,043,000 at December 31, 1994. The increase is due primarily to the acquisition of HMC. Accounts payable and accrued liabilities were $33,791,000 at December 31, 1995 as compared to $21,452,000 at December 31, 1994. The increase is primarily due to the acquisition of HMC and the internal growth of the Company's business. 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. The current portion of deferred revenue amounted to $23,532,000 at December 31, 1995 as compared to $12,255,000 at December 31, 1994. The increase is primarily due to new installations of electronic security devices and related monitoring contracts. PROPERTY AND EQUIPMENT, NET Property and equipment, net amounted to $187,461,000 at December 31, 1995 as compared to $134,506,000 at December 31, 1994. The increase is attributed primarily to the acquisition of HMC and increased capital expenditures resulting from internal growth and expansion. 17 20 INVESTMENT IN SUBSCRIBER ACCOUNTS, NET Investment in subscriber accounts, net represents capitalized direct labor and material costs associated with the installation of new electronic security systems and the cost of acquired subscriber accounts. Investment in subscriber accounts, net increased $17,347,000 during 1995 due to growth in electronic security system installations and acquisitions of subscriber accounts. INTANGIBLE ASSETS, NET Intangible assets, net increased $84,266,000 during 1995 as a result of the acquisition of HMC and other businesses during the year. NET ASSETS OF DISCONTINUED OPERATIONS Net assets of discontinued operations decreased to zero at December 31, 1995 from $20,292,000 at December 31,1994 due to the spin-off of the hazardous waste services segment which was consummated in April 1995. For further discussion of the spin-off, see Note 9 of Notes to Consolidated Financial Statements. LONG-TERM DEBT, INCLUDING CURRENT MATURITIES AND NOTES PAYABLE Long-term debt, including current maturities and notes payable decreased from $48,030,000 at December 31, 1994 to zero at December 31, 1995 due to the payoff of debt from the cash proceeds of sales of Common Stock. STOCKHOLDERS' EQUITY Stockholders' equity increased $326,557,000 during 1995 primarily due to the sales of Common Stock and the acquisition of HMC and other businesses. 18 21 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. As of December 31, 1995, the Company 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. The Company also currently provides collection service to over 780,000 residential, commercial and industrial customers, primarily in areas surrounding its landfill sites noted above and certain areas of Georgia, Maine, New Hampshire, and Virginia and throughout Florida. In addition, the Company provides related environmental services including 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 127,000 businesses and residences predominately in Florida and Colorado. In August 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 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 Executive Vice President and Chief Operating Officer. In November 1995, George D. Johnson, Jr. was added to the Company's Board of Directors. This new management team is implementing an aggressive growth strategy for the Company. 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" for a further discussion. 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 (the "Distribution"). See "Discontinued Operations" under the heading "Results of Operations" of 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, $.01 par value per share, ("Common Stock") trades on the Nasdaq National Market tier of the Nasdaq Stock Market ("Nasdaq") under the 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 diversified company. Management intends to evaluate various types of industries which generally are capital intensive, fragmented and have relatively high profit margins or substantial opportunities for growth, seek out strategic acquisition opportunities in such industries and grow rapidly in such industries through further acquisitions, consolidation and internal growth. 19 22 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 will have favorable prospects of becoming 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 will have favorable prospects of becoming 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 Acquisitions Completed Subsequent to December 31, 1995. 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 1,700,000 shares of Common Stock valued at approximately $46,750,000 and will settle the remaining balance (after taking into account post-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. In February 1996, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of Incendere, Inc. and certain waste companies (collectively, "Schaubach") controlled by Dwight C. Schaubach. Schaubach provides solid waste collection and recycling services to residential, commercial and industrial customers in southeastern Virginia and eastern North Carolina and provides transportation of medical waste throughout the Mid-Atlantic states. In February 1996, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of certain electronic security companies known as Denver Burglar Alarm ("Denver Alarm"). Denver Alarm provides installation, monitoring and maintenance services to residential and commercial customers in Denver, Fort Collins, Boulder, Colorado Springs and Pueblo, Colorado. The Company issued an aggregate of 2,914,452 shares of Common Stock for Schaubach and Denver Alarm both of which will be accounted for as pooling of interests business combinations. Acquisitions Completed During the Year Ended December 31, 1995. In November 1995, the Company acquired, in a merger transaction, all of the outstanding shares of capital stock of certain affiliated companies known as Scott Security Systems ("Scott"). Scott provides electronic security monitoring and maintenance to residential accounts in Jacksonville, Orlando and Tallahassee, Florida, 20 23 as well as other metropolitan areas in the southeastern United States, including Charlotte, North Carolina, Savannah, Georgia and Nashville, Tennessee. In November 1995, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of Fennell Container Company, Inc. and affiliates (collectively, "Fennell"). Fennell provides waste collection, recycling and environmental services to commercial, industrial and residential customers in and around Charleston and Greenville, South Carolina, and also owns a landfill. In November 1995, the Company acquired, in a merger transaction, all of the outstanding shares of capital stock of Garbage Disposal Service, Inc. ("GDS"). GDS provides solid waste collection and recycling services for commercial, residential and industrial customers throughout western North Carolina. In November 1995, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of J.C. Duncan Company, Inc. and affiliates (collectively, "Duncan"). 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. In October 1995, the Company acquired, in a merger transaction, all of the outstanding shares of capital stock of Southland Environmental Services, Inc. ("Southland"). Southland, through its subsidiaries, provides solid waste collection services to residential, commercial and industrial customers in and around Jacksonville, Florida, owns and operates a construction and demolition landfill, and provides composting and recycling services. In October 1995, the Company acquired, in a merger transaction, all of the outstanding shares of capital stock of United Waste Service, Inc. ("United"). United provides solid waste collection, transfer and recycling services in the Atlanta, Georgia metropolitan area and services both residential and commercial customers. In August 1995, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of Kertz Security Systems, Inc. and Kertz Security Systems II, Inc. (collectively, "Kertz"). Kertz provides electronic security monitoring and maintenance to residential and commercial customers predominantly in the South Florida, Tampa and Orlando areas. The Company issued an aggregate of 18,127,984 shares of Common Stock for the acquisitions of Scott, Fennell, GDS, Duncan, Southland, United and Kertz (collectively, the "Pooled Entities") which were accounted for as pooling of interests business combinations. In August 1995, the Company acquired, in merger transactions, all of the outstanding shares of capital stock of Hudson Management Corporation and Envirocycle, Inc. (collectively, "HMC") in exchange for an aggregate 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. The acquisition of HMC has been accounted for under the purchase method of accounting. See Note 2 of Notes to Consolidated Financial Statements for further discussion of business combinations. 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 primarily consist of collection, landfill, recycling and related environmental services. 21 24 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 780,000 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 and 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 generally have multi-year terms. Residences generally are serviced pursuant to contracts which the companies have with municipal governments for collection services in the municipality. The Company's contracts generally are secured by competitive bids (see " Competition" under the heading "Operations"). The Company currently provides commercial and residential collection services in certain areas of California, Florida, Georgia, Indiana, Maine, New Hampshire, North Carolina, North Dakota, South Carolina, Virginia and Texas. 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 municipalities and disposal contracts with certain third party collection companies. The following table provides certain information regarding these landfills as of December 31, 1995:
Unused Total Permitted Permitted Landfill Name Markets Served Acreage Acreage Acreage ------------- -------------- ------- ------- ------- Anderson . . . . . . . . . . . . . . . . . . . . Northern California 1,200 150 100 C&T Regional . . . . . . . . . . . . . . . . . . Rio Grande Valley, Texas 194 94 55 Cleveland Container . . . . . . . . . . . . . . . Southwest North Carolina 169 116 86 Republic/CSC . . . . . . . . . . . . . . . . . . North Central Texas 254 254 195 Republic/Imperial . . . . . . . . . . . . . . . . Southern California 160 120 89 Republic/Maloy . . . . . . . . . . . . . . . . . East Central Texas 389 270 204 Taymouth . . . . . . . . . . . . . . . . . . . . Central Michigan 138 43 19 Wabash Valley . . . . . . . . . . . . . . . . . . Northeast Indiana 103 56 16 St. John's . . . . . . . . . . . . . . . . . . . North Central North Dakota 150 40 33 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 ===== ===== ===
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. Recycling. Management believes that recycling has become an increasingly important component of most major market's solid waste management plans as a result of the public's increasing environmental 22 25 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 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. Environmental Services. 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 from various manufacturers the components of the systems it sells, installs and maintains. 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 and one in Colorado, from which it monitors over 127,000 businesses and residences predominantly in Florida and Colorado 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 periods presented prior to the Distribution have been retroactively restated to report separately the net assets and operating results of these discontinued operations. For further discussion of the Distribution, see "Discontinued Operations" under the heading "Results of Operations" of Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 9 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 the prospects are favorable to increase its market share to become, a significant provider of electronic security services. 23 26 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 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 and other facilities. 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-related federal statutes of the United States of America affecting the business of the Company: (1) The Solid Waste Disposal Act ("SWDA"), as amended by the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"). SWDA and its implementing regulations establish a framework for regulating the 24 27 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. All Subtitle D regulations are now in effect, except for the financial assurance requirements which the EPA has deferred to April 1, 1997. All of the Company's planned landfill expansions or new landfill development projects have been engineered to meet or exceed Subtitle D requirements. Operating and design criteria for existing operations have been modified to comply with these new regulations. Compliance with the Subtitle D regulations has resulted in increased costs and, may in the future, require expenditures in addition to other costs normally associated with the Company's waste management activities. (2) The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"). 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 properties which the Company may have owned or operated. If there is a release or threatened release of hazardous substances from a facility where the Company is an owner or operator, 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. CERCLA liability may also attach to the Company withregard to non-Company owned or operated facilities where the Company arranged for disposal or treatment of hazardous substances at, or transportation of hazardous substances to, such a facility, or where the Company was the waste transporter who selected such facility for treatment or disposal of hazardous substances. The costs of a CERCLA cleanup can be very expensive. Given the difficulty of obtaining insurance for environmental impairment liability, such liability could have a material impact on the Company's business and financial condition. For a further discussion, see "Liability Insurance and Bonding". 25 28 (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. On March 12, 1996, the EPA enacted a final rule implementing standards of performance for new municipal solid waste landfills and emission guidelines for existing municipal solid waste landfills. The new rule was enacted to require certain municipal solid waste landfills to control emissions to the level achievable by the best demonstrated system of continuous emission reduction. The new source performance standards established by the final rule apply to municipal landfills that began construction or modification, or first began to accept waste, on or after May 30, 1991. The enactment of this new rule will affect the Company's existing landfill operations, and may result in increased costs at these facilities. (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, with regard to its transportation operations, the Company is subject to the jurisdiction of the Interstate Commerce Commission and is regulated by the Department of Transportation and by regulatory agencies in each state. 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. In May 1994, the Supreme Court ruled that local flow control ordinances were an impermissible burden to interstate commerce, and therefore, were unconstitutional. In response to the Supreme Court's ruling, Congress is attempting to enact a national comprehensive flow control bill. The national solid waste flow control bill, which was approved by the Senate in May of 1995, is currently under consideration by the House Commerce Committee. If the national solid waste flow control bill is enacted, and state laws restricting the interstate disposal of solid 26 29 waste are passed and upheld, such legislation could adversely affect the Company's waste collection, transportation, and treatment and disposal operations. "False" Alarm Ordinances. The Company believes that approximately 95% of alarm activations that result in the dispatch of police or fire department personnel are not emergencies, and thus are "false" alarms. Recently, a trend has emerged on the part of local governmental authorities to consider or adopt various measures aimed at reducing the number of "false" alarms. Such measures include (i) subjecting alarm monitoring companies to fines or penalties for transmitting "false" alarms, (ii) licensing individual alarm systems and the revocation of such licenses following a specified number of "false" alarms, (iii) imposing fines on alarm subscribers for "false" alarms, (iv) imposing limitations on the number of times the police will respond to alarms at a particular location after a specified number of "false" alarms, and/or (v) requiring further verification of an alarm signal before the police will respond. Enactment of such measures could adversely affect the Company's electronic security services business and operations. COMPETITION Competition in the Solid Waste Industry. 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 second tier national companies as well as numerous regional solid waste companies. 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, it is anticipated that 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 several large national companies, as well as smaller regional and local companies, in all of its operations. Certain of the Company's competitors have greater financial and other resources than the Company. Furthermore, new competitors are continuing to enter the industry and the Company may encounter additional competition from such future industry entrants. LIABILITY INSURANCE AND BONDING The nature of the Company's solid waste management business exposes it to a significant risk of liability for legal damages arising out of its operations. Such potential liability could involve, for example, claims for cleanup costs, personal injury, property damage or damage to the environment in cases where the Company may be held responsible for the escape of harmful materials; claims of employees, customers or third parties for personal injury or property damage occurring in the course of the Company's operations; or claims alleging negligence or professional errors or omissions in the planning or performance of work. The Company could also be subject to fines and civil and criminal penalties in connection with alleged violations of regulatory requirements. Because of the nature and scope of the possible damages, liabilities imposed in environmental litigation can be significant. Although the Company strives to operate safely and prudently and has 27 30 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 March 1996, the Company employed approximately 4,090 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 and Colorado. Accordingly, their performance may be adversely affected by 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. The Company and its subsidiaries also lease certain of their offices and equipment. See Note 7 of Notes to Consolidated Financial Statements for additional information with respect to leased properties. For additional information regarding properties owned and operated by the Company, see "Business". LEGAL PROCEEDINGS GENERAL CORPORATE PROCEEDINGS G.I. Industries, Inc. On May 3, 1991, the Company filed an action against GI Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the United States District Court for the Central District of California (the "Court"). The Company requested a declaratory judgment that it did not anticipatorily breach a merger agreement (the "Merger Agreement") between the Company and GI and that the Merger Agreement had been properly terminated. 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 that was favorable to the Company which GI appealed. In March 1995, the United States Court of Appeals for the Ninth Circuit at Pasadena, California (the "Court of Appeals") reversed in part 28 31 and vacated in part 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 in the District Court of Harris County, Texas alleging various causes of action including interference with business relations and is seeking $24,000,000 in damages. The lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. The case is currently scheduled for trial in May 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 under the California EPA) 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 exempt from the federal classification of hazardous waste under 40 CFR Part 261.4(b)(5). 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 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) 29 32 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 in this matter 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. Imperial Landfill Permit. 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. 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 is 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. 30 33 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.
NAME AGE POSITION - ------------------------------------------ --- --------------------------------------------- H. Wayne Huizenga......................... 58 Chairman of the Board and Chief Executive Officer Michael G. DeGroote....................... 62 Vice Chairman of the Board Harris W. Hudson.......................... 53 President and a Director J.P. Bryan................................ 56 Director Rick L. Burdick........................... 44 Director John J. Melk.............................. 59 Director George D. Johnson, Jr..................... 53 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......................... 58 Senior Vice President Robert A. Guerin.......................... 52 Senior Vice President Richard L. Handley........................ 49 Senior Vice President and General Counsel Robert J. Henninger, Jr................... 47 Senior Vice President
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. Since April 1995, 31 34 Mr. DeGroote has served as Chairman of the Board, President and Chief Executive Officer of RESI. Mr. DeGroote owned a controlling interest in Laidlaw Inc. ("Laidlaw"), a Canadian company, from 1959 until he sold his interest in 1988. Laidlaw is the third largest waste service company in North America and the largest operator of school buses with over 28,000 vehicles. Mr. DeGroote served as the Chairman of the Board and Chief Executive Officer of Laidlaw from 1959 until June 1990, when he resigned from those positions to pursue personal business matters. Mr. DeGroote has served as a Director of Gulf Canada Resources Ltd. ("Gulf Canada") since May 1995, and a Director of RESI since April 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 manufacturer and retail distrubutor, 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 Blockbuster Entertainment Group. 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 & Co., an international public accounting firm, for approximately four years. 32 35 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 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. 33 36 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. From August 3, 1995 until February 12, 1996, the Compensation Committee consisted of Messrs. Melk, DeGroote and Bryan and since that date has consisted of Messrs. Melk, Johnson 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. 34 37 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. DeGroote resigned from, and Mr. Johnson, also a non-employee director, was appointed to, the Compensation Committee on February 12, 1996. 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 (i) served as the Chief Executive Officer during the year ended December 31, 1995, and (ii) were 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
LONG-TERM COMPENSATION AWARDS ------------------ SECURITIES ANNUAL COMPENSATION UNDERLYING ALL --------------------------------------- WARRANTS/OPTIONS OTHER OTHER ANNUAL TO PURCHASE COMMON COMPEN- NAME AND PRINCIPAL POSITION(5) YEAR SALARY BONUS COMPENSATION STOCK SATION - ------------------------------------- ---- ---------- --------- ------------ ------------------ -------- 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 -- -- 178,642 -- (Executive Vice President and 1994 $ 235,425(4) -- -- -- -- Chief Operating Officer) 1993 $ 228,752 -- -- 240,000 --
- --------------- (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) Mr. Koogler elected to defer the receipt of 1994 compensation totaling $235,425 until January 1, 1997. (5) Due to mid-year hirings and resignations, no other executive officer received more than $100,000 in compensation in 1995. 35 38 OPTION/WARRANT GRANTS IN LAST FISCAL YEAR
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% - --------------------------------- ---------------- ---------------- -------- ------------ ----------- ----------- 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................. 150,000 2.3% $3.875 May 2002 $ 236,627 $ 551,442 (President) 251,010 4.6% $24.75 August 2004 $ 3,423,776 $ 8,446,487 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)
AGGREGATED OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/WARRANT VALUE
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 - ---------------------------------------- ----------- -------- ----------- ------------- ----------- ------------- 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 (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)
EXECUTIVE WARRANTS In 1991, the Board of Directors approved the issuance of warrants to Mr. Koogler 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 his continued service as an officer of Republic. Mr. Koogler was required to execute a non-competition agreement in connection with the Executive Warrants. The Executive Warrants issued to Mr. Koogler granted him the right to purchase 300,000 shares of Common Stock at an exercise price of $9.00 per share. 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, Republic 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 Executive Warrants granted in 1993 to Mr. Koogler vest in increments of 25% per year over a four year period commencing on May 31, 1993. The Executive Warrants are exercisable, with respect to each portion vested, for a period of four years following such vesting. 36 39 1994 NON-EMPLOYEE DIRECTOR WARRANTS In May 1994, the Board of Directors 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 provided 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, 37 40 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 March 31, 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 March 31, 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.
SHARES BENEFICIALLY OWNED NAME AND ADDRESS ------------------------ OF BENEFICIAL OWNER NUMBER PERCENT - ---------------------------------------------------------------------- ---------- ------- H. Wayne Huizenga(1).................................................. 14,498,720 15.6% 200 South Andrews Avenue Fort Lauderdale, Florida 33301 MGD Holdings Ltd.(2).................................................. 10,700,000 12.8% Victoria Hall 11 Victoria Street P.O. Box HM 1065 Hamilton, HMEX Bermuda Westbury (Bermuda) Ltd.(3)............................................ 4,050,000 4.7% Victoria Hall 11 Victoria Street P.O. Box HM 1065 Hamilton, HMEX Bermuda Michael G. DeGroote(4)................................................ 14,810,000 17.1% Victoria Hall 11 Victoria Street P.O. Box HM 1065 Hamilton, HMEX Bermuda Harris W. Hudson(5)................................................... 9,850,000 1.2% 200 East Las Olas Boulevard, Suite 1400 Fort Lauderdale, Florida 33301 Gregory K. Fairbanks(6)............................................... 333,333 * 200 East Las Olas Boulevard, Suite 1400 Fort Lauderdale, Florida 33301
38 41
SHARES BENEFICIALLY OWNED NAME AND ADDRESS ------------------------ OF BENEFICIAL OWNER NUMBER PERCENT - ---------------------------------------------------------------------- ---------- ------- Donald E. Koogler(7).................................................. 214,000 * 200 East Las Olas Boulevard, Suite 1400 Fort Lauderdale, Florida 33301 J.P. Bryan(8)......................................................... 75,000 * 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 2.3% 676 North Michigan Ave., Suite 4000 Chicago, Illinois 60611 George D. Johnson, Jr.(11)............................................ 460,000 * 500 East Broward Boulevard, Suite 950 Fort Lauderdale, FL 33394 All directors and executive officers as a group (13 persons).......... 42,821,673 43.5%
- --------------- * Less than 1 percent (1) The aggregate amount of Common Stock beneficially owned by Mr. Huizenga consists of (a) 4,498,720 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 10,100,000 shares directly owned by MGD Holdings. MGD Holdings also owns presently exercisable Management Warrants to purchase up to 600,000 shares of Common Stock at an exercise price of $9.00 per share. (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 and options exercisable within 60 days of March 31, 1996 to purchase 50,000 shares of Common Stock at an exercise price of $3.875 per share. (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, 200,000 shares owned by Mr. Fairbanks individually and options exercisable within 60 days of March 31, 1996 to purchase 33,333 shares of Common Stock at an exercise price of $3.875 per share. (7) The aggregate amount of Common Stock beneficially owned by Mr. Koogler consists of presently exercisable Executive Warrants to purchase 120,000 shares of Common Stock at an exercise price of $4.00 per share, Executive Warrants exercisable within 60 days of March 31, 1996 to purchase 60,000 shares of Common Stock at an exercise price of $4.00 per share and options exercisable within 60 days of March 31, 1996 to purchase 34,000 shares of Common Stock at an exercise price of $3.875 per share. (8) The aggregate amount of Common Stock beneficially owned by Mr. Bryan consists of presently exercisable warrants to purchase 40,000 shares of Common Stock at an exercise price of $2.69 per share 39 42 and vested options to purchase 10,000 and 25,000 shares of Common Stock at exercise prices of $36.125 and $10.25 per share, respectively. (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) 200,000 shares of Common Stock owned directly by him, (b) presently exercisable warrants to purchase 100,000, 50,000 and 50,000 shares of Common Stock at exercise prices of $4.50, $5.50 and $7.00 per share, respectively, 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. On March 11, 1996, MGD Holdings exercised certain of such vested Management Warrants to purchase 200,000 shares of Common Stock. 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 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 40 43 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, par value $.01 per share ("Preferred Stock"). There were 81,044,571 shares of Common Stock, and no shares of Preferred Stock, issued and outstanding as of March 21, 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. 41 44 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 2,578,678 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, 1995 and 1994, the combined financial statements of HMC as of September 30, 1994 and 1993, and the combined financial statements of Denver Alarm and Schaubach as of December 31, 1995, appearing in this Prospectus and in the Registration Statement have been audited by Arthur Andersen LLP, 42 45 independent certified public accountants, to the extent and for the periods as indicated in their reports with respect thereto. The financial statements and schedule referred to above have been included herein in reliance upon authority of said firm as experts in accounting and auditing in giving said reports. 43 46 INDEX TO FINANCIAL STATEMENTS
PAGE ----- AUDITED FINANCIAL STATEMENTS OF THE REGISTRANT REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants.............................. F-3 Consolidated Balance Sheets as of December 31, 1995 and 1994.................... F-5 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993.................................................................. F-6 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993............................................................ F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993.................................................................. F-8 Notes to Consolidated Financial Statements...................................... F-9 Supplemental Consolidated Balance Sheets as of December 31, 1995 and 1994....... F-23 Supplemental Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993............................................... F-24 Supplemental Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993............................................... F-25 Supplemental Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993............................................... F-26 Notes to Supplemental Consolidated Financial Statements......................... F-27 AUDITED FINANCIAL STATEMENTS OF ACQUIRED COMPANIES HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. Report of Independent Certified Public Accountants.............................. F-41 Combined Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994 and 1993...................................................................... F-42 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-43 Combined Statements of Stockholders' Equity for the Years Ended September 30, 1994, 1993 and 1992............................................................ F-44 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-45 Notes to Combined Financial Statements.......................................... F-46 THE DENVER FIRE REPORTER & PROTECTIVE CO. AND AFFILIATE (The Dever Alarm Companies) Report of Independent Certified Public Accountants.............................. F-54 Combined Balance Sheet as of December 31, 1995.................................. F-55 Combined Statement of Income and Retained Earnings for the Year Ended December 31, 1995............................................................. F-56 Combined Statemet of Cash Flows for the Year Ended December 31, 1995............ F-57 Notes to Combined Financial Statements.......................................... F-58 INCENDERE, INC. AND AFFILIATES (The Schaubach Companies) Report of Independent Certified Public Accountants.............................. F-61 Combined Balance Sheet as of December 31, 1995.................................. F-62 Combined Statement of Operations for the Year Ended December 31, 1995........... F-63 Combined Statement of Stockholders' Equity (Deficit) for the Year Ended December 31, 1995............................................................. F-64 Combined Statement of Cash Flows for the Year Ended December 31, 1995........... F-65 Notes to Combined Financial Statements.......................................... F-66
F-1 47
PAGE ----- UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENT Unaudited Condensed Consolidated Pro Forma Financial Statement.................. F-74 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year Ended December 31, 1995........................................................ F-75 Notes to Unaudited Condensed Consolidated Pro Forma Financial Statement......... F-76
F-2 48 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 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. We have also made a similar audit of the accompanying supplemental consolidated balance sheets of Republic Industries, Inc. and subsidiaries as of December 31, 1995 and 1994, 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, 1995. These supplemental consolidated financial statements give retroactive effect to the mergers with The Denver Fire Reporter & Protective Co. and affiliate and Incendere, Inc. and affiliates in February 1996, which have been accounted for as poolings of interests as described in Note 1 to the supplemental consolidated financial statements. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental 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. F-3 49 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, 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, after giving retroactive effect to the mergers with The Denver Fire Reporter & Protective Co. and affiliate and Incendere, Inc. and affiliates 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, April 5, 1996. F-4 50 REPUBLIC INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, ----------------------------- ASSETS 1995 1994 ---- ---- CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 159,753 $ 10,031 Accounts receivable, less allowance for doubtful accounts of $1,846 and $1,055, respectively . . . . . . . . . . . . . . . . . 32,780 21,610 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,251 2,559 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 10,980 5,043 ---------- ---------- TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . 206,764 39,243 Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 187,461 134,506 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 $7,356 and $3,212, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,871 15,605 Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . - 20,292 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,414 8,526 ---------- ---------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 542,050 $ 242,365 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,007 $ 11,777 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 18,784 9,675 Current portion of deferred revenue . . . . . . . . . . . . . . . . 23,532 12,255 Current maturities of long-term debt and notes payable . . . . . . - 10,035 Current portion of accrued environmental and landfill costs . . . . 2,925 1,404 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 3,625 1,281 ---------- ---------- TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 63,873 46,427 Long-term debt and notes payable, net of current maturities . . . . . . . . . - 37,995 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,359 11,510 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,033 8,006 ---------- ---------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . 105,663 132,535 ---------- ---------- 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 and 100,000,000 shares authorized, respectively; 76,056,483 and 45,313,715 issued, respectively . . . . . . . . . . . . . . . . . 760 453 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 398,485 105,586 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 37,142 4,464 Notes receivable arising from stock purchase agreements . . . . . . - (673) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . 436,387 109,830 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $ 542,050 $ 242,365 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-5 51 REPUBLIC INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Year Ended December 31, --------------------------------------------- 1995 1994 1993 ---- ---- ---- Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260,315 $ 187,111 $ 154,301 Expenses: Cost of operations . . . . . . . . . . . . . . . . 169,559 123,877 104,720 Selling, general and administrative . . . . . . . 54,133 41,730 38,854 Restructuring and unusual charges . . . . . . . . - - 10,040 ----------- ---------- ---------- Operating income . . . . . . . . . . . . . . . . . . . . . 36,623 21,504 687 Interest and other income . . . . . . . . . . . . . . . . . 5,691 989 712 Interest expense . . . . . . . . . . . . . . . . . . . . . (5,630) (4,222) (2,685) ----------- ---------- ---------- Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 36,684 18,271 (1,286) Income tax provision . . . . . . . . . . . . . . . . . . . 13,472 3,839 1,187 ----------- ---------- ---------- Income (loss) from continuing operations . . . . . . . . . 23,212 14,432 (2,473) 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) . . . . . . . . . . . . . . . . . . . . . $ 22,919 $ 17,116 $ (17,052) =========== ========== ========== Primary earnings (loss) per common and common equivalent share: Continuing operations . . . . . . . . . . . . . . $ 0.37 $ 0.32 $ (0.05) Discontinued operations . . . . . . . . . . . . . - 0.06 (0.32) ----------- ---------- ---------- Net income (loss) . . . . . . . . . . . . . . . . $ 0.37 $ 0.38 $ (0.37) =========== ========== ========== Fully diluted earnings (loss) per common and common equivalent share: Continuing operations . . . . . . . . . . . . . . $ 0.35 $ 0.32 $ (0.05) Discontinued operations . . . . . . . . . . . . . - 0.06 (0.32) ----------- ---------- ---------- Net income (loss) . . . . . . . . . . . . . . . . $ 0.35 $ 0.38 $ (0.37) =========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 52 REPUBLIC INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Notes Receivable Arising Retained From Additional Earnings Stock Common Paid-In (Accumulated Purchase Stock Capital Deficit) Agreements --------- ---------- -------------- ------------ BALANCE AT DECEMBER 31, 1992 . . . . . . $ 454 $ 102,463 $ 12 ,398 $ (673) Contributions to capital from pooled entities . . . . . . . . . . . . . . - 2,890 - - Distributions to former stockholders of acquired companies . . . . . . - - (3,078) - Other . . . . . . . . . . . . . . . . - (679) (418) - Net loss . . . . . . . . . . . . . . . - - (17,052) - ------ ---------- ----------- -------- BALANCE AT DECEMBER 31, 1993 . . . . . . 454 104,674 (8,150) (673) Distributions to former stockholders of acquired companies . . . . . . . - - (4,520) - Other . . . . . . . . . . . . . . . . (1) 912 18 - Net income . . . . . . . . . . . . . . - - 17,116 ------ ---------- ----------- -------- BALANCE AT DECEMBER 31, 1994 . . . . . . 453 105,586 4,464 (673) Sales of common stock . . . . . . . . 208 231,823 - - Stock issued in acquisitions . . . . 86 82,897 - - Exercise of stock options and - warrants, including tax benefit of $4,068 . . . . . . . . . . . . . 14 13,360 - 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 . . . . . . . - - (3,079) - Other . . . . . . . . . . . . . . . . (1) 1,124 112 - Net income . . . . . . . . . . . . . - - 22,919 - ------- ---------- ----------- -------- BALANCE AT DECEMBER 31, 1995 . . . . . $ 760 $ 398,485 $ 37,142 $ - ======= ========== =========== ========
The accompanying notes are an integral part of these consolidated financial statements. F-7 53 REPUBLIC INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ----------------------------------------------------- 1995 1994 1993 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Income (loss) from continuing operations . . . . . . . . $ 23,212 $ 14,432 $ (2,473) 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 . . . . . . . 20,999 18,130 14,435 Provision for doubtful accounts . . . . . . . . . . 1,204 721 811 Provision for accrued environmental and landfill costs . . . . . . . . . . . . . . . . . . 400 377 215 Gain on the sale of equipment . . . . . . . . . . . . (347) (285) (148) Changes in assets and liabilities, net of effects from business acquisitions: Accounts receivable . . . . . . . . . . . . . . . (5,582) (3,403) (2,765) Prepaid expenses and other assets . . . . . . . . (3,273) (395) (2,307) Accounts payable and accrued liabilities . . . . . (549) 2,263 (52) Income taxes payable . . . . . . . . . . . . . . . 2,326 712 (772) Deferred revenue and other liabilities . . . . . . . (13,593) (11,040) (2,801) -------- -------- ------- Net cash provided by continuing operations . . . . . . 24,797 21,512 14,183 -------- -------- ------- CASH USED BY DISCONTINUED OPERATIONS . . . . . . . . . . . (261) (736) (4,360) -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash acquired . . . . . . (6,962) (4,776) (5,664) Purchases of property and equipment . . . . . . . . . . (48,885) (21,217) (12,109) Investment in subscriber accounts . . . . . . . . . . . (15,980) (17,512) (9,569) Other . . . . . . . . . . . . . . . . . . . . . . . . . - (819) (2,233) -------- -------- -------- Net cash used in investing activities . . . . . . . . . (71,827) (44,324) (29,575) -------- -------- -------- 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 . . . . . . . (83,344) (16,474) (14,552) Proceeds from long-term debt and notes payable . . . . . . 24,498 19,453 21,414 Proceeds from financing arrangements . . . . . . . . . . 24,747 27,070 15,473 Distributions to former stockholders of acquired companies . . . . . . . . . . . . . . . . . . . . . . . (3,079) (4,520) (3,078) Other . . . . . . . . . . . . . . . . . . . . . . . . . . (4,626) (1,240) 615 --------- -------- -------- Net cash provided by financing activities . . . . . . . . 197,013 24,289 19,872 --------- -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . 149,722 741 120 CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 10,031 9,290 9,170 --------- -------- -------- END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 159,753 $ 10,031 $ 9,290 ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-8 54 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 for 1994 and 1993 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; 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"), with which the Company merged in November 1995. These transactions 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 Kertz, United, Southland, Duncan, GDS, Fennell and Scott (collectively, the "Pooled Entities") had operated as one entity since inception. See Note 2 for further discussion of these transactions. 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 $3,794,000 and $3,360,000, 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. F-9 55 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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:
1995 1994 ---- ---- Land, landfills and improvements . . . . . . . . . . $ 92,909 $ 84,864 Vehicles and equipment . . . . . . . . . . . . . . . 145,034 95,760 Buildings and improvements . . . . . . . . . . . . . 23,512 16,174 Furniture and fixtures . . . . . . . . . . . . . . . 7,907 6,496 --------- -------- 269,362 203,294 Less accumulated depreciation, amortization and depletion . . . . . . . . . . . . . . . . . . (81,901) (68,788) --------- -------- $ 187,461 $134,506 ========= ========
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. 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. 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 $2,241,000, $1,252,000 and $939,000 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. F-10 56 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-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 F-11 57 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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 Businesses acquired through December 31, 1995 and accounted for under the pooling of interests method of accounting have been included retroactively in the financial statements as if the companies had operated as one entity since inception. Businesses acquired through December 31, 1995 and accounted for under the purchase method of accounting are included in the financial statements from the date of acquisition. 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 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. The Company issued an aggregate of 18,127,984 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 for all periods 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:
Year Ended December 31, --------------------------------------- 1995 1994 1993 --------- --------- --------- Revenue: The Company . . . . . . . . . . . . . . . . . . $ 87,167 $ 48,766 $ 41,095 Pooled Entities . . . . . . . . . . . . . . . . 173,148 138,345 113,206 --------- --------- --------- $ 260,315 $ 187,111 $ 154,301 ========= ========= ========= Net income (loss) : The Company . . . . . . . . . . . . . . . . . . $ 8,794 $ 11,187 $ (18,484) Pooled Entities . . . . . . . . . . . . . . . . 14,125 5,929 1,432 --------- --------- --------- $ 22,919 $ 17,116 $ (17,052) ========= ========= =========
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 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 from January 1, 1993 to December 31, 1995, have been accounted for under the purchase method of accounting. F-12 58 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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:
1995 1994 ---------- ---------- Revenue . . . . . . . . . . . . . . . . . . . . . . . $ 293,516 $ 235,114 ========== ========== Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . $ 38,058 $ 21,836 ========== ========== Net income from continuing operations . . . . . . . . $ 24,064 $ 16,642 ========== ========== Fully diluted earnings per common and common equivalent share from continuing operations . . . . $ 0.34 $ 0.31 ========== ========== Weighted average common and common equivalent shares . . . . . . . . . . . . . . . . 70,475 53,545 ========== ==========
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: 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 =========
In February 1996, the Company acquired all of the outstanding capital stock of certain electronic security companies known as Denver Burglar Alarm ("Denver Alarm"). Denver Alarm is the oldest independent electronic security alarm company in the United States and provides installation, monitoring and maintenance services to approximately 27,000 residential and commercial accounts throughout Colorado. In February 1996, the Company acquired Incendere, Inc. and certain waste companies (collectively, "Schaubach") controlled by Dwight C. Schaubach. Schaubach provides solid waste collection and recycling services to more than 11,000 residential, commercial, and industrial customers in southeastern Virginia and eastern North Carolina and provides transportation of medical waste throughout the Mid-Atlantic states for more than 7,000 customers. The Company issued an aggregate of 2,914,452 shares of Common Stock to acquire Schaubach and Denver Alarm, both of which will be accounted for as pooling of interests business combinations. F-13 59 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Company's unaudited pro forma consolidated results of operations, assuming the Denver Alarm and Schaubach mergers had been consummated as of December 31, 1995 are as follows:
Year Ended December 31, ---------------------------------------- 1995 1994 1993 --------- -------- --------- Revenue . . . . . . . . . . . . $295,165 $218,173 $ 182,495 ======== ======== ========= Net income (loss) . . . . . . . . . . $ 24,681 $ 19,533 $ (14,910) ======== ======== ========= Fully diluted earnings (loss) per common and common equivalent share . . . . $ .36 $ .40 $ (.31) ======== ======== =========
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 1,700,000 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. 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 all outstanding borrowings. Long-term debt and notes payable at December 31, 1994 consisted of the following: 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 6.0% to 12.9%, principal repaid in 1995 . . . . . . . . . . . . . . . . . . . 28,815 Other notes, secured by equipment and other assets, interest ranging from 4.0% to 16.93%, principal repaid in 1995 . . . . . . . . . . . . . . 6,615 --------- $ 48,030 Less current maturities . . . . . . . (10,035) --------- $ 37,995 =========
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 F-14 60 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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. The Company made interest payments of approximately $5,428,000, $4,152,000 and $2,422,000 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:
1995 1994 1993 -------- ------- --------- Current: Federal . . . . . . . . . . . . . . . . . . . $ 10,333 $ 3,973 $ 1,664 State . . . . . . . . . . . . . . . . . . . . 944 618 279 -------- ------- ------- 11,277 4,591 1,943 Federal deferred . . . . . . . . . . . . . . . . 4,587 2,453 (1,998) Tax reserve adjustments . . . . . . . . . . . . (2,392) (1,963) - Change in valuation allowance . . . . . . . . . - (1,242) 1,242 -------- ------- -------- Income tax provision . . . . . . . . . . . . . . $ 13,472 $ 3,839 $ 1,187 ======== ======= ========
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. F-15 61 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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:
1995 1994 1993 ---- ---- ---- Statutory federal income tax rate . . . . . . . 35.0% 34.0% 34.0% Amortization of goodwill . . . . . . . . . . . 1.3 .5 (11.6) State income taxes, net of federal benefit . . 2.4 3.0 (30.6) Tax reserve adjustments . . . . . . . . . . . . (2.3) (10.7) 24.9 Change in valuation allowance . . . . . . . . . - (6.2) (151.1) Other, net . . . . . . . . . . . . . . . . . . .3 0.4 42.1 ---- ----- ------ Effective tax rate . . . . . . . . . . . . . 36.7% 21.0% (92.3%) ==== ===== ======
Components of the net deferred income tax liability at December 31 are shown below:
1995 1994 ---- ---- Deferred income tax liabilities: Book basis in property over tax basis . . . . . . . . . $23,064 $22,930 Deferred costs . . . . . . . . . . . . . . . . . . . . 8,067 8,954 ------- ------- 31,131 31,884 ------- ------- 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 . . . . . . . . . . . (740) (1,187) ------- ------- (17,772) (20,374) ------- ------- Valuation allowance . . . . . . . . . . . . . . . . . . . . - - ------- ------- Net deferred income tax liability . . . . . . . . . . . . . $13,359 $11,510 ======= =======
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 8,350,000 shares of Common Stock and warrants to purchase an additional 16,700,000 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 $4.50 to $7.00 per share. In August 1995, the Company issued and sold an additional 1,000,000 shares of Common Stock each to Mr. Huizenga and John J. Melk (a Director of the Company) for $13.25 per share for aggregate proceeds of approximately $26,500,000. 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 F-16 62 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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. 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 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:
1995 1994 1993 --------- -------- -------- Options and warrants outstanding at beginning of year . . . . . . . . 3,393 3,197 7,427 Granted . . . . . . . . . . . . . . . . . 22,437 376 1,017 Exercised . . . . . . . . . . . . . . . . (1,402) - - Canceled . . . . . . . . . . . . . . . . (161) (180) (332) Expired . . . . . . . . . . . . . . . . . - - (4,915) ------- ------ ------ Options and warrants outstanding at end of year . . . . . . . . . . . . . 24,267 3,393 3,197 ======= ====== ====== Average price of options and warrants exercised . . . . . . . . . . . . . . $ 8.03 $ - $ - Average price of options and warrants outstanding at end of year . . . . . $ 9.54 $ 7.60 $ 7.97 Prices of options and warrants $ 2.50 to $ 2.50 to $ 2.50 to outstanding at end of year . . . . . $ 31.00 $14.50 $14.50 Vested options and warrants at end of year . . . . . . . . . . . . . . . . 19,519 1,828 1,400 Options available for future grants at end of year . . . . . . . . . . . . . 2,172 2,849 2,845
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 F-17 63 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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 is currently scheduled for trial in May 1996. 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, F-18 64 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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: 1996 . . . . . . . . . . . . . . . . . . . . . . . $ 1,769 1997 . . . . . . . . . . . . . . . . . . . . . . . $ 1,189 1998 . . . . . . . . . . . . . . . . . . . . . . . $ 659 1999 . . . . . . . . . . . . . . . . . . . . . . . $ 384 2000 . . . . . . . . . . . . . . . . . . . . . . . $ 119 Thereafter . . . . . . . . . . . . . . . . . . . . $ 94
Total rental expense incurred under operating leases was $3,990,000, $3,318,000 and $2,344,000 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. F-19 65 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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 :
1995 1994 1993 -------- -------- ------- Primary: Common shares outstanding . . . . . . . . . . . . . . 76,056 45,314 45,476 Common equivalent shares . . . . . . . . . . . . . . . 26,552 82 160 Weighted average treasury shares purchased . . . . . . (7,101) 149 - Effect of using weighted average common and common equivalent shares outstanding . . . . . . . . . . (33,150) - - ------- ------ ------ 62,357 45,545 45,636 ======= ====== ====== Fully diluted: Common shares outstanding . . . . . . . . . . . . . . 76,056 45,314 45,476 Common equivalent shares . . . . . . . . . . . . . . . 26,552 82 160 Weighted average treasury shares purchased . . . . . . (3,823) 149 - Effect of using weighted average common and common equivalent shares outstanding. . . . . . . . . . . (33,000) - - ------- ------ ------ 65,785 45,545 45,636 ======= ====== ======
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 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 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 F-20 66 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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:
1995 1994 1993 ---------- ---------- ---------- Revenue: Solid waste services . . . . . . . . . . . . . $ 226,815 $ 161,237 $ 133,711 Electronic security services . . . . . . . . . 33,500 25,874 20,590 --------- --------- --------- $ 260,315 $ 187,111 $ 154,301 ========= ========= ========= Operating income (loss): Solid waste services . . . . . . . . . . . . . $ 31,503 $ 22,661 $ 3,376 Electronic security services . . . . . . . . . 5,120 (1,157) (2,689) --------- --------- --------- $ 36,623 $ 21,504 $ 687 ========= ========= ========= Depreciation, depletion and amortization: Solid waste services . . . . . . . . . . . . . $ 16,162 $ 14,161 $ 12,229 Electronic security services . . . . . . . . . 4,837 3,969 2,206 --------- --------- --------- $ 20,999 $ 18,130 $ 14,435 ========= ========= ========= Capital expenditures and investment in subscriber accounts: Solid waste services . . . . . . . . . . . . . $ 47,561 $ 20,592 $ 11,104 Electronic security services . . . . . . . . . 17,304 18,137 10,574 --------- --------- --------- $ 64,865 $ 38,729 $ 21,678 ========= ========= ========= Assets: Solid waste services . . . . . . . . . . . . . $ 503,308 $ 193,079 $ 172,248 Electronic security services . . . . . . . . . 38,742 28,994 14,753 Net assets of discontinued operations . . . . . - 20,292 16,872 --------- --------- --------- $ 542,050 $ 242,365 $ 203,873 ========= ========= =========
F-21 67 REPUBLIC INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenue 1995 $ 54,481 $ 60,593 $ 70,133 $ 75,108 1994 $ 42,189 $ 46,483 $ 48,047 $ 50,392 Gross profit 1995 $ 19,203 $ 20,739 $ 21,460 $ 29,354 1994 $ 14,085 $ 14,771 $ 16,731 $ 17,647 Income from continuing 1995 $ 3,794 $ 3,917 $ 4,916 $ 10,585 operations 1994 $ 2,252 $ 3,681 $ 4,459 $ 4,040 Net income 1995 $ 4,302 $ 3,917 $ 4,916 $ 9,784 1994 $ 2,106 $ 4,508 $ 5,447 $ 5,055 Earnings per share from 1995 $ 0.08 $ 0.09 $ 0.07 $ 0.11 continuing operations 1994 $ 0.05 $ 0.08 $ 0.10 $ 0.09
F-22 68 REPUBLIC INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, ----------------------------- ASSETS 1995 1994 ---- ---- 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; 350,000,000 and 100,000,000 shares authorized, respectively; 78,970,935 and 48,228,167 issued, respectively . . . . . . . . . . . . . . . . . 789 482 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 403,773 109,784 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 ========== ==========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-23 69 REPUBLIC INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Year Ended December 31, --------------------------------------------- 1995 1994 1993 ---- ---- ---- 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 . . . . . . . . . . . . . . $ 0.35 $ 0.35 $ (0.01) Discontinued operations . . . . . . . . . . . . . - 0.05 (0.30) ----------- ---------- ---------- Net income (loss) . . . . . . . . . . . . . . . . $ 0.35 $ 0.40 $ (0.31) =========== ========== ========== Fully diluted earnings (loss) per common and common equivalent share: Continuing operations . . . . . . . . . . . . . . $ 0.34 $ 0.35 $ (0.01) Discontinued operations . . . . . . . . . . . . . - 0.05 (0.30) ----------- ---------- ---------- Net income (loss) . . . . . . . . . . . . . . . . $ 0.34 $ 0.40 $ (0.31) =========== ========== ==========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-24 70 REPUBLIC INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Notes Receivable Arising Retained From Additional Earnings Stock Common Paid-In (Accumulated Purchase Stock Capital Deficit) Agreements --------- ---------- -------------- ------------ BALANCE AT DECEMBER 31, 1992 . . . . . . $ 483 $ 103,838 $ 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 . . . . . . 483 107,326 (4,255) (673) Distributions to former stockholders of acquired companies . . . . . . . - - (9,671) - Other . . . . . . . . . . . . . . . . (1) 2,458 18 - Net income . . . . . . . . . . . . . . - - 19,533 - ------ ---------- ----------- -------- BALANCE AT DECEMBER 31, 1994 . . . . . . 482 109,784 5,625 (673) Sales of common stock . . . . . . . . 208 231,823 - - Stock issued in acquisitions . . . . 86 82,897 - - Exercise of stock options and - warrants, including tax benefit of $4,068 . . . . . . . . . . . . . 14 13,360 - 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 . . . . . $ 789 $ 403,773 $ 31,826 $ - ======= ========== =========== ========
The accompanying notes are an integral part of these suppplemental consolidated financial statements. F-25 71 REPUBLIC INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ------------------------------------------ 1995 1994 1993 ---- ---- ---- 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 ========= ======== ========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-26 72 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. Accordingly, as discussed in Note 9, this segment has been accounted for as a discontinued operation and the accompanying Supplemental Consolidated Financial Statements for 1994 and 1993 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 Supplemental 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 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; 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. 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. These transactions were accounted for under the pooling of interests method of accounting and, accordingly, the Consolidated Financial Statements have been previously restated as if the Company and Kertz, United, Southland, Duncan, GDS, Fennell and Scott had operated as one entity since inception. See Note 2 for further discussion of these transactions. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS. The accompanying Supplemental Consolidated Financial Statements also give retroactive effect to the mergers with The Denver Fire Reporter & Protective Co. and affiliate ("Denver Alarm") and Incendere, Inc. and affiliates ("Schaubach"), which took place in February 1996. These transactions were accounted for under the pooling of interests method of accounting. Denver Alarm, Schaubach, Kertz, United, Southland, Duncan, GDS, Fennell and Scott are collectively referred to as the "Pooled Entities." See Note 2 for further discussion of these transactions. 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. F-27 73 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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:
1995 1994 ---- ---- 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 ========= ========
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. 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. 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. F-28 74 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS-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 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 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 F-29 75 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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 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 the oldest independent electronic security alarm company in the United States and provides installation, monitoring and maintenance services to approximately 27,000 residential and commercial accounts throughout Colorado. Schaubach provides solid waste collection and recycling services to more than 11,000 residential, commercial, and industrial customers in southeastern Virginia and eastern North Carolina and provides transportation of medical waste throughout the Mid-Atlantic states for more than 7,000 customers. The Company issued an aggregate of 21,042,436 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 Supplemental Consolidated Financial Statements have been retroactively adjusted as if the Company and the Pooled Entities had operated as one entity since inception. These Supplemental Consolidated Financial Statements will be substantially the same as the restated statements that will be issued after post-merger operating results have been published. Details of the results of operations of the Company and the Pooled Entities for the periods prior to the combinations are as follows:
Year Ended December 31, --------------------------------------- 1995 1994 1993 --------- --------- --------- 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) ========= ========= =========
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 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 from January 1, 1993 to December 31, 1995, have been accounted for under the purchase method of accounting. F-30 76 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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:
1995 1994 ---------- ---------- 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 . . . . $ 0.33 $ 0.34 ========== ========== Weighted average common and common equivalent shares . . . . . . . . . . . . . . . . 73,390 56,460 ========== ==========
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: 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 =========
F-31 77 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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 1,700,000 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. 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:
1995 1994 --------- --------- 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 ========= =========
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 F-32 78 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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: 1996.......................................... $2,087 1997.......................................... 1,193 1998.......................................... 1,001 1999.......................................... 726 2000.......................................... 735 Thereafter.................................... 136 ------ $5,878 ======
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 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 for the years ended December 31 are shown below:
1995 1994 1993 -------- ------- ------- Current: Federal . . . . . . . . . . . . . . . . . . . $ 11,333 $ 5,270 $ 2,815 State . . . . . . . . . . . . . . . . . . . . 1,038 751 405 -------- ------- ------- 12,371 6,021 3,220 Federal deferred . . . . . . . . . . . . . . . . 6,187 2,482 (1,969) Tax reserve adjustments . . . . . . . . . . . . (2,392) (1,963) - Change in valuation allowance . . . . . . . . . - (1,242) 1,242 -------- ------- ------- Income tax provision . . . . . . . . . . . . . . $ 16,166 $ 5,298 $ 2,493 ======== ======= =======
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. F-33 79 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 for the years ended December 31 is shown below:
1995 1994 1993 ---- ---- ---- 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% ==== ==== =====
Components of the net deferred income tax liability at December 31 are shown below:
1995 1994 ---- ---- 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 ======= =======
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 8,350,000 shares of Common Stock and warrants to purchase an additional 16,700,000 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 $4.50 to $7.00 per share. In August 1995, the Company issued and sold an additional 1,000,000 shares of Common Stock each to Mr. Huizenga and John J. Melk (a Director of the Company) for $13.25 per share for aggregate proceeds of approximately $26,500,000. 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 F-34 80 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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. 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:
1995 1994 1993 --------- -------- -------- Options and warrants outstanding at beginning of year . . . . . . . . 3,393 3,197 7,427 Granted . . . . . . . . . . . . . . . . . 22,437 376 1,017 Exercised . . . . . . . . . . . . . . . . (1,402) - - Canceled . . . . . . . . . . . . . . . . (161) (180) (332) Expired . . . . . . . . . . . . . . . . . - - (4,915) ------- ------ ------ Options and warrants outstanding at end of year . . . . . . . . . . . . . 24,267 3,393 3,197 ======= ====== ====== Average price of options and warrants exercised . . . . . . . . . . . . . . $ 8.03 $ - $ - Average price of options and warrants outstanding at end of year . . . . . $ 9.54 $ 7.60 $ 7.97 Prices of options and warrants $ 2.50 to $ 2.50 to $ 2.50 to outstanding at end of year . . . . . $ 31.00 $14.50 $14.50 Vested options and warrants at end of year . . . . . . . . . . . . . . . . 19,519 1,828 1,400 Options available for future grants at end of year . . . . . . . . . . . . . 2,172 2,849 2,845
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 F-35 81 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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 is currently scheduled for trial in May 1996. 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, F-36 82 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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: 1996 . . . . . . . . . . . . . . . . . . . . . . . $ 1,940 1997 . . . . . . . . . . . . . . . . . . . . . . . $ 1,285 1998 . . . . . . . . . . . . . . . . . . . . . . . $ 733 1999 . . . . . . . . . . . . . . . . . . . . . . . $ 401 2000 . . . . . . . . . . . . . . . . . . . . . . . $ 119 Thereafter . . . . . . . . . . . . . . . . . . . . $ 94
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. F-37 83 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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 :
1995 1994 1993 -------- -------- ------- Primary: Common shares outstanding . . . . . . . . . . . . . . 78,971 48,229 48,391 Common equivalent shares . . . . . . . . . . . . . . . 26,552 82 160 Weighted average treasury shares purchased . . . . . . (7,101) 149 - Effect of using weighted average common and common equivalent shares outstanding . . . . . . . . . . (33,150) - - ------- ------ ------ 65,272 48,460 48,551 ======= ====== ====== Fully diluted: Common shares outstanding . . . . . . . . . . . . . . 78,971 48,229 48,391 Common equivalent shares . . . . . . . . . . . . . . . 26,552 82 160 Weighted average treasury shares purchased . . . . . . (3,823) 149 - Effect of using weighted average common and common equivalent shares outstanding. . . . . . . . . . . (33,000) - - ------- ------ ------ 68,700 48,460 48,551 ======= ====== ======
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 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 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 F-38 84 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 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:
1995 1994 1993 ---------- ---------- ---------- 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 ========= ========= =========
F-39 85 REPUBLIC INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is an analysis of certain items in the Supplemental Consolidated Statements of Operations by quarter for 1995 and 1994.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 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 $ 0.08 $ 0.09 $ 0.07 $ 0.11 continuing operations 1994 $ 0.06 $ 0.09 $ 0.11 $ 0.10
F-40 86 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 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 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-41 87 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. COMBINED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, JUNE 30, ------------------- 1995 1994 1993 ----------- ------- ------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash.................................................... $ 630 $ 538 $ 2,007 Accounts receivable, less allowance for doubtful accounts of $510 (unaudited), $330 and $220, respectively......................................... 5,765 5,371 4,400 Prepaid expenses and other.............................. 1,353 1,179 634 Deferred income taxes................................... 864 845 911 ----------- ------- ------- Total current assets............................ 8,612 7,933 7,952 PROPERTY AND EQUIPMENT, net............................... 18,589 14,088 11,405 INTANGIBLE ASSETS, net.................................... 2,679 2,557 2,669 OTHER ASSETS.............................................. 51 58 50 ----------- ------- ------- Total assets.................................... $29,931 $24,636 $22,076 =========== ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................ $ 2,725 $ 2,556 $ 2,170 Current portion of long-term debt....................... 3,596 2,736 3,263 Deferred revenue and other credits...................... 2,316 1,930 1,702 Accrued liabilities..................................... 4,294 3,243 3,291 Customer deposits....................................... 135 145 135 ----------- ------- ------- Total current liabilities....................... 13,066 10,610 10,561 DEFERRED INCOME TAXES..................................... 1,320 1,471 1,369 LONG-TERM DEBT, less current portion...................... 8,937 7,022 4,570 ----------- ------- ------- Total liabilities............................... 23,323 19,103 16,500 ----------- ------- ------- COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 10) STOCKHOLDERS' EQUITY: Capital stock........................................... -- -- -- Additional paid-in capital.............................. 73 73 73 Retained earnings....................................... 6,535 5,460 5,503 ----------- ------- ------- Total stockholders' equity...................... 6,608 5,533 5,576 ----------- ------- ------- Total liabilities and stockholders' equity...... $29,931 $24,636 $22,076 =========== ======= =======
The accompanying notes to combined financial statements are an integral part of these statements. F-42 88 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. COMBINED STATEMENTS OF INCOME (IN THOUSANDS)
FOR THE NINE MONTHS FOR THE YEAR ENDED JUNE 30, ENDED SEPTEMBER 30, ----------------- --------------------------- 1995 1994 1994 1993 1992 ------- ------- ------- ------- ------- (UNAUDITED) 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 ======= ======= ======= ======= =======
The accompanying notes to combined financial statements are an integral part of these statements. F-43 89 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
ADDITIONAL CAPITAL PAID-IN RETAINED STOCK CAPITAL EARNINGS ------- ---------- -------- 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 ====== ========= ========
The accompanying notes to combined financial statements are an integral part of these statements. F-44 90 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS FOR THE YEARS ENDED JUNE 30, ENDED SEPTEMBER 30, ----------------- --------------------------- 1995 1994 1994 1993 1992 ------- ------- ------- ------- ------- (UNAUDITED) 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
The accompanying notes to combined financial statements are an integral part of these statements. F-45 91 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: Vehicles...................................................... 5-7 years Containers and compactors..................................... 10 years Equipment..................................................... 5-7 years Leasehold improvements........................................ 5-7 years Buildings..................................................... 31.5-40 years
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-46 92 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):
USEFUL LIVES 1994 1993 ------------ ------ ------ 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 ====== ======
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-47 93 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):
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS ------ ---------- -------- 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 ======== ========= ========
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-48 94 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):
SEPTEMBER 30, --------------------- 1994 1993 -------- -------- 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 ======== ========
(3) LONG-TERM DEBT: Long-term debt consists of the following:
SEPTEMBER 30, ------------------- 1994 1993 ------- ------- (IN THOUSANDS) 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 ======= =======
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-49 95 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):
YEAR ENDING SEPTEMBER 30, ------------------------------------------------------------------ 1995............................................................ $2,736 1996............................................................ 1,936 1997............................................................ 2,102 1998............................................................ 2,197 1999............................................................ 787 ------ $9,758 ======
(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-50 96 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):
YEAR ENDING SEPTEMBER 30, ------------------------------------------------------------------ 1995............................................................ $ 436 1996............................................................ 304 1997............................................................ 304 1998............................................................ 304 1999............................................................ 91 Thereafter...................................................... 30 ------ $1,469 ======
(6) INCOME TAXES: The components of the income tax provision are as follows (in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------ 1994 1993 1992 ---- ------ ---- 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 ==== ====== ====
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:
YEAR ENDED SEPTEMBER 30, --------------------------------------------------------- ACTUAL PRO FORMA (UNAUDITED) --------------------------- ------------------------- 1994 1993 1992 1994 1993 1992 ------ ------ ----- ----- ----- ----- 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% ====== ====== ===== ===== ===== =====
F-51 97 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):
SEPTEMBER 30, ------------------- 1994 1993 ------- ------- 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) ======= =======
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-52 98 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:
SHARES SHARES ISSUED PAR AUTHORIZED AND OUTSTANDING VALUE AMOUNT ---------- --------------- ----- ------ Hudson Management Corporation..... 500 200 $ 1 $200 Envirocycle, Inc.................. 1,000 100 1 100 ------ $300 =======
(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-53 99 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Boards of Directors and Shareholder of The Denver Fire Reporter & Protective Co. and Guardian Security Services, Inc.: We have audited the accompanying combined balance sheet of The Denver Fire Reporter & Protective Co. and Guardian Security Services, Inc. (together, the "Denver Alarm Companies"; both Colorado corporations affiliated through common ownership) as of December 31, 1995, and the related combined statements of income and retained earnings and cash flows for the year then ended. These combined financial statements are the responsibility of the Denver Alarm 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 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 the Denver Alarm Companies as of December 31, 1995, 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, March 5, 1996. F-54 100 DENVER ALARM COMPANIES COMBINED BALANCE SHEET DECEMBER 31, 1995
ASSETS ------ CURRENT ASSETS: Cash................................................................................ $1,301,560 Accounts receivable, net of allowance for doubtful accounts of $97,966.............. 2,660,079 Inventories......................................................................... 589,137 Due from affiliates, net............................................................ 50,299 Other............................................................................... 61,782 ---------- Total current assets........................................................... 4,662,857 ---------- PROPERTY AND EQUIPMENT, net................................................................ 366,004 OTHER ASSETS............................................................................... 63,150 ---------- Total assets................................................................... $5,092,011 ========== LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable.................................................................... $ 278,971 Accrued expenses.................................................................... 693,836 Customer deposits................................................................... 63,949 Deferred revenue.................................................................... 1,810,587 ---------- Total current liabilities...................................................... 2,847,343 ---------- COMMITMENTS AND CONTINGENCIES (Note 5) SHAREHOLDER'S EQUITY (Note 4): Common stock........................................................................ 2,590 Additonal paid-in capital........................................................... 155,641 Retained earnings................................................................... 2,086,437 ---------- Total shareholder's equity..................................................... 2,244,668 ---------- Total liabilities and shareholder's equity..................................... $5,092,011 ==========
The accompanying notes to combined financial statements are an integral part of this statement. F-55 101 DENVER ALARM COMPANIES COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1995 INSTALLATION, MONITORING AND SERVICE REVENUE................................................. $16,325,866 INSTALLATION, MONITORING AND SERVICE COST OF SALES........................................... 8,748,267 ---------- Gross margin......................................................................... 7,577,599 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................................. 4,443,145 ---------- Income from operations................................................................ 3,134,454 ---------- INTEREST INCOME.............................................................................. 57,778 ---------- Net income............................................................................ 3,192,232 RETAINED EARNINGS, beginning of year......................................................... 2,979,205 Less: Distributions to shareholder.................................................... 4,085,000 ---------- RETAINED EARNINGS, end of year............................................................... $2,086,437 ========== UNAUDITED PRO FORMA ADJUSTMENT TO REFLECT INCOME TAX PROVISION ON S-CORPORATION EARNINGS (Note 1)......................................... $1,276,893 ---------- Unaudited pro forma net income (Note 1)............................................... $1,915,339 ==========
The accompanying notes to combined financial statements are an integral part of this statement. F-56 102 DENVER ALARM COMPANIES COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................................ $ 3,192,232 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................... 108,911 Provision for doubtful accounts................................................. 92,330 Changes in assets and liabilities- Increase in accounts receivable.............................................. (74,849) Increase in inventories...................................................... (28,848) Decrease in due from affiliates.............................................. 547,071 Decrease in other assets..................................................... 41,484 Increase in accounts payable and accrued expenses............................ 364,831 Decrease in customer deposits................................................ (7,343) Increase in deferred revenue................................................. 173,744 ----------- Net cash provided by operating activities............................. 4,409,563 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment............................................... (155,168) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to shareholder...................................................... (4,085,000) ----------- NET INCREASE IN CASH................................................................... 169,395 CASH AT BEGINNING OF YEAR.............................................................. 1,132,165 ----------- CASH AT END OF YEAR.................................................................... $ 1,301,560 ===========
The accompanying notes to combined financial statements are an integral part of this statement. F-57 103 DENVER ALARM COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) Business and Nature of Operations- The accompanying combined financial statements include the accounts of the Denver Fire Reporter & Protective Co. and Guardian Security Services, Inc. (together, the "Companies"), which are affiliated through common ownership. The Companies install commercial and residential security systems, access control systems and fire alarm systems and provide monitoring services primarily in the Denver, Colorado Springs and Fort Collins, Colorado metropolitan areas. (b) Principles of Combination- All material intercompany transactions between the Companies have been eliminated. (c) Revenue Recognition- Installation, monitoring and service revenue under the monitoring agreements are recognized as earned over the life of the contract. (d) 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. (e) Inventories- Inventories consist primarily of parts used in installation and servicing. Inventories are stated at the lower of cost (first-in, first-out method) or market. (f) 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: Buildings and improvements....................... 10-15 years Computers and office equipment................... 5 years Vehicles......................................... 5 years Furniture and fixtures........................... 7 years
Repair and maintenance costs are expensed as incurred. Depreciation and amortization expense on property and equipment totaled $108,911 in 1995. F-58 104 DENVER ALARM COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (g) Income Taxes- The Companies have elected S-Corporation status 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 shareholder. The unaudited pro forma adjustment to reflect income taxes on S-Corporation earnings included in the accompanying combined statement of income and retained earnings 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. (h) Use of Estimates- The preparation of these financial statements required the use of certain estimates by management in determining the Companies' assets, liabilities, revenue and expenses. (2) PROPERTY AND EQUIPMENT, net: Property and equipment, net, as of December 31, 1995, consist of the following: Vehicles........................................................ $1,020,457 Computers and equipment......................................... 703,073 Furniture and fixtures.......................................... 776,392 Buildings....................................................... 138,531 Building improvements........................................... 368,408 ------- 3,006,861 Less: Accumulated depreciation and amortization................ (2,640,857) ---------- $ 366,004 ==========
(3) 401(k) SAVINGS PLAN: The Companies sponsor a 401(k) defined contribution savings plan, whereby employees may elect to make tax deferred contributions upon meeting certain age and length-of-service requirements. Substantially all employees are eligible to participate. The plan provides for an annual, discretionary employer contribution which totaled $30,000 in 1995. (4) SHAREHOLDER'S EQUITY: Common stock consists of the following authorized, issued and outstanding shares as of December 31, 1995:
Shares Issued Shares and Company Authorized Outstanding Par Value Amount ------- ---------- ------------- --------- ------ The Denver Fire Reporter & Protective Co. ......... 50,000 1,490 $1.00 $1,490 Guardian Security Systems, Inc. ................... 1,000,000 1,100 1.00 1,100 --------- ----- ------ 1,050,000 2,590 $2,590 ========= ===== ======
F-59 105 DENVER ALARM COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (5) RELATED PARTY TRANSACTIONS: The Companies leased certain properties for their operations in Denver and Fort Collins from the Companies' shareholder and certain related parties. Rent expense under these lease agreements totaled approximately $280,000 in 1995. The Companies continue to rent office and warehouse space from the shareholder and certain related parties. Such rentals include monthly lease payments of $2,303 for one facility, subject to annual renewal, and a month-to-month payment of $1,000 for another facility. The Company also utilizes space in two other facilities owned by the Companies' shareholder. There is no formal lease agreement or monthly payment for utilization of this space of approximately 7,300 square feet; however, the Companies paid repair and maintenance costs which totaled $8,518 in 1995. (6) SUBSEQUENT EVENTS: On February 27, 1996, 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 1,631,752 shares of Republic common stock. In connection with the merger, the Companies' shareholder contributed a building valued at $1,250,000 to the Companies. The building is utilized as office space for the Companies' principal operations. Rent expense on this building in 1995 totaled approximately $240,000. F-60 106 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders of Area Container Services, Inc., Incendere, Inc. and Smithton Sanitation Service, Inc.: We have audited the accompanying combined balance sheet of Area Container Services, Inc., Incendere, Inc. and Smithton Sanitation Service, Inc. (collectively, the "Schaubach Companies") as of December 31, 1995, and the related combined statements of operations, stockholders' equity (deficit) and cash flows for the year then ended. These combined financial statements are the responsibility of the Schaubach 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 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 the Schaubach Companies as of December 31, 1995, 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, February 9, 1996 (Except with respect to the matter discussed in Note 11, as to which the date is February 29, 1996). F-61 107 THE SCHAUBACH COMPANIES COMBINED BALANCE SHEET AS OF DECEMBER 31, 1995 (IN THOUSANDS)
ASSETS ------ CURRENT ASSETS: Cash .................................................................................... $ 193 Accounts receivable, less allowance for doubtful accounts of $615........................ 2,348 Due from affiliates...................................................................... 26 Inventories.............................................................................. 99 Prepaid expenses......................................................................... 178 -------- Total current assets................................................................ 2,844 PROPERTY AND EQUIPMENT, net.................................................................. 7,107 INTANGIBLE ASSETS, net....................................................................... 865 OTHER ASSETS................................................................................. 96 -------- Total assets........................................................................ $ 10,912 ======== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES: Accounts payable......................................................................... $ 1,969 Short-term notes payable................................................................. 502 Current portion of long-term debt........................................................ 2,087 Accrued liabilities...................................................................... 1,965 Deferred revenue......................................................................... 212 -------- Total current liabilities........................................................... 6,735 LONG-TERM DEBT, less current portion......................................................... 4,734 -------- Total liabilities................................................................... 11,469 -------- COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6, 7 and 10) STOCKHOLDERS' DEFICIT: Commmon stock ........................................................................... 13 Additional paid-in capital............................................................... 120 Accumulated deficit...................................................................... (690) -------- Total stockholders' deficit......................................................... (557) -------- Total liabilities and stockholders' deficit......................................... $ 10,912 ========
The accompanying notes to combined financial statements are an integral part of this statement. F-62 108 THE SCHAUBACH COMPANIES COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS) REVENUE.................................................................................... $ 18,524 COST OF OPERATIONS......................................................................... 13,906 -------- GROSS PROFIT............................................................................... 4,618 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................................... 4,434 -------- INCOME FROM OPERATIONS..................................................................... 184 INTEREST EXPENSE........................................................................... (487) OTHER EXPENSE, net......................................................................... (33) -------- NET LOSS................................................................................... $ (336) ========
The accompanying notes to combined financial statements are an integral part of this statement. F-63 109 THE SCHAUBACH COMPANIES COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
Retained Additional Earnings Common Paid-In (Accumulated Stock Capital Deficit) ------- ---------- -------- BALANCE, beginning of year.................................... $ 13 $ 123 $ 2,160 Net loss.................................................. - - (336) Stockholder distributions................................. - - (669) Stock redemption (Note 10)................................ - (3) (1,845) ---- ----- ------- BALANCE, end of year.......................................... $ 13 $ 120 $ (690) ==== ===== =======
The accompanying notes to combined financial statements are an integral part of this statement. F-64 110 THE SCHAUBACH COMPANIES COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................................................... $ (336) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization......................................................... 1,565 Provision for doubtful accounts....................................................... 209 Loss on sale of fixed assets.......................................................... 36 Loss from equity investments.......................................................... 15 Changes in assets and liabilities: Accounts receivable................................................................. (997) Inventories......................................................................... 94 Prepaid expenses.................................................................... 3 Accounts payable and accrued liabilities............................................ 1,721 -------- Net cash provided by operating activities.................................... 2,310 -------- NET ASSETS SPUN OFF INTO AWI (NOTE 10)........................................................ (87) -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment......................................................... (3,901) Proceeds from the sale of equipment........................................................ 26 Loans to affiliates and others............................................................. (6) Purchase of intangibles and other assets................................................... (342) Proceeds from the sale of equity securities................................................ 130 -------- Net cash used in investing activities........................................ (4,093) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of notes payable from unrelated parties......................................... (2,041) Proceeds of notes payable from unrelated parties........................................... 3,804 Repayments of loans from stockholders and affiliates....................................... (1,282) Proceeds of loans from stockholders and affiliates......................................... 1,482 Distributions to stockholders.............................................................. (270) -------- Net cash provided by financing activities.................................... 1,693 -------- DECREASE IN CASH AND CASH EQUIVALENTS......................................................... (177) CASH AND CASH EQUIVALENTS, beginning of year.................................................. 370 -------- CASH AND CASH EQUIVALENTS, end of year........................................................ $ 193 ======== SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR: Interest................................................................................... $ 466
The accompanying notes to combined financial statements are an integral part of this statement. F-65 111 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (1) NATURE OF OPERATIONS: Incendere, Inc. ("Incendere"), a Virginia Subchapter S corporation, was primarily engaged in the transportation and destruction of regulated medical waste until October 31, 1995 at which time the company reorganized its medical waste destruction business into a separate company. See Note 10. Area Container Services, Inc. ("Area"), a Virginia Subchapter S corporation and Smithton Sanitation Service, Inc. ("Smithton") a North Carolina Subchapter S corporation, provide solid waste collection and recycling services to governmental, commercial, industrial and residential customers. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Combination- The combined financial statements include the accounts of Area, Incendere and Smithton (together, the "Schaubach Companies" or the "Companies"), which are affiliated through common ownership. All material intercompany transactions between the Companies have been eliminated. The accounts of Smithton have been combined on the basis of a fiscal year ended October 31, 1995. Revenue Recognition- Collection services may be billed up to three months in advance. Revenue on such advance billings is deferred until services are performed. Such amounts are included in deferred revenue in the accompanying combined balance sheet. Inventories- Inventories consist of boxes, containers and packaging supplies sold to the customers of Incendere in connection with medical waste disposal. These inventories are valued at the lower of cost (first-in, first-out method) or market. Property and Equipment- The Companies provide for depreciation using the straight-line method over the following estimated useful lives: Vehicles................................................. 3-8 years Containers............................................... 5-10 years Furniture, fixtures and equipment........................ 2-15 years Buildings and leasehold improvements..................... 2-20 years
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 year was $1,478,000. F-66 112 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 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 contracts and royalty agreements obtained as part of businesses acquired, and noncompete and consulting agreements obtained from former owners and management of businesses acquired. Intangible assets are amortized using the straight-line method over their estimated useful lives and are comprised of the following (in thousands):
Useful Lives Cost Goodwill............................................ 40 years $ 351 Contracts........................................... 10 years 105 Royalty agreements.................................. 2 years 67 Noncompete and consulting agreements................ 1-10 years 547 ------- 1,070 Less accumulated amortization (205) ------- $ 865 =======
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. Amortization expense for intangible assets in the combined statement of operations was approximately $87,000. Accrued Liabilities- The Companies accrue estimated insurance claims for the self-funded portion of their health and dental insurance plans. Insurance claim reserves of $57,800 are included in accrued liabilities. The Companies accrue environmental and transfer station renovation and closure costs to be incurred due to local zoning law changes, for required transfer station monitoring and maintenance costs and for final closure costs of transfer station sites. The Company estimates its future cost requirements based on its interpretation of the local zoning laws and of the technical standards of the United States Environmental Protection Agency's regulations. These estimates do not take into account discounts for the present value of such total estimated costs. Environmental reserves of $300,000 are included in accrued liabilities. F-67 113 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) The Companies accrue dividends to shareholders based on shareholder agreements which provide for the distribution of dividends in an amount sufficient to cover personal federal and state income taxes resulting from the pass through of corporate taxable income. Unpaid declared dividends of $550,000 are included in accrued liabilities. Income Taxes- The Companies have elected S-corporation status for income tax reporting purposes. Therefore, 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 the Companies. Therefore no provision or liability for federal and state income taxes has been included in the combined financial statements. Upon closing of the merger transactions described in Note 11, the 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. (3) PROPERTY AND EQUIPMENT: A summary of property and equipment is shown below (in thousands): Land............................................................................... $ 74 Buildings and leasehold improvements............................................... 553 Automotive equipment............................................................... 5,944 Containers......................................................................... 2,858 Furniture and fixtures............................................................. 340 Machinery and equipment............................................................ 1,581 ------- 11,350 Less accumulated depreciation and amortization............................. (4,243) ------- $ 7,107 =======
F-68 114 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (4) LONG-TERM DEBT: Long-term debt consists of the following (in thousands): Notes payable to banks, variable and fixed interest rates, variable interest rates adjust based on fluctuations in the banks' prime lending rate (8.75% at December 31, 1995), fixed interest rates ranging from 7.24% to 13% due 1996-2001, collateralized substantially by property and equipment and other assets, and the personal guarantees of stockholders.......................................................................... $ 4,590 Notes payable to a former stockholder of Smithton payable monthly with interest rates of 7.43% and 8%, due 1996-2005. Collateralized by the outstanding shares of Smithton and limited guarantee of the stockholders of Smithton........................................ 545 Covenant not to compete agreement payable to a former stockholder of Smithton, unsecured and non-interest bearing agreement due 1996-2005......................................... 398 Notes payable to stockholders, unsecured, non-interest bearing and interest bearing with interest rates of 8.25% and 9.00% ....................................................... 797 Notes and loans payable to companies affiliated by the common ownership of a stockholder, unsecured, non-interest bearing and interest bearing with interest rates of prime (8.75% at December 31, 1995) plus 1% and 8.5% ....................................... 491 ------- 6,821 Less current portion of long-term debt..................................................... (2,087) ------- $ 4,734 =======
The Companies have two commercial borrowing notes with a bank. The notes are due on demand, with interest payable monthly at the bank's prime rate (8.75% at December 31, 1995) on one note and at the bank's prime rate plus .25% on the other. Total borrowings on these notes amounted to $434,000 at December 31, 1995 with $800,000 still available to the Companies. The Companies also have a $100,000 working capital line of credit, of which approximately $68,000 was outstanding at December 31, 1995. Interest is at prime (8.75% at December 31, 1995) plus 1%. The weighted average interest rate on the above amounts was 8.87% at December 31, 1995. The notes are collateralized by accounts receivable and various equipment. F-69 115 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) In January, 1996, Area obtained an additional one year line of credit totaling $750,000 of which the company borrowed $566,000. Future debt principal payments in the aggregate are approximately as follows as of December 31, 1995 (in thousands): 1996....................................... $2,087 1997....................................... 1,307 1998....................................... 1,128 1999....................................... 867 2000....................................... 776 Thereafter................................. 656 ------- $6,821 ======
(5) RELATED PARTY TRANSACTIONS: The Companies lease various office, garage and shop space and land for a transfer station from a stockholder and a limited partnership principally owned by the stockholder. The operating leases expire at various dates through January 1997 and provide for monthly rentals of approximately $30,000. During the year, there were funds advanced to and received from a stockholder and affiliated companies owned principally by the stockholder. At December 31, 1995, there were notes payable to such stockholder and his affiliated companies totaling $1,288,000 (see Note 4). The Companies have utilized the personal guarantee of a stockholder as additional collateral on a significant portion of their debt (see Note 4). The Companies have utilized the management services of an affiliated company owned principally by a stockholder of the Companies. Total expense incurred during the year presented in the accompanying combined financial statements was $31,700 of which $16,200 was payable at the balance sheet date. (6) LEASES: In addition to the related party leases discussed above, the Companies lease corporate office space and various local residential refuse convenience drop-off centers at approximately $22,250 per month. The approximate future minimum lease payments (including related party leases and the lease renewal described above) are as follows (in thousands): 1996....................................... $ 171 1997....................................... 96 1998....................................... 74 1999....................................... 17 2000....................................... - Thereafter................................. - ----- $ 358 =====
F-70 116 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (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 1998 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 $120 per employee each month to a third party administrator. This payment is used to purchase stop loss health insurance coverage for employees participating in the plan. The stop loss provision on the plan is $20,000, per individual, per year. Reserves are estimated for both reported and unreported claims using the past years' claims experience of the Companies. Revisions to estimated reserves are recorded in the period in which they become known. The estimated reserve of $107,000 represents management's best estimate, and management's opinion is that any future adjustments to estimated reserves will not have a material impact on the combined financial statements. In the normal course of business, the Companies have letters of credit and 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 $185,000 at December 31, 1995. 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. F-71 117 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (8) 401(k) SAVINGS PLAN: Employees of the Companies may participate in a 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. The Companies provide an employer matching contribution as defined by the plan. Contributions by the Companies and plan expenses totaled $115,000 for the year. (9) STOCKHOLDERS' EQUITY: Common stock consists of the following authorized, issued and outstanding shares as of December 31, 1995:
Additional Shares Common Paid-In Shares Issued and Stock Capital Authorized Outstanding (In thousands) (In thousands) ---------- ----------- -------------- ---------- Area........................................ 1,000 500 $ 13 $ 114 Incendere-Voting............................ 5,000 10 - - Incendere-Nonvoting......................... 50,000 100 - 6 Smithton.................................... 100,000 100 - - -------- --------- $ 13 $ 120 ======== =========
(10) REORGANIZATION: In July 1995, the shareholders of Incendere agreed to reorganize into two separate companies: A medical and infectious waste destruction and incineration company and a medical and infectious waste collection and transport company. In accordance with the Agreement and Plan of Reorganization and Corporate Separation dated September 26, 1995 (the "Reorganization Plan") effective October 31, 1995, Incendere contributed certain assets and liabilities specified in the Reorganization Plan to American Waste Industries, Inc. ("AWI"), a newly formed subsidiary, in exchange for the capital stock of AWI. Simultaneously, Incendere redeemed 10 shares of voting common stock and 100 shares of nonvoting common stock owned by a former shareholder of Incendere in exchange for the capital stock of AWI. The Reorganization Plan also specified that certain assets and liabilities be retained by Incendere and that the F-72 118 THE SCHAUBACH COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) remaining assets and liabilities be classified as unallocated and liquidated by Incendere. As required by the Reorganization Plan, the net proceeds collected by Incendere on the unallocated assets were used to pay unallocated liabilities, $100,000 to AWI and $100,000 to Incendere. The remaining proceeds are to be used for an "Equalization Payment", as defined, to Incendere such that the book value of net assets retained by Incendere equals the book value of net assets transferred to AWI less $75,000, which was paid to AWI at closing. Any excess proceeds would then be divided equally between Incendere and AWI. Any future equalization payment is not expected to have a material effect on the combined financial statements. Additionally, Incendere entered into a medical waste incineration agreement dated November 8, 1995 with AWI whereby minimum weekly payments of $25,315, $20,712 and $13,808 are required for contract years ending through 2005, 2006 and 2007, respectively. For the year ended December 31, 1995, incineration expense incurred under the medical waste incineration agreement totaled $382,000. Incendere also entered into an agreement with the former chief operating officer for the payment of $5,000 per month for 60 months for prior and future consulting services. The total $300,000 payable under the agreement was recorded as an expense of the current year as the value of future services to be provided under this agreement are not expected to be significant. Incendere has entered into a ten year noncompete agreement. (11) SUBSEQUENT EVENT: On February 15, 1996, the Companies entered into reorganization agreements with Republic Industries, Inc. ("Republic") whereby Republic would acquire all of the outstanding capital stock of the Companies for approximately 1.3 million shares of Republic common stock. The mergers were consummated on February 29, 1996. F-73 119 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENT REPUBLIC INDUSTRIES, INC., AND SUBSIDIARIES AND HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. The following Unaudited Condensed Consolidated Pro Forma Financial Statement includes the supplemental consolidated financial statements of Republic Industries, Inc. and subsidiaries (the "Company") which include the results of operations of the Denver Fire Reporter & Protective Co. and Affiliate ("Denver Alarm") and Incendere, Inc. and Affiliates ("Incendere") with which the Company merged in February 1996. 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, Denver Alarm and Incendere had operated as one entity since inception. The following Unaudited Condensed Consolidated Pro Forma Statement of Operations for the year ended December 31, 1995, presents the pro forma results of continuing operations of the Company as if the acquisition of Hudson Management Corporation and subsidiaries and Envirocycle Inc. (together, "HMC") had been consummated at the beginning of the period presented. The statement of operations also contains pro forma 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 period presented. This unaudited pro forma condensed consolidated financial statement should be read in conjunction with the respective historical and supplemental consolidated financial statements and notes thereto of the Company, HMC, Denver Alarm and Incendere. 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. In computing the unaudited pro forma income from continuing operations per common and common equivalent share, the Company utilizes the modified treasury stock method. The Unaudited Condensed Consolidated Pro Forma Financial Statement was 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-74 120 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, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS THE ------------------ COMPANY HMC COMBINED DR. CR. PRO FORMA -------- ------- -------- ------ ------ --------- Revenue............................ $295,165 $33,201 $328,366 $ 328,366 Expenses: Cost of operations............... 192,213 21,772 213,985 $1,004(a) $ 289(b) 214,700 Selling, general and administrative................ 63,010 9,298 72,308 447(c) 71,861 Other (income) expense: Interest and other income........ (5,715) -- (5,715) (5,715) Interest expense................. 6,117 489 6,606 6,606(d) -- -------- ------- -------- ------ ------ --------- 255,625 31,559 287,184 1,004 7,342 280,846 -------- ------- -------- ------ ------ --------- Income from continuing operations before income taxes.............. 39,540 1,642 41,182 1,004 7,342 47,520 Income tax provision............... 16,166 657 16,823 2,376(e) 19,199 -------- ------- -------- ------ ------ --------- Income from continuing operations....................... $ 23,374 $ 985 $ 24,359 $3,380 $7,342 $ 28,321 ======== ======= ======== ====== ====== ======== Primary: Earnings per share from continuing operations......... $ 0.35 $ 0.35 ======== ======== Weighted average common and common equivalent shares outstanding................... 65,272 82,010 ======== ======== Fully Diluted: Earnings per share from continuing operations......... $ 0.34 $ 0.32 ======== ======== Weighted average common and common equivalent shares outstanding................... 68,700 87,656 ======== ========
The accompanying notes are an integral part of this pro forma financial statement. F-75 121 REPUBLIC INDUSTRIES, INC., AND SUBSIDIARIES AND HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENT (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-76 122 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. 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 =======
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 March 1, 1996, in connection with the merger of A.J. Panzarella and Co., Inc. ("Panzarella"), the Company issued 332,792 shares of Common Stock to the sole shareholder of Panzarella in exchange for all of the issued and outstanding capital stock of Panzarella. On February 29, 1996, in connection with the merger of Schaubach, the Company issued 1,282,700 shares of Common Stock to the shareholders of Schaubach in exchange for all of the issued and outstanding capital stock of Schaubach. On February 27, 1996, in connection with the merger of Denver Alarm, the Company issued 1,631,752 shares of Common Stock to the sole shareholder of Denver Alarm in exchange for all of the issued and outstanding capital stock of Denver Alarm. 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-1 123 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 Report of Independent Certified Public Accountants on Schdeule....................... II-3 Schedule II -- Valuation and Qualifying Accounts and Reserves......................... II-4
II-2 124 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 of Republic Industries, Inc. included in this Registration Statement and have issued our report thereon dated April 5, 1996. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in Item 16(b) hereof is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, April 5, 1996. II-3 125 REPUBLIC INDUSTRIES, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES SCHEDULE II (IN THOUSANDS) =============================================================================
Balance Balance at Additions Accounts at End Beginning Charged to Written of Classifications of Year Income Off Other(1) Year --------------- -------------- ------------- ---------- -------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1995 . . . . . . . . . . $ 1,055 $ 1,204 $ (1,034) $ 621 $ 1,846 1994 . . . . . . . . . . $ 1,016 $ 721 $ (686) $ 4 $ 1,055 1993 . . . . . . . . . . $ 904 $ 811 $ (782) $ 83 $ 1,016
- --------- (1) Allowance of acquired businesses. II-4 126 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-5 127 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 April 5, 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.
SIGNATURE TITLE DATE - --------------------------------------------- ----------------------------- ------------------ * Chairman of the Board and April 5, 1996 - --------------------------------------------- Chief Executive Officer H. Wayne Huizenga (Principal Executive Officer) * President and Director April 5, 1996 - --------------------------------------------- Harris W. Hudson /s/ Gregory K. Fairbanks Executive Vice President and April 5, 1996 - --------------------------------------------- Chief Financial Officer Gregory K. Fairbanks (Principal Financial Officer) /s/ Michael R. Carpenter Vice President and Controller April 5, 1996 - --------------------------------------------- (Principal Accounting Michael R. Carpenter Officer) * Vice Chairman of the Board April 5, 1996 - --------------------------------------------- Michael G. DeGroote * Director April 5, 1996 - --------------------------------------------- J.P. Bryan * Director April 5, 1996 - --------------------------------------------- Rick L. Burdick * Director April 5, 1996 - --------------------------------------------- John J. Melk /s/ George D. Johnson, Jr. Director April 5, 1996 - --------------------------------------------- George D. Johnson, Jr. *By: /s/ Gregory K. Fairbanks ---------------------------------------- Gregory K. Fairbanks Attorney-in-Fact
II-6 128 EXHIBIT INDEX Exhibit No. Description of Exhibit - ------- ---------------------- 2.1 Agreement and Plan of Merger and Reorganization, dated May 30, 1991, by and between Republic Waste Industries, Inc., an Oklahoma corporation, and Republic Waste Industries, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 3.1 First Amended and Restated Certificate of Incorporation of Republic Waste Industries, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-3, No. 33-62489 and to Exhibit 3.2 to the Registrant's Registration Statement on Form S-3, No. 33-65289). 3.2 Bylaws of Republic Industries, Inc., as amended to date (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995). 5.1** Opinion of Akerman, Senterfitt & Eidson, P.A. as to the validity of the Shares. 10.1 Republic Waste Industries, Inc. 1990 Stock Option and Stock Purchase Plan (incorporated by reference to Exhibit 10.1(a) to the Registrant's Registration Statement on Form S-1, No. 33-37191). 10.2 Form of Stock Option Agreement (incorporated by reference to Exhibit 10.1(b) to the Registrant's Registration Statement on Form S-1, No. 33-37191). 10.3 Letter Agreement, dated March 18, 1991, by and among MGD Holdings Ltd., Republic Waste Industries, Inc., Tom J. Fatjo, Jr., Republic Investors, Ltd., Investors, Inc., Robert Alpert, First Financial Environmental Investors, Pete Boyas, James D. Lee, Richard K. Reiling, William M. DeArman, Frank C. Payton, David C. Payton and Richard Morton. (incorporated by reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 10.4 Warrant to Purchase 1,150,000 Shares of Republic Waste Industries, Inc. Common Stock issued to MGD Holdings Ltd. (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1, No. 33-42530). 10.5 Stock Exchange Agreement between Republic Waste Industries, Inc. and MGD Holdings Ltd. (incorporated by reference to Exhibit 10.22 to the Registrant's Registration Statement on Form S-1, No. 33-42530). 10.6 Republic Waste Industries, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.42 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.7 Form of Stock Option Agreement (incorporated by reference to Exhibit 10.43 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.8 Form of Warrant to purchase 300,000 shares of Republic Waste Industries, Inc. Common Stock, issued to Donald E. Koogler (incorporated by reference to Exhibit 10.54 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.9 Agreement of Settlement and Mutual Release by and among Republic Waste Industries, Inc. and Michael G. DeGroote, Donald E. Koogler, Gary W. DeGroote, Kevin J. Comeau, Rick L. Burdick, Douglas R. Gowland, Lance R. Ruud, August C. Schultes, III, Mark S. Alsentzer, Gary J. Ziegler, Eugene J. Kerins, Edward A. Schultes, Richard J. Schultes, Peter Schultes, Barbara Schultes ITF Elizabeth Schultes (Minor), Barbara Schultes ITF Deborah Schultes (Minor) and August C. Schultes, IV, dated as of January 29, 1994 (incorporated by reference to Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993). II-7 129 10.10 Form of Warrant to purchase 100,000 shares of Republic Waste Industries, Inc. Common Stock issued to MGD Holdings Ltd. (incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 10.11 Form of Warrant to purchase 50,000 shares of Republic Waste Industries, Inc. Common Stock issued to J.P. Bryan (incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 10.12 Form of Warrant to purchase 50,000 shares of Republic Waste Industries, Inc. Common Stock issued to Rick L. Burdick (incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 10.13 Distribution Agreement, dated February 14, 1995, by and between Republic Waste Industries, Inc. and Republic Environmental Systems, Inc. (incorporated by reference to Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 10.14 Stock Purchase Agreement, dated May 21, 1995, by and between H. Wayne Huizenga and Republic Waste Industries, Inc. (incorporated by reference to Exhibit (c)(1) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.15 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 to Exhibit (c)(2) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.16 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 to Exhibit (c)(3) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.17 Stock Purchase Agreement, dated May 21, 1995, by and between Harris W. Hudson and Republic Waste Industries, Inc. (incorporated by reference to Exhibit (c)(4) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.18 Stock Purchase Agreement, dated May 21, 1995, by and between Westbury (Bermuda) Ltd. and Republic Waste Industries, Inc. (incorporated by reference to Exhibit (c)(5) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.19 Proxy, dated as of May 21, 1995, by MGD Holdings Ltd., in favor of H. Wayne Huizenga (incorporated by reference to Exhibit (c)(6) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.20 Stockholder Stock Option Agreement, dated as of May 21, 1995, by MGD Holdings Ltd., in favor of H. Wayne Huizenga (incorporated by reference to Exhibit (c)(7) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.21 First Amendment to Stock Purchase Agreement, dated July 17, 1995, by and between Republic Waste Industries, Inc. and H. Wayne Huizenga (incorporated by reference to Exhibit (c)(8) to the Registrant's Current Report on Form 8-K/A, dated July 17, 1995). 10.22 Republic Waste Industries, Inc. 1995 Employee Stock Option Plan (incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form S-1, No. 33-63209). 10.23 Republic Waste Industries, Inc. 1995 Non-employee Director Stock Option Plan (incorporated by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-1, No. 33-63209). II-8 130 10.24 Merger Agreement, dated August 24, 1995, by and 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 to Exhibit (c)(1) to the Registrant's Current Report on Form 8-K, dated August 24, 1995). 10.25 Merger Agreement, dated as of August 24, 1995, by and among Republic Waste Industries, Inc., RKSA, Inc., RKSA II, Inc., Kertz Security Systems, Inc., Kertz Security System II, Inc., Leon W. Brauser, Michael Brauser, Robert Brauser and Joel Brauser (incorporated by reference to Exhibit (c)(2.1) to the Registrant's Current Report on Form 8-K, dated August 28, 1995). 10.26 First Amendment to Merger Agreement, dated as of October 17, 1995, to the Merger Agreement, dated August 24, 1995, by and 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 to Exhibit 2.2 to the Registrant's Current Report on Form 8-K, dated October 17, 1995). 10.27 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 to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, dated October 31, 1995). 10.28 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/WestTex Inc., RWI Pantego I Inc., RWI/Pantego 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., Robert C. Duncan, Janette T. Duncan, Dan R. Duncan, Debra A. Duncan, DeeDee Duncan Elliot, George Martin Duncan, Melinda Duncan Vince and Robert C. Duncan as Trustee of the Robert C. Duncan Annuity Trusts Nos. One, Two, Three and Four (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K, dated October 31, 1995). 10.29 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., RI Investment Co., Inc., Fennell Waste Systems, Inc., Fennell Container Co., Inc., Fenn-Vac, Inc., Pepperhill Development Co., Inc., GF/WWF, Inc., 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 to Exhibit 2.3 to the Registrant's Current Report on Form 8-K, dated October 31, 1995). 10.30 Merger Agreement, dated as of February 15, 1996, by and among Republic Industries, Inc., RI/DFRP, Inc., RI/GS Merger Corp., The Denver Fire Reporter & Protective Co., Guardian Security Services, Inc., and John Stewart Jackson (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, dated February 14, 1996). 10.31 Reorganization Agreement, dated as of February 14, 1996, by and among Republic Industries, Inc., RI/Area, Inc., RI/Smith, Inc., Incendere, Inc., Area Container Services, Inc., Smithton Sanitation Service, Inc., Dwight C. Schaubach, James D. Schaubach, Emmett K. Moore, Charles F. Moore and R.D. Cuthrell (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K, dated February 14, 1996). 10.32 Credit Facilities and Reimbursement Agreement, dated December 19, 1995, by and among Republic Industries, Inc., as Borrower, NationsBank of Florida, National Association, The First National Bank of Boston, The Bank of Nova Scotia, The First National Bank of Chicago, SunTrust Bank, South Florida, National Association, United States National Bank of Oregon, ABN AMRO Bank, N.V., The Bank of New York, Barnett Bank of Broward County, N.A., Credit Lyonnais New York Branch, Credit Lyonnais Cayman Island Branch, and LTCB Trust II-9 131 Company, as Lenders and NationsBank of Florida, National Association, as Agent and The First National Bank of Boston, as Co-Agent (incorporated by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995). 21.1 Subsidiaries of Republic Industries, Inc. as of March 26, 1996 (incorporated by reference to Exhibit 21.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995). 23.1* Consent of Independent Certified Public Accountants. 23.2 Consent of Ackerman, Senterfitt & Eidson, P.A. (included in Exhibit 5.1 above). 24.1** Power of Attorney. - ------------- * Filed herewith. ** Previously filed. II-10 EX-23.1 2 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 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, April 5, 1996. -----END PRIVACY-ENHANCED MESSAGE-----