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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number: 1-14267
REPUBLIC SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 65-0716904
(State of Incorporation) (IRS Employer Identification No.)
110 S.E. 6TH STREET, 28TH FLOOR
FT. LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (954) 769-2400
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On May 4, 2001, the registrant had outstanding 170,651,483 shares of Common
Stock, par value $.01 per share.
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REPUBLIC SERVICES, INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31,
2001 (Unaudited) and December 31, 2000...................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2001 and 2000.......... 4
Unaudited Condensed Consolidated Statement of Stockholders'
Equity for the Three Months Ended March 31, 2001............ 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2001 and 2000.......... 6
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 24
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................. 25
ITEM 6. Exhibits and Reports on Form 8-K.............................. 25
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31, December 31,
2000 2001
---------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 19.4 $ 2.0
Restricted cash ................................................ 64.4 84.3
Accounts receivable, less allowance for doubtful accounts
of $13.2 .................................................... 250.6 241.3
Prepaid expenses and other current assets ...................... 68.3 78.2
---------- ----------
Total Current Assets ................................. 402.7 405.8
PROPERTY AND EQUIPMENT, NET ...................................... 1,697.4 1,667.8
INTANGIBLE ASSETS, NET ........................................... 1,419.3 1,435.0
OTHER ASSETS ..................................................... 51.9 52.9
---------- ----------
$ 3,571.3 $ 3,561.5
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................... $ 61.0 $ 103.4
Accrued liabilities ............................................ 104.6 89.9
Amounts due to former owners ................................... 6.8 15.3
Deferred revenue ............................................... 77.7 67.6
Notes payable and current maturities of long-term debt ......... 117.3 56.5
Other current liabilities....................................... 46.5 49.1
---------- ----------
Total Current Liabilities ............................ 413.9 381.8
LONG-TERM DEBT, NET OF CURRENT MATURITIES ........................ 1,141.0 1,200.2
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS ......................... 153.1 151.9
DEFERRED INCOME TAXES ............................................ 132.5 126.6
OTHER LIABILITIES ................................................ 25.9 26.1
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 50,000,000
shares authorized; none issued .............................. -- --
Common stock, par value $.01 per share; 750,000,000 shares
authorized; 176,006,875 and 175,858,285 issued, including
shares held in treasury, respectively........................ 1.8 1.8
Additional paid-in capital ..................................... 1,214.0 1,208.4
Retained earnings .............................................. 565.2 515.6
Treasury stock, at cost (5,258,800 and 3,644,000 shares,
respectively) ............................................... (76.1) (50.9)
---------- ----------
Total Stockholders' Equity ........................... 1,704.9 1,674.9
---------- ----------
$ 3,571.3 $ 3,561.5
========== ==========
The accompanying notes are an integral part of these statements.
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REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Three Months Ended
March 31,
-------------------------
2001 2000
--------- ---------
REVENUE .................................. $ 535.4 $ 501.5
EXPENSES:
Cost of operations ..................... 329.7 306.1
Depreciation, amortization and depletion 50.3 46.3
Selling, general and administrative .... 56.5 47.4
--------- ---------
OPERATING INCOME ......................... 98.9 101.7
INTEREST EXPENSE ......................... (20.9) (20.4)
INTEREST INCOME........................... .7 .1
OTHER INCOME (EXPENSE), NET .............. 1.3 .2
--------- ---------
INCOME BEFORE INCOME TAXES ............... 80.0 81.6
PROVISION FOR INCOME TAXES ............... 30.4 31.4
--------- ---------
NET INCOME ............................... $ 49.6 $ 50.2
========= =========
BASIC AND DILUTED EARNINGS PER SHARE ..... $ .29 $ .29
========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ......... 171.8 175.5
========= =========
The accompanying notes are an integral part of these statements.
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REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
Common Additional
Stock Common Paid-in Retained Treasury
Outstanding Stock Capital Earnings Stock
----- ------ -------- -------- -------
BALANCE AT DECEMBER 31, 2000 .......... 172.0 $ 1.8 $1,208.4 $ 515.6 $ (50.9)
Net income........................... -- -- -- 49.6 --
Issuance of common stock ............ .3 -- 5.6 -- --
Purchase of common stock for treasury (1.6) -- -- -- (25.2)
----- ------ -------- -------- -------
BALANCE AT MARCH 31, 2001 ............. 170.7 $ 1.8 $1,214.0 $ 565.2 $ (76.1)
===== ====== ======== ======== =======
The accompanying notes are an integral part of this statement.
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REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended
March 31,
-----------------------
2001 2000
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income .............................................. $ 49.6 $ 50.2
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and depletion of property
and equipment ...................................... 39.3 36.9
Amortization of intangible assets..................... 11.0 9.4
Deferred tax provision................................ 6.0 10.0
Provision for doubtful accounts....................... 3.8 2.5
Other non-cash charges ............................... .1 (.2)
Changes in assets and liabilities, net of effects from
business acquisitions:
Accounts receivable ................................ (9.8) 7.7
Prepaid expenses and other assets................... 10.0 (2.8)
Accounts payable and accrued liabilities............ (43.6) (20.5)
Other liabilities .................................. 19.8 22.1
-------- --------
86.2 115.3
-------- --------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment ..................... (39.2) (49.2)
Proceeds from sale of equipment ......................... 2.2 6.5
Cash used in business acquisitions, net of cash
acquired ............................................. (7.4) (48.1)
Cash proceeds from business dispositions ................ 3.5 .8
Amounts due and contingent payments to former owners .... (29.0) (20.4)
Restricted cash ......................................... 19.9 1.4
-------- --------
(50.0) (109.0)
-------- --------
CASH USED IN FINANCING ACTIVITIES:
Payments of notes payable and long-term debt ............ (4.4) (2.4)
Net proceeds from (payments on) revolving credit facility 6.0 (17.0)
Issuance of common stock ................................ 4.9 --
Purchases of common stock for treasury .................. (25.2) --
Purchases of common stock to fund employee benefit
plan .................................................. (.1) --
-------- --------
(18.8) (19.4)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... 17.4 (13.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......... 2.0 13.1
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................ $ 19.4 $ --
======== ========
The accompanying notes are an integral part of these statements.
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REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data)
1. BASIS OF PRESENTATION
Republic Services, Inc. (together with its subsidiaries, the "Company") is a
leading provider of non-hazardous solid waste collection and disposal services
in the United States.
The accompanying Unaudited Condensed Consolidated Financial Statements
include the accounts of the Company and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts and transactions have been eliminated.
Certain information related to the Company's organization, significant
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. In the opinion of management, these Unaudited
Condensed Consolidated Financial Statements reflect all material adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and the results of operations for the periods presented, and
the disclosures herein are adequate to make the information presented not
misleading. Operating results for interim periods are not necessarily indicative
of the results that can be expected for a full year. These interim financial
statements should be read in conjunction with the Company's audited Consolidated
Financial Statements and notes thereto appearing in the Company's Form 10-K for
the year ended December 31, 2000.
The Unaudited Condensed Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles and necessarily
include amounts based on estimates and assumptions made by management. Actual
results could differ from these amounts. Significant items subject to such
estimates and assumptions include the depletion and amortization of landfill
development costs, accruals for closure and post-closure costs, valuation
allowances for accounts receivable, liabilities for potential litigation, claims
and assessments, and liabilities for environmental remediation, deferred taxes
and self-insurance.
The Company has no components of other comprehensive income. Accordingly,
net income equals comprehensive income for all periods presented.
2. BUSINESS COMBINATIONS
The Company uses the purchase method of accounting to account for business
acquisitions. Businesses acquired are included in the Unaudited Condensed
Consolidated Financial Statements from the date of acquisition.
The Company acquired various solid waste businesses during the three months
ended March 31, 2001. The aggregate purchase price paid by the Company in these
transactions was $7.4 million in cash.
In July 1999, the Company entered into a definitive agreement with Allied
Waste Industries, Inc. ("Allied") to acquire certain solid waste assets. By
March 31, 2000, the Company had completed the purchase of certain assets for
approximately $57.8 million in cash, $38.1 million of which were acquired during
the three months ended March 31, 2000. By September 30, 2000, the Company had
completed the purchase of these assets for approximately $105.5 million in cash.
In October 1999, the Company entered into a definitive agreement with Allied for
the simultaneous purchase and sale of certain other solid waste assets. By
September 30, 2000, the Company and Allied completed the purchase and sale of
these assets. Net proceeds from the cash portion of the exchange of assets were
$30.7 million. All of these transactions have been accounted for under the
purchase method of accounting.
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In addition to the acquisitions from Allied, the Company also acquired
various other solid waste businesses during the three months ended March 31,
2000. The aggregate purchase price paid by the Company in these transactions was
$10.0 million in cash.
During the three months ended March 31, 2001 and 2000, $20.2 million and
$26.3 million, respectively, of the total purchase price paid for acquisitions
and contingent payments to former owners was allocated to landfill airspace.
These allocations were based on the discounted expected future cash flow of each
landfill relative to other assets within the acquired group, if applicable, and
were adjusted for other non-depletable landfill assets and liabilities acquired
(primarily closure and post-closure liabilities). Landfill purchase price is
amortized using the units-of-consumption method over total available airspace,
which includes likely to be permitted airspace where appropriate.
The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting
consummated during the periods presented:
Three Months
Ended March 31,
--------------------
2001 2000
------ -------
Property and equipment .......................... $ 2.1 $ 51.4
Cost in excess of net assets acquired ........... 5.7 56.6
Other assets .................................... -- (.5)
Working capital deficit ......................... (.4) (41.8)
Debt assumed .................................... -- (4.0)
Other liabilities ............................... -- (13.6)
------ -------
Cash used in acquisitions, net of cash
acquired .................................... $ 7.4 $ 48.1
====== =======
Pro forma consolidated results of operations including acquisitions
accounted for under the purchase method of accounting are not materially
different than actual results and therefore have not been presented.
3. LANDFILL AND ACCRUED ENVIRONMENTAL COSTS
LIFE CYCLE ACCOUNTING
The Company uses life cycle accounting and the units-of-consumption method
to recognize certain landfill costs. In life cycle accounting, all costs to
acquire, construct, close and maintain a site during the post-closure period are
capitalized or accrued and charged to expense based upon the consumption of
cubic yards of available airspace. Costs and airspace estimates are developed
annually by independent engineers together with the Company's engineers. These
estimates are used by the Company's operating and accounting personnel to
annually adjust the Company's rates used to expense capitalized costs and accrue
closure and post-closure costs. Changes in these estimates primarily relate to
changes in available airspace, inflation rates and applicable regulations.
Changes in available airspace include changes due to the addition of airspace
lying in expansion areas deemed likely to be permitted.
TOTAL AVAILABLE DISPOSAL CAPACITY
As of March 31, 2001, the Company owned or operated 53 solid waste landfills
with total available disposal capacity of approximately 1.7 billion in-place
cubic yards. Total available disposal capacity represents the sum of estimated
permitted airspace plus an estimate of airspace which is likely to be permitted.
LIKELY TO BE PERMITTED EXPANSION AIRSPACE
Before airspace included in an expansion area is determined as likely to be
permitted and, therefore, included in the Company's calculation of total
available disposal capacity, the following criteria must be met:
1. The land associated with the expansion airspace is either owned by the
Company or is controlled by the Company pursuant to an option agreement;
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2. The Company is committed to supporting the expansion project financially
and with appropriate resources;
3. There are no identified fatal flaws or impediments associated with the
project, including political impediments;
4. Progress is being made on the project;
5. The expansion is attainable within a reasonable time frame; and
6. The Company believes it is likely the expansion permit will be received.
Upon meeting the Company's expansion criteria, the rates used at each
applicable landfill to expense costs to acquire, construct, close and maintain a
site during the post-closure period are adjusted to include likely to be
permitted airspace and all additional costs to be capitalized or accrued
associated with the expansion airspace.
The Company has identified three sequential steps that landfills generally
follow to obtain expansion permits. These steps are as follows:
1. Obtaining approval from local authorities;
2. Submitting a permit application with state authorities; and
3. Obtaining permit approval from state authorities.
Once a landfill meets the Company's expansion criteria, management
continuously monitors each site's progress in obtaining the expansion permit. If
at any point it is determined that an expansion area no longer meets the
required criteria, the likely to be permitted airspace is removed from the
landfill's total available capacity and the rates used at the landfill to
expense costs to acquire, construct, close and maintain a site during the
post-closure period are adjusted accordingly. The Company has never been denied
an expansion permit for a landfill that included likely to be permitted airspace
in its total available disposal capacity, although no assurances can be made
that all future expansions will be permitted as designed.
CAPITALIZED LANDFILL COSTS
Capitalized landfill costs include expenditures for land, permitting costs,
cell construction costs and environmental structures. Capitalized permitting and
cell construction costs are limited to direct costs relating to these
activities, including legal, engineering and construction associated with
excavation, liners and site berms. Interest is capitalized on landfill
construction projects while the assets are undergoing activities to ready them
for their intended use.
Costs related to acquiring land, excluding the estimated residual value of
unpermitted land, and costs related to permitting and cell construction are
depleted as airspace is consumed using the units-of-consumption method.
Environmental structures, which include leachate and methane collection systems,
and groundwater monitoring wells, are charged to expense over the shorter of
their useful life or the life of the landfill.
Capitalized landfill costs may also include an allocation of purchase price
paid for landfills. For landfills purchased as part of a group of several
assets, the purchase price assigned to the landfill is determined based upon the
discounted future expected cash flows of the landfill relative to the other
assets within the group. If the landfill meets the Company's expansion criteria,
the purchase price is further allocated between permitted airspace and expansion
airspace based upon the ratio of permitted versus likely to be permitted
airspace to total available airspace. Landfill purchase price is amortized using
the units-of-consumption method over the total available airspace including
likely to be permitted airspace where appropriate.
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CLOSURE AND POST-CLOSURE COSTS
Landfill site closure and post-closure costs include estimated costs to be
incurred for final closure of the landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. These costs are
accrued and charged to cost of operations based upon consumed airspace in
relation to total available disposal capacity using the units-of-consumption
method of amortization. The Company estimates future cost requirements for
closure and post-closure monitoring and maintenance for its solid waste
facilities based on the technical standards of the Environmental Protection
Agency's Subtitle D regulations and applicable state and local regulations.
These estimates do not take into account discounts for the present value of
total estimated costs. Accruals for closure and post-closure costs totaled
approximately $4.7 million and $5.1 million during the three months ended March
31, 2001 and 2000, respectively.
A number of the Company's landfills were previously operated by other
entities. Accordingly, the Company assessed and recorded a closure and
post-closure liability as of the date the landfill was acquired based upon the
estimated total closure and post-closure costs and the percentage of total
available disposal capacity utilized as of such date. Thereafter, the difference
between the closure and post-closure costs accrued and the total estimated
closure and post-closure costs to be incurred are accrued and charged to expense
as airspace is consumed. Estimated aggregate closure and post-closure costs will
be fully accrued for the Company's landfills at the time such facilities cease
to accept waste and are closed. As of March 31, 2001, assuming that all
available landfill capacity is used, the Company expects to expense
approximately $533.6 million of such costs over the remaining lives of these
facilities.
ENVIRONMENTAL COSTS
In the normal course of business, the Company is subject to ongoing
environmental monitoring and reporting to certain regulatory agencies.
Environmental costs are accrued by the Company through a charge to income in the
period such liabilities become probable and can be reasonably estimated. No
material amounts were charged to expense during the three months ended March 31,
2001 and 2000.
4. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while maintenance and repairs are
charged to expense as incurred. When property is retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in the Unaudited Condensed
Consolidated Statements of Operations.
The Company revises the estimated useful lives of property and equipment
acquired through business acquisitions to conform with its policies regarding
property and equipment. Depreciation is provided over the estimated useful lives
of the assets involved using the straight-line method. The estimated useful
lives are twenty to forty years for buildings and improvements, three to fifteen
years for trucks and equipment, and five to ten years for furniture and
fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. All indirect landfill development costs are
expensed as incurred. (For further information, see Note 3, Landfill and Accrued
Environmental Costs.)
The Company capitalizes interest on landfill cell construction and other
construction projects in accordance with Statement of Financial Accounting
Standards No. 34, "Capitalization of Interest Cost". Construction projects must
meet the following criteria before interest is capitalized:
1. Total construction costs are $50,000 or greater,
2. The construction phase is one month or longer, and
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3. The assets have a useful life of one year or longer.
Interest is capitalized on qualified assets while they undergo activities to
ready them for their intended use. Capitalization of interest ceases once an
asset is placed into service or if construction activity is suspended for more
than a brief period of time. The interest capitalization rate is based upon the
Company's weighted average cost of indebtedness. Interest capitalized was $.3
million and $.7 million for the three months ended March 31, 2001 and 2000,
respectively.
A summary of property and equipment is as follows:
March 31, December 31,
2001 2000
-------- ------------
Other land .................................. $ 92.1 $ 91.5
Non-depletable landfill land ................ 48.8 47.2
Landfill development costs .................. 917.1 865.5
Vehicles and equipment ...................... 1,052.4 1,018.9
Buildings and improvements .................. 233.8 227.1
Construction-in-progress-landfill ........... 20.5 46.6
Construction-in-progress-other .............. 13.1 18.0
-------- --------
2,377.8 2,314.8
-------- --------
Less: Accumulated depreciation, depletion and
amortization--
Landfill development costs ................ (193.6) (179.5)
Vehicles and equipment .................... (446.4) (428.9)
Building and improvements ................. (40.4) (38.6)
-------- --------
(680.4) (647.0)
-------- --------
Property and equipment, net ................. $1,697.4 $1,667.8
======== ========
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of property and
equipment or whether the remaining balance of property and equipment should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the property and equipment in
assessing their recoverability. The Company measures impairment loss as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired and other
intangible assets. The cost in excess of the fair value of net assets is
amortized over a period of forty years or less on a straight-line basis. Other
intangible assets include values assigned to customer lists, long-term contracts
and covenants not to compete and are amortized generally over periods ranging
from 5 to 25 years. Accumulated amortization of intangible assets was $138.4
million and $129.9 million at March 31, 2001 and December 31, 2000,
respectively.
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
assessing their recoverability. The Company measures impairment loss as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
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6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
March 31, December 31,
2001 2000
--------- ------------
$225.0 million unsecured notes, net of unamortized discount
of $.7 million; interest payable semi-annually in May and
November at 6 5/8%; principal due at maturity in 2004................ $ 224.3 $224.3
$375.0 million unsecured notes, net of unamortized discount
of $.5 million; interest payable semi-annually in May and
November at 7 1/8%; principal due at maturity in 2009................ 374.5 374.5
$1.0 billion unsecured revolving credit facility; interest
payable using LIBOR-based rates; $500.0 million matures
July 2001 and $500.0 million matures 2003............................ 495.0 465.0
Tax-exempt bonds; interest rates that float based on
prevailing market rates.............................................. 96.4 99.5
Other debt; unsecured and secured by real property,
equipment and other assets........................................... 68.1 93.4
-------- --------
1,258.3 1,256.7
Less: Current portion.................................................. (117.3) (56.5)
--------- --------
$1,141.0 $1,200.2
======== ========
As of March 31, 2001, the Company had $391.5 million of availability under
the short-term portion of the credit facility.
As of March 31, 2001, the Company had $64.4 million of restricted cash, of
which $55.8 million were proceeds from the issuance of tax-exempt bonds and
other tax-exempt financing that will be used to fund capital expenditures.
Interest expense paid was $11.6 million (net of $.3 million of capitalized
interest) and $11.6 million (net of $.7 million of capitalized interest) for the
three months ended March 31, 2001 and 2000, respectively.
7. INCOME TAXES
Income taxes have been provided for based upon the Company's anticipated
annual effective income tax rate. During the three months ended December 31,
2000, the Company lowered its anticipated annual effective tax rate for 2000
from 38.5% to 38.0%. Income taxes paid were $14.2 million and $4.0 million for
the three months ended March 31, 2001 and 2000, respectively.
8. STOCK OPTIONS
In July 1998, the Company adopted the 1998 Stock Incentive Plan ("Stock
Incentive Plan") to provide for grants of options to purchase shares of common
stock to employees, non-employee directors and independent contractors of the
Company who are eligible to participate in the Stock Incentive Plan. Options
granted under the Stock Incentive Plan are non-qualified and are granted at a
price equal to the fair market value of the Company's common stock at the date
of grant. Generally, options granted have a term of ten years from the date of
grant, and vest in increments of 25% per year over a four year period on the
anniversary date of the grant. Options granted to non-employee directors have a
term of ten years and are fully vested at the grant date. The Company has
reserved 20.0 million shares of common stock for issuance pursuant to options
granted under the Stock Incentive Plan.
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A summary of stock option transactions for the three months ended March 31,
2001 is as follows:
Weighted-Average
Shares Exercise Price
------ ----------------
Options outstanding at beginning of year................ 14.1 $16.54
Granted................................................. 2.0 14.56
Exercised............................................... (.3) 14.68
Cancelled............................................... (.5) 16.96
---- ------
Options outstanding at March 31, 2001................... 15.3 $16.31
---- ------
Options exercisable at March 31, 2001................... 9.0 $17.29
==== ======
9. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
In July 2000, the Company announced that its Board of Directors authorized
the repurchase of up to $50.0 million of its common stock. In October 2000, the
Company announced that its Board of Directors authorized the repurchase of up to
an additional $100.0 million of its common stock. As of March 31, 2001, the
Company repurchased 5,258,800 shares of its stock for $76.1 million.
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is based on the combined weighted average number of common shares and
common share equivalents outstanding which include, where appropriate, the
assumed exercise of employee stock options. In computing diluted earnings per
share, the Company utilizes the treasury stock method.
Earnings per share for the three months ended March 31, 2001 and 2000 is
calculated as follows (in thousands, except per share data):
Three Months
Ended March 31,
------------------------
2001 2000
-------- --------
Numerator:
Net income ................................ $ 49,600 $ 50,200
======== ========
Denominator:
Denominator for basic earnings per share .. 171,185 175,482
Effect of dilutive securities-- Options to
purchase common stock ................... 606 11
-------- --------
Denominator for diluted earnings
per share................................ 171,791 175,493
======== ========
Basic and diluted earnings per share ..... $ .29 $ .29
======== ========
Antidilutive securities not included in the
diluted earnings per share calculation:
Options to purchase common stock ......... 9,967 14,813
Weighted average exercise price .......... $ 17.88 $ 16.60
10. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to various general legal proceedings which have
arisen in the ordinary course of business. While the results of these matters
cannot be predicted with certainty, the Company believes that losses, if any,
resulting from the ultimate resolution of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows. However, unfavorable resolution could affect the
consolidated financial position, results of operations or cash flows for the
quarterly periods in which they are resolved.
13
14
In September 1999, several lawsuits were filed by certain shareholders
against the Company and certain of its officers and directors in the United
States District Court for the Southern District of Florida. The plaintiffs in
these lawsuits claim, on behalf of a purported class of purchasers of the
Company's common stock between January 28, 1999 and August 28, 1999, that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 by, among other things, allegedly making materially false and misleading
statements regarding the Company's growth and the assets acquired from Waste
Management. In 1999, the Court consolidated these lawsuits and the consolidated
action has been named In Re: Republic Services, Inc. Securities Litigation. The
plaintiffs filed a consolidated complaint in February 2000 and the defendants
filed a motion to dismiss the consolidated complaint in April 2000. In February
2001, the Court granted the defendants' motion to dismiss the consolidated
complaint. The plaintiffs have moved for reconsideration of the Court's order
granting dismissal of the lawsuit. Management believes the allegations contained
in the consolidated complaint are without merit and will vigorously defend this
and any related actions. However, an unfavorable resolution of this lawsuit
could have a material adverse effect on the Company's consolidated financial
position, result of operations or cash flows in one or more future periods.
LEASE COMMITMENTS
The Company and its subsidiaries lease real property, equipment and software
under various other operating leases with terms from one to twenty-five years.
LIABILITY INSURANCE
The Company carries general liability, vehicle liability, employment
practices liability, pollution liability, directors and officers liability,
workers compensation and employer's liability coverage, as well as umbrella
liability policies to provide excess coverage over the underlying limits
contained in these primary policies. The Company also carries property
insurance.
The Company's insurance programs for worker's compensation, general
liability, vehicle liability and employee related health care benefits are
effectively self-insured. Claims in excess of self-insurance levels are fully
insured. Accruals are based on claims filed and estimates of claims incurred but
not reported.
The Company's liabilities for unpaid and incurred but not reported claims at
March 31, 2001 were $42.2 million and are included in other current and other
liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets.
While the ultimate amount of claims incurred is dependent on future
developments, in management's opinion, recorded reserves are adequate to cover
the future payment of claims. However, it is reasonably possible that recorded
reserves may not be adequate to cover the future payment of claims. Adjustments,
if any, to estimates recorded resulting from ultimate claim payments will be
reflected in operations in the periods in which such adjustments are known.
OTHER MATTERS
In the normal course of business, the Company is required by regulatory
agencies and municipalities to post performance bonds, letters of credit and/or
cash deposits as a financial guarantee of the Company's performance. At March
31, 2001, surety bonds and letters of credit totaling $722.1 million were
outstanding and will expire on various dates through 2007. In addition, at March
31, 2001, the Company had $64.4 million of restricted cash deposits held as
financial guarantees as well as funds restricted for capital expenditures under
certain debt facilities.
The Company's business activities are conducted in the context of a
developing and changing statutory and regulatory framework. 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. Any revocation, modification or denial of permits could have a
material adverse effect on the Company.
14
15
Through the date of the Company's initial public offering in July 1998, the
Company filed consolidated federal income tax returns with AutoNation. The
Internal Revenue Service is auditing AutoNation's consolidated tax returns for
fiscal years 1995 and 1996. In accordance with the Company's tax sharing
agreement with AutoNation, the Company may be liable for certain assessments
imposed by the Internal Revenue Service resulting from this audit. Management
believes that the tax liabilities recorded are adequate. However, a significant
assessment in excess of liabilities recorded against the Company could have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited
Condensed Consolidated Financial Statements and notes thereto included under
Item 1. In addition, reference should be made to our audited Consolidated
Financial Statements and notes thereto and related Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing in our Form
10-K for the year ended December 31, 2000.
OUR BUSINESS
We are a leading provider of non-hazardous solid waste collection and
disposal services in the United States. We provide solid waste collection
services for commercial, industrial, municipal and residential customers through
145 collection companies in 22 states. We also own or operate 83 transfer
stations and 53 solid waste landfills.
We generate revenue primarily from our solid waste collection operations.
Our remaining revenue is obtained from landfill disposal services and other
services, including recycling and composting operations.
The following table reflects our total revenue by source for the three
months ended March 31, 2001 and 2000 (in millions):
Three Months Ended
March 31,
-------------------------------------------------
2001 2000
-------------------- -------------------
Collection:
Residential ................. $113.1 21.1% $102.3 20.4%
Commercial .................. 168.6 31.5 150.1 29.9
Industrial .................. 122.4 22.9 114.8 22.9
Other ....................... 11.3 2.1 11.8 2.4
------ ----- ------ -----
Total collection .... 415.4 77.6 379.0 75.6
Transfer and disposal ......... 175.2 165.8
Less: Intercompany ............ (93.5) (81.7)
------ -----
Transfer and disposal, net... 81.7 15.3 84.1 16.8
Other ......................... 38.3 7.1 38.4 7.6
------ ----- ------ -----
Total revenue ....... $535.4 100.0% $501.5 100.0%
====== ===== ====== =====
Certain amounts for 2000 in the table above have been reclassified to
conform to the 2001 presentation.
Our revenue from collection operations consists of fees we receive from
commercial, industrial, municipal and residential customers. Our residential and
commercial collection operations in some markets are based on long-term
contracts with municipalities. We generally provide industrial and commercial
collection operations to individual customers under contracts with terms up to
three years. Our revenue from landfill operations is from disposal or tipping
fees charged to third parties. In general, we integrate our recycling operations
with our collection operations and obtain revenue from the sale of recyclable
materials. No one customer has individually accounted for more than 10% of our
consolidated revenue in any of the periods presented.
The cost of our collection operations is primarily variable and includes
disposal, labor, fuel and equipment maintenance costs. We seek operating
efficiencies by controlling the movement of waste streams from the point of
collection through disposal. During the three months ended March 31, 2001 and
2000, approximately 52% and 49%, respectively, of the total volume of waste we
collected was disposed of at our landfills.
16
17
Our landfill cost of operations includes daily operating expenses, costs of
capital for cell development, accruals for closure and post-closure costs, and
the legal and administrative costs of ongoing environmental compliance. We
expense all indirect landfill development costs as they are incurred. We use
life cycle accounting and the units-of-consumption method to recognize certain
direct landfill costs. In life cycle accounting, certain direct costs are
capitalized and charged to expense based upon the consumption of cubic yards of
available airspace. These costs include all costs to:
o acquire,
o construct,
o close and
o maintain a site during the post-closure period.
Cost and airspace estimates are developed annually by independent engineers
together with our engineers. These estimates are used by our operating and
accounting personnel to annually adjust the rates used to expense capitalized
costs and accrue closure and post-closure costs. Changes in these estimates
primarily relate to changes in available airspace, inflation rates and
applicable regulations. Changes in available airspace include changes due to the
addition of airspace lying in expansion areas deemed likely to be permitted.
BUSINESS COMBINATIONS
We make decisions to acquire or invest in businesses based on financial and
strategic considerations. Businesses acquired are accounted for using the
purchase method of accounting and are included in the Unaudited Condensed
Consolidated Financial Statements from the date of acquisition.
The Company acquired various solid waste businesses during the three months
ended March 31, 2001. The aggregate purchase price paid by the Company in these
transactions was $7.4 million in cash.
In July 1999, we entered into a definitive agreement with Allied Waste
Industries, Inc. to acquire certain solid waste assets. By March 31, 2000, the
Company had completed the purchase of certain assets for approximately $57.8
million in cash, $38.1 million of which were acquired during the three months
ended March 31, 2000. By September 30, 2000, we had completed the purchase of
these assets for approximately $105.5 million in cash. In October 1999, we
entered into a definitive agreement with Allied for the simultaneous purchase
and sale of certain other solid waste assets. By September 30, 2000, we and
Allied completed the purchase and sale of these assets. Our net proceeds from
the cash portion of the exchange of assets were $30.7 million. All of these
transactions have been accounted for under the purchase method of accounting.
In addition to the acquisitions from Allied, we also acquired various other
solid waste businesses during the three months ended March 31, 2000. The
aggregate purchase price paid by us in these transactions was $10.0 million in
cash.
During the three months ended March 31, 2001 and 2000, $20.2 million and
$26.3 million, respectively, of the total purchase price paid for acquisitions
and contingent payments to former owners was allocated to landfill airspace.
These allocations were based on the discounted expected future cash flow of each
landfill relative to other assets within the acquired group, if applicable, and
were adjusted for other non-depletable landfill assets and liabilities acquired
(primarily closure and post-closure liabilities). Landfill purchase price is
amortized using the units-of-consumption method over total available airspace,
which includes likely to be permitted airspace where appropriate.
See Note 2, Business Combinations, of the Notes to the Unaudited Condensed
Consolidated Financial Statements, for further discussion of business
combinations.
17
18
CONSOLIDATED RESULTS OF OPERATIONS
Net income was $49.6 million for the three months ended March 31, 2001, or
$.29 per share, as compared to $50.2 million, or $.29 per share, for the three
months ended March 31, 2000.
The following table summarizes our costs and expenses in millions of dollars
and as a percentage of our revenue for the three months ended March 31, 2001 and
2000:
Three Months Ended
March 31,
--------------------------------------------
2001 2000
------------------- ------------------
Revenue ....................................... $535.4 100.0% $501.5 100.0%
Expenses:
Cost of operations .......................... 329.7 61.6 306.1 61.0
Depreciation, amortization and depletion of
property and equipment .................... 39.3 7.3 36.9 7.4
Amortization of intangible assets ........... 11.0 2.1 9.4 1.9
Selling, general and administrative expenses 56.5 10.5 47.4 9.4
------ ---- ------ ----
Operating income .............................. $ 98.9 18.5% $101.7 20.3%
====== ==== ====== ====
Revenue was $535.4 million and $501.5 million for the three months ended
March 31, 2001 and 2000, respectively, an increase of 6.8%. The following table
reflects the components of our revenue growth for the three months ended March
31, 2001 and 2000:
Three Months
Ended March 31,
-----------------
2001 2000
---- ----
Price ............................... 1.4% 2.6%
Volume .............................. 2.1 5.8
--- ----
Total internal growth ..... 3.5 8.4
Acquisitions ........................ 3.3 14.7
--- ----
Total revenue growth....... 6.8% 23.1%
=== ====
Price growth for the three months ended March 31, 2001 was impacted by
commodity prices. Excluding the effect of commodities, price growth was 2.2% and
total internal growth was 4.3%.
Cost of operations was $329.7 million for the three months ended March 31,
2001 versus $306.1 million for the comparable 2000 period. The increase in
aggregate dollars is primarily a result of the expansion of our operations
through acquisitions and internal growth. Cost of operations as a percentage of
revenue was 61.6% for the three months ended March 31, 2001 versus 61.0% for the
comparable 2000 period. The increase in cost of operations as a percentage of
revenue for the three months ended March 31, 2001 versus the comparable period
last year is primarily a result of lower commodity prices and higher fuel costs
offset by improved operating efficiencies and revenue mix.
Expenses for depreciation, amortization and depletion of property and
equipment were $39.3 million for the three months ended March 31, 2001 versus
$36.9 million for the comparable 2000 period. Expenses for depreciation,
amortization and depletion of property and equipment as a percentage of revenue
were 7.3% for the three months ended March 31, 2001 versus 7.4% for the
comparable 2000 period. The increase in such expenses in aggregate dollars is
primarily due to acquisitions and capital expenditures.
Expenses for amortization of intangible assets were $11.0 million for the
three months ended March 31, 2001 versus $9.4 million for the comparable 2000
period. Amortization of intangible assets as a percentage of revenue was 2.1%
for the three months ended March 31, 2001 versus 1.9% for the comparable 2000
period. The increase in such expenses in aggregate dollars and as a percentage
of revenue is primarily due to acquisitions accounted for using the purchase
method of accounting.
Selling, general and administrative expenses were $56.5 million for the
three months ended March 31, 2001 versus $47.4 million for the comparable 2000
period. Selling, general and administrative expenses as a percentage of revenue
were 10.5% for the three months ended March 31, 2001 versus 9.4% for the
comparable 2000 period. The increases in aggregate dollars and as a percentage
of revenue versus the
18
19
comparable periods last year is primarily due to the addition of area and
regional management, and various training and systems initiatives.
INTEREST EXPENSE
Interest expense was $20.9 million for the three months ended March 31, 2001
versus $20.4 million for the comparable 2000 period. Interest expense relates
primarily to borrowings under our unsecured notes and revolving credit facility.
Borrowings under the revolving credit facility were used primarily to fund
capital expenditures and acquisitions.
Capitalized interest was $.3 million for the three months ended March 31,
2001 versus $.7 million for the comparable 2000 period.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income, net of other expense, was $2.0 million for the
three months ended March 31, 2001 versus $.3 million for the comparable 2000
period.
INCOME TAXES
The provision for income taxes was $30.4 million for the three months ended
March 31, 2001 versus $31.4 million for the comparable 2000 period. The
effective income tax rate was 38.0% and 38.5% for the three months ended March
31, 2001 and 2000, respectively. Income taxes have been provided based upon our
anticipated annual effective tax rate.
LANDFILL AND ENVIRONMENTAL MATTERS
AVAILABLE AIRSPACE
The following table reflects landfill airspace activity for landfills owned
or operated by us for the three months ended March 31, 2001:
Balance as of New Changes in Balance as of
December 31, Expansions Airspace Engineering March 31,
2000 Undertaken Consumed Estimates 2001
------------- ----------- ----------- ----------- -------------
Permitted airspace:
Cubic yards (in millions) 1,355.1 -- (7.5) (1.7) 1,345.9
Number of sites ......... 53 53
Expansion airspace:
Cubic yards (in millions) 299.4 34.6 -- 52.1 386.1
Number of sites ......... 17 4 -- 21
------- ---- ---- ---- -------
Total available airspace:
Cubic yards (in millions) 1,654.5 34.6 (7.5) 50.4 1,732.0
======= ==== ==== ==== =======
Number of sites ......... 53 53
======= =======
As of March 31, 2001, we owned or operated 53 solid waste landfills with
total available disposal capacity estimated to be 1.7 billion in-place cubic
yards. Total available disposal capacity represents the sum of estimated
permitted airspace plus an estimate of airspace we have deemed likely to be
permitted. These estimates are developed annually by independent engineers
together with our engineers utilizing information provided by annual aerial
surveys. As of March 31, 2001, total available disposal capacity is estimated to
be 1.3 billion in-place cubic yards of permitted airspace plus .4 billion
in-place cubic yards of expansion airspace which we have deemed likely to be
permitted. Before airspace included in an expansion area is determined as likely
to be permitted and, therefore, included in our calculation of total available
disposal capacity, it must meet our expansion criteria. See Note 3, Landfill and
Accrued Environmental Costs, of the Notes to our Unaudited Condensed
Consolidated Financial Statements for further information.
19
20
As of March 31, 2001, 21 of our landfills meet the criteria for including
expansion airspace in their total available disposal capacity. At projected
annual volumes, these 21 landfills have an estimated remaining average site life
of 35 years, including the expansion airspace. The average estimated remaining
life of all of our landfills is 37 years.
As of March 31, 2001, eight of our landfills that meet the criteria for
including expansion airspace had obtained approval from local authorities and
are proceeding into the state permitting process. Also, as of March 31, 2001,
four of our 21 landfills that meet the criteria for including expansion airspace
had submitted permit applications to state authorities. The remaining nine
landfills that meet the criteria for including expansion airspace are in the
process of obtaining approval from local authorities and have not identified any
fatal flaws or impediments associated with the expansions at either the local or
state level.
We have never been denied an expansion permit for a landfill that included
likely to be permitted airspace in its total available disposal capacity,
although no assurance can be made that all future expansions will be permitted
as designed.
CLOSURE AND POST-CLOSURE COSTS
During the three months ended March 31, 2001, we consumed approximately 7.5
million cubic yards of airspace. During this same period, charges to expense for
closure and post-closure were $4.7 million, or $.63 per cubic yard. As of March
31, 2001, accrued closure and post-closure costs were $169.9 million. The
current portion of these costs of $17.8 million is reflected in our Unaudited
Condensed Consolidated Balance Sheet in other current liabilities. The long-term
portion of these costs of $152.1 million is reflected in our Unaudited Condensed
Consolidated Balance Sheet in accrued environmental and landfill costs. As of
March 31, 2001, assuming that all available landfill capacity is used, we expect
to expense approximately $533.6 million of additional closure and post-closure
costs over the remaining lives of our facilities.
Our estimates for closure and post-closure do not take into account
discounts for the present value of total estimated costs. If total estimated
costs were discounted to present value, they would be lower.
INVESTMENT IN LANDFILLS
The following table reflects changes in our investments in landfills for the
three months ended March 31, 2001 and the future expected investment as of March
31, 2001 (in millions):
Balance Landfills Trans- Addi-
as of Acquired, fers tions Balance Expected Total
Decem- Net of and Charged as of Future Expected
ber, 31 Capital Dives- Adjust- to March 31, Invest- Invest-
2000 Additions tures ments Expense 2001 ment ment
------- --------- --------- ------- ------- --------- ------- --------
Non-depletable landfill.. $ 47.2 $1.6 $ -- $ -- $ -- $ 48.8 $ -- $ 48.8
Landfill development
costs ................ 865.5 .4 20.2 31.0 -- 917.1 997.7 1,914.8
Construction in progress
-- landfill ......... 46.6 5.1 -- (31.2) -- 20.5 -- 20.5
Accumulated depletion
and amortization ..... (179.5) -- -- -- (14.1) (193.6) -- (193.6)
------- ---- ----- ------ ------ ------- ------ --------
Net investment
in landfill and land
development costs..... $ 779.8 $7.1 $20.2 $ (.2) $(14.1) $ 792.8 $997.7 $1,790.5
======= ==== ===== ====== ====== ======= ====== ========
As of December 31, 2000, we owned or operated 53 solid waste landfills with
total available disposal capacity estimated to be 1.7 billion in-place cubic
yards. Our net investment in these landfills, excluding non-depletable land, was
$732.6 million, or approximately $.44 per cubic yard.
As of March 31, 2001, we owned or operated 53 solid waste landfills with
total available disposal capacity estimated to be 1.7 billion in-place cubic
yards. Our net investment in these landfills, excluding non-depletable land, was
$744.0 million, or $.43 per cubic yard. During the three months ended March 31,
2001, our depletion and amortization expense relating to landfills was $14.1
million, or $1.88 per cubic yard.
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21
As of March 31, 2001, we expect to spend an estimated additional $1.0
billion on existing landfills, primarily related to cell construction and
environmental structures, over their expected remaining lives. Our total
expected gross investment, excluding non-depletable land, estimated to be $1.7
billion, or $1.01 per cubic yard, is used in determining our depletion and
amortization expense based upon airspace consumed using the units-of-consumption
method. Our estimates for expected future investment in landfills do not take
into account discounts for the present value of total estimated costs. For
further information, see "Closure and Post-Closure Costs."
We accrue costs related to environmental remediation activities through a
charge to income in the period such liabilities become probable and can be
reasonably estimated. No material amounts were charged to expense during the
three months ended March 31, 2001 and 2000, respectively.
FINANCIAL CONDITION
At March 31, 2001, we had $19.4 million of cash and cash equivalents. We
also had $64.4 million of restricted cash, which primarily relates to proceeds
from tax-exempt bonds and other tax-exempt financing that will be used to fund
capital expenditures.
In July 1998, we entered into a $1.0 billion unsecured revolving credit
facility with a group of banks. $500.0 million of the credit facility expires in
July 2001 and the remaining $500.0 million expires in July 2003. Borrowings
under the credit facility bear interest at LIBOR-based rates. We use our own
operating cash flow and proceeds from our credit facilities to finance our
working capital, capital expenditures, acquisitions and other requirements. As
of March 31, 2001, we had approximately $391.5 million of availability under the
credit facility.
In May 1999, we sold $600.0 million of unsecured notes in the public market.
$225.0 million of these notes bear interest at 6 5/8% per annum and mature in
2004. The remaining $375.0 million bear interest at 7 1/8% per annum and mature
in 2009. Interest on these notes is payable semi-annually in May and November.
The $225.0 million and $375.0 million in notes were offered at a discount of
$1.0 million and $.5 million, respectively. Proceeds from the notes were used to
repay our revolving credit facility.
In December 1999, we entered into an operating lease facility established to
finance the acquisition of operating equipment. As of March 31, 2001, $86.8
million was outstanding under this facility.
At March 31, 2001, we had $96.4 million of tax-exempt bonds outstanding at
favorable interest rates. As of March 31, 2001, we had $55.8 million of
restricted cash related to proceeds from tax-exempt bonds and other tax-exempt
financing. This restricted cash will be used to fund capital expenditures under
the terms of these financing arrangements.
We plan to extend the maturity of our revolving short-term credit facility
prior to its expiration in July 2001 to July 2002. We believe that such an
extension would provide us with sufficient resources to meet our anticipated
capital requirements and obligations as they come due. We believe that we would
be able to raise additional debt or equity financing, if necessary, to fund
special corporate needs or to complete acquisitions. In March 2001, we filed a
shelf registration statement on Form S-3 with the Securities and Exchange
Commission under which we intend to offer from time to time in one or more
series up to $400.0 million of unsecured notes. The ultimate sale of these notes
is contingent upon us receiving interest rates which we consider favorable given
our existing debt structure and prevailing market conditions. We expect to use
the net proceeds from the sale of these notes, if consummated, to pay down
amounts outstanding under our revolving credit facility. However, we cannot
assure you that we would be able to obtain additional financing under favorable
terms or to extend the existing short-term credit facility on the same terms.
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22
SELECTED BALANCE SHEET ACCOUNTS
The following table reflects the activity in our allowance for doubtful
accounts, accrued closure and post-closure, accrued self-insurance and amounts
due to former owners during the three months ended March 31, 2001 (in millions):
Allowance for Closure and Amounts Due to
Doubtful Accounts Post-Closure Self-Insurance Former Owners
----------------- ------------ -------------- -------------
Balance, December 31, 2000... $ 13.2 $ 167.6 $ 41.1 $ 15.3
Additions charged to expense. 3.8 4.7 24.1 --
Additions due to acquisitions,
net of divestitures......... -- -- -- .5
Usage........................ (3.8) (2.4) (23.0) (9.0)
------ ------- ------ ------
Balance, March 31, 2001...... 13.2 169.9 42.2 6.8
Current portion.............. 13.2 17.8 23.3 6.8
------ ------- ------ ------
Long-term portion............ $ -- $ 152.1 $ 18.9 $ --
====== ======= ====== ======
Additions to accrued liabilities related to acquisitions are periodically
reviewed during the year subsequent to the acquisition. During such reviews,
accrued liabilities which are considered to be in excess of amounts required for
a specific acquisition are reversed and charged against goodwill (cost in excess
of net fair value of assets acquired).
As of March 31, 2001, accounts receivable were $250.6 million, net of
allowance for doubtful accounts of $13.2 million, resulting in days sales
outstanding of 42, or 29 days net of deferred revenue.
PROPERTY, PLANT AND EQUIPMENT
The following tables reflect the activity in our property, plant and
equipment accounts for the three months ended March 31, 2001 (in millions):
Gross Property, Plant and Equipment
------------------------------------------------------------------------------------------
Balance
Balance as of Acquisitions, as of
December 31, Capital Net of Transfers and March 31,
2000 Additions Retirements Divestitures Adjustments 2001
------------- --------- ----------- ------------- ------------- ----------
Other land ....................... $ 91.5 $ .3 $ (.7) $ 1.0 $ -- $ 92.1
Non-depletable landfill land...... 47.2 1.6 -- -- -- 48.8
Landfill development costs ....... 865.5 .4 -- 20.2 31.0 917.1
Vehicles and equipment ........... 1,018.9 23.8 (6.6) 9.8 6.5 1,052.4
Buildings and improvements ....... 227.1 .6 (.6) 1.0 5.7 233.8
Construction in progress
--landfill ..................... 46.6 5.1 -- -- (31.2) 20.5
Construction in
progress--other ................ 18.0 7.4 -- -- (12.3) 13.1
---------- ------- ------ ------- ------- ----------
Total ................... $ 2,314.8 $ 39.2 $ (7.9) $ 32.0 $ (.3) $ 2,377.8
========== ======= ====== ======= ======= ==========
Accumulated Depreciation, Amortization and Depletion
----------------------------------------------------------
Additions Balance
Balance as of Charged as of
December 31, to March 31,
2000 Expense Retirements 2001
--------------- -------- ----------- --------
Landfill development costs....... $ (179.5) $ (14.1) $ -- $ (193.6)
Vehicles and equipment .......... (428.9) (23.3) 5.8 (446.4)
Buildings and improvements (38.6) (1.9) .1 (40.4)
-------- ------- ------ --------
Total .................. $ (647.0) $ (39.3) $ 5.9 $ (680.4)
======== ======= ====== ========
LIQUIDITY AND CAPITAL RESOURCES
The major components of changes in cash flows for the three months ended
March 31, 2001 and 2000 are discussed below.
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23
CASH FLOWS FROM OPERATING ACTIVITIES. Cash provided by operating activities
was $86.2 million and $115.3 million for the three months ended March 31, 2001
and 2000, respectively. The changes in cash provided by operating activities
during the periods are due to expansion of our business and timing of payments
from accounts payable.
CASH FLOWS USED IN INVESTING ACTIVITIES. Cash used in investing activities
consist primarily of cash used for business acquisitions, including amounts due
and contingent payments to former owners, and capital additions. Cash used to
acquire businesses, net of cash acquired, was $7.4 million and $48.1 million
during the three months ended March 31, 2001 and 2000, respectively.
We intend to finance capital expenditures and acquisitions through cash on
hand, cash flow from operations, our $1.0 billion revolving credit facility and
other financing.
CASH FLOWS USED IN FINANCING ACTIVITIES. Cash used in financing activities
for the three months ended March 31, 2001 and 2000 was $18.8 million and $19.4
million for the three months ended March 31, 2001 and 2000, respectively.
In 2000, the Company announced that its Board of Directors authorized the
repurchase of up to $150.0 million of its common stock. As of March 31, 2001,
the Company repurchased 5,258,800 shares of its stock for $76.1 million, of
which 1,614,800 shares were acquired during the three months ended March 31,
2001, for $25.2 million. We intend to finance share repurchases from cash on
hand, cash flow from operations, our $1.0 billion revolving credit facility and
other financing.
In December 1999, we entered into an operating lease facility established to
finance the acquisition of operating equipment consisting primarily of
revenue-producing vehicles. At March 31, 2001, $86.8 million was outstanding
under this facility.
We used proceeds from bank facilities and tax-exempt bonds to fund
acquisitions and capital additions.
The Company has received an investment grade rating from the nation's
largest credit rating agencies. As of March 31, 2001, the Company's senior debt
was rated Baa3 by Moody's, BBB by Standard & Poor's and BBB+ by Fitch.
SEASONALITY
Our operations can be adversely affected by periods of inclement weather
which could delay the collection and disposal of waste, reduce the volume of
waste generated, or delay the construction or expansion of our landfill sites
and other facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In February 2001, the Financial Accounting Standards Board issued a revised
Exposure Draft entitled "Business Combinations and Intangibles Assets --
Accounting for Goodwill". The Exposure Draft, if adopted as proposed, would
eliminate the amortization of certain goodwill against earnings. Instead,
goodwill that is not subject to amortization would be written down against
earnings only in the periods in which the recorded value of the goodwill is more
than its fair value. The FASB is expected to issue a final statement on business
combinations and intangible assets in June 2001. During the three months ended
March 31, 2001, the Company amortized $10.0 million of goodwill against
earnings. Accordingly, the adoption of this statement, if issued as proposed,
would have a material impact on the Company's consolidated results of
operations.
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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain statements and information included herein constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. These forward-looking statements and
information include, among other things, the discussions of our growth,
financial and operating strategies, and expectations concerning market position,
future operations, margins, revenue, profitability, liquidity and capital
resources, as well as statements concerning the integration of the operations of
acquired businesses and achievement of financial benefits and operational
efficiencies in connection therewith. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance, or achievements of our Company to be materially
different from any future results, performance, or achievements expressed or
implied, in or by such forward-looking statements. Such factors include, among
other things, whether our estimates and assumptions concerning our selected
balance sheet accounts, closure and post-closure costs, available airspace, and
projected costs and expenses related to our landfills and property, plant and
equipment, turn out to be correct or appropriate, and various factors that will
impact our actual business and financial performance such as competition in the
solid waste industry; our dependence on acquisitions for growth; our ability to
manage growth; compliance with and future changes in environmental regulations;
our ability to obtain approval from regulatory agencies in connection with
expansions at our landfills; the ability to obtain financing on acceptable terms
to finance our operations and growth strategy and of our Company to operate
within the limitations imposed by financing arrangements; the ability of the
Company to repurchase common stock at prices that are accretive to earnings per
share; our dependence on key personnel; general economic conditions including,
but not limited to, inflation and changes in fuel, labor and other variable
costs that are generally not within the control of the Company; our dependence
on large, long-term collection contracts; risk associated with undisclosed
liabilities of acquired businesses; risks associated with pending legal
proceedings; and other factors contained in this section and other factors
contained in our filings with the Securities and Exchange Commission. We assume
no duty to update the forward looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market sensitive financial instruments consist primarily of variable
rate debt. Therefore, the Company's market risk exposure is with changing
interest rates in the United States and fluctuations in LIBOR. We manage
interest rate risk through a combination of fixed and floating rate debt.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are and will continue to be involved in various administrative and legal
proceedings in the ordinary course of business. We can give you no assurance
regarding the outcome of these proceedings or the effect their outcomes may
have, or that our insurance coverage's or reserves are adequate. A significant
judgment against our Company, the loss of significant permits or licenses, or
the imposition of a significant fine could have a material adverse effect on our
financial position, results of operations or prospects.
In September 1999, several lawsuits were filed by certain shareholders
against us and certain of our officers and directors in the United States
District Court for the Southern District of Florida. The plaintiffs in these
lawsuits claim, on behalf of a purported class of purchasers of our common stock
between January 28, 1999 and August 28, 1999, that the defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other
things, allegedly making materially false and misleading statements regarding
our growth and the assets we acquired from Waste Management. In 1999, the Court
consolidated these lawsuits and the consolidated action has been named In Re:
Republic Services, Inc. Securities Litigation. The plaintiffs filed a
consolidated complaint in February 2000 and the defendants filed a motion to
dismiss the consolidated complaint in April 2000. In February 2001, the Court
granted the defendants' motion to dismiss the consolidated complaint. The
plaintiffs have moved for reconsideration of the Court's order granting
dismissal of the lawsuit. Management believes the allegations contained in the
consolidated complaint are without merit and will vigorously defend this and any
related actions. However, an unfavorable resolution of this lawsuit could have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows in one or more future periods.
.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
Form 8-K, dated and filed January 29, 2001, including a press release
announcing the Company's operating results for the three and twelve
months ended December 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Republic Services, Inc., has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPUBLIC SERVICES, INC.
By: /s/ Tod C. Holmes
--------------------------------------
Tod C. Holmes
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Charles F. Serianni
--------------------------------------
Charles F. Serianni
Chief Accounting Officer
(Principal Accounting Officer)
Dated: May 9, 2001
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