<PAGE> 1
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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, 2000
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)
<TABLE>
<S> <C>
DELAWARE 65-0716904
(State of Incorporation) (IRS Employer Identification No.)
</TABLE>
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 9, 2000 the registrant had outstanding 175,528,463 shares of Common
Stock, par value $.01 per share.
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<PAGE> 2
REPUBLIC SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
(Unaudited) and December 31, 1999......................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and 1999........ 4
Unaudited Condensed Consolidated Statement of Stockholders'
Equity for the Three Months Ended March 31, 2000.......... 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999........ 6
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 26
ITEM 6. Exhibits and Reports on Form 8-K............................ 26
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ 13.1
Restricted cash........................................... 8.8 10.3
Accounts receivable, less allowance for doubtful accounts
of $13.7 and $14.2, respectively....................... 244.5 250.9
Prepaid expenses and other current assets................. 60.8 57.7
-------- --------
Total Current Assets............................ 314.1 332.0
PROPERTY AND EQUIPMENT, NET................................. 1,639.4 1,605.5
INTANGIBLE ASSETS, NET...................................... 1,331.3 1,297.3
OTHER ASSETS................................................ 51.2 53.5
-------- --------
$3,336.0 $3,288.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 65.1 $ 76.1
Accrued liabilities....................................... 95.5 88.3
Amounts due to former owners.............................. 29.6 47.0
Deferred revenue.......................................... 63.3 64.1
Notes payable and current maturities of long-term debt.... 39.3 57.2
Other current liabilities................................. 63.1 52.6
-------- --------
Total Current Liabilities....................... 355.9 385.3
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 1,154.6 1,152.1
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS.................... 142.5 129.8
DEFERRED INCOME TAXES....................................... 105.7 94.4
OTHER LIABILITIES........................................... 24.4 24.0
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; 175,481,842 issued and outstanding......... 1.8 1.8
Additional paid-in capital................................ 1,206.3 1,206.3
Retained earnings......................................... 344.8 294.6
-------- --------
Total Stockholders' Equity...................... 1,552.9 1,502.7
-------- --------
$3,336.0 $3,288.3
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
<S> <C> <C>
REVENUE..................................................... $501.5 $407.6
EXPENSES:
Cost of operations........................................ 306.1 248.8
Depreciation, amortization and depletion.................. 46.3 33.4
Selling, general and administrative....................... 47.4 46.0
------ ------
OPERATING INCOME............................................ 101.7 79.4
INTEREST EXPENSE............................................ (20.4) (11.3)
INTEREST INCOME............................................. .1 2.6
OTHER INCOME (EXPENSE), NET................................. .2 (.1)
------ ------
INCOME BEFORE INCOME TAXES.................................. 81.6 70.6
PROVISION FOR INCOME TAXES.................................. 31.4 27.2
------ ------
NET INCOME.................................................. $ 50.2 $ 43.4
====== ======
BASIC AND DILUTED EARNINGS PER SHARE........................ $ .29 $ .25
====== ======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING............................... 175.5 175.4
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999.............................. $1.8 $ 1,206.3 $294.6
Net income.............................................. -- -- 50.2
---- --------- ------
BALANCE AT MARCH 31, 2000................................. $1.8 $ 1,206.3 $344.8
==== ========= ======
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
------- --------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income................................................ $ 50.2 $ 43.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and depletion of property
and equipment......................................... 36.9 26.3
Amortization of intangible assets...................... 9.4 7.1
Deferred tax provision................................. 10.0 7.1
Provision for doubtful accounts........................ 2.5 1.6
Other non-cash charges................................. (.2) 2.0
Changes in assets and liabilities, net of effects from
business acquisitions:
Accounts receivable.................................. 7.7 (24.2)
Prepaid expenses and other assets.................... (2.8) (6.4)
Accounts payable and accrued liabilities............. (20.5) (16.1)
Other liabilities.................................... 22.1 25.5
------ -------
115.3 66.3
------ -------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment....................... (49.2) (57.0)
Proceeds from sale of equipment........................... 6.5 1.3
Cash used in business acquisitions, net of cash
acquired............................................... (48.1) (456.1)
Cash proceeds from business dispositions.................. .8 23.6
Amounts due former owners................................. (20.4) (2.3)
Other..................................................... 1.4 (.9)
------ -------
(109.0) (491.4)
------ -------
CASH USED IN FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt............ -- 1.3
Payments of notes payable and long-term debt.............. (2.4) (15.5)
Net payments on revolving credit facility................. (17.0) (102.0)
------ -------
(19.4) (116.2)
------ -------
DECREASE IN CASH AND CASH EQUIVALENTS....................... (13.1) (541.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 13.1 556.6
------ -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ -- $ 15.3
====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 as
of and for the year ended December 31, 1999. Certain amounts in the 1999
Unaudited Condensed Consolidated Financial Statements, as previously reported,
have been reclassified to conform to the fiscal 2000 presentation.
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.
In May 1999, the Company completed a secondary offering, in which
AutoNation, Inc. (together with its subsidiaries, "AutoNation") sold
substantially all of the Common Stock it owned in the Company. The historical
Unaudited Condensed Consolidated Financial Statements through the date of the
secondary offering in May 1999 reflect the accounts of the Company as a
subsidiary of AutoNation, subject to charges under the Services Agreement as
described in Note 11, Related Party Transactions. Such information does not
necessarily reflect the financial position or results of operations of the
Company as a separate, stand-alone entity.
Other charges were $4.0 million for the three months ended March 31, 1999,
which are included in selling, general and administrative expenses in the
Unaudited Condensed Consolidated Financial Statements. These costs relate to the
Company's separation from AutoNation and consist of approximately $2.0 million
of compensation expenses related to the granting of certain replacement employee
stock options at exercise prices below the quoted market price of the Company's
Common Stock at the date of grant (see Note 8, Stock Options) and $2.0 million
of additional charges directly related to the separation.
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.
7
<PAGE> 8
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1998, the Company entered into a definitive agreement with
Waste Management, Inc. ("Waste Management") to acquire certain assets. The
assets acquired included 16 landfills, 11 transfer stations and 136 commercial
collection routes across the United States, as well as disposal agreements at
various Waste Management facilities. By June 1999, the Company had completed the
purchases of the assets for approximately $479.6 million in cash plus
properties, $251.1 million of which were acquired during the three months ended
March 31, 1999.
In addition to the acquisitions from Waste Management, the Company also
acquired various other solid waste businesses during the three months ended
March 31, 1999. The aggregate purchase price paid by the Company in these
transactions was $189.9 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 for
approximately $230.0 million in cash. In October 1999, after failing to receive
regulatory approval relating to the acquisition of certain of the assets, the
agreement was amended for the Company to acquire certain solid waste assets for
a purchase price of $71.0 million in cash. The assets to be acquired under the
amended agreement include one landfill operation, five transfer stations and a
subset of small container hauling assets from four collection operations. 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. In addition, the Company entered into a
definitive agreement with Allied for the simultaneous purchase and sale of
certain other solid waste assets. During the three months ended March 31, 2000
the Company and Allied closed on a portion of these assets. All of these
transactions will be accounted for under the purchase method of accounting. The
portion of these transactions that were not closed by March 31, 2000 are subject
to approval by various state and federal agencies as well as satisfaction of
customary closing conditions.
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.
The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting
consummated during the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Property and equipment...................................... $ 51.4 $320.1
Cost in excess of net assets acquired....................... 56.6 206.1
Other assets................................................ (.5) 2.2
Working capital deficit..................................... (41.8) (44.8)
Debt assumed................................................ (4.0) (1.7)
Other liabilities........................................... (13.6) (25.8)
------ ------
Cash used in acquisitions, net of cash acquired........... $ 48.1 $456.1
====== ======
</TABLE>
The Company's unaudited pro forma consolidated results of operations
assuming all significant acquisitions during the three months ended March 31,
2000 accounted for under the purchase method of accounting had occurred as of
the beginning of each three month period presented are as follows:
8
<PAGE> 9
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Revenue..................................................... $ 507.4 $ 423.0
Net income.................................................. $ 50.1 $ 44.0
Basic and diluted earnings per share........................ $ .29 $ .25
Weighted average common and common equivalent shares
outstanding............................................... 175.5 175.4
</TABLE>
The unaudited pro forma consolidated 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 the
beginning of each period 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, 2000, the Company owned or operated 55 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;
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
9
<PAGE> 10
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 $5.1 million and $3.3 million during the three months ended March
31, 2000 and 1999, respectively.
10
<PAGE> 11
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2000, assuming that all
available landfill capacity is used, the Company expects to expense
approximately $546.8 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,
2000 and 1999.
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 $250,000 or greater;
2. The construction phase is three months or longer; and
3. The assets have a useful life of three years 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 $.7
million and $1.7 million for the three months ended March 31, 2000 and 1999,
respectively.
11
<PAGE> 12
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Other land.................................................. $ 85.6 $ 82.8
Non-depletable landfill land................................ 46.4 46.4
Landfill development costs.................................. 854.4 827.6
Vehicles and equipment...................................... 974.1 961.3
Buildings and improvements.................................. 193.9 187.5
Construction-in-progress-landfill........................... 32.5 44.3
Construction-in-progress-other.............................. 36.5 24.4
-------- --------
2,223.4 2,174.3
-------- --------
Less: Accumulated depreciation, depletion and amortization--
Landfill development costs................................ (142.6) (135.1)
Vehicles and equipment.................................... (407.2) (399.9)
Building and improvements................................. (34.2) (33.8)
-------- --------
(584.0) (568.8)
-------- --------
Property and equipment, net................................. $1,639.4 $1,605.5
======== ========
</TABLE>
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 asset 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 forty years 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 $106.6 million and $100.4
million at March 31, 2000 and December 31, 1999, 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 asset exceeds the fair value of the
assets.
12
<PAGE> 13
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
$225.0 million unsecured notes, net of unamortized discount
of $1.0 million; interest payable semi-annually in May and
November at 6 5/8 principal due at maturity in 2004....... $ 224.0 $ 224.0
$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 2000 and $500.0 million matures 2003................. 520.0 552.0
Bonds payable under loan agreements with the California
Pollution Control Financing Authority; interest at
prevailing market rates................................... 46.0 42.0
Other notes; unsecured and secured by real property,
equipment and other assets................................ 29.4 16.8
-------- --------
1,193.9 1,209.3
Less: current portion....................................... (39.3) (57.2)
-------- --------
$1,154.6 $1,152.1
======== ========
</TABLE>
Interest expense paid was $11.6 million (net of $.7 million of capitalized
interest) and $10.7 million (net of $1.7 million of capitalized interest) for
the three months ended March 31, 2000 and 1999, respectively.
7. INCOME TAXES
Income taxes have been provided for based upon the Company's anticipated
annual effective income tax rate. Income taxes paid were $4.0 million for the
three months ended March 31, 2000.
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.
Prior to the Initial Public Offering, employees of the Company were granted
stock options under AutoNation stock option plans. As of March 2, 1999, options
to purchase approximately 8.0 million shares of AutoNation common stock held by
the Company's employees were canceled by AutoNation, and the Company's
Compensation Committee granted replacement options on a one-for-one basis
("Replacement Options"). The Replacement Options retained the vesting and
exercise rights of the original options. The exercise prices for individual
replacement options were established to maintain the unrealized gain or loss on
13
<PAGE> 14
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
each option for AutoNation stock that was cancelled. Compensation expense
related to the granting of certain replacement options at exercise prices below
the fair market value of the Common Stock at the date of grant was approximately
$2.0 million, and has been included in selling, general and administrative
expenses in the Company's Unaudited Condensed Consolidated Statement of
Operations for the three months ended March 31, 1999.
A summary of stock option transactions for the three months ended March 31,
2000 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Options outstanding at beginning of year.................... 15.0 $16.57
Granted, other.............................................. .1 12.98
Exercised................................................... -- --
Cancelled................................................... (.1) 16.24
---- ------
Options outstanding at March 31, 2000....................... 15.0 $16.56
==== ======
Options exercisable at March 31, 2000....................... 7.3 $17.49
==== ======
</TABLE>
9. EARNINGS PER SHARE
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 is calculated as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Numerator:
Net income................................................ $ 50,200 $ 43,400
-------- --------
Denominator:
Denominator for basic earnings per share.................. 175,482 175,412
Effect of dilutive securities -- Options to purchase
common stock........................................... 11 26
-------- --------
Denominator for diluted earnings per share............. 175,493 175,438
-------- --------
Basic and diluted earnings per share................... $ .29 $ .25
======== ========
Antidilutive securities not included in the diluted earnings
per share calculation:
Options to purchase common stock....................... 14,813 11,999
Weighted average exercise price........................ $ 16.60 $ 18.65
</TABLE>
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
14
<PAGE> 15
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resolution could affect the consolidated financial position, results of
operations or cash flows for the quarterly periods in which they are resolved.
In September 1999, several lawsuits were filed by certain shareholders
against the Company and certain of its officers and directors in the United
States 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. On
December 29, 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. 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
During December 1999, the Company entered into a $100.0 million operating
lease facility established to finance the acquisition of operating equipment. At
March 31, 2000, $43.9 million was outstanding under the lease facility. In
addition, 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, 2000 was $39.3 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 to post
performance bonds, letters of credit and/or cash deposits as a financial
guarantee of the Company's performance. To date, the Company has satisfied
financial responsibility requirements for regulatory agencies by making cash
deposits, obtaining bank letters of credit or by obtaining surety bonds. At
March 31, 2000, surety bonds and letters of credit totaling $611.9 million were
outstanding and will expire on various dates through 2007.
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
15
<PAGE> 16
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
11. RELATED PARTY TRANSACTIONS
In June 1998, the Company and AutoNation entered into a services agreement
(the "Services Agreement") pursuant to which AutoNation agreed to provide to the
Company certain accounting, auditing, cash management, corporate communications,
corporate development, financial and treasury, human resources and benefit plan
administration, insurance and risk management, legal, purchasing and tax
services. The Services Agreement expired June 30, 1999. In exchange for the
provision of such services, fees were payable by the Company to AutoNation in
the amount of $1.25 million per month, subject to review and adjustment from
time to time as the Company reduced the amount of services it obtained from
AutoNation. Effective January 1, 1999, such fees payable by the Company to
AutoNation were reduced to approximately $.9 million per month. The Company
believes that the fees for services provided under the Services Agreement were
no less favorable to the Company than could have been obtained internally or
from unaffiliated third parties.
Charges under the Services Agreement during the three months ended March
31, 1999 were approximately $2.7 million and are included in selling, general
and administrative expenses.
16
<PAGE> 17
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 as of and for the year ended December 31, 1999.
The accompanying historical Unaudited Condensed Consolidated Financial
Statements through the date of the secondary offering in May 1999 reflect our
accounts as a subsidiary of AutoNation subject to charges under the Services
Agreement as described in Note 11, Related Party Transactions, of the Notes to
Unaudited Condensed Consolidated Financial Statements. The historical
consolidated financial information contained in this Form 10-Q does not
necessarily reflect our financial position or results of operations as a
separate, stand-alone entity.
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
146 collection companies in 22 states. We also own or operate 81 transfer
stations and 55 solid waste landfills.
We generate revenue primarily from our solid waste collection operations,
and our remaining revenue is 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, 2000 and 1999 (in millions):
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
<S> <C> <C> <C> <C>
Collection:
Residential................................... $100.7 20.1% $ 83.4 20.5%
Commercial.................................... 150.1 29.9 125.3 30.7
Industrial.................................... 114.8 22.9 89.6 22.0
Other......................................... 15.4 3.1 11.0 2.7
------ ----- ------ -----
Total collection...................... 381.0 76.0 309.3 75.9
Transfer and disposal........................... 133.7 90.3
Less: Intercompany.............................. (49.6) (27.5)
------ ------
Transfer and disposal, net.................... 84.1 16.8 62.8 15.4
Other........................................... 36.4 7.2 35.5 8.7
------ ----- ------ -----
Total revenue......................... $501.5 100.0% $407.6 100.0%
====== ===== ====== =====
</TABLE>
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 try to be more
efficient by controlling the movement of waste streams from the point of
collection through disposal. During the three months ended March 31, 2000,
approximately 49% of the total volume of waste we collected was disposed of at
our landfills.
17
<PAGE> 18
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:
- acquire,
- construct,
- close and
- 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 our 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.
In September 1998, we entered into a definitive agreement with Waste
Management, Inc. to acquire certain assets. The assets acquired included 16
landfills, 11 transfer stations and 136 commercial collection routes across the
United States as well as disposal agreements at various Waste Management
facilities. By June 1999, we had completed the purchases of the assets for
approximately $479.6 million in cash plus properties, $251.1 million of which
were acquired during the three months ended March 31, 1999.
In addition to the acquisitions from Waste Management, we also acquired
various other solid waste businesses during the three months ended March 31,
1999. The aggregate purchase price paid by us in these transactions was $189.9
million in cash.
In July 1999, we entered into a definitive agreement with Allied Waste
Industries, Inc. to acquire certain solid waste assets for approximately $230.0
million in cash. In October 1999, after failing to receive regulatory approval
relating to the acquisition of certain of the assets, the agreement was amended
for us to acquire certain solid waste assets for a purchase price of $71.0
million in cash. The assets to be acquired under the amended agreement include
one landfill operation, five transfer stations and a subset of small container
hauling assets from four collection operations. By March 31, 2000, we 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. In addition, we entered into a definitive agreement with Allied for
the simultaneous purchase and sale of certain other solid waste assets. During
the three months ended March 31, 2000, we and Allied closed on a portion of
these assets. All of these transactions will be accounted for under the purchase
method of accounting. The portion of these transactions that were not closed by
March 31, 2000, are subject to approval by various state and federal agencies as
well as satisfaction of customary closing conditions.
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.
See Note 2, Business Combinations, of the Notes to the Unaudited Condensed
Consolidated Financial Statements, for further discussion of business
combinations.
18
<PAGE> 19
CONSOLIDATED RESULTS OF OPERATIONS
Net income was $50.2 million for the three months ended March 31, 2000, or
$.29 per share, as compared to $43.4 million, or $.25 per share, for the three
months ended March 31, 1999.
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
--------------- ---------------
<S> <C> <C> <C> <C>
Revenue............................................... $ 501.5 100.0% $ 407.6 100.0%
Expenses:
Cost of operations.................................. 306.1 61.0 248.8 61.0
Depreciation, amortization and depletion of property
and equipment.................................... 36.9 7.4 26.3 6.5
Amortization of intangible assets................... 9.4 1.9 7.1 1.7
Selling, general and administrative expenses........ 47.4 9.4 42.0 10.3
Other charges....................................... -- -- 4.0 1.0
------- ----- ------- -----
Operating income...................................... $ 101.7 20.3% $ 79.4 19.5%
======= ===== ======= =====
</TABLE>
Revenue was $501.5 million and $407.6 million for the three months ended
March 31, 2000 and 1999, respectively, an increase of 23.1%. The following table
reflects the components of our revenue growth for the three months ended March
31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Price....................................................... 2.6% 2.2%
Volume...................................................... 5.8 5.9
---- ----
Total internal growth............................. 8.4 8.1
Acquisitions................................................ 14.7 26.8
---- ----
Total revenue growth.............................. 23.1% 34.9%
==== ====
</TABLE>
The increase in revenue for the three months ended March 31, 2000 versus
the comparable 1999 period is due primarily to an increase in collection and
transfer and disposal operations.
Cost of operations was $306.1 million for the three months ended March 31,
2000 versus $248.8 million for the comparable 1999 period. The increase in
aggregate dollars is primarily due to acquisitions. Cost of operations as a
percentage of revenue was 61.0% for the three months ended March 31, 2000 and
1999.
Expenses for depreciation, amortization and depletion of property and
equipment were $36.9 million for the three months ended March 31, 2000 versus
$26.3 million for the comparable 1999 period. Expenses for depreciation,
amortization and depletion of property and equipment as a percentage of revenue
were 7.4% for the three months ended March 31, 2000 versus 6.5% for the
comparable 1999 period. The increase in such expenses in aggregate dollars and
as a percentage of revenue is primarily due to acquisitions and capital
expenditures.
Expenses for amortization of intangible assets were $9.4 million for the
three months ended March 31, 2000 versus $7.1 million for the comparable 1999
period. Amortization of intangible assets as a percentage of revenue was 1.9%
for the three months ended March 31, 2000 versus 1.7% for the comparable 1999
period. The increase 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 $47.4 million for the
three months ended March 31, 2000 versus $42.0 million for the comparable 1999
period. The increase in aggregate dollars is primarily due to acquisitions.
Selling, general and administrative expenses as a percentage of revenue were
9.4% for the three months ended March 31, 2000 versus 10.3% for the comparable
1999 period. The decrease in such expenses as
19
<PAGE> 20
a percentage of revenue is primarily due to leveraging the existing overhead
structure over an expanding revenue base.
Included in selling, general and administrative expenses are fees paid to
AutoNation under the Service Agreement of $2.7 million for the three months
ended March 31, 1999. See Note 11, Related Party Transactions, of the Notes to
Unaudited Condensed Consolidated Financial Statements for further information.
Other charges were $4.0 million for the three months ended March 31, 1999.
These costs relate to the Company's separation from AutoNation and consist of
approximately $2.0 million of compensation expense related to the granting of
certain replacement employee stock options at exercise prices below the quoted
market price of our Common Stock at the date of grant (see Note 8, Stock
Options, of the Notes to Unaudited Condensed Consolidated Financial Statements)
and approximately $2.0 million of additional charges directly related to the
separation.
INTEREST EXPENSE
Interest expense was $20.4 million for the three months ended March 31,
2000 versus $11.3 million for the comparable 1999 period. Interest expense for
the three months ended March 31, 2000 is primarily due to borrowings under our
unsecured notes and revolving credit facility. Proceeds from the sale of the
unsecured notes were used to repay the revolving credit facility. Borrowings
under the revolving credit facility were used primarily to fund acquisitions and
capital expenditures.
Capitalized interest was $.7 million and $1.7 million for the three months
ended March 31, 2000 and 1999, respectively.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income, net of other expense, was $.3 million and $2.5
million for the three months ended March 31, 2000 and 1999, respectively. The
decrease in interest income for the three months ended March 31, 2000 versus the
comparable period in 1999 is primarily due to higher average cash balances on
hand during 1999.
INCOME TAXES
The provision for income taxes was $31.4 million and $27.2 million for the
three months ended March 31, 2000 and 1999, respectively. The effective income
tax rate was 38.5% for the three months ended March 31, 2000 and 1999. Income
taxes have been provided based upon our anticipated annual effective tax rate.
20
<PAGE> 21
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, 2000:
<TABLE>
<CAPTION>
LANDFILLS
BALANCE AS OF NEW ACQUIRED, NET BALANCE AS OF
DECEMBER 31, EXPANSIONS OF PERMITS AIRSPACE MARCH 31,
1999 UNDERTAKEN DIVESTITURES GRANTED CONSUMED 2000
------------- ---------- -------------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Permitted airspace:
Cubic yards (in millions)........... 1,304.1 -- 11.6 2.3 (7.4) 1,310.6
Number of sites..................... 55 -- -- -- -- 55
Expansion airspace:
Cubic yards (in millions)........... 369.7 18.4 (27.1) (2.3) -- 358.7
Number of sites..................... 20 1 (1) -- -- 20
------- ----- ----- ---- ---- -------
Total available airspace:
Cubic yards (in millions)........... 1,673.8 18.4 (15.5) -- (7.4) 1,669.3
======= ===== ===== ==== ==== =======
Number of sites..................... 55 55
======= =======
</TABLE>
As of March 31, 2000, we owned or operated 55 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, 2000, 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.
As of March 31, 2000, 20 of our landfills meet the criteria for including
expansion airspace in their total available disposal capacity. At projected
annual volumes, these 20 landfills have an estimated remaining average site life
of 34 years, including the expansion airspace. The average estimated remaining
life of all of our landfills is 37 years.
As of March 31, 2000, four 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, 2000,
seven of our 20 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.
Closure and Post-Closure Costs
During the three months ended March 31, 2000, we consumed approximately 7.4
million cubic yards of airspace. During this same period, charges to expense for
closure and post-closure were $5.1 million, or $.69 per cubic yard. As of March
31, 2000, accrued closure and post-closure costs were $163.8 million. The
current portion of these costs of $22.5 million is reflected in our Unaudited
Condensed Consolidated Balance Sheet in other current liabilities. The long-term
portion of these costs of $141.3 million is reflected in our Unaudited Condensed
Consolidated Balance Sheet in accrued environmental and landfill costs. As of
March 31, 2000, assuming that all available landfill capacity is used, we expect
to expense approximately $546.8 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. Thus, if we
discounted such costs, assuming closure and post-closure payments were made
ratably over the life of the
21
<PAGE> 22
landfill and the post-closure period, respectively, and assuming the costs in
current dollars are inflated by 2% until the expected time of payment and then
discounted to present value at 6%, closure and post-closure expense would be
reduced to $2.8 million, or $.38 per cubic yard, for the three months ended
March 31, 2000, a reduction of $2.3 million, or $.31 per cubic yard, from
recorded expense. In addition, if we discounted such costs, the present value of
the expected future expense related to closure and post-closure assuming all
available landfill capacity is used would decrease to $236.3 million.
Investment in Landfills
The following table reflects changes in our investments in landfills for
the three months ended March 31, 2000 and the future expected investment as of
March 31, 2000 (in millions):
<TABLE>
<CAPTION>
LANDFILLS
BALANCE AS OF ACQUIRED, TRANSFERS ADDITIONS BALANCE AS OF EXPECTED
DECEMBER 31, CAPITAL NET OF AND CHARGED TO MARCH 31, FUTURE
1999 ADDITIONS DIVESTITURES ADJUSTMENTS EXPENSE 2000 INVESTMENT
------------- --------- ------------ ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-depletable landfill
land........................ $ 46.4 $ -- $ -- $ -- $ -- $ 46.4 $ --
Landfill development costs.... 827.6 2.2 7.4 17.2 -- 854.4 1,036.4
Construction in
progress -- landfill........ 44.3 8.0 -- (19.8) -- 32.5 --
Accumulated depletion and
amortization................ (135.1) -- 6.7 -- (14.2) (142.6) --
------ ----- ------ ------ ------ ------- --------
Net investment in landfill
land and development
costs....................... $783.2 $10.2 $ 14.1 $ (2.6) $(14.2) $ 790.7 $1,036.4
====== ===== ====== ====== ====== ======= ========
<CAPTION>
TOTAL
EXPECTED
INVESTMENT
----------
<S> <C>
Non-depletable landfill
land........................ $ 46.4
Landfill development costs.... 1,890.8
Construction in
progress -- landfill........ 32.5
Accumulated depletion and
amortization................ (142.6)
--------
Net investment in landfill
land and development
costs....................... $1,827.1
========
</TABLE>
As of December 31, 1999, we owned or operated 55 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
$736.8 million, or approximately $.44 per cubic yard.
As of March 31, 2000, we owned or operated 55 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
$744.3 million, or $.45 per cubic yard. During the three months ended March 31,
2000, our depletion and amortization expense relating to landfills was $14.2
million, or $1.92 per cubic yard.
As of March 31, 2000, 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 $1.8
billion, or $1.07 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
years ended December 31, 1999, 1998 and 1997.
FINANCIAL CONDITION
At March 31, 2000, we had no unrestricted cash.
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 had an
original term of 364 days and the remaining $500.0 million expires in July 2003.
In July 1999, we extended the short-term portion of the credit facility for an
additional one year term expiring in July 2000. 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, 2000, we had
approximately $462.0 million of availability under the short-term portion of 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%
22
<PAGE> 23
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 a $100.0 million operating lease facility
established to finance the acquisition of operating equipment. As of March 31,
2000, $43.9 million was outstanding under this facility.
We plan to extend the maturity of our revolving short-term credit facility
prior to its expiration in July 2000 to July 2001. We believe that such an
extension would provide us with sufficient financial 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. However,
we cannot assure you that we would be able to obtain additional financing under
terms as favorable as our existing facilities and notes, or to extend the
existing short-term credit facility on the same terms.
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, 2000 (in millions):
<TABLE>
<CAPTION>
ALLOWANCE FOR CLOSURE AND AMOUNTS DUE TO
DOUBTFUL ACCOUNTS POST-CLOSURE SELF-INSURANCE FORMER OWNERS
----------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999.................. $14.2 $152.3 $38.4 $ 47.0
Additions charged to expense................ 2.5 5.1 21.1 --
Additions due to acquisitions, net.......... .3 9.5 -- 3.0
Usage....................................... (3.3) (3.1) (20.2) (20.4)
----- ------ ----- ------
Balance, March 31, 2000..................... 13.7 163.8 39.3 29.6
Current portion............................. 13.7 22.5 22.6 29.6
----- ------ ----- ------
Long-term portion........................... $ -- $141.3 $16.7 $ --
===== ====== ===== ======
</TABLE>
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, 2000, accounts receivable were $244.5 million, net of
allowance for doubtful accounts of $13.7 million, resulting in days sales
outstanding of 44, or 33 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, 2000 (in millions):
<TABLE>
<CAPTION>
GROSS PROPERTY, PLANT AND EQUIPMENT
---------------------------------------------------------------------------------------
BALANCE AS OF ACQUISITIONS, BALANCE AS OF
DECEMBER 31, CAPITAL NET OF TRANSFERS AND MARCH 31,
1999 ADDITIONS RETIREMENTS DIVESTITURES ADJUSTMENTS 2000
------------- --------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Other land.......................... $ 82.8 $ .1 $ -- $ 1.8 $ .9 $ 85.6
Non-depletable landfill land........ 46.4 -- -- -- -- 46.4
Landfill development costs.......... 827.6 2.2 -- 7.4 17.2 854.4
Vehicles and equipment.............. 961.3 21.1 (10.2) 2.9 (1.0) 974.1
Buildings and improvements.......... 187.5 3.3 (.1) (1.2) 4.4 193.9
Construction in
progress -- landfill.............. 44.3 8.0 -- -- (19.8) 32.5
Construction in progress -- other... 24.4 14.5 -- (.1) (2.3) 36.5
-------- ------ ------ ------ ------ --------
Total...................... $2,174.3 $ 49.2 $(10.3) $ 10.8 $ (.6) $2,223.4
======== ====== ====== ====== ====== ========
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION, AMORTIZATION AND DEPLETION
--------------------------------------------------------------------------------------
ADDITIONS
BALANCE AS OF CHARGED BALANCE AS OF
DECEMBER 31, TO TRANSFERS AND MARCH 31,
1999 EXPENSE RETIREMENTS DIVESTITURES ADJUSTMENTS 2000
------------- --------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Landfill development costs.......... $ (135.1) $(14.2) $ -- $ 6.6 $ .1 $ (142.6)
Vehicles and equipment.............. (399.9) (21.2) 4.8 8.4 .7 (407.2)
Buildings and improvements.......... (33.8) (1.5) -- 1.2 (.1) (34.2)
-------- ------ ------ ------ ------ --------
Total...................... $ (568.8) $(36.9) $ 4.8 $ 16.2 $ .7 $ (584.0)
======== ====== ====== ====== ====== ========
</TABLE>
The tables above exclude $43.9 million of operating equipment consisting
primarily of revenue producing vehicles that were subject to our operating lease
facility as of March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The major components of changes in cash flows for the three months ended
March 31, 2000 and 1999 are discussed below.
Cash Flow from Operating Activities. Cash provided by operating activities
was $115.3 million and $66.3 million for the three months ended March 31, 2000
and 1999, respectively. The changes in cash provided by operating activities
during the periods are due to expansion of our business.
Cash Flows from Investing Activities. Cash flows from investing activities
consist primarily of cash used for business acquisitions and capital additions.
Cash used to acquire businesses, net of cash acquired, was $48.1 million and
$456.1 million during the three months ended March 31, 2000 and 1999,
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. We expect to use primarily cash for future business
acquisitions.
Cash Flows from Financing Activities. Cash flows from financing activities
for the three months ended March 31, 2000 and 1999 included net repayments of
commercial bank debt. In May 1999, we sold unsecured notes with a face value of
$600.0 million at a discounted price of $598.5 million. Proceeds from the notes
were used to repay our revolving credit facility. In December 1999, we entered
into a $100.0 million operating lease facility established to finance the
acquisition of operating equipment consisting primarily of revenue-producing
vehicles. At March 31, 2000, $43.9 million was outstanding under this facility.
We used proceeds from bank facilities and unsecured notes to fund
acquisitions and capital additions, and repay debt.
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 June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133". SFAS 137 amends FASB Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," by deferring the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. SFAS
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. We will adopt SFAS 133 beginning January 1,
2001. We do
24
<PAGE> 25
not expect the adopting of this standard to have a material impact on our
consolidated financial position or results of operations.
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 which include, among other things, the
discussions of our growth 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; our dependence on key personnel; general economic conditions; 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.
25
<PAGE> 26
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 coverages 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. On December 29,
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. We believe the allegations
contained in the consolidated complaint are without merit and we will vigorously
defend this and any related actions. However, an unfavorable resolution of this
lawsuit could have a material adverse effect on our financial position, results
of operations or cash flow in one or more future periods.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule for the Three Months Ended March 31, 2000 (for
SEC use only).
(b) Reports on Form 8-K:
Form 8-K, filed and dated April 25, 2000 including a press release
announcing the Company's operating results for the three months ended
March 31, 2000.
26
<PAGE> 27
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)
Date: May 11, 2000
27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 258,200,000
<ALLOWANCES> 13,700,000
<INVENTORY> 0
<CURRENT-ASSETS> 314,100,000
<PP&E> 2,223,400,000
<DEPRECIATION> 584,000,000
<TOTAL-ASSETS> 3,336,000,000
<CURRENT-LIABILITIES> 355,900,000
<BONDS> 1,154,600,000
0
0
<COMMON> 1,800,000
<OTHER-SE> 1,551,100,000
<TOTAL-LIABILITY-AND-EQUITY> 3,336,000,000
<SALES> 0
<TOTAL-REVENUES> 501,500,000
<CGS> 0
<TOTAL-COSTS> 306,100,000
<OTHER-EXPENSES> 93,700,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 81,600,000
<INCOME-TAX> 31,400,000
<INCOME-CONTINUING> 50,200,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,200,000
<EPS-BASIC> .29
<EPS-DILUTED> .29
</TABLE>
