-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ic+Dc+6PAYcq+jEbW2H7MEJa1Vry3D3hBOKuhl/xlKYpe3+3orP9x+X3O0WFZWu3 KKiVSoJ5KY3YKCeEJ7USBw== 0000950144-95-002537.txt : 19950908 0000950144-95-002537.hdr.sgml : 19950908 ACCESSION NUMBER: 0000950144-95-002537 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950907 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950907 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC WASTE 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09787 FILM NUMBER: 95570902 BUSINESS ADDRESS: STREET 1: 200 EAST LAS OLAS BLVD STREET 2: SUITE 1400 CITY: FT. LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 305-761-8333 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 RESOURCES CORP DATE OF NAME CHANGE: 19900226 8-K 1 REPUBLIC WASTE INDUSTRIES 8-K 9-7-95 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report September 7, 1995 (Date of earliest event reported) REPUBLIC WASTE INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 0-9787 73-1105145 -------- ------ ---------- (State or other (Commission File (I.R.S. Employer jurisdiction Number) Identification of incorporation) No.) 200 East Las Olas Blvd. Suite 1400 Ft. Lauderdale, Florida 33301 (Address of principal executive offices) Registrant's telephone number, including area code (305) 761-8333 ================================================================================ 2 With respect to each contract, agreement or other document referred to herein and filed with the Securities and Exchange Commission (the "Commission") as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. ITEM 5. OTHER EVENTS. PRIVATE PLACEMENT. On September 7, 1995, Republic Waste Industries, Inc. ("Republic") issued and sold 5,000,000 shares of its common stock, $0.01 par value per share ("Common Stock"), for an aggregate of approximately $100 million pursuant to a private placement in which Allen & Company Incorporated acted as the placement agent. REPORTING OF CERTAIN FINANCIAL INFORMATION FOR REGISTRATION STATEMENT AND OTHER PURPOSES. As previously reported in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, the acquisition of Hudson Management Corporation and Envirocycle, Inc. (together, the "Hudson Companies") by Republic in exchange for an aggregate of 8,000,000 shares of Common Stock was completed on August 3, 1995, and certain equity transactions involving the issuance and sale by Republic, for an aggregate of approximately $134,275,000 in net proceeds, of an aggregate of 15,750,000 shares of Common Stock and warrants to purchase 16,700,000 shares of Common Stock were completed in July and August 1995 (together with the private placement described above, the "Equity Transactions"). As previously reported in its Current Report on Form 8-K dated August 24, 1995, the acquisition of Southland Environmental Services, Inc. ("Southland") by Republic in exchange for an aggregate of 2,600,000 shares of Common Stock is pending subject to regulatory approvals and other customary closing conditions. As previously reported in its Current Report on Form 8-K dated August 28, 1995, the acquisition of Kertz Security Systems II, Inc. and Kertz Security Systems, Inc. (together, "Kertz") by Republic in exchange for 1,090,000 shares of Common Stock was completed on August 28, 1995. Republic is filing as part of this Current Report on Form 8-K supplemental consolidated financial statements of Republic which have been retroactively adjusted to reflect the merger with Kertz accounted for as a pooling of interests and certain financial statements of Southland and the Hudson Companies, and certain pro forma financial statements of Republic as a result of the Equity Transactions, the acquisition of the Hudson Companies and the pending acquisition of Southland, which financial statments are hereby incorporated by reference in Republic's Registration Statements on Form S-3, file number 33-61649 and on Form S-8, file number 33-93742. 1 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements: The following Financial Statements are included herein pursuant to Item 7 (a):
Page ---- REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . 3 Supplemental Consolidated Balance Sheets as of June 30, 1995 (unaudited) and December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 4 Supplemental Consolidated Statements of Income for the Six Months Ended June 30, 1995 and 1994 (unaudited) and the Years Ended December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Supplemental Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . 6 Supplemental Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1994 (unaudited) and the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Notes to Supplemental Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 8 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . 27 Combined Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Combined Statements of Income for the Nine Months Ended June 30, 1995 and 1994 (unaudited) and the Years Ended September 30, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Combined Statements of Stockholders' Equity for the Years Ended September 30, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Combined Statements of Cash Flows for the Nine Months Ended June 30, 1995 and 1994 (unaudited) and the Years Ended September 30, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . 40 Consolidated Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Consolidated Statements of Income for the Nine Months Ended June 30, 1995 and 1994 (unaudited) and the Years Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1995 and 1994 (unaudited) and the Years Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2 4 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Republic Waste Industries, Inc.: We have audited the accompanying supplemental consolidated balance sheets of Republic Waste Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993 and the related supplemental consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These supplemental consolidated statements give retroactive effect to the merger with Kertz Security Systems II, Inc. and Kertz Security Systems, Inc. on August 28, 1995, which has been accounted for as a pooling of interests as described in Note 1. These supplemental financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Republic Waste Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, after giving retroactive effect to the merger with Kertz Security Systems II, Inc. and Kertz Security Systems, Inc. as described in Note 1, all in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida September 7, 1995 3 5 REPUBLIC WASTE INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, --------------------------- June 30, 1995 1994 1993 ----------- ---------- ---------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 3,089 $ 3,084 $ 3,822 Accounts receivable, less allowance for doubtful accounts of $599 (unaudited), $445 and $469, respectively . . . . . . . . . . 9,288 8,004 6,158 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,007 1,135 1,161 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 3,275 3,053 3,056 ---------- ---------- ---------- TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . 16,659 15,276 14,197 Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 88,330 86,902 84,299 Goodwill, net of accumulated amortization of $882 (unaudited), $710 and $481, respectively . . . . . . . . . . . . . . . . . . . . . . . . 12,969 11,307 6,946 Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . - 20,292 16,872 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136 1,145 1,360 ---------- ---------- ---------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 119,094 $ 134,922 $ 123,674 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,707 $ 3,614 $ 2,949 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 3,035 4,553 3,287 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 633 394 661 Current maturities of long-term debt . . . . . . . . . . . . . . . 1,304 1,571 1,753 Current portion of accrued environmental and landfill costs . . . . 2,080 1,404 1,715 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 303 160 351 ---------- ---------- ---------- TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 12,062 11,696 10,716 Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . 18,172 15,152 14,512 Accrued environmental and landfill costs, net of current portion . . . . . . 7,267 8,244 8,757 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,933 11,232 11,344 ---------- ---------- ---------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . 49,434 46,324 45,329 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 9) . . . . . . . . . . . . . . . . . . . - - - STOCKHOLDERS' EQUITY Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; none issued . . . . . . . . . . . . . . . . . . . . . . - - - Common stock, par value $0.01 per share; 100,000,000 shares authorized; 28,273,506 (unaudited), 28,275,731, and 28,438,388 issued, respectively . . . . . . . . . . . . . . . . . . . . . . . 283 283 284 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 67,858 104,161 105,016 Retained earnings (accumulated deficit) since January 1, 1990 . . . . 1,744 (15,173) (26,282) Notes receivable arising from stock purchase agreements . . . . . . (225) (673) (673) ---------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . 69,660 88,598 78,345 ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $ 119,094 $ 134,922 $ 123,674 ========== ========== ==========
The accompanying notes are an integral part of these supplemental consolidated financial statements. 4 6 REPUBLIC WASTE INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
For the Six Months Ended June 30, Year Ended December 31, ----------------------- ------------------------------------- 1995 1994 1994 1993 1992 ---------- --------- -------- -------- ---------- (Unaudited) Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,701 $ 30,778 $ 61,709 $ 56,817 $ 48,979 Expenses: Cost of operations . . . . . . . . . . . . . . . . 22,558 18,724 37,692 33,237 28,808 Selling, general and administrative . . . . . . . 6,932 7,530 14,314 16,107 14,725 Restructuring and unusual charges . . . . . . . . - - - 10,040 2,250 Other (income) expense: Interest and other income . . . . . . . . . . . . (168) (108) (154) (167) (2,452) Interest expense . . . . . . . . . . . . . . . . . 816 595 1,198 733 518 --------- --------- -------- -------- ---------- 30,138 26,741 53,050 59,950 43,849 --------- --------- -------- -------- ---------- Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 5,563 4,037 8,659 (3,133) 5,130 Income tax provision . . . . . . . . . . . . . . . . . . . 1,523 - - 70 253 --------- --------- -------- -------- ---------- Income (loss) from continuing operations . . . . . . . . . 4,040 4,037 8,659 (3,203) 4,877 Discontinued operations: Income (loss) from discontinued operations, net of income tax benefit of $298 (unaudited), $0 (unaudited), $0, $210 and $123, respectively . . 508 681 2,684 (14,579) (1,117) Loss on disposition . . . . . . . . . . . . . . . . - - - - (17,563) --------- --------- -------- -------- ---------- 508 681 2,684 (14,579) (18,680) --------- --------- -------- -------- ---------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 4,548 $ 4,718 $ 11,343 $(17,782) $ (13,803) ========= ========= ======== ======== ========== Earnings (loss) per common and common equivalent share: Continuing operations . . . . . . . . . . . . . . $ .13 $ .14 $ 0.30 $ (0.11) $ 0.18 Discontinued operations . . . . . . . . . . . . . .02 .03 0.10 (0.51) (0.68) --------- --------- -------- -------- ---------- Net income (loss) . . . . . . . . . . . . . . . . $ 0.15 $ 0.17 $ 0.40 $ (0.62) $ (0.50) ========= ========= ======== ======== ========== Weighted average common and common equivalent shares . . . . . . . . . . . . . . . . . . . . . . . . . 30,019 28,560 28,507 28,598 27,441 ========= ========= ======== ======== ==========
The accompanying notes are an integral part of these supplemental consolidated financial statements. 5 7 REPUBLIC WASTE INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Retained Notes Earnings Receivable (Accumulated Arising Deficit) From Additional Since Stock Common Paid-In January 1, Purchase Stock Capital 1990 Agreements --------- ----------- ------------ ----------- BALANCE AT DECEMBER 31, 1991 . . . . . . $ 258 $ 89,938 $ 7,225 $ (698) Exercise of MGD warrants, net of expenses. . . . . . . . . . . . . 20 10,980 - - Exercise of stock options and related tax benefits . . . . . . . . 1 1,745 - - Shares issued for business acquisitions . . . . . . . . . . . . 5 2,959 - - Contributions of property. . . . . . . - 178 - - Collections on notes receivable . . . - - - 25 Foreign currency translation adjustment . . . . . . . . . . . . . - - (983) - Other . . . . . . . . . . . . . . . . - (105) - - Net loss . . . . . . . . . . . . . . . - - (13,803) - ------ --------- -------- ------- BALANCE AT DECEMBER 31, 1992 . . . . . . 284 105,695 (7,561) (673) Cancellation of shares held in escrow issued for an acquisition . . . . . . . . . . . . (1) (944) - - Shares issued for contingent consideration. . . . . . . . . . . . 1 265 - - Distributions to former shareholders of acquired companies . . . . . . . - - (467) - Foreign currency translation adjustment . . . . . . . . . . . . . - - (472) - Net loss . . . . . . . . . . . . . . . - - (17,782) - ------ --------- -------- ------- BALANCE AT DECEMBER 31, 1993 . . . . . . 284 105,016 (26,282) (673) Shares issued for contingent consideration, net of shares returned in settlement. . . . . . . . . . . . 2 (2) - - Purchases of treasury stock . . . . . (3) (853) - - Distributions to former shareholders of acquired companies . . . . . . . - - (252) - Foreign currency translation adjustment . . . . . . . . . . . . . - - 18 - Net income . . . . . . . . . . . . . . - - 11,343 - ------ --------- -------- ------- BALANCE AT DECEMBER 31, 1994 . . . . . . $ 283 $ 104,161 $(15,173) $ (673) ====== ========= ======== =======
The accompanying notes are an integral part of these supplemental consolidated financial statements. 6 8 REPUBLIC WASTE INDUSTRIES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended June 30, Year Ended December 31, ----------------------- ------------------------------------ 1995 1994 1994 1993 1992 -------- -------- ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Income (loss) from continuing operations . . . . . . . $ 4,040 $ 4,037 $ 8,659 $(3,203) $ 4,877 Adjustments to reconcile income (loss) from continuing operations to net cash provided by continuing operations: Restructuring and unusual charges . . . . . . . . . . - - - 10,040 - Depreciation, depletion and amortization . . . . . . 2,910 2,313 4,960 4,142 2,944 Provision for doubtful accounts . . . . . . . . . . . 159 39 174 371 161 Provision for accrued environmental and landfill costs 170 110 377 215 76 (Gain) loss on the sale of equipment . . . . . . . . (23) (193) (247) 5 (769) Gain on sale of marketable securities . . . . . . . . - - - - (2,000) Changes in assets and liabilities, net of effects from business acquisitions: Accounts receivable . . . . . . . . . . . . . . . . (897) (691) (235) (838) (748) Prepaid expenses and other assets . . . . . . . . . 12 (262) 182 (1,565) (112) Accounts payable and accrued liabilities . . . . . (702) (186) (584) (2,625) 698 Income taxes payable . . . . . . . . . . . . . . . 143 242 (191) (688) 1,585 Other liabilities . . . . . . . . . . . . . . . . . 274 (377) (997) 1,009 (886) ------- ------- ------- ------- ------- Net cash provided by continuing operations . . . . 6,086 5,032 12,098 6,863 5,826 ------- ------- ------- ------- ------- CASH PROVIDED BY (USED BY) DISCONTINUED OPERATIONS. . . . (263) 765 (736) (4,360) (17,610) ------- ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash acquired . . . . . (2,358) (500) (4,059) (5,664) (2,899) Purchases of property and equipment . . . . . . . . . . (3,573) (2,357) (5,935) (4,330) (10,818) Proceeds from the sale of equipment . . . . . . . . . . 90 412 585 132 1,010 Purchases of marketable securities . . . . . . . . . . - - - - (7,554) Proceeds from the sale of marketable securities . . . . - - - - 9,554 ------- ------- ------- ------- ------- Net cash used in investing activities . . . . . . . . . (5,841) (2,445) (9,409) (9,862) (10,707) ------- ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options and warrants. . . . . . . . . 181 - - - - Capital contribution to Republic Environmental Systems, Inc. . . . . . . . . . . . . . . . . . . . (2,520) - - - - Payments of long-term debt and notes payable . . . . . (2,668) (2,900) (7,456) (7,592) (14,580) Proceeds from long-term debt and notes payable . . . . 5,160 1,014 5,873 16,229 13,313 Purchases of treasury stock . . . . . . . . . . . . . . (223) (450) (856) - - Distributions to former shareholders of acquired businesses . . . . . . . . . . . . . . . . . . . . . (355) (149) (252) (467) - Payments of debt issuance costs . . . . . . . . . . . . - - - (494) - Proceeds from issuances of common stock . . . . . . . . - - - - 11,466 Payments of common stock issuance costs . . . . . . . . - - - - (78) Payments received on notes receivable arising from stock purchase agreements. . . . . . . . . . . . . . 448 - - - 648 ------- ------- ------- ------- ------- Net cash provided by (used in) financing activities . . 23 (2,485) (2,691) 7,676 10,769 ------- ------- ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . 5 867 (738) 317 (11,722) CASH AND CASH EQUIVALENTS: Beginning of period . . . . . . . . . . . . . . . . . . 3,084 3,822 3,822 3,505 15,227 ------- ------- ------- ------- ------- End of period . . . . . . . . . . . . . . . . . . . . . $ 3,089 $ 4,689 $ 3,084 $ 3,822 $ 3,505 ======= ======= ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR: Interest . . . . . . . . . . . . . . . . . . . . . . . $ 678 $ 456 $ 1,064 $ 588 $ 497 Income taxes . . . . . . . . . . . . . . . . . . . . . $ 627 $ 325 $ 424 $ 312 $ 557
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Equipment purchases of $281 and $487 were financed in the years ended December 31, 1993 and 1992, respectively, by borrowings and capitalized lease obligations. Additionally, property of $178 was contributed to the Company in the year ended December 31, 1992. The accompanying notes are an integral part of these supplemental consolidated financial statements. 7 9 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The accompanying supplemental consolidated financial statements include the accounts of Republic Waste Industries, Inc. and its wholly-owned subsidiaries ("Republic" or the "Company"). All significant intercompany accounts and transactions have been eliminated. In 1994, the Board of Directors authorized management to pursue a plan to distribute its hazardous waste services segment, Republic Environmental Systems, Inc. ("RESI"), to Republic stockholders. In February 1995, the Board of Directors approved this distribution to Republic stockholders of record as of February 15, 1995. Accordingly, as discussed in Note 2, this segment has been accounted for as a discontinued operation and the accompanying supplemental consolidated financial statements for all periods presented have been restated to report separately the net assets and operating results of these discontinued operations. In the opinion of management, the unaudited supplemental consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company at June 30, 1995, and the consolidated results of their operations and cash flows for the six months ended June 30, 1995 and 1994. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS. The accompanying supplemental consolidated financial statements give retroactive effect to the merger with Kertz Security Systems II, Inc. and Kertz Security Systems, Inc. ("Kertz"). On August 28, 1995, the Company issued 1,090,000 shares of the Company's common stock, $0.01 par value per share ("Common Stock"), in exchange for all of the oustanding shares of common stock of Kertz. Kertz provides electronic security monitoring and maintenance to over 30,000 residential and commercial customers predominantly in the South Florida, Tampa and Orlando areas. The transaction was accounted for under the pooling-of-interests method of accounting and, accordingly, the accompanying supplemental consolidated financial statements have been retroactively adjusted as if the Company and Kertz had operated as one entity since inception. These supplemental consolidated financial statements will be the same as the restated statements that will be issued after post-merger operating results have been published. Details of the results of operations of the previously separate companies for the periods prior to the combination are as follows:
Six Months Ended June 30, Year Ended December 31, ------------------------- ------------------------------------------ 1995 1994 1994 1993 1992 -------- -------- -------- -------- -------- (unaudited) Revenue: The Company . . . . . . . $ 29,919 $ 23,957 $ 48,766 $ 41,095 $ 35,341 Kertz . . . . . . . . . . 5,782 6,821 12,943 15,722 13,638 -------- -------- -------- -------- -------- $ 35,701 $ 30,778 $ 61,709 $ 56,817 $ 48,979 ======== ======== ======== ======== ======== Net income (loss): The Company . . . . . . . $ 4,750 $ 4,829 $ 11,187 $(18,484) $(14,004) Kertz . . . . . . . . . . (202) (111) 156 702 201 -------- -------- -------- -------- -------- $ 4,548 $ 4,718 $ 11,343 $(17,782) $(13,803) ======== ======== ======== ======== ======== Earnings per share: The Company . . . . . . . $ 0.16 $ 0.17 $ 0.39 $ (0.65) $ (0.51) Kertz . . . . . . . . . . (0.01) -- 0.01 0.03 0.01 -------- -------- -------- -------- -------- $ 0.15 $ 0.17 $ 0.40 $ (0.62) $ (0.50) ======== ======== ======== ======== ========
REVENUE RECOGNITION. The Company recognizes revenue as services are provided. 8 10 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARKETABLE SECURITIES. The Company purchases marketable securities for investment purposes which are recorded at the lower of cost or market. The Company includes gains and losses incurred in connection with marketable securities in interest and other income. In 1992, the Company realized gains on marketable securities purchased and subsequently sold during the year. The Company currently holds no equity securities as defined under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." OTHER CURRENT ASSETS. Inventories consisting principally of equipment parts, compost materials and supplies are valued under a method which approximates the lower of cost (first-in, first-out) or market. At December 31, 1994 and 1993, other current assets included inventories of $2,056,000 and $1,769,000, respectively. PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in current operations. The Company revises the estimated useful lives of property and equipment acquired through its business acquisitions as of the effective date of the acquisition to conform with its policies regarding property and equipment. Depreciation is provided over the estimated useful lives of the assets involved using the straight-line method. The estimated useful lives are: twenty to forty years for buildings and improvements, five to fifteen years for vehicles and equipment and five years for furniture and fixtures. Landfills are stated at cost and are depleted based on consumed airspace. Landfill improvements include direct costs incurred to obtain a landfill permit and direct costs incurred to construct and develop the site, and these costs are also depleted based on consumed airspace. No general and administrative costs are capitalized as landfills and landfill improvements. ACCRUED LIABILITIES. The Company provides accruals for estimated insurance claims for the self-funded portion of its insurance plans. At December 31, 1994 and 1993, insurance claims reserves of $926,000 and $665,000, respectively, were included in accrued liabilities. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS. Accrued environmental and landfill costs include landfill site closure and post-closure costs. Landfill site closure and post-closure costs include costs to be incurred for final closure of the landfills and costs for providing required post-closure monitoring and maintenance of landfills. These costs are accrued based on consumed airspace. The Company estimates its future cost requirements for closure and post-closure monitoring and maintenance for its solid waste facilities based on its interpretation of the technical standards of the United States Environmental Protection Agency's Subtitle D regulations. These estimates do not take into account discounts for the present value of such total estimated costs. Environmental costs are accrued by the Company through a charge to income in the appropriate period for known and anticipated environmental liabilities. INCOME TAXES. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which the Company adopted in 1992, the effect of which was not material. Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the recognition of revenues and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. GOODWILL. Goodwill is amortized over the lesser of the estimated life or forty years, on a straight-line basis. Amortization expense related to goodwill and other intangible assets was $423,000, $244,000 and $142,000 in 1994, 1993 and 1992, respectively. 9 11 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company continually evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of goodwill and other long-lived assets or whether the remaining balance of goodwill should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted net income over the remaining life of goodwill in measuring whether the goodwill is recoverable. ACCOUNTING FOR ACQUISITIONS. At the time the Company acquires a business to be accounted for as a purchase, the Company allocates the purchase price to assets and liabilities based on its best estimate of the fair value of each asset and liability. For a one-year period subsequent to the acquisition date, the estimates are refined if additional facts become known regarding contingencies that existed at the date of acquisition. At the end of the one-year period following the date of acquisition, the estimates are finalized and no other entries are made to purchase accounting. Acquisitions accounted for under the pooling-of-interests method of accounting are included retroactively in the Company's financial statements as if the companies had operated as one entity since inception. STATEMENTS OF CASH FLOWS. The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents. The effect of non-cash transactions related to business combinations, as discussed in Note 3, and other non-cash transactions are excluded from the statements of cash flows. FOREIGN CURRENCY TRANSLATION. All asset and liability accounts of foreign subsidiaries are translated to U.S. dollars at the rate of exchange in effect at the balance sheet date. All income statement accounts of foreign subsidiaries are translated at average exchange rates during the year. Resulting translation adjustments arising from these translations are charged or credited directly to stockholders' equity. Gain or loss on foreign currency transactions are included in income as incurred. There was no material effect on foreign cash balances of foreign currency translations in 1994 and 1993. All of the Company's foreign subsidiaries are a part of the hazardous waste services segment of the Company. In connection with the spin-off of the hazardous waste services segment, as discussed in Note 2, this segment of the Company's business has been accounted for as a discontinued operation. FAIR VALUE OF FINANCIAL INSTRUMENTS. The book values of cash, trade accounts receivable, trade accounts payable and financial instruments included in other current assets and other assets approximate their fair values principally because of the short-term maturities of these instruments. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method the Company's fair value of long-term debt was not significantly different than the stated value at December 31, 1994 and 1993. In the normal course of business, the Company has letters of credit, performance bonds and other guarantees which are not reflected in the accompanying supplemental consolidated balance sheets. The Company's management believes that the likelihood of performance under these financial instruments is minimal and expects no material losses to occur in connection with these financial instruments. CONCENTRATIONS OF CREDIT RISK. Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets into which the Company's services are provided, as well as their dispersion across many different geographic areas. As a result, as of December 31, 1994, the Company does not consider itself to have any significant concentrations of credit risk. 2. DISCONTINUED OPERATIONS SPIN-OFF OF THE HAZARDOUS WASTE SERVICES SEGMENT IN 1994. In July 1994, the Company announced the contemplation of a plan to exit the hazardous waste services segment of the environmental industry, and in October 1994, the Board of Directors authorized management to pursue such plan, subject to final approval from the Board of Directors and the resolution of certain legal 10 12 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) and financial requirements. The plan provides for the combination of the Company's hazardous waste services operations in its wholly-owned subsidiary, RESI, and the distribution of the stock of RESI to the stockholders of record of Republic (the "Distribution"). On April 26, 1995, Republic stockholders received one share of common stock of RESI for every five shares of Common Stock of Republic owned on April 21, 1995 in connection with the spin-off of RESI. Approximately 5.4 million RESI shares were distributed to Republic stockholders. RESI's common stock commenced trading on the Nasdaq National Market on April 27, 1995 under the trading symbol "RESI." The Company has had no direct ownership interest in RESI since the Distribution. The hazardous waste services segment of the Company's business has been accounted for as a discontinued operation and, accordingly, the accompanying supplemental consolidated financial statements of the Company have been restated to report separately the net assets and operating results of these discontinued operations. A summary of the net assets of this segment is as follows (in thousands):
December 31, ------------------------ 1994 1993 ------- ------- Current assets . . . . . . . . . . . $13,595 $14,735 Non-current assets . . . . . . . . . 26,347 34,783 ------- ------- Total assets . . . . . . . . . . 39,942 49,518 ------- ------- Current liabilities . . . . . . . . . 13,040 14,465 Non-current liabilities . . . . . . . 6,610 18,181 ------- ------- Total liabilities . . . . . . . 19,650 32,646 ------- ------- Net assets of discontinued operations $20,292 $16,872 ======= =======
A summary of the operating results of the Company's hazardous waste services segment is as follows (in thousands):
Year Ended December 31, -------------------------------------------- 1994 1993 1992 -------- --------- -------- Revenue . . . . . . . . . . . . . . . . . . . . . . $ 46,599 $ 61,617 $ 74,668 Expenses: Cost of operations . . . . . . . . . . . . . . . . . 33,377 47,028 54,634 Selling, general and administrative . . . . . . . . 10,349 13,480 15,141 Restructuring and unusual charges . . . . . . . . . 8,484 14,906 577 -------- --------- -------- Operating income (loss) . . . . . . . . . . . . . . . . ( 5,611) (13,797) 4,316 Other expense, net of other income . . . . . . . . . . 353 992 1,327 -------- --------- -------- Income (loss) before extraordinary gain and income taxes . . . . . . . . . . . . . . . ( 5,964) ( 14,789) 2,989 Income tax provision (benefit) . . . . . . . . . . . . ( 3,092) ( 210) 1,442 -------- --------- -------- Income (loss) before extraordinary gain . . . . . . . . ( 2,872) ( 14,579) 1,547 Extraordinary gain on conversion of debt, net of income tax provision of $3,092 . . . . . . . . . . . . . . 5,556 - - -------- --------- -------- Net income (loss) . . . . . . . . . . . . . . . . . . . $ 2,684 $ (14,579) $ 1,547 ======== ========= ========
11 13 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In connection with the Distribution, the Company has entered into the Distribution Agreement with RESI which sets forth the terms of the Distribution. Under this agreement, Republic contributed the intercompany balance to RESI's equity at the date of the Distribution. In April 1995, Republic contributed approximately $2.5 million to RESI to repay certain indebtedness of RESI and to provide working capital to RESI. Additionally, the Company reclassified approximately $36.3 million to retained earnings from additional paid-in capital in 1995 to effect the spin-off under Delaware law. As a result of these transactions, the Company's equity at the date of the Distribution was reduced by approximately $23.0 million. The Company has also entered into various agreements with RESI which govern certain matters between the two parties such as ongoing corporate services to be provided by the Company to RESI, insurance coverage for RESI for a certain period after the date of the Distribution, treatment of various tax matters for periods through the date of the Distribution, responsibility for any adjustments as a result of audit by any taxing authority and indemnification between both parties. Republic has agreed to continue to provide certain corporate services, including insurance, administration, human resources management, financial reporting and tax, legal and environmental engineering services to RESI after the Distribution until terminated by either party. The Corporate Services Agreement and the Tax Sharing Agreement are expected to be terminated by the end of 1995. During 1994, 1993 and 1992, the Company allocated expenses for these services to RESI totaling $851,000, $839,000 and $739,000, respectively, on a basis that approximated the cost of actual services provided. Since 1992, RESI has participated in the Company's combined risk management programs for property and casualty insurance and will continue to do so until the expiration of the Company's existing policies in June 1995. In 1994, 1993 and 1992, the Company charged RESI for annual premiums and reported losses of $1,678,000, $1,745,000 and $1,116,000, respectively. RESI has agreed to indemnify the Company against increases in current losses and any future losses incurred in connection with RESI's participation in these programs. SALE OF DEMOLITION AND EXCAVATION SUBSIDIARY IN 1992. In 1992, the Company sold its demolition and excavation subsidiary, Republic Environmental Services, Inc. ("RES Demolition") and recorded a non-cash loss on disposition of $17.6 million. This segment of the Company's business was accounted for as a discontinued operation and, accordingly, the Company's supplemental consolidated financial statements report separately the operating results of these discontinued operations through the date of sale in 1992. In 1992, revenues and net loss of the discontinued operations of RES Demolition were $2.9 million and $2.7 million, respectively. 3. BUSINESS COMBINATIONS GENERAL. From January 1, 1992 through December 31, 1994, the Company acquired five businesses, all of which were accounted for under the purchase method of accounting with the exception of RESI [formerly known as Stout Environmental, Inc. ("Stout")], which was accounted for as a pooling-of-interests. These businesses were acquired for a combination of cash and shares of the Company's Common Stock. The value of the Common Stock reflects the market value of the Company's Common Stock at the closing of each acquisition, adjusted to account for restrictions common to unregistered securities and for registration rights, if applicable. The final determination of the cost of certain of the Company's acquisitions is subject to the resolution of certain contingencies, primarily the determination of contingent consideration payable as described in Note 9. The operating results of the acquired businesses accounted for under the purchase method of accounting have been included in the supplemental consolidated financial statements from the dates of acquisition. The following table sets forth the purchase price of the Company's acquisitions accounted for under the purchase method of accounting (in thousands): 12 14 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31, ----------------------------------------------------- 1994 1993 1992 ------- ------- -------- Cash (net of cash acquired) . . . . . . . $ 4,059 $ 5,664 $ 2,899 Common stock (including contingent consideration earned) . . . . . . . . 105 266 2,964 ------- ------- -------- $ 4,164 $ 5,930 $ 5,863 ======= ======= ========
The following describes each of the acquisitions completed by the Company in 1994: LAUGHLIN ENVIRONMENTAL, INC. In February 1994, the Company acquired Laughlin Environmental, Inc. ("Laughlin"), located in the Houston, Texas area. Laughlin provides environmental services on a contract basis and serves to complement the Company's special waste landfill located in the Dallas, Texas area. Additionally, Laughlin internalized a portion of its operating costs in 1994 through the acquisition of the assets of a subcontractor. WASTE HANDLING SYSTEMS, INC. In October 1994, the Company acquired Waste Handling Systems, Inc. ("Waste Handling") which is located in Rutherford County, North Carolina, approximately 75 miles west of Charlotte. Waste Handling is a collection operation adjacent to the Company's existing landfill and collection operation in southwest North Carolina and services collection routes in a 30 mile radius of Forest City, North Carolina through the transportation of municipal solid waste. MIDWEST SANITATION SERVICE, INC. In November 1994, the Company acquired Midwest Sanitation Service, Inc. ("Midwest"). Midwest is a landfill and collection operation which was the largest private hauler in North Dakota. As discussed in Note 9, the Company also paid additional consideration to the sellers of previously completed acquisitions for the attainment of certain earnings levels as specified in the respective acquisition agreements. UNAUDITED PRO FORMA RESULTS OF OPERATIONS. The Company's unaudited pro forma consolidated results of operations for 1994, 1993 and 1992 shown below are presented assuming that the Company's business combinations had been consummated January 1, 1992 (in thousands): 13 15 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31, ------------------------------------ 1994 1993 1992 -------- -------- -------- Revenue as reported . . . . . . . . . . . . . . . . . . . $ 61,709 $ 56,817 $ 48,979 Revenue of businesses acquired . . . . . . . . . . . . . 2,890 10,389 6,808 -------- -------- -------- Pro forma revenue . . . . . . . . . . . . . . . . . . . . $ 64,599 $ 67,206 $ 55,787 ======== ======== ======== Income (loss) from continuing operations as reported . . $ 8,659 $ (3,203) $ 4,877 Net income of businesses acquired . . . . . . . . . . . . 97 353 443 Pro forma adjustments (A) . . . . . . . . . . . . . . . . 126 (11) 113 -------- -------- -------- Pro forma income (loss) from continuing operations . . . $ 8,882 $ (2,861) $ 5,433 ======== ======== ======== Earnings (loss) per common and common equivalent share from continuing operations as reported . . . . . $ 0.30 $ (0.11) $ 0.18 Effect of businesses acquired and pro forma adjustments . 0.01 0.01 0.02 -------- -------- -------- Pro forma earnings (loss) per common and common equivalent share from continuing operations . . . . . . $ 0.31 $ (0.10) $ 0.20 ======== ======== ======== Weighted average common and common equivalent shares as reported . . . . . . . . . . . . . . . . . . 28,507 28,598 27,441 Effect of shares issued for business acquisitions . . . . - - 349 -------- -------- -------- Pro forma weighted average common and common equivalent shares . . . . . . . . . . . . . . . . . . . 28,507 28,598 27,790 ======== ======== ========
(A) Pro forma adjustments include: (i) depreciation expense resulting from the additional value assigned to acquired assets computed in accordance with the Company's accounting policies; (ii) contractual reductions of former owners' and officers' salaries and (iii) adjustments to the income tax provision to reflect the Company's effective tax rate. The unaudited pro forma results of operations are presented for informational purposes only and may not necessarily reflect the future results of operations of the Company or what the results of operations would have been had the Company owned and operated these businesses as of January 1, 1992. 4. RESTRUCTURING AND UNUSUAL CHARGES In the fourth quarter of 1993, the Company recorded restructuring and unusual charges of $10.0 million based on the Company's reevaluation of each of its solid waste operations. As a result of this reevaluation, the Company decided to close one of its facilities due to low waste volumes and abandon its permitting effort at another facility because of limited market opportunity in that area and delays in the permitting process. In accordance with industry standards, the Company provides for closure and post-closure over the life of a facility. Accordingly, the Company fully provided for these costs on the closed facility. The provision for closure and post-closure and the write-off of property and equipment and accumulated permitting costs associated with these facilities totaled $6.6 million. In conjunction with the reevaluation, the Company also decided to terminate certain contracts and employees. Costs related to employee relocations and terminations and other contract terminations totaled $1.2 million. In addition, the Company also reevaluated its exposure related to litigation and environmental matters and provided additional accruals aggregating $2.2 million for the costs to defend or settle certain litigation and environmental matters. 14 16 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In March 1992, the Company acquired Stout in a merger transaction accounted for in accordance with the pooling-of-interests method. In connection with the merger, the Company incurred substantial legal, accounting, consulting and financing costs aggregating $2.2 million, which was recorded as an unusual charge. 5. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE The computation of weighted average common and common equivalent shares used in the calculation of earnings (loss) per share is shown below (in thousands):
Six Months Ended June 30, Year Ended December 31, ----------------- --------------------------------- 1995 1994 1994 1993 1992 ------ ------ ------ ------ ------ (Unaudited) Common shares outstanding . . . . . . . . . . . . . . . . . 28,273 28,511 28,276 28,438 28,371 Effect of using weighted average common shares outstanding during the year . . . . . . . . . . . . . . . (5) - - - (1,116) Common shares issuable under options, warrants and earn-out agreements . . . . . . . . . . . . . . . . . . . . . . . . 1,751 49 82 160 186 Weighted average effect of treasury stock purchases . . . . - - 149 - - ------ ------ ------ ------ ------ Weighted average common and common equivalent shares . . . 30,019 28,560 28,507 28,598 27,441 ====== ====== ====== ====== ======
The difference between shares for primary and fully diluted earnings (loss) per common and common equivalent share was not significant for the periods presented. 6. PROPERTY AND EQUIPMENT A summary of property and equipment is shown below (in thousands):
December 31, -------------------------------- 1994 1993 -------- -------- Land, landfills and improvements. . . . . . . . . . . $ 80,601 $ 77,562 Vehicles and equipment . . . . . . . . . . . . . . . 15,340 13,108 Buildings and improvements . . . . . . . . . . . . . 3,158 1,656 Furniture and fixtures . . . . . . . . . . . . . . . 746 672 -------- -------- 99,845 92,998 Less accumulated depreciation and depletion . . . (12,943) (8,699) -------- -------- $ 86,902 $ 84,299 ======== ========
7. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS The Company owns and operates nine solid waste landfills in the United States. The Company is responsible for closure and post-closure monitoring and maintenance costs at these landfills which are currently operating. Closure and post-closure costs are provided in accordance with Subtitle D regulations. Estimated aggregate closure and post-closure costs are to be fully accrued for these landfills at the time that such facilities cease to accept waste and are closed. Considering existing accruals at the end of 1994, approximately $7.6 million of such costs are to be expensed over the remaining lives of these facilities. Included with the accrued costs associated with landfills at December 31, 1994 is $179,000 related to post-closure activities at a closed solid waste landfill formerly owned by the Company. 15 17 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As discussed in Note 9, the Company is involved in litigation and is subject to ongoing environmental investigations by certain regulatory agencies, as well as other claims and disputes that could result in additional litigation which are in the normal course of business. For a discussion of the Company's significant accounting policies related to these environmental and landfill costs, see Note 1 - "Summary of Significant Accounting Policies - Accrued Environmental and Landfill Costs". 8. NOTES PAYABLE AND LONG-TERM DEBT SHORT-TERM BORROWINGS AND NOTES PAYABLE. Notes payable at December 31, 1994 and 1993 consisted primarily of short-term insurance premium financing. LONG-TERM DEBT. Long-term debt consists of the following (in thousands):
December 31, -------------------------------- 1994 1993 ------ ------ Revolving credit facility, secured by the stock of the Company's subsidiaries, interest payable quarterly, at prime or at a Eurodollar rate plus 1.5% (8.3% as of December 31, 1994), due September 1996 . . . . . . . . $12,600 $12,200 Notes to banks and financial institutions, secured by equipment and other assets, interest ranging from 7.0% to 12.9% (weighted average interest rate of 7.2% as of December 31, 1994), payable monthly through 1998 . . . 1,305 1,914 Other notes, secured by equipment and other assets, interest ranging from 4.0% to 11.5% (weighted average interest rate of 6.0% as of December 31, 1994), payable monthly through 2004 . . . . . . . . . . . . . 2,818 2,151 ------- ------- 16,723 16,265 Less current maturities . . . . . . . . . . . . . . . . (1,571) (1,753) ------- ------- $15,152 $14,512 ======= =======
In September 1993, the Company entered into a revolving credit facility agreement with a U.S. commercial bank in the amount of $25,000,000, which includes a line of credit with $10,000,000 available for standby letters of credit. At December 31, 1994, the Company had standby letters of credit of $5,591,000 outstanding under this facility and $6,809,000 available under the revolving credit facility. In 1995, the Company extended the due date from September 1996 to December 1997 and increased the availability under this facility to $35,000,000. The credit agreement requires the Company, among other restrictions, to meet certain financial ratios and places certain limitations on dividend payments and other borrowing. As of December 31, 1994, the Company was in compliance with all covenants under the credit agreement. 16 18 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1994, aggregate maturities of long-term debt were as follows (in thousands): 1995 . . . . . . . . . . . . . . . . . . $ 1,571 1996 . . . . . . . . . . . . . . . . . . 13,156 1997 . . . . . . . . . . . . . . . . . . 677 1998 . . . . . . . . . . . . . . . . . . 591 1999 . . . . . . . . . . . . . . . . . . 316 Thereafter . . . . . . . . . . . . . . . 412 ------- $16,723 =======
9. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS. On May 3, 1991, the Company filed an action against G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the United States District Court for the Central District of California (the "Court"). The Company requested a declaratory judgment that it did not anticipatorily breach a merger agreement (the "Merger Agreement") between the Company and GI and that the Merger Agreement had been properly terminated. The Company also sought to recover $600,000 from GI, plus interest and costs, with respect to a certain financial guaranty provided by Republic in 1990 for the benefit of GI. In response to the Company's action, GI filed a counterclaim alleging that the Company breached the Merger Agreement and that it had suffered damages in excess of $16.0 million. In August 1993, the Court rendered a ruling in favor of Republic and found that GI did not meet its burden in proving that it could have performed its obligations under the Merger Agreement. GI appealed that decision in September 1993. In March 1995, the United States Court of Appeals for the Ninth Circuit (the "Court of Appeals") vacated the August 1993 decision and remanded the case back to the Court for a hearing on damages. The Company filed a motion for reconsiderations and suggestion of en banc consideration with the Court of Appeals in an effort to restore the original ruling denying GI's claim. On May 12, 1995, the Court of Appeals denied the motion and suggestion. The Company has filed a timely petition for writ of certiorari with the United States Supreme Court. Subsequent to the Company's seeking recovery from GI for the guaranty, GI filed for protection under Chapter 11 of the Bankruptcy Code. The Company is a secured creditor and anticipates a complete recovery of the $600,000, plus interest and costs, including attorneys' fees. On November 9, 1992, A&B Investors, Inc. ("A&B") filed an action against the Company in the District Court of Harris County, Texas alleging, among other claims, breach of contract and securities fraud. On July 14, 1995, this matter was resolved in an out-of-court settlement which did not have a material effect on the Company's results of operations or consolidated financial position. Western Waste Industries, Inc. ("Western") filed an action against the Company and others on July 20, 1990 for various causes of action including interference with business relations and seeks $24.0 million in damages. The lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This case is currently scheduled for trial in late 1995 or early 1996. While the results of the legal proceedings described above and other proceedings which arose in the normal course of business cannot be predicted with certainty, management believes that losses, if any, resulting from the ultimate resolution of these matters will not have a material adverse effect on the Company's results of operations or consolidated financial position. 17 19 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ENVIRONMENTAL MATTERS. The Company's solid waste and environmental services activities are conducted in the context of a developing and changing statutory and regulatory framework, aggressive government enforcement and a highly visible political environment. Governmental regulation of the waste management industry requires the Company to obtain and retain numerous governmental permits to conduct various aspects of its operations. These permits are subject to revocation, modification or denial. The costs and other capital expenditures which may be required to obtain or retain the applicable permits or comply with applicable regulations could be significant. In 1992, the Company received notices from Imperial County, California (the "County") and the California Department of Toxic Substances Control ("DTSC") that spent filter elements (the "Filters") from geothermal power plants, which had been deposited at the Company's Imperial Landfill for approximately five years, were classified as hazardous waste under California environmental regulations. Under United States EPA regulations, the Filters are not deemed hazardous waste as they are associated with the production of geothermal energy. In February 1993, the DTSC denied the Company's October 1992 request to classify the Filters as "special waste" under California regulations. DTSC's denial indicated that the Filters met all technical and analytical requirements for reclassification as a special waste, but that a procedural requirement related to the timing of the reclassification request was not met. The Company is currently conducting active discussions with all appropriate California regulatory agencies in order to seek a variance under California regulations which will reclassify the Filters as a special waste, irrespective of the reclassification application submittal timing issue, and allow the Filters to be left in the landfill. If this occurs, the state, regional and local regulatory agencies may nevertheless require that the affected area of the landfill be capped and that the affected area accept no additional waste. A decision on the reclassification issue is expected by October 1995. In the event that the variance is not granted, the Regional Water Quality Control Board and Integrated Waste Management Board will determine what remedial measures must be taken based on the Filters' classification as a California hazardous waste. One of those measures could include the removal of the Filters or the closure of a portion of the landfill. Management is currently unable to determine (i) whether the waste will ultimately be classified as hazardous, (ii) what action, if any, will be required as a result of this issue or (iii) what liability, if any, the Company will have as a result of this inquiry. In January 1994, the Company filed suit against the known past and present owners and operators of the geothermal power plants for all losses, fines and expenses the Company incurs associated with the resolution of this matter, including loss of airspace at the landfill, in the United States District Court for the Southern District of California, alleging claims for CERCLA response costs recovery and intentional misrepresentation among other claims. The Company seeks to recover actual expenses and punitive damages. Discovery and regulatory studies are proceeding. The Company believes it will prevail, but no amounts have been accrued for any recovery of damages. Although it is possible that losses exceeding amounts already recorded may be incurred upon the ultimate resolution of the environmental matters described above, management believes that such losses, if any, will not have a material adverse effect on the Company's consolidated results of operations or consolidated financial position. OPERATING LEASE COMMITMENTS. The Company and its subsidiaries lease portions of their premises and certain equipment under various operating lease agreements. At December 31, 1994, total minimum rental commitments becoming payable under all operating leases are as follows (in thousands): 1995 . . . . . . . . . . . . . . . . . . . . . . . $ 562 1996 . . . . . . . . . . . . . . . . . . . . . . . $ 470 1997 . . . . . . . . . . . . . . . . . . . . . . . $ 338 1998 . . . . . . . . . . . . . . . . . . . . . . . $ 104 1999 . . . . . . . . . . . . . . . . . . . . . . . $ 53 Thereafter . . . . . . . . . . . . . . . . . . . . $ 27
18 20 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Total rental expense incurred under operating leases was $653,000, $544,000 and $468,000 in 1994, 1993 and 1992, respectively. POSTRETIREMENT BENEFITS. The Company does not provide postretirement or postemployment benefits to its employees and, accordingly, has not reflected any cost arising from the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" or SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Effective January 1, 1994, the Company instituted a defined contribution 401(k) savings plan for employees meeting certain employment requirements. Under the plan, the Company may, at its discretion, match a portion of employee contributions based on the profitability and growth of the Company. No contributions under this plan were made by the Company in 1994. CONTINGENT CONSIDERATION. In certain of the business acquisitions accounted for as purchases, the Company has agreed to issue contingent consideration in the form of additional shares of the Company's common stock and, in some cases, additional cash to the sellers of those businesses based on the attainment of certain earnings levels and other contingencies. During the years ended December 31, 1994, 1993 and 1992, the Company has issued approximately 29,000, 160,000 and 186,000 shares of common stock and paid $623,000, $432,000 and $40,000, respectively, for the attainment of such earnings levels. These amounts have been capitalized as additional purchase price. The maximum contingent consideration to be earned over the next of eight years as of December 31, 1994 consists of approximately 406,000 shares of the Company's common stock and $412,000. Under the terms of an acquisition agreement, the Company has agreed to pay additional consideration to the former owners of a landfill site of a maximum of $2,500,000 upon the expansion of the landfill airspace by up to 2,500,000 cubic yards. OTHER MATTERS. At December 31, 1994, the Company had made cash deposits into escrow accounts which total $735,000 in connection with landfill closure and certain other obligations, of which $656,000 was included in cash and cash equivalents and $79,000 was included in other assets. Additionally, the Company has bonding facilities for the issuance of payment, performance and bid bonds, of which $1,684,000 in bonds were outstanding at December 31, 1994. The Company also has facilities available for the issuance of standby letters of credit, of which $3,980,000 in letters of credit were outstanding at December 31, 1994. 10. STOCKHOLDERS' EQUITY PREFERRED STOCK. The Company has 5,000,000 authorized shares of preferred stock, $.01 par value per share, none of which are issued or outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the rights, preferences and dividends. TREASURY STOCK. In October 1993, the Board of Directors authorized the Company to repurchase up to 1.3 million shares, or 4.8% of its outstanding Common Stock, through October 1994, as deemed appropriate by management. Through October 1994, 281,000 shares were repurchased for an aggregate value of $856,000. In October 1994, the Board of Directors authorized management to continue the repurchase program and to repurchase up to an additional 1.3 million shares, or 4.8% of its outstanding Common Stock, through October 1995. The repurchasing of shares is intended to achieve a more favorable balance between the market supply of the shares and market demand, as well as take advantage of the relatively low price of the Company's Common Stock. Repurchases have been effected at prevailing market prices from time to time on the open market. The repurchased shares represent additions to treasury stock. In October 1994, the Board of Directors authorized the retirement of the 281,000 shares held in treasury, which were retired in the fourth quarter of 1994. In December 1994, 28,993 shares of the Company's Common Stock were returned to the Company in a settlement with a former owner of one of its 19 21 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) subsidiaries. These shares represented additions to treasury stock and were subsequently retired in December 1994. The Company's stock repurchase program expires in October 1995 and the Company does not currently plan to repurchase any additional Common Stock. 1991 STOCK OPTION PLAN. In October 1991, the Board of Directors approved a stock option plan (the "1991 Plan"), which was subsequently approved by the Company's stockholders at the 1992 Annual Meeting of Stockholders, under which employees and officers of the Company or any of its subsidiaries or parent corporations and members of the Board of Directors of the Company may be awarded options to purchase common shares. A maximum of 5,000,000 common shares, less shares issued or purchased pursuant to the 1990 Stock Option and Stock Purchase Plan (the "1990 Plan") as discussed below, have been reserved for issuance to participants in the 1991 Plan in the form of stock options. The option price under the 1991 Plan is to be determined by the Board of Directors but shall not be less than the fair market value of the common shares on the date the stock option is granted. Options are subject to adjustment upon certain changes in the capital structure of the Company, such as a stock dividend, stock split or other similar events. 1990 STOCK OPTION AND STOCK PURCHASE PLAN. In April 1990, the Board of Directors approved a stock option and stock purchase plan for certain key employees, directors, consultants and advisors. A maximum of 2,500,000 shares of common stock were reserved for issuance to participants in the plan in the form of either stock options or stock purchases, as determined by the Compensation Committee. Options granted under the plan expire ten years from the date of grant and vest over varying periods as determined by the Compensation Committee. During the year ended December 31, 1990, 700,000 shares were purchased at $2.50 to $4.50 per share. When shares were purchased under the 1990 Plan, the participant paid the par value of the shares in cash, and issued a nonrecourse promissory note to the Company for the balance of the purchase price. These promissory notes along with interest are due ten years from the date of issuance and are collateralized by the shares purchased. During 1992, the Company received payment of $648,000 on notes receivable arising from stock purchase agreements pursuant to the 1990 Plan. The 1990 Plan has been replaced by the 1991 Plan, as discussed above. Activity under the Company's 1990 and 1991 stock option plans during each of the two years ended December 31, 1994 are summarized as follows:
1990 Plan 1991 Plan Total Option Price --------- --------- ----- ------------ Outstanding at December 31, 1992 . . . . . . . 598,000 348,500 946,500 $2.50-$14.50 Granted . . . . . . . . . . . . . . . . . . 100,000 401,900 501,900 $4.00-$12.50 Cancelled . . . . . . . . . . . . . . . . . -- (331,900) (331,900) $7.25-$10.63 ------- --------- --------- Outstanding at December 31, 1993 . . . . . . . 698,000 418,500 1,116,500 $2.50-$14.50 Granted . . . . . . . . . . . . . . . . . . -- 176,000 176,000 $2.69-$ 3.38 Cancelled . . . . . . . . . . . . . . . . . (50,000) (130,500) (180,500) $2.69-$10.63 ------- --------- --------- Outstanding at December 31, 1994 . . . . . . . 648,000 464,000 1,112,000 $2.50-$14.50 ======= ========= ========= Exercisable at December 31, 1994 . . . . . . . 648,000 113,450 761,450 $9.92(A) ======= ========= ========= Available for future grant at December 31, 1993 763,000 2,081,500 2,844,500 Cancelled . . . . . . . . . . . . . . . . . 50,000 130,500 180,500 Granted . . . . . . . . . . . . . . . . . . -- (176,000) (176,000) -------- --------- --------- Available for future grant at December 31, 1994 813,000 2,036,000 2,849,000 ======== ========= =========
___________________________________ (A) Represents the weighted average option price of options exercisable at December 31, 1994. 20 22 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) COMMON STOCK WARRANTS. The Company has awarded warrants to purchase shares of Common Stock to certain executive officers, directors, employees and affiliates as additional incentive to continue in the service of the Company. The warrants vest at 20% per year and are exercisable, with respect to each portion vested, for a period of four years following such vesting. Activity involving Common Stock warrants during each of the two years ended December 31, 1994 are summarized as follows:
Exercise Warrants Price Expiration Date ------------ ------------- --------------------------- Outstanding at December 31, 1992 . . . 6,480,750 $6.00-$12.75 June 1993-May 2001 Issued . . . . . . . . . . . . . . . 515,000 $4.00 December 2000 Expired . . . . . . . . . . . . . . (4,915,000) $6.50-$12.75 - ---------- Outstanding at December 31, 1993 . . . 2,080,750 $4.00-$12.75 August 1995-December 2000 Issued . . . . . . . . . . . . . . . 200,000 $2.69 May 2003 ---------- Outstanding at December 31, 1994 . . . 2,280,750 $2.69-$12.75 August 1995-May 2003 ========== Exercisable at December 31, 1994 . . . 1,250,750 $7.61(A) ==========
___________________________ (A) Represents the weighted average exercise price of warrants exercisable at December 31, 1994. 11. INCOME TAXES Kertz elected S-corporation status for income tax reporting purposes on July 1, 1993 at which time deferred tax balances were eliminated through a credit to the deferred income tax provision. Since July 1, 1993, net income and the related differences that arise in the recording of income and expense items for financial reporting and income tax reporting purposes have been included in the individual tax returns of the former stockholders of Kertz. Upon the closing of the merger transaction on August 28, 1995, Kertz was no longer eligible for S-corporation status. Deferred income taxes recorded at closing upon the change in the tax status were not material to the supplemental consolidated financial statements. The components of the income tax provision related to continuing operations are shown below (in thousands):
Year Ended December 31, --------------------------------------------- 1994 1993 1992 ------ ------ ------ Current: Federal . . . . . . . . . . . . . . . . . . . $ 183 $ 399 $ 2,266 State . . . . . . . . . . . . . . . . . . . . 251 141 127 ------- -------- ------- 434 540 2,393 Federal deferred . . . . . . . . . . . . . . . . 2,771 (1,712) (602) Tax reserve adjustments . . . . . . . . . . . . (1,963) - (1,538) Change in valuation allowance . . . . . . . . . (1,242) 1,242 - ------- -------- ------- Income tax provision . . . . . . . . . . . . . . $ - $ 70 $ 253 ======= ======== =======
In addition to the above, the Company recorded an income tax benefit of $210,000 and $123,000 in 1993 and 1992, respectively, related to its discontinued operations. In 1992, the Company changed its method of accounting for income taxes from the method required under SFAS No. 96 to the method required under SFAS No. 109. Since the approach under both statements is similar, there was no significant income effect of the change on the recording of income taxes. Under SFAS No. 109, deferred tax assets or liabilities at the end of each period are determined by applying the current tax rate to the difference between the financial reporting and income tax basis of assets and liabilities. 21 23 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Net operating loss ("NOL") carryforwards are recognized under SFAS No. 109 unless it is "more likely than not" that they will not be realized. In 1993, the Company recorded a $1,242,000 valuation allowance related to the realization of deferred tax assets generated as a result of the 1993 restructuring and unusual charges. This valuation allowance was recorded due to the uncertainty surrounding the future utilization of such deferred tax assets. In 1994, the valuation allowance was eliminated based on the expected realization of such deferred tax assets. In the years immediately following an acquisition, the Company provides income taxes at the statutory income tax rate applied to pre-tax income. As part of its tax planning to reduce effective tax rates and cash outlays for taxes, the Company employs a number of strategies such as combining entities to reduce state income taxes, claiming tax credits not previously claimed and recapturing taxes previously paid by acquired companies. At such time as these reductions in the Company's deferred tax liabilities are determined to be realizable, the impact of the reduction is recorded as tax reserve adjustments in the tax provision. The Company's unaudited income tax provision for the first quarter of 1995 was offset by such adjustments. The Company's unaudited income tax provision of approximately 38% for the three and six months ended June 30, 1994 was offset by reductions in valuation allowance, as well as tax reserve adjustments. A reconciliation of the statutory federal income tax rate to the Company's effective tax rate as reported in the accompanying supplemental consolidated statements of operations is shown below:
Year Ended December 31, -------------------------------------- 1994 1993 1992 ---- ---- ---- Statutory federal income tax rate . . . . . . . 34.0% (34.0)% 34.0% Amortization of goodwill . . . . . . . . . . . 1.1 3.0 1.0 State income taxes, net of federal benefit . . 2.1 3.6 0.3 Tax reserve adjustments . . . . . . . . . . . . (22.7) - (30.0) Change in valuation allowance . . . . . . . . . (14.3) 39.7 - Kertz earnings (S-corporation) . . . . . . . . (0.6) (10.9) - Other, net . . . . . . . . . . . . . . . . . . 0.4 0.8 (0.4) ----- ----- ----- Effective tax rate . . . . . . . . . . . . . 0.0% 2.2% 4.9% ===== ===== =====
22 24 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Components of the net deferred income tax liability are shown below (in thousands):
December 31, --------------------------------- 1994 1993 ---- ---- Deferred income tax liabilities: Book basis in property over tax basis . . . . . . . . . $19,900 $20,400 Book capitalization of costs expensed for tax . . . . . - 31 ------- ------- 19,900 20,431 ------- ------- Deferred income tax assets: Net operating losses . . . . . . . . . . . . . . . . . (5,185) (5,890) Accrued environmental and landfill costs . . . . . . . (2,761) (3,054) Accruals not currently deductible . . . . . . . . . . . (722) (1,385) ------- ------- (8,668) (10,329) ------- ------- 11,232 10,102 Valuation allowance . . . . . . . . . . . . . . . . . . . . - 1,242 ------- ------- Net deferred income tax liability . . . . . . . . . . . . . $11,232 $11,344 ======= =======
At December 31, 1994, the Company had available U.S. NOL carryforwards of approximately $15,249,000 which expire $7,994,000, $6,342,000 and $913,000 in the years 2006, 2007 and 2008, respectively. 12. RELATED PARTY TRANSACTIONS The Company has entered into an agreement to lease office space for one of its subsidiaries with the former owner of this subsidiary who is a current officer of this subsidiary. The Company also utilizes companies affiliated with former owners of acquired businesses who are current officers of the Company's subsidiaries for hauling and other services. Aggregate payments for leases and such services were $132,000, $1,139,000 and $827,000 in 1994, 1993 and 1992, respectively. In September 1993, the Company internalized a portion of these hauling services through the acquisition of substantially all of the assets of a hauling company owned by an officer of a subsidiary of the Company for $370,000 cash. 23 25 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. OPERATIONS BY INDUSTRY SEGMENT (UNAUDITED) The following tables present information regarding the Company's different industry segments based on the historical operations of the Company (in thousands):
YEAR ENDED DECEMBER 31, --------------------------------------------- 1994 1993 1992 ---------- ---------- ----------- Revenue Solid waste services . . . . . . . . . . . . . $ 48,766 $ 41,095 $ 35,341 Electronic security services . . . . . . . . . 12,943 15,722 13,638 --------- ---------- ---------- $ 61,709 $ 56,817 $ 48,979 ========= ========== ========== Operating income (loss) Solid waste services . . . . . . . . . . . . . $ 9,490 $ (3,179) $ 2,840 Electronic security services . . . . . . . . . 213 612 356 Interest and other income (expense), net . . . . . . . (1,044) (566) 1,934 --------- ---------- --------- Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . $ 8,659 $ (3,133) $ 5,130 ========= ========== ========= Depreciation, depletion and amortization Solid waste services . . . . . . . . . . . . . $ 4,748 $ 3,940 $ 2,822 Electronic security services . . . . . . . . . 212 202 122 --------- ---------- --------- $ 4,960 $ 4,142 $ 2,944 ========= ========== ========= Capital expenditures Solid waste services . . . . . . . . . . . . . $ 5,452 $ 3,701 $ 10,414 Electronic security services . . . . . . . . . 483 629 404 --------- ---------- --------- $ 5,935 $ 4,330 $ 10,818 ========= ========== ========= Identifiable assets Solid waste services . . . . . . . . . . . . . $ 112,149 $ 104,364 $ 99,574 Electronic security services . . . . . . . . . 2,481 2,438 1,639 --------- ---------- --------- Total identifiable assets . . . . . . . . . . . 114,630 106,802 101,213 Net assets of discontinued operations . . . . . . . . . 20,292 16,872 28,533 --------- ---------- --------- Total assets . . . . . . . . . . . . . . . . . $ 134,922 $ 123,674 $ 129,746 ========= ========== =========
24 26 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (In thousands, except for per share amounts) Revenue 1994 $ 14,544 $16,234 $15,006 $ 15,925 1993 $ 12,933 $14,967 $14,462 $ 14,455 Gross profit 1994 $ 5,964 $ 6,090 $ 5,761 $ 6,202 1993 $ 5,520 $ 6,205 $ 6,002 $ 5,853 Income (loss) from 1994 $ 1,452 $ 2,585 $ 3,080 $ 1,542 continuing operations 1993 $ 1,173 $ 1,420 $ 1,728 $ (7,524)(a) Net income (loss) 1994 $ 1,306 $ 3,412 $ 4,068 $ 2,557 1993 $ 702 $ 1,315 $ 2,126 $(21,925) Earnings (loss) per share from 1994 $ 0.05 $ 0.09 $ 0.11 $ 0.05 continuing operations 1993 $ 0.04 $ 0.05 $ 0.06 $ (0.26)(a)
____________ (a) As discussed in Note 4, restructuring and unusual charges of $10,040 were recorded by the Company in the fourth quarter of 1993 to reorganize its operations. 15. SUBSEQUENT EVENTS (A) EQUITY INVESTMENT BY H. WAYNE HUIZENGA AND ASSOCIATES, WESTBURY (BERMUDA) LTD. AND HARRIS W. HUDSON. On May 21, 1995, the Company agreed to issue and sell in aggregate 8,350,000 shares of Common Stock and warrants to purchase an additional 16,700,000 shares of Common Stock to Mr. H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled by Mr. Michael G. DeGroote, then Chairman of the Board, President and Chief Executive Officer of Republic) and Mr. Harris W. Hudson, and certain of their assigns for an aggregate purchase price of $37,575,000. The warrants are exercisable at prices ranging from $4.50 to $7.00 per share effective August 3, 1995. In July 1995, the Company agreed to sell an additional 1,000,000 shares of Common Stock each to Mr. Huizenga and Mr. John J. Melk for $13.25 per share for aggregate proceeds of $26,500,000. These transactions were completed on August 3, 1995. On August 3, 1995, in connection with the equity investment, Mr. Huizenga was elected Chairman of the Board of Directors and Chief Executive Officer of Republic and Mr. DeGroote, former Chairman of the Board, President and Chief Executive Officer of the Company, was elected Vice Chairman of the Board. Additionally, Mr. Hudson was appointed as President of the Company and as a member of the Board of Directors. Mr. Gregory K. Fairbanks was appointed as Executive Vice President and Chief Financial Officer and Mr. Donald E. Koogler resigned as a director but remains as Executive Vice President and Chief Operating Officer of Republic. 25 27 REPUBLIC WASTE INDUSTRIES, INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (B) PRIVATE PLACEMENT TRANSACTIONS. In July 1995, the Company sold 5,400,000 shares of Common Stock in a private placement transaction for $13.25 per share, resulting in net proceeds of approximately $70 million after deducting fees and commissions. In September 1995, the Company sold 5,000,000 shares of Common Stock in an additional private placement transaction for $20.25 per share resulting in net proceeds of approximately $100 million after deducting fees and commissions. As a result of the transactions in (A) and (B) above, the Company received approximately $234 million in cash in July, August and September 1995. The Company used a portion of these proceeds to repay all outstanding borrowings under its revolving line of credit facility totaling approximately $15.5 million plus interest expense. (C) ACQUISITION OF HUDSON MANAGEMENT CORPORATION AND ENVIROCYCLE, INC. (the "Hudson Companies"). On August 3, 1995, the Company issued 8.0 million shares of Common Stock in exchange for all of the outstanding shares of common stock of the Hudson Companies, each of which is owned by Mr. Hudson. The Hudson Companies, as the third largest solid waste management company in Florida, provide solid waste collection and recycling services to commercial, industrial and residential customers. The acquisition will be accounted for using the purchase method of accounting. Subsequent to the acquisition, the Company repaid substantially all of the outstanding debt of the Hudson Companies which totaled approximately $11 million. (D) ACQUISITION OF SOUTHLAND ENVIRONMENTAL SERVICES. On August 24, 1995, Republic entered into a definitive agreement to acquire all of the outstanding common stock of Southland Environmental Services, Inc. in exchange for 2.6 million shares of Common Stock of Republic. Southland provides solid waste collection services in the Northeast Florida area serving over 70,000 residential and commercial customers. Southland also owns a transfer station, a construction and demolition landfill and provides composting and recycling services. This acquisition is expected to close in October 1995 and will be accounted for under the pooling-of-interests method of accounting. 26 28 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Boards of Directors of Hudson Management Corporation and Envirocycle, Inc.: We have audited the accompanying combined balance sheets of Hudson Management Corporation and subsidiaries and Envirocycle, Inc. (a Florida corporation and a Florida S-corporation, respectively, affiliated through common ownership) as of September 30, 1994 and 1993, and the related combined statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1994. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hudson Management Corporation and subsidiaries and Envirocycle, Inc. as of September 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, June 1, 1995 (except with respect to the matter discussed in Note 10, as to which the date is August 3, 1995). 27 29 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. 28 30 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. 29 31 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. 30 32 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. 31 33 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE JUNE 30, 1995 AND 1994 PERIODS IS UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Combination -- The combined financial statements include the accounts of Hudson Management Corporation and its wholly-owned subsidiaries and Envirocycle, Inc. (together, the "Companies"), which are affiliated through common ownership. All material intercompany transactions between Hudson Management Corporation, its subsidiaries and Envirocycle, Inc. have been eliminated. The accounts of Envirocycle, Inc. have been combined on the basis of a calendar year and include the years ended December 31, 1994 and 1993 and the period from commencement of operations (March 23, 1992) through December 31, 1992. For comparative purposes, the unaudited combined statements of income and cash flows for the nine month periods ended June 30, 1995 and 1994 include the accounts of Envirocycle, Inc. for the periods from October 1 through June 30. In the opinion of management, the unaudited combined financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the combined financial position of the Companies at June 30, 1995, and the combined results of their operations and cash flows for the nine months ended June 30, 1995 and 1994. Revenue Recognition -- Collection services may be billed up to four months in advance. Revenue on such advance billings is deferred until services are performed. Such amounts are included in deferred revenue and other credits in the accompanying combined balance sheets. Property and Equipment -- The Companies provide for depreciation using the straight-line method over the following estimated useful lives: 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. 32 34 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Intangible assets are amortized using the straight-line method over their estimated useful lives and are comprised of the following as of September 30, 1994 and 1993 (in thousands):
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. 33 35 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The unaudited pro forma effect of converting Envirocycle, Inc. from S-corporation status is as follows (in thousands):
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. 34 36 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (2) PROPERTY AND EQUIPMENT: A summary of property and equipment is shown below (in thousands):
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 the line of credit on February 28, 1995, the Companies obtained 35 37 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) a $1.5 million line of credit expiring February 28, 1996. The following are estimated aggregate future debt principal payments as of September 30, 1994 (in thousands):
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). 36 38 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The approximate future minimum lease payments (including related party leases and the lease renewal described above) are as follows (in thousands):
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% ===== ===== ===== ==== ==== ====
In 1993, Hudson Management Corporation adopted SFAS No. 109 with no material impact. Under SFAS No. 109, deferred tax assets or liabilities at the end of each period are determined by applying the current tax rate to the difference between the financial reporting and income tax bases of assets and liabilities. 37 39 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Components of the net deferred income tax liability are shown below (in thousands):
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. At September 30, 1994, the Companies had a $2.0 million letter of credit line with a bank of which $1.0 million has been used to guarantee the payment of claims under the Companies' workers' compensation self insurance plan. 38 40 HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) In the normal course of business, the Companies have performance and surety bonds which are not reflected in the accompanying combined balance sheets. The aggregate value of these off balance sheet financial instruments totaled approximately $5.3 million at September 30, 1994. The Companies' management believes that the likelihood of performance under these financial instruments is minimal and expects no material losses to occur in connection with these financial instruments. The Companies are involved in certain legal actions and claims arising in the ordinary course of business. Based on advice of legal counsel, it is the opinion of management that such litigation and claims will be resolved without material effect on the Companies' combined financial position. (8) 401(K) SAVINGS PLAN: Employees of the Companies may participate in a Section 401(k) savings plan, whereby the employees may elect to make contributions pursuant to a salary reduction agreement upon meeting certain age and length-of-service requirements. Effective January 1, 1995, the Companies elected to provide an employer matching contribution of 10% of each employee's contribution for fiscal 1995. The Companies made no matching contribution to the plan in 1994, 1993 or 1992. (9) STOCKHOLDERS' EQUITY: Capital stock consists of the following authorized, issued and outstanding shares as of September 30, 1994 and 1993:
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 Waste Industries, Inc. ("Republic") whereby Republic would acquire all of the outstanding capital stock of the Companies for eight million shares of Republic common stock. The merger agreements were consummated on August 3, 1995 upon approval by Republic's stockholders and regulatory agencies and completion of other customary closing conditions. 39 41 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES We have audited the accompanying consolidated balance sheets of Southland Environmental Services, Inc. and Subsidiaries as of September 30, 1994 and 1993, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Southland Environmental Services, Inc. and Subsidiaries as of September 30, 1994 and 1993, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. GRENADIER, APPLEBY, COLLINS & COMPANY Jacksonville, Florida December 9, 1994 40 42 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
September 30, June 30, ------------------------------------------- 1995 1994 1993 ----------- -------------- ------------- (Unaudited) CURRENT ASSETS Cash $ 525,754 $ 483,193 $ 313,811 Accounts receivable - trade 3,916,547 2,844,357 1,984,970 Allowance for doubtful accounts (167,409) (168,220) (100,950) Accounts receivable - other 210,451 101,941 65,086 Prepaid expenses 304,844 339,914 366,850 Refundable taxes -- 231,261 108,182 Other current assets 199,522 119,789 130,317 ----------- ----------- ----------- 4,989,709 3,952,235 2,868,266 ----------- ----------- ----------- PROPERTY, PLANT, AND EQUIPMENT, at cost 19,963,626 15,955,667 11,667,820 Less accumulated depreciation (7,824,425) (6,319,630) (5,305,976) ----------- ----------- ----------- 12,139,201 9,636,037 6,361,844 ----------- ----------- ----------- OTHER ASSETS Notes receivable 427,959 429,810 108,688 Cost in excess of net assets acquired - net 1,783,851 484,568 510,764 Other intangibles - net 232,944 196,829 235,965 Deposits and other 172,133 92,313 60,194 ----------- ----------- ----------- 2,616,887 1,203,520 915,611 ----------- ----------- ----------- $19,745,797 $14,791,792 $10,145,721 =========== =========== ===========
Read accompanying notes to the financial statements. 41 43 LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30, ------------------------------------- 1995 1994 1993 ------------ ------------ ------------- (Unaudited) CURRENT LIABILITIES Notes payable - bank $ 1,000 $ 1,000 $ 1,000 Notes payable - stockholders -- 44,568 154,024 Current maturities of long-term notes payable 2,181,953 1,856,414 1,318,008 Accounts payable 1,743,469 1,487,077 1,070,089 Accrued insurance -- 142,126 240,376 Other accrued liabilities 874,569 529,722 498,926 Deferred revenue 452,359 681,766 604,122 ---------- ----------- ----------- 5,253,350 4,742,673 3,886,545 ---------- ----------- ----------- LONG-TERM LIABILITIES Long-term notes payable 8,317,491 5,627,306 3,118,008 Deferred income taxes 970,991 740,976 585,804 ---------- ----------- ----------- 9,288,482 6,368,282 3,703,812 ---------- ----------- ----------- 14,541,832 11,110,955 7,590,357 ---------- ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $1 par value; 1,000,000 shares authorized, 600,000 shares issued and outstanding 600,000 600,000 600,000 Additional paid-in capital 1,664,224 1,664,224 1,664,224 Retained earnings 2,939,741 1,416,613 291,140 ----------- ----------- ----------- 5,203,965 3,680,837 2,555,364 ----------- ----------- ----------- $19,745,797 $14,791,792 $10,145,721 =========== =========== ===========
Read accompanying notes to the financial statements. 42 44 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended June 30, Years Ended September 30, --------------------------------- ------------------------------------ 1995 1994 1994 1993 ----------- ----------- ------------ ----------- (Unaudited) REVENUE Collection services $11,529,065 $ 9,550,197 $13,178,645 $11,317,242 Recycling services 6,740,451 2,976,868 4,558,860 3,584,591 Landfill and composting operations 2,453,529 2,277,574 3,116,624 3,269,396 ----------- ----------- ----------- ----------- 20,723,045 14,804,639 20,854,129 18,171,229 ----------- ----------- ----------- ----------- EXPENSES Operating expenses 13,912,006 10,028,294 14,335,026 13,024,409 Depreciation and amortization 1,579,777 1,185,871 1,701,377 1,337,450 Selling, general and administrative 2,270,087 1,847,849 2,547,112 2,035,653 ----------- ----------- ----------- ----------- 17,761,870 13,062,014 18,583,515 16,397,512 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 2,961,175 1,742,625 2,270,614 1,773,717 OTHER INCOME (EXPENSES) Interest expense (542,291) (342,744) (514,416) (374,792) Miscellaneous - net 34,425 40,109 57,475 178,820 ----------- ----------- ----------- ----------- (507,866) (302,635) (456,941) (195,972) ----------- ----------- ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE 2,453,309 1,439,990 1,813,673 1,577,745 PROVISION FOR INCOME TAXES 930,181 550,340 (688,200) (202,900) ----------- ----------- ----------- ----------- INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE 1,523,128 889,650 1,125,473 1,374,845 CUMULATIVE EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE -- -- -- (461,442) ----------- ----------- ----------- ----------- NET INCOME 1,523,128 889,650 1,125,473 913,403 UNAUDITED PROFORMA ADJUSTMENT TO REFLECT INCOME TAXES FOR S-CORPORATION EARNINGS (NOTE 9) -- -- -- (428,198) ----------- ----------- ----------- ----------- UNAUDITED PROFORMA NET INCOME (NOTE 9) $1,523,128 $ 889,650 $ 1,125,473 $ 485,205 =========== =========== =========== ===========
Read accompanying notes to the financial statements. 43 45 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1994 AND 1993
Common Stock -------------------------- Southland Additional Environmental Combined Paid-in Retained Treasury Services, Inc. Companies Capital Earnings Stock Total -------------- --------- ------------- ----------- --------------- ------------ BALANCES, September 30, 1992 $ - $ 27,875 $ 1,178,303 $ 656,737 ($ 230,930) $ 1,631,985 Contributions to capital - - 691,000 - - 691,000 Net income - - - 913,403 - 913,403 Dividends paid - - - (1,279,000) - ( 1,279,000) Exchange of stock - companies under common control 579,419 ( 27,498) ( 750,151) - 198,230 - Acquisition of minority interest 20,581 ( 377) 545,072 - 32,700 597,976 ----------- --------- ------------ ----------- ------------ ------------ BALANCES, September 30, 1993 600,000 - 1,664,224 291,140 - 2,555,364 Net income - - - 1,125,473 - 1,125,473 ----------- --------- ------------ ----------- ------------ ------------ BALANCES, September 30, 1994 $ 600,000 $ - $ 1,664,224 $ 1,416,613 $ - $ 3,680,837 =========== ========= ============ =========== ============ ============
Read accompanying notes to the financial statements. 44 46 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, Years Ended September 30, ------------------------------ -------------------------------- 1995 1994 1994 1993 ---------- ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) Net income $1,523,128 $ 889,650 $1,125,473 $ 913,403 Noncash items included in net income: Cumulative effect of a change in an accounting principle - - - 461,442 Depreciation and amortization 1,579,777 1,185,871 1,701,377 1,337,450 Net loss (gain) on disposal of property and equipment 36,647 (8,453) 3,927 (94,305) Deferred taxes 230,015 109,340 148,250 35,200 Net increase in trade and other receivables (1,269,294) (785,162) (797,363) (95,107) (Increase) decrease in trade notes receivable (3,502) (313,060) (362,786) 4,712 Decrease (increase) in inventory, prepaid expenses and other current assets 9,397 198,379 26,854 (100,455) Increase (decrease) in accounts payable 256,392 458,346 426,705 (448,332) (Decrease) increase in other accrued liabilities 202,721 (500,027) (67,454) 66,397 (Decrease) increase in deferred revenue (229,407) 61,216 77,644 38,691 ---------- ---------- ---------- ---------- Net cash provided by operating activities 2,335,874 1,296,100 2,282,627 2,119,096 ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Business acquisition (2,853,550) - - - Proceeds from sale of property and equipment 215,500 31,643 143,283 303,816 Purchase of property, plant, and equipment (2,183,996) (2,802,100) (3,791,931) (353,422) Net (increase) decrease in refundable taxes 231,261 88,983 (123,079) (108,182) Increase in deposits and other assets (158,460) (2,991) (63,822) (81,049) Collections from affiliates - - - 100,325 Collections from stockholders/officers - - - 462,018 ---------- ---------- ---------- ---------- Net cash (used) provided by investing activities (4,749,245) (2,684,465) (3,835,549) 323,506 ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of stockholder loan (44,568) (105,806) (109,456) (330,000) Proceeds from long-term debt 5,182,642 3,950,000 3,967,269 464,779 Principal payments on long-term debt and capital lease obligations (2,682,142) (1,310,145) (2,135,509) (1,645,723) Contributions to capital - - - 691,000 Proceeds from line of credit - net - - - 1,000 Payment of bank overdraft - - - (33,097) Dividends paid - - - (1,279,000) ---------- ---------- ---------- ---------- Net cash provided (used) by financing activities 2,455,932 2,534,049 1,722,304 (2,131,041) ---------- ---------- ---------- ----------
Read accompanying notes to the financial statements. 45 47
Nine Months Ended June 30, Years Ended September 30, ------------------------------ -------------------------------- 1995 1994 1994 1993 -------- ---------- ---------- ---------- (Unaudited) NET INCREASE IN CASH $ 42,561 $1,145,684 $ 169,382 $ 311,561 CASH - BEGINNING OF YEAR 483,193 313,811 313,811 2,250 -------- ---------- ---------- ---------- CASH - END OF YEAR $525,754 $1,459,495 $ 483,193 $ 313,811 ======== ========== ========== ========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Notes payable and capital lease obligations incurred for purchase of property and equipment $515,224 $ 958,033 $1,215,944 $1,168,068 ======== ========== ========== ========== Adjustment to purchase price of recycling company - $ 75,901 $ 75,901 $ - ======== ========== ========== ========== Refinance debt $ - $ - $ - $1,148,127 ======== ========== ========== ========== Collections from affiliates $ - $ - $ - $ 11,589 ======== ========== ========== ========== Acquisition of minority interest $ - $ - $ - $ 701,400 ======== ========== ========== ========== Exchange of stock - Companies under $ - $ - $ - $1,966,598 common control ======== ========== =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $468,870 $ 416,416 $ 514,416 $ 380,867 ======== ========== =========== ========== Cash paid during the year for income taxes $603,750 $ 441,761 $ 561,760 $ 140,000 ======== ========== =========== ==========
46 48 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements for the years ended September 30, 1994 and 1993 include the accounts of Southland Environmental Services, Inc. ("SES") (formerly Southland Environmental Systems, Inc.) and its wholly-owned subsidiaries (the "Company"). The financial statements for the year ended September 30, 1993 were prepared on a combined basis from October 1, 1992 through March 31, 1993 and on a consolidated basis from April 1, 1993 through September 30, 1993. All significant intercompany transactions and balances have been eliminated. On April 1, 1993, the majority stockholder contributed his entire interest in the combined companies to the capital of SES, a newly formed holding company. The capital contribution was accounted for at historical cost in a manner similar to a pooling of interest. Immediately after the contribution of the majority stockholder, the holding company issued stock to the minority stockholders for their entire interests in two of the combined companies in a transaction accounted for as a purchase. The total cost of the acquisition was $701,400 which exceeded the net assets by $597,976. Equipment values were increased by $118,832 based on appraised value and will be amortized over the average estimated remaining useful lives of the assets. The cost in excess of net assets acquired was $523,860. Deferred income taxes of $44,716 have been provided for the difference between the assigned values and the tax basis of the acquired assets. In the opinion of management, the unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company at June 30, 1995, and the consolidated results of their operations and cash flows for the nine months ended June 30, 1995 and 1994. Cash Cash includes all cash balances and highly liquid investments in money market accounts. The Company places its temporary cash investments with a high quality financial institution. At times, such investments may be in excess of FDIC insurance limits. The Company does not believe it is exposed to any significant credit risk on cash and cash equivalents. Inventory Inventories consisting primarily of recyclable material are valued at the lower of cost, determined on the first-in, first-out method, or market and are classified as other current assets in the consolidated financial statements. Property, Plant and Equipment The cost of property, plant, and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed using the straight-line method for financial reporting purposes and on the modified and accelerated cost recovery systems for income tax purposes. 47 49 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Property, Plant and Equipment - Continued Maintenance and repairs are charged to expense as incurred. Betterments and renewals are capitalized. The asset cost and accumulated depreciation are removed from the accounts for assets sold or retired, and any resulting gain or loss is included in consolidated net income. The estimated useful lives of assets for the purpose of computing depreciation are as follows:
Years ------- Buildings and improvements 15-31 Vehicles and heavy equipment 3-8 Containers and compactors 5-8 Recycling equipment 7-8 Furniture and equipment 5-7
Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred Revenue Amounts billed to customers in advance of the service provided are deferred and are not recognized as earned revenue until the period in which the service is performed. Amortization Costs in excess of net assets acquired of $523,860 resulted from the acquisition of the minority interest in two subsidiary companies during 1993, and is being amortized on the straight-line basis over twenty years. Accumulated amortization was $39,292 and $13,096 at September 30, 1994 and 1993, respectively. Other intangibles include costs of $565,656 incurred in connection with debt acquisition and refinancing, legal fees for organization and acquisition of the parent and certain subsidiaries, noncompete agreements and franchise rights. Costs are being amortized on the straight-line method over periods from four to twenty years. Accumulated amortization for the years ended September 30, 1994 and 1993, was $368,827 and $280,119, respectively. 48 50 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Amortization - Continued Amortization expense for the years ended September 30, 1994 and 1993, was $114,904 and $103,051, respectively. Reclassification Certain reclassifications have been made in the September 30, 1993 consolidated financial statements to conform to classifications used in the September 30, 1994 consolidated financial statements. 2. CONSOLIDATED SUBSIDIARIES SES provides waste collection, landfill, composting and recycling services in northeast Florida through its wholly-owned subsidiaries as follows: SOUTHLAND WASTE SYSTEMS, INC. provides commercial and industrial waste collection services to a broad range of customers throughout Duval and Clay counties. SEABOARD WASTE SYSTEMS, INC. (formerly Seaboard Sanitation, Inc.) provides commercial, industrial and residential waste collection services throughout northern St. Johns County under an exclusive franchise agreement whose current term expires January, 2001, with provision for successive five year renewals at the option of the county. SOUTHLAND WASTE SYSTEMS OF JAX, INC. (formerly Southland Services of Jacksonville, Inc.) provides residential waste collection to approximately 28,700 homes in Duval County under a contract expiring in December, 1996. Management expects this contract to be renewed. NINE MILE ROAD, INC. owns and operates the only construction and demolition landfill and yard waste composting facility in St. Johns County. SOUTHLAND RECYCLING SERVICES, INC. (formerly Covenant Recycling Services, Inc.) operates a recycling facility where it processes and markets recyclable materials, predominately office paper and cardboard, collected from commercial customers. ENVIRO-COMP SERVICES, INC. operates a yard waste/mulching and composting facility under a contract with the City of Jacksonville which expires September, 2001 with provision that the city may extend the contract for two additional five year terms. Payments are made to the Company by the City based on a rate per ton for yard waste delivered to the facility for processing. 49 51 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. CONSOLIDATED SUBSIDIARIES - Continued During 1994, the contract with the City was amended to permit the establishment of an additional processing facility on Company owned land. The City agreed to reimburse the Company for the construction cost of the new facility not to exceed $650,000. The agreement provides for immediate cash payments of $270,000 and execution of a note to the Company payable monthly over five years with interest at 5.25% for the remaining costs. In addition, the City will share equally in the profits from the sale of each truck load of processed material after deduction of certain defined costs. At September 30, 1994, the facility was substantially complete and allowable construction costs were $634,520. This amount, less the $270,000 cash payment, is reflected on the consolidated financial statements in accordance with the contractual term of repayment. The current portion of $60,753 is included in accounts receivable - other. SOUTHLAND MAINTENANCE SERVICES, INC. provides vehicle repairs and maintenance services to all operating companies in the consolidated group. 3. NOTES RECEIVABLE Notes receivable consisted of the following at September 30:
1994 1993 --------- --------- Installment notes receivable from retail equipment sales; aggregate monthly payments of $2,978 including interest at 9.6% to 26.7%; due through September, 1999 (net of deferred interest income of $19,156) $ 74,529 $ 38,543 Receivable from a municipality; monthly payments of $6,075 with interest at 5.25%; due through March, 2000. 364,520 - Note receivable from an individual; monthly payments of $677 including interest at 9%; due through August, 2013; collateralized by land and building 74,033 75,085 Other notes 4,511 12,889 --------- --------- 517,593 126,517 Less: current portion ( 87,783) ( 17,829) --------- --------- $ 429,810 $ 108,688 ========= =========
50 52 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. NOTES RECEIVABLE - OTHER - Continued The current portion of notes receivable is included in accounts receivable - other on the consolidated balance sheets. 4. REFUNDABLE TAXES A subsidiary has applied to the State of Florida for a refund of $175,000 representing sales taxes paid on equipment purchased for use in a yard waste composting facility. Florida law permits a sales tax exemption for qualified resource recovery equipment as defined in state statutes and certified by the Florida Department of Environmental Protection ("DEP"). DEP has certified all equipment listed on the application as qualifying for the exemption. The refund amount was recognized as a reduction of the cost basis of the qualifying assets. Additionally, refundable taxes includes Federal income tax deposits of $56,261 at September 30, 1994. A permanent income tax deposit of $108,182 previously required to maintain a September 30 year end under Subsection S of the Internal Revenue Code was available for refund at September 30, 1993. 5. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consisted of the following at September 30:
1994 1993 ------------- ------------- Land and land improvements $ 1,204,062 $ 858,656 Buildings and improvements 824,547 703,701 Vehicles and heavy equipment 10,242,124 7,171,692 Containers and compactors 2,366,457 1,817,112 Recycling equipment 781,555 701,360 Furniture and equipment 536,922 415,299 ------------ ------------ 15,955,667 11,667,820 Less: accumulated depreciation ( 6,319,630) ( 5,305,976) ------------ ------------ $ 9,636,037 $ 6,361,844 ============ ============
Depreciation expense for the years ended September 30, 1994 and 1993, was $1,586,473 and $1,234,399, respectively. 51 53 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. NOTES PAYABLE - BANK The Company has a $500,000 revolving line of credit with a bank bearing interest at 1/2% above the bank's prime interest rate. Borrowings against the line of credit were $1,000 at September 30, 1994 and 1993. The loan is collateralized by accounts receivable, guaranteed by the Company's majority stockholder, and contains various covenants which include maintenance of minimum tangible net worth and restrictions on the debt to equity ratio. At September 30, 1994, the Company had exceeded the required debt to equity ratio which is a breach of the loan agreement. The bank has waived that requirement as of September 30, 1994. 7. NOTES PAYABLE - STOCKHOLDERS Notes payable - stockholders are unsecured, have no fixed payment terms, bear interest at the applicable federal rate, and are subordinated to bank notes payable. 8. LONG-TERM NOTES PAYABLE Long-term notes payable consisted of the following at September 30:
1994 1993 ------------ ------------ Industrial Development Revenue Bond - City of Jacksonville; payable monthly in varying installments from $2,083 to $2,578 plus interest at 86% of the prime commercial rate; due February, 2005; collateralized by property and equipment with a net book value of $367,100 at September 30, 1994 $ 325,417 $ 350,417 Notes payable to bank; monthly payments aggregating $73,773 plus interest varying from prime plus 1% to 9.82% fixed; due through June, 2001; collateralized by substantially all property, plant, and equipment 4,652,381 1,501,016 Mortgage note payable to a corporation; monthly payments of $1,087 including interest at 8%; due through June, 2011; collateralized by land, land improvements and facilities with a net book value of $538,000 at September 30, 1994 120,491 123,757
52 54 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. LONG-TERM NOTES PAYABLE - Continued
1994 1993 ------------ ------------ Capital lease obligations with monthly payments aggregating $8,907 at rates from 5.595% to 12.79%; due through December, 1997; collateralized by vehicles and equipment with a net book value of $264,600 at September 30, 1994 218,034 379,537 Equipment purchase notes payable to corporate lenders in monthly installments aggregating $101,302 at rates from 5.90% to 10.50%; due through July, 1999; collateralized by vehicles and equipment with a net book value of $2,799,000 at September 30, 1994 2,001,429 1,900,850 Note payable to individual; monthly payments of $10,246 including interest at 6 1/2%; due February, 1995 165,968 180,439 ----------- ----------- 7,483,720 4,436,016 Less: current maturities ( 1,856,414) ( 1,318,008) ----------- ----------- $ 5,627,306 $ 3,118,008 =========== ===========
The Industrial Development Revenue Bond was issued to a subsidiary and is guaranteed by the Company's majority stockholder and two other subsidiaries. The Bond contains various financial covenants pertaining to the maintenance of net worth, ratio of total liabilities to net worth, ratio of net income and noncash items to current maturities of long-term debt, long-term debt limit, and key man life insurance. The Company was in compliance with all covenants at September 30, 1994, and 1993. A subsidiary acquired certain assets and assumed certain liabilities of a recycling company during 1991 in a business combination accounted for as a purchase. The acquisition agreement provided that the purchase price could be increased by a maximum of $204,269 as determined by gross profits of the subsidiary through December 31, 1994. During 1994, in settlement of claims made by the previous owner, the acquisition agreement was modified to eliminate all adjustments to the purchase price based on gross profits and increase the purchase price by $75,901. The additional cost was recognized as an increase in equipment values based upon appraisal at the date of acquisition and will be amortized over the average estimated remaining useful lives of the assets. 53 55 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. LONG-TERM NOTES PAYABLE - Continued Maturities of long-term notes payable are as follows:
Year Ended Notes Capital September 30, Payable Leases Total ------------- ------------ ----------- ------------- 1995 $ 1,774,550 $ 81,864 $ 1,856,414 1996 1,437,193 51,359 1,488,552 1997 1,281,485 79,619 1,361,104 1998 1,228,870 5,192 1,234,062 1999 695,610 - 695,610 Thereafter 847,978 - 847,978 --------- ----------- ----------- $ 7,265,686 $ 218,034 $ 7,483,720 ========= =========== ===========
9. INCOME TAXES The components of income tax expense for the years ended September 30 are as follows:
1994 1993 ---------- --------- Current: Federal $ 461,150 $ 143,200 State 78,800 24,500 ---------- ---------- Current Total $ 539,950 $ 167,700 ========== ========== Deferred: Federal $ 126,550 $ 33,200 State 21,700 2,000 ---------- ---------- Deferred Total $ 148,250 $ 35,200 ---------- ---------- $ 688,200 $ 202,900 ========== ==========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30 are as follows:
1994 1993 ---------- --------- Deferred tax assets: Accruals and reserves not currently deductible $ 45,762 $ 39,954 Other 5,535 4,384 ---------- ---------- $ 51,297 $ 44,338 ========== ========== Deferred tax liabilities: Book basis in property over tax basis $ 738,488 $ 580,836 Other 2,488 4,968 ---------- ---------- $ 740,976 $ 585,804 ========== ==========
54 56 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES - Continued Effective March 31, 1993, the combined companies terminated their election to be taxed under Subsection S of the Internal Revenue Code. Prior to the termination, the companies generally did not pay corporate income taxes. Instead, the stockholders were liable for individual income taxes on their respective share of each company's taxable income. Generally, the stockholders funded tax payments with dividends from the companies. The unaudited pro forma adjustment to reflect income taxes for S-corporation earnings included in the accompanying consolidated statements of income is for informational purposes only. Income taxes have been provided at an estimated effective tax rate of 40%. A reconciliation between the effective income tax rate and the applicable statutory federal income tax rate for the fiscal years ended September 30, is as follows:
1994 1993 ------------------------ ------------------------ Percent of Percent of Pre-tax Pre-tax Amount Income Amount Income -------- ------ -------- ------ Tax at federal statutory rate $ 616,650 34.0% $ 536,450 34.0% State Income Tax, net of federal tax benefit 65,850 3.6 16,200 1.0 Tax effect of Subsection S income - - ( 358,350) (22.7) Other, net 5,700 .3 8,600 0.5 --------- ----- --------- ----- $ 688,200 37.9% $ 202,900 12.8% ========= ===== ========= =====
10. CUMULATIVE EFFECT ON PRIOR YEAR OF CHANGE IN AN ACCOUNTING PRINCIPLE Effective April 1, 1993, the Company adopted FASB Statement 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The cumulative effect of the change for periods prior to April 1, 1993, was $461,442 and is included as a charge to income in 1993. 55 57 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. PROFIT SHARING PLAN The Company has a 401(k) profit sharing/savings plan covering all employees meeting age and length of service requirements. Employees may elect to make contributions of up to 10% of their compensation pursuant to a salary reduction agreement. The Company has elected to make a discretionary matching contribution not to exceed 3% of the employee's compensation. Company matching contributions to the Plan were $50,749 and $64,926 for the years ended September 30, 1994, and 1993, respectively. In addition, the Company, at its option, may contribute additional amounts to the Plan. 12. INSURANCE PLANS Worker's Compensation The Company participates in the Employers Self Insurance Fund. Under this plan, the Company pays a minimum premium for administrative costs which is expensed when incurred. The Company is also required to maintain a minimum claim fund deposit of $27,700 which is included in prepaid expenses on the consolidated financial statements. Participating companies make periodic payments to the fund for paid claims up to a maximum amount of 100% of the standard premium plus a loss conversion of 15% of paid claims. The Company has provided a $276,000 payment bond to guarantee claim payments as required by rules established by the fund trustees. As of September 30, 1994, the Company has provided an allowance for all known significant unpaid or open claims. In the opinion of management, this insurance plan is adequate to cover loss contingencies based upon the historical experience of the Company. Health Insurance During fiscal year 1994, the Company instituted a self-funded program for providing health insurance benefits to employees. Aggregate and specific stop-loss coverage was obtained to limit risk. Claim payments reached the maximum amount under the aggregate stop-loss coverage prior to September 30, 1994, and no further liability exists through the policy year ended October 31, 1994. 56 58 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. COMMITMENTS & CONTINGENCIES Future minimum payments under capital leases and noncancelable operating leases having initial or remaining terms in excess of one year as of September 30, 1994, were as follows:
Capital Operating September 30, Leases Leases ------------- --------- --------- 1995 $ 99,427 $ 85,640 1996 59,558 10,765 1997 83,248 1,770 1998 5,253 - 1999 - - --------- --------- 247,486 $ 98,175 ========= Less: amounts attributable to interest 29,452 --------- Present value of minimum lease payments (current portion $81,864) $ 218,034 =========
Rental expense for all operating leases amounted to $154,622 and $181,427 for the years ended September 30, 1994 and 1993, respectively. At September 30, 1993, the Company had outstanding payment/performance bonds of $2,261,000 issued primarily in connection with landfill and waste collection operating performance and participation in the Employers Self Insurance Worker's Compensation Fund. The payment/performance bonds are collateralized by a $275,000 bank letter of credit. A subsidiary engaged in operating a construction and demolition landfill is party to a depletion agreement with the prior owners of the property providing for the payment of a fee based upon the tons of debris accepted at the landfill. In addition, the subsidiary has entered into an agreement with the county which provides for payment of a host fee based upon the tons of debris accepted at the landfill. Total fees paid for 1994 and 1993 were $366,524 and $351,861, respectively. The company has also granted the prior owners of the property the option, for a period of ten years after the landfill reaches capacity, to reacquire the 89 acre site for an amount equal to the greater of the remaining principal balance due under the purchase money mortgage between the parties or $100 per acre. Two subsidiaries of the Company provide services to the City of Jacksonville which represents more than 10% of the revenues of the consolidated group. These revenues represented 25.0% and 30.2% in 1994 and 1993, respectively. 57 59 SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. COMMITMENTS & CONTINGENCIES - Continued Financial instruments which potentially expose the Company to concentration of credit risk consist primarily of accounts receivable. Management believes these risks are limited due to the large number of customers and contracts with municipalities along with generally short payment terms. The Company is subject to certain federal, state and local environmental laws and regulations. The Company has not experienced any significant regulatory problems, is not involved in litigation over environmental matters, and believes it is in substantial compliance with all applicable environmental laws and regulations. No provision for anticipated future costs of environmental remediation has been made and such costs, if any, are not expected to have a material adverse effect on the Company's financial position. 14. SUBSEQUENT EVENTS (UNAUDITED) Subsequent to December 9, 1994, the date of the last auditors' report, two of the Company's competitors merged. Both of the competing companies provided residential collection services under contracts with the City of Jacksonville, Florida. As the result of rulings from governmental agencies, the surviving competitor was required to divest certain segments of the residential market. On March 29, 1995, the Company purchased the residential contract rights and certain assets from the competitor for $4,030,000. Concurrent with this transaction, the City of Jacksonville passed an ordinance approving the transfer of the contract rights to the Company and authorized the realignment and reduction of the city's residential waste collection service areas from four to three. The ordinance also extended the Company's contract through September 30, 2001. As a result of realignment, the Company realized excess service units. Collection service providers in the other two service areas paid the Company $1,176,450 for this excess based on the increased number of service units in their respective areas. On August 24, 1995, the Company entered into a definitive agreement with Republic Waste Industries, Inc. ("Republic") under which the Company would exchange all of its outstanding common stock for 2.6 million shares of Republic common stock. The transaction will be accounted for under the pooling-of-interests method of accounting. 58 60 (b) Pro Forma Financial Information: The following pro forma financial information is included herein pursuant to Item 7 (b):
Page ---- Unaudited Condensed Consolidated Pro Forma Financial Statements. . . . . . . . . . . . . . 60 Unaudited Condensed Consolidated Pro Forma Balance Sheet as of June 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Six Months Ended June 30, 1995. . . . . . . . . . . . . . . . . . . 62 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year Ended December 31, 1994. . . . . . . . . . . . . . . . . . . . 63 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year Ended December 31, 1993. . . . . . . . . . . . . . . . . . . . 64 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year Ended December 31, 1992. . . . . . . . . . . . . . . . . . . . 65 Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements . . . . . . . . . 66
59 61 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS REPUBLIC WASTE INDUSTRIES, INC., AND SUBSIDIARIES, HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC., AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES The following unaudited condensed consolidated pro forma financial statements include the supplemental consolidated financial statements of Republic Waste Industries, Inc. and subsidiaries (the "Company") which include the financial position and results of operations of Kertz Security Systems II, Inc. and Kertz Security Systems, Inc. ("Kertz"), with which the Company merged in August 1995. This transaction has been accounted for under the pooling of interests method of accounting and, accordingly, the Company's supplemental consolidated financial statements have been retroactively adjusted as if the Company and Kertz had operated as one entity since inception. The following unaudited condensed consolidated pro forma balance sheet presents the pro forma financial position of the Company as of June 30, 1995 as if the acquisition of Hudson Management Corporation and subsidiaries and Envirocycle, Inc. ("Hudson") and the pending acquisition of Southland Environmental Services, Inc. and subsidiaries ("Southland") had been consummated as of June 30, 1995. The balance sheet also contains pro forma adjustments for a series of equity transactions involving the sale of common stock and warrants (the "Equity Transactions") as if the Equity Transactions had been consummated as of June 30, 1995. The following unaudited condensed consolidated pro forma statements of operations for the six months ended June 30, 1995 and the year ended December 31, 1994 present the pro forma results of continuing operations of the Company as if the acquisition of Hudson, the pending acquisition of Southland and the Equity Transactions had been consummated at the beginning of the periods presented. The following unaudited condensed consolidated pro forma statements of operations for the years ended December 31, 1993 and December 31, 1992 present the pro forma results of continuing operations of the Company as if the pending acquisition of Southland, which will be accounted for under the pooling of interests method of accounting, had been consummated at the beginning of the periods presented. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical and supplemental consolidated financial statements and notes thereto of the Company, Hudson and Southland. The unaudited pro forma income from continuing operations per common and common equivalent share is based on the combined weighted average number of common shares and common share equivalents outstanding which include, where appropriate, the assumed exercise or conversion of warrants and options. Unless otherwise presented, the difference between primary and fully diluted earnings per share is not significant. In computing the unaudited pro forma income from continuing operations per common and common equivalent share, the Company utilizes the treasury stock method or the modified treasury stock method where applicable. When using the modified treasury stock method, the proceeds from the assumed exercise of all warrants and options are assumed to be applied to first purchase 20% of the outstanding common stock, then to reduce outstanding indebtedness and the remaining proceeds are assumed to be invested in U.S. government securities or commercial paper. The increase to income from continuing operations, net of tax, from such interest savings and interest income was approximately $874,000 on a primary basis and $0 on a fully diluted basis for the six months ended June 30, 1995. The increase to income from continuing operations for the year ended December 31, 1994 was approximately $1,843,000. The unaudited condensed consolidated pro forma financial statements were prepared utilizing the accounting policies of the respective entities as outlined in their historical financial statements except as described in the accompanying notes. The acquisition of Hudson was accounted for under the purchase method of accounting. Accordingly, the unaudited condensed consolidated pro forma financial statements reflect the Company's preliminary allocation of purchase price of Hudson which will be subject to further adjustments as the Company finalizes the allocation of the purchase price in accordance with generally accepted accounting principles. The unaudited pro forma condensed consolidated results of operations do not necessarily reflect actual results which would have occurred if the acquisition, pending acquisition or Equity Transactions had taken place on the assumed dates, nor are they necessarily indicative of the results of future combined operations. 60 62 REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES, HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC., AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET AS OF JUNE 30, 1995 (In thousands)
PRO FORMA ADJUSTMENTS THE EQUITY -------------------- COMPANY HUDSON TRANSACTIONS SOUTHLAND COMBINED DR. CR. PRO FORMA -------- ------ ------------ --------- -------- ------- ------- --------- ASSETS Current assets Cash and cash equivalents........ $ 3,089 $ 630 $234,275 $ 526 $238,520 $43,143(a) $195,377 Accounts receivable, net......... 9,288 5,765 3,960 19,013 19,013 Prepaid expenses and other current assets................. 4,282 2,217 504 7,003 7,003 -------- ------- -------- ------- ------- ------- ------- -------- Total current assets....... 16,659 8,612 234,275 4,990 264,536 43,143 221,393 Property and equipment, net...... 88,330 18,589 12,139 119,058 119,058 Goodwill, net of accumulated amortization................... 12,969 2,679 2,017 17,665 $33,423(c) 2,679(b) 48,409 Other assets..................... 1,136 51 600 1,787 1,787 -------- ------- -------- ------- -------- ------- ------- -------- Total assets............... $119,094 $29,931 $234,275 $19,746 $403,046 $33,423 $45,822 $390,647 ======== ======= ======== ======= ======== ======= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses....................... $ 7,742 $ 7,154 $ 2,618 $ 17,514 $ 17,514 Current maturities of long-term debt and notes payable......... 1,937 3,596 2,183 7,716 $ 7,716(a) - Deferred revenue and other current liabilities............ 2,383 2,316 452 5,151 5,151 -------- ------- -------- ------- -------- ------- ------- -------- Total current liabilities.............. 12,062 13,066 5,253 30,381 7,716 22,665 Long-term debt, net of current maturities..................... 18,172 8,937 8,318 35,427 35,427(a) - Accrued environmental and landfill costs, net of current maturities............. 7,267 - - 7,267 7,267 Deferred income taxes............ 11,933 1,320 971 14,224 14,224 -------- ------- -------- ------- -------- ------- ------- -------- Total liabilities.......... 49,434 23,323 14,542 87,299 43,143 44,156 -------- ------- -------- ------- -------- ------- ------- -------- Stockholders' equity Common stock..................... 283 $ 208 491 $ 106(f) 597 Additional paid-in capital....... 67,858 73 234,067 2,264 304,262 1,809(e) 37,272(f) 341,435 26(f) 1,736(d) Retained earnings................ 1,744 6,535 2,940 11,219 1,736(d) 4,684 4,799(e) Notes receivable arising from stock purchase agreements........ (225) (225) (225) -------- ------- -------- ------- -------- ------- ------- -------- Total stockholders' equity................... 69,660 6,608 234,275 5,204 315,747 8,370 39,114 346,491 -------- ------- -------- ------- -------- ------- ------- -------- Total liabilities and stockholders' equity..... $119,094 $29,931 $234,275 $19,746 $403,046 $51,513 $39,114 $390,647 ======== ======= ======== ======= ======== ======= ======= ========
The accompanying notes are an integral part of this pro financial statement. 61 63 REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES, HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC., AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 (In thousands, except per share data)
PRO FORMA ADJUSTMENTS THE --------------------- COMPANY HUDSON SOUTHLAND COMBINED DR. CR. PRO FORMA -------- ------- --------- -------- ------- ------- --------- Revenue $35,701 $28,617 $15,273 $79,591 $79,591 Expenses: Cost of operations 22,558 20,607 11,003 54,168 $ 418 (g) $ 248 (h) 54,338 Selling, general and administrative 6,932 5,061 1,680 13,673 447 (i) 13,226 Other (income) expense: Interest and other income (168) (44) -- (212) (212) Interest expense 816 376 392 1,584 1,584 (j) - ------- ------- ------- ------- ------- ------ ------- 30,138 26,000 13,075 69,213 418 2,279 67,352 ------- ------- ------- ------- ------- ------ ------- Income from continuing operations before income taxes 5,563 2,617 2,198 10,378 418 2,279 12,239 Income tax provision 1,523 1,047 832 3,402 658 (k) 4,060 ------- ------- ------- ------- ------- ------ ------- Income from continuing operations $ 4,040 $ 1,570 $ 1,366 $ 6,976 $ 1,076 $2,279 $ 8,179 ======= ======= ======= ======= ======= ====== ======= Primary: Earnings per share from continuing operations $ 0.14 $ 0.16 ======= ======= Weighted average shares outstanding 28,778 56,120 ======= ======= Fully Diluted: Earnings per share from continuing operations $ 0.13 $ 0.14 ======= ======= Weighted average shares outstanding 30,019 59,414 ======= =======
The accompanying notes are an integral part of this pro forma financial statement. 62 64 REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES, HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC., AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 (In thousands, except per share data)
PRO FORMA ADJUSTMENTS THE --------------------- COMPANY HUDSON SOUTHLAND COMBINED DR. CR. PRO FORMA -------- ------- --------- -------- ------- ------- --------- Revenue $61,709 $48,003 $20,854 $130,566 $130,566 Expenses: Cost of operations 37,692 35,048 16,036 88,776 $ 836 (g) $ 494 (h) 89,118 Selling, general and administrative 14,314 9,444 2,547 26,305 1,787 (i) 24,518 Other (income) expense: Interest and other income (154) -- (57) (211) (211) Interest expense 1,198 505 514 2,217 2,217 (j) - ------- ------- ------- -------- ------- ------ -------- 53,050 44,997 19,040 117,087 836 4,498 113,425 ------- ------- ------- -------- ------- ------ -------- Income from continuing operations before income taxes 8,659 3,006 1,814 13,479 836 4,498 17,141 Income tax provision - 1,269 688 1,957 1,266 (k) 3,223 ------- ------- ------- -------- ------- ------ -------- Income from continuing operations $ 8,659 $ 1,737 $ 1,126 $ 11,522 $ 2,102 $4,498 $ 13,918 ======= ======= ======= ======== ======= ====== ======== Earnings per share from continuing operations $ 0.30 $ 0.29 ======= ======== Weighted average shares outstanding 28,507 54,884 ======= ========
The accompanying notes are an integral part of this pro forma financial statement. 63 65 REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES, AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 (In thousands, except per share data)
PRO FORMA ADJUSTMENTS THE --------------------- COMPANY SOUTHLAND COMBINED DR. CR. PRO FORMA -------- --------- -------- ------- ------- --------- Revenue $56,817 $18,171 $74,988 $74,988 Expenses: Cost of operations 33,237 14,361 47,598 47,598 Selling, general and administrative 16,107 2,036 18,143 18,143 Restructuring and unusual charges 10,040 - 10,040 10,040 Other (income) expense: Interest and other income (167) (178) (345) (345) Interest expense 733 375 1,108 1,108 ------- ------- ------- ------- ------ ------- 59,950 16,594 76,544 76,544 ------- ------- ------- ------- ------ ------- Income (loss) from continuing operations before income taxes (3,133) 1,577 (1,556) (1,556) Income tax provision 70 631 701 $ 32 (k) 669 ------- ------- ------- ------- ------ ------- Income (loss) from continuing operations $(3,203) $ 946 $(2,257) $ - $ 32 $(2,225) ======= ======= ======= ======= ====== ======= Loss per share from continuing operations $ (0.11) $ (0.07) ======= ======= Weighted average shares outstanding 28,598 31,198 ======= =======
The accompanying notes are an integral part of this pro forma financial statement. 64 66 REPUBLIC WASTE INDUSTRIES, INC. AND SUBSIDIARIES, AND SOUTHLAND ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1992 (In thousands, except per share data)
PRO FORMA ADJUSTMENTS THE -------------------- COMPANY SOUTHLAND COMBINED DR. CR. PRO FORMA -------- --------- -------- ------- ------- --------- Revenue $48,979 $15,139 $64,118 $64,118 Expenses: Cost of operations 28,808 11,940 40,748 40,748 Selling, general and administrative 14,725 1,805 16,530 16,530 Restructuring and unusual changes 2,250 - 2,250 2,250 Other (income) expense: Interest and other income (2,452) (55) (2,507) (2,507) Interest expense 518 348 866 866 ------- ------- ------- ------- ------- ------- 43,849 14,038 57,887 57,887 ------- ------- ------- ------- ------- ------- Income from continuing operations before income taxes 5,130 1,101 6,231 6,231 Income tax provision 253 - 253 $ 418 (k) 671 ------- ------- ------- ------- ------- ------- Income from continuing operations $ 4,877 $ 1,101 $ 5,978 $ 418 $ - $ 5,560 ======= ======= ======= ======= ======= ======= Earnings per share from continuing operations $ 0.18 $ 0.19 ======= ======= Weighted average shares outstanding 27,441 30,041 ======= =======
The accompanying notes are an integral part of this pro forma financial statement. 65 67 NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (a) Represents an entry to payoff all outstanding indebtedness of the Company, Hudson and Southland using proceeds from the Equity Transactions. (b) Represents an entry to eliminate the historical intangible assets of Hudson. (c) Represents an entry to record intangible assets resulting from the preliminary allocation of the purchase price for Hudson which was approximately $37 million. (d) Represents an entry to record retained earnings as a contribution to capital upon the termination of S-Corp. status for Kertz and Envirocycle, Inc. (e) Represents an entry to eliminate the equity balances of Hudson. (f) Represents the recording of equity resulting from the Company's issuance of its common stock to the sellers of Hudson and Southland. (g) Represents a net adjustment related to the elimination of the historical amortization of intangible assets and the recording of amortization, on a straight-line basis, on the intangible assets resulting from the preliminary purchase price allocation of Hudson. Intangible assets resulting from the purchase of Hudson are being amortized over a 40 year life which approximates the estimated useful life. (h) Represents a reduction to depreciation expense resulting from the revision of estimated lives of acquired property and equipment of Hudson to conform with the Company's policies. (i) Represents the contractual reduction of salary and benefits of the sellers of Hudson. (j) Represents the assumed interest savings on the payoff of all existing indebtedness of the Company, Hudson and Southland with the proceeds from the Equity Transactions. (k) Represents the incremental change in the combined entity's provision for income taxes as a result of the pre-tax earnings of acquired entities and all pro forma adjustments as described above.
66 68 (c) Exhibits: The exhibits to this Report are listed on the Exhibit Index set forth elsewhere herein. 67 69 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. REPUBLIC WASTE INDUSTRIES, INC. Date: September 7, 1995 By: /s/ Gregory K. Fairbanks ------------------------------ Gregory K. Fairbanks, Chief Financial Officer and Executive Vice President 68 70 EXHIBIT INDEX ------------- (a) - (b) Not applicable. *(c) (23.1) Consent of Independent Certified Public Accountants (23.2) Consent of Independent Certified Public Accountants (27) Financial Data Schedule (for SEC use only) __________________ *Filed herewith. 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 incorporation of our reports included in this Form 8-K, into the previously filed Registration Statements of Republic Waste Industries, Inc. on Form S-3 (Registration No. 33-61649) and Form S-8 (Registration No. 33-93742). /s/ Arthur Andersen LLP ----------------------- ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, September 7, 1995. EX-23.2 3 CONSENT OF GRENADIER APPLEBY COLLINS & COMPANY 1 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated December 9, 1994 on the Consolidated Financial Statements of Southland Environmental Services, Inc. and Subsidiaries included in this Form 8-K into Republic Waste Industries, Inc.'s previously filed Registration Statements on Form S-3, (Registration No. 33-61649), and Form S-8, (Registration No. 33-93742). /s/ Grenadier, Appleby, Collins & Company -------------------------------------------- GRENADIER, APPLEBY, COLLINS & COMPANY Jacksonville, Florida September 7, 1995 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 1 3,089 0 9,887 599 0 16,659 103,776 15,446 119,094 12,062 0 283 0 0 69,377 119,094 35,701 35,701 22,558 22,558 0 0 816 5,563 1,523 4,040 508 0 0 4,548 .15 .15
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