REPUBLIC SERVICES INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 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) (I.R.S. Employer Identification No.)

REPUBLIC SERVICES, INC. 33301
110 S.E. 6TH STREET, 28TH FLOOR (Zip Code)
FORT LAUDERDALE, FLORIDA
(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (954) 769-2400

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on which Registered
COMMON STOCK, PAR VALUE THE NEW YORK STOCK EXCHANGE
$.01 PER SHARE

Securities registered pursuant to Section 12(g) of the Act: NONE

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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 26, 2002, the registrant had outstanding 167,040,469 shares of
Common Stock. At such date, the aggregate market value of the shares of the
Common Stock held by non-affiliates of the registrant was approximately
$3,229,925,626.

DOCUMENTS INCORPORATED BY REFERENCE

Part IV Portions of previously filed reports and registration statements.
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INDEX
TO FORM 10-K

PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

We are a leading provider of services in the domestic non-hazardous solid
waste industry. We provide non-hazardous solid waste collection services for
commercial, industrial, municipal and residential customers through 146
collection companies in 22 states. We also own or operate 89 transfer stations,
54 solid waste landfills and 26 recycling facilities.

We had revenue of $2,257.5 million and $2,103.3 million and operating
income of $283.5 million and $434.0 million for the years ended December 31,
2001 and 2000, respectively. The $154.2 million, or 7.3%, increase in revenue
from 2000 to 2001 is primarily attributable to the successful execution of the
operating and growth strategies described below. The $150.5 million decrease in
operating income is primarily due to a charge of $132.0 million on a pre-tax
basis, or $86.1 million on an after-tax basis, recorded in the fourth quarter of
2001 for completed and planned divestitures and closings of certain core and
non-core businesses, asset impairments, downsizing our compost, mulch and soil
business and related inventory adjustments, an increase in insurance reserves
and an increase in bad debt expense related to the economic slowdown. The
economic slowdown also contributed to the decrease in operating income from 2000
to 2001.

Our presence in high growth markets throughout the Sunbelt, including
Florida, Georgia, Nevada, California and Texas, and in other domestic markets
that have experienced higher than average population growth during the past
several years supports our internal growth strategy. We believe that our
presence in these markets positions our company to experience growth at rates
that are generally higher than the industry's overall growth rate.

While we believe that we are well positioned to continue to increase our
revenue and operating income in the longer-term, the economic slowdown has had a
negative impact on certain aspects of our business. However, the aspects of our
business that we believe are "recession resilient" have continued to perform
well. This includes residential and commercial collection operations which are
flat rate businesses and are not subject to the volatility we experience in our
industrial collection and disposal business. We continue to focus on enhancing
stockholder value by implementing our financial, operating and growth strategies
as described below.

INDUSTRY OVERVIEW

Based on analysts' reports and industry trade publications, we believe that
the United States non-hazardous solid waste services industry generated revenue
of approximately $43 billion in 1999, of which approximately 47% was generated
by publicly-owned waste companies, 29% was generated by privately-held waste
companies and 24% was generated by municipal and other local governmental
authorities. Only three companies generated the substantial majority of the
publicly-owned companies' total revenue in 1999. However, according to industry
data, the domestic non-hazardous waste industry remains highly fragmented as
privately-held companies and municipal and local governmental authorities
generated total annual revenue of approximately $23 billion. In general, growth
in the solid waste industry is proportional to growth in the overall economy.

The solid waste industry has experienced a period of rapid consolidation.
During this time we were able to grow significantly through acquisitions.
However, growth in the industry by virtue of acquisitions has slowed
considerably. Despite this, we believe that the opportunity to grow through
acquisitions still exists, albeit at a slower pace than experienced in previous
years, as a result of the following factors:

Subtitle D Regulation. Subtitle D of the Resource Conservation and
Recovery Act of 1976, as currently in effect, and similar state regulations
have significantly increased the amount of capital, technical expertise,
operating costs and financial assurance obligations required to own and
operate a landfill and other solid waste facilities. Many of the smaller
participants in our industry have found these costs difficult, if not
impossible, to bear. Large publicly-owned companies, like our company, have
greater

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access to, and a lower cost of, the capital necessary to finance such
increased capital expenditures and costs relative to many of the
privately-owned companies in the industry. Additionally, the required
permits for landfill development, expansion or construction have become
more difficult, time consuming and costly to acquire. Consequently, many
smaller, independent operators have decided to either close their
operations or sell them to larger operators with greater access to capital.

Integration of Solid Waste Businesses. By being able to control the
waste stream in a market through the collection, transfer and disposal
process, integrated solid waste companies gain a further competitive
advantage over non-integrated operators. The ability of the integrated
companies to both collect and dispose of solid waste, coupled with access
to significant capital resources necessary for acquisitions, has created an
environment in which large publicly-owned integrated companies can operate
more cost effectively and competitively than non-integrated operators.

Municipal Privatization. The trend toward consolidation in the solid
waste services industry is further supported by the increasing tendency of
a number of municipalities to privatize their waste disposal operations.
Privatization of municipal waste operations is often an attractive
alternative to funding the changes required by Subtitle D.

These developments, as well as the fact that there are a limited number of
viable exit strategies for many of the owners and principals of numerous
privately-held companies in the industry, have contributed to the overall
consolidation trend in the solid waste industry.

FINANCIAL STRATEGY

A key component of our financial strategy is our ability to generate free
cash flow. We use a simple definition -- free cash flow is net income, plus
depreciation, depletion and amortization, less capital expenditures, plus or
minus net changes in assets and liabilities. Certain analysts that follow the
waste industry add deferred income taxes and proceeds from the sale of equipment
to our definition of free cash flow. We believe that free cash flow is the best
measure of our financial performance because strong, sustainable free cash flow
is indicative of high quality earnings. Consequently, we have developed
incentive programs and monthly field operating reviews that help focus our
entire company on the importance of growing free cash flow.

We manage our free cash flow primarily by ensuring that capital
expenditures are appropriate in light of our internal and acquisition growth and
by closely managing our assets and liabilities, the most critical of which are
accounts receivable and accounts payable.

We have used and will continue to use our cash flow to maximize stockholder
value as well as our return on investment. This includes the following:

- CUSTOMER SERVICE. We will continue to reinvest in our existing fleet of
vehicles, equipment, landfills and facilities to ensure a high level of
service to our customers.

- INTERNAL GROWTH. Growth through increases in our customer base and
services provided is the most cost-effective means for us to build our
business. This includes not only investing in trucks and containers, but
also includes investing in information tools and training needed to
ensure high productivity and quality service throughout all functional
areas of our business.

- STRATEGIC ACQUISITIONS. We have and will continue to pursue strategic
acquisitions that augment our existing business platform. For example,
our acquisition of Richmond Sanitary Services during 2001 complemented
our business platform by providing us with a vertically integrated
business in a growth market.

- SHARE REPURCHASE. If we are unable to identify opportunities that
satisfy our growth strategy, we intend to use our free cash flow to
repurchase shares of our common stock at prices that provide value to our
stockholders. As of December 31, 2001, we repurchased 9.2 million shares
of our common stock, or approximately 5.4% of our shares outstanding at
yearend, for $150.1 million. Our board of directors

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has authorized the repurchase of up to an additional $125.0 million of
our common stock. We believe that our share repurchase program will
continue to enhance stockholder value.

- MINIMIZE BORROWINGS. To the extent that the opportunities to enhance
stockholder value mentioned above are not available, we also intend to
continue to use our free cash flow to minimize our borrowings under our
revolving credit facility.

Another key component of our financial strategy includes maintaining an
investment grade rating on our senior debt. This has allowed us to secure
favorable, long-term fixed rate financing that reduces our exposure to changing
interest rates. This has also allowed us, and will continue to allow us, to
readily access capital markets.

For certain risks related to our financial strategy, see "Risk Factors."

OPERATING STRATEGY

We seek to leverage existing assets and revenue growth to increase
operating margins and enhance stockholder value. Our operating strategy to
accomplish this goal is to:

- utilize the extensive industry knowledge and experience of our executive
management,

- utilize a decentralized management structure in overseeing day-to-day
operations,

- integrate waste operations,

- improve operating margins through economies of scale, cost efficiencies
and asset utilization,

- achieve high levels of customer satisfaction, and

- utilize systems to improve consistency in financial and operational
performance.

For certain risks related to our operating strategy, see "Risk Factors."

- EXPERIENCED EXECUTIVE MANAGEMENT TEAM. We believe that we have one of
the most experienced executive management teams in the solid waste
industry.

H. Wayne Huizenga, who has served as our Chairman since our initial
public offering in July 1998, has over 27 years of experience in the solid
waste industry. After several years of owning and operating private waste
hauling companies in Florida, he co-founded Waste Management in 1971. From
1971 to 1984, he served in various executive capacities with Waste
Management, including President and Chief Operating Officer. By then, Waste
Management, Inc. had become the world's largest integrated solid waste
services company.

Harris W. Hudson, who has served as our Vice Chairman since our
initial public offering, has over 37 years of experience in the solid waste
industry. Mr. Hudson worked closely with Mr. Huizenga, from 1964 until
1982, at Waste Management and at the private waste hauling firms they
operated prior to the formation of Waste Management. In 1982, Mr. Hudson
retired as Vice President of Waste Management of Florida, Inc., a
subsidiary of Waste Management. In 1983, Mr. Hudson founded Hudson
Management Corporation, a solid waste collection company in Florida, and
served as its Chairman and Chief Executive Officer until it merged with
AutoNation in August 1995. By that time, Hudson Management had grown to
over $50.0 million in annual revenue, becoming one of Florida's largest
privately-held solid waste collection companies based on revenue. From
August 1995 until our initial public offering, Mr. Hudson served in various
capacities with AutoNation, including Chairman of its Solid Waste Group.

James E. O'Connor, who has served as our Chief Executive Officer since
December 1998, also worked at Waste Management from 1972 to 1978 and from
1982 to 1998. During that time, he served in various management positions,
including Senior Vice President in 1997 and 1998, and Area President of
Waste Management of Florida, Inc., from 1992 to 1997. Mr. O'Connor has over
27 years of experience in the solid waste industry.

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The other corporate officers with responsibility for our operations
have an average of over 19 years of management experience in the solid
waste industry. Our five regional vice presidents have an average of 23
years of experience in the industry, and our 22 area presidents have an
average of 22 years of experience in the industry.

- DECENTRALIZED MANAGEMENT STRUCTURE. We maintain a relatively small
corporate headquarters staff, relying on a decentralized management
structure to minimize administrative overhead costs and to manage our
day-to-day operations more efficiently. Our local management has
extensive industry experience in growing, operating and managing solid
waste companies and has substantial experience in their local geographic
markets. In early 2001, we added a sales, maintenance and operations
manager to each of our regional management teams, which previously
consisted of a regional vice president and a regional controller. We
believe that strengthening our regional management teams allows us to
more effectively and efficiently drive our company's initiatives and
helps ensure consistency throughout our organization. Our regional
management teams and our area presidents have extensive authority,
responsibility and autonomy for operations within their respective
geographic markets. Compensation for regional and area management teams
is primarily based on the improvement in operating income produced and
the cash flow generated in each manager's geographic area of
responsibility. In addition, through long-term incentive programs,
including stock options, we believe we have one of the lowest turnover
levels in the industry for our local management teams. As a result of
retaining experienced managers with extensive knowledge of and
involvement in their local communities, we are proactive in anticipating
our customers' needs and adjusting to changes in our markets. We also
seek to implement the best practices of our various regions and areas
throughout our operations to improve operating margins.

- INTEGRATED OPERATIONS. We seek to achieve a high rate of internalization
by controlling waste streams from the point of collection through
disposal. We expect that our fully integrated markets generally will have
a lower cost of operations and more favorable cash flows than our
non-integrated markets. Through acquisitions and other market development
activities, we create market specific, integrated operations typically
consisting of one or more collection companies, transfer stations and
landfills. We consider acquiring companies that own or operate landfills
with significant permitted disposal capacity and appropriate levels of
waste volume. We also seek to acquire solid waste collection companies in
markets in which we own or operate landfills. In addition, we generate
internal growth in our disposal operations by developing new landfills
and expanding our existing landfills from time to time in markets in
which we have significant collection operations or in markets that we
determine lack sufficient disposal capacity. During the three months
ended December 31, 2001, approximately 52% of the total volume of waste
that we collected was disposed of at landfills we own or operate. In a
number of our larger markets, we and our competitors are required to take
waste to government-controlled disposal facilities. This provides us with
an opportunity to effectively compete in these markets without investing
in landfill capacity. Because we do not have landfill facilities or
government-controlled disposal facilities for all markets in which we
provide collection services, we believe that through landfill and
transfer station acquisitions and development we have the opportunity to
increase our waste internalization rate and further integrate our
operations. By further integrating operations in existing markets through
acquisitions and development of landfills and transfer stations, we are
able to reduce our disposal costs.

- ECONOMIES OF SCALE, COST EFFICIENCIES AND ASSET UTILIZATION. To improve
operating margins, our management focuses on achieving economies of scale
and cost efficiencies. The consolidation of acquired businesses into
existing operations reduces costs by decreasing capital and expenses used
for routing, personnel, equipment and vehicle maintenance, inventories
and back-office administration. Generally, we consolidate our acquired
administrative centers to reduce our general and administrative costs.
Our goal is to maintain our selling, general and administrative costs in
the range of 10% of revenue which we feel is appropriate given our
existing business platform. In addition, our size allows our company to
negotiate volume discounts for certain purchases, including waste
disposal rates at landfills operated by third parties. Furthermore, we
have taken steps to increase utilization of our

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assets. For example, to reduce the number of collection vehicles and
maximize the efficiency of our fleet, we have instituted a grid
productivity program which allows us to benchmark the performance of all
of our drivers. In our larger markets, we also routinely use a route
optimization program to minimize drive time and improve operating
density. By using assets more efficiently, operating expenses can be
significantly reduced.

- HIGH LEVELS OF CUSTOMER SATISFACTION. Our goal of maintaining high
levels of customer satisfaction complements our operating strategy. Our
personalized sales process is oriented towards maintaining relationships
and ensuring that service is being properly provided.

- UTILIZE SYSTEMS TO IMPROVE CONSISTENCY IN FINANCIAL AND OPERATIONAL
REPORTING. We continue to focus on systems and training initiatives that
complement our operating strategy. These initiatives include contact
management, billing, productivity, maintenance and general ledger
systems. These systems provide us with detailed information, prepared in
a consistent manner, that will allow us to quickly analyze and act upon
trends in our business.

GROWTH STRATEGY

Our strategy focuses on increasing revenue, gaining market share and
enhancing stockholder value through internal growth and acquisitions. For
certain risks related to our growth strategy, see "Risk Factors."

- INTERNAL GROWTH. Our internal growth strategy focuses on retaining
existing customers and obtaining commercial, municipal and industrial
customers through our well-managed sales and marketing activities.

Long-Term Contracts. We seek to obtain long-term contracts for
collecting solid waste in high-growth markets. These include exclusive
franchise agreements with municipalities as well as commercial and
industrial contracts. By obtaining such long-term agreements, we have the
opportunity to grow our contracted revenue base at the same rate as the
underlying population growth in these markets. For example, we have
secured exclusive, long-term franchise agreements in high-growth markets
such as Los Angeles, Orange and Contra Costa Counties in California, Las
Vegas, Nevada, Arlington, Texas and many areas of Florida. We believe that
this positions our company to experience internal growth rates that are
generally higher than our industry's overall growth rate. In addition, we
believe that by securing a base of long-term recurring revenue in growth
markets, we are better able to protect our market position from
competition and our business may be less susceptible to downturns in
economic conditions.

Sales and Marketing Activities. We seek to manage our sales and
marketing activities to enable our company to capitalize on our leading
positions in many of the markets in which we operate. We currently have
approximately 500 sales and marketing employees in the field, who are
compensated using a commission structure that is focused on generating
high levels of quality revenue. For the most part, these employees
directly solicit business from existing and prospective commercial,
industrial, municipal and residential customers. We emphasize our rate and
cost structures when we train new and existing sales personnel. In
addition, we utilize a contact management system that assists our sales
people in tracking leads. It also tracks renewal periods for existing and
potential commercial, industrial and franchise contracts.

- ACQUISITION GROWTH. During the past several years, the solid waste
industry experienced a period of rapid consolidation. We were able to
grow significantly through acquisitions during this period. However, the
rate of consolidation in the industry has slowed considerably. Despite
this, we continue to look to acquire businesses that complement our
existing business platform. Our acquisition growth strategy focuses on
the approximately $23 billion of revenue generated by privately-held
solid waste companies and municipal and local governmental authorities in
1999. We believe that our ability to acquire privately-held companies is
enhanced by increasing competition in the solid waste industry,
increasing capital requirements as a result of changes in solid waste
regulatory requirements, and the limited number of exit strategies for
these privately-held companies' owners and principals. We also

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seek to acquire operations and facilities from municipalities that are
privatizing, which occurs for many of the same reasons that
privately-held companies sell their solid waste businesses. In addition,
we will continue to evaluate opportunities to acquire operations and
facilities that may be divested by other publicly-owned waste companies.
In sum, our acquisition growth strategy focuses on:

- acquiring businesses that position our company for growth in existing
and new markets,

- acquiring well-managed companies and, when appropriate, retaining
local management,

- acquiring operations and facilities from municipalities that are
privatizing and publicly-owned companies that are divesting of assets.

For certain risks involved with our acquisition growth strategy, see
"Risk Factors -- We may be unable to execute our acquisition growth
strategy," "-- We may be unable to manage our growth effectively," and
"-- Businesses we acquire may have undisclosed liabilities."

Acquire Businesses Positioning the Company for Growth. In making
acquisitions, we principally target high quality businesses that will
allow our company to be, or provide our company favorable prospects of
becoming, a leading provider of integrated solid waste services in markets
with favorable demographic growth. For example, during 2001 we acquired
Richmond Sanitary Services, located in Northern California. Richmond
complemented our business platform by providing us with a vertically
integrated business in a growth market. Generally, we have acquired, and
will continue to seek, solid waste collection, transfer and disposal
companies that:

- have strong operating margins,

- are in growth markets,

- are among the largest or have a significant presence in their local
markets, and

- have long-term contracts or franchises with municipalities and other
customers.

Once we have a base of operations in a particular market, we focus on
acquiring trucks and routes of smaller businesses that also operate in
that market and surrounding markets, which are typically referred to as
"tuck-in" acquisitions. We seek to consolidate the operations of such
tuck-in businesses into our existing operations in that market. We also
seek to acquire landfills, transfer stations and collection companies that
operate in markets that we are already servicing in order to fully
integrate our operations from collection to disposal. In addition, we have
in the past and may continue in the future to exchange businesses with
other solid waste companies if by doing so there is a net benefit to our
business platform. These activities allow us to increase our revenue and
market share, lower our cost of operations as a percentage of revenue, and
consolidate duplicative facilities and functions to maximize cost
efficiencies and economies of scale.

Acquire Well-Managed Companies. We also seek to acquire businesses
that have experienced management teams that are willing to join the
management of our company. We generally seek to maintain continuity in
management of larger acquired companies in order to capitalize on their
local market knowledge, community relations and name recognition, and to
instill their entrepreneurial drive at all levels of our operations. By
furnishing the local management of such acquired companies with our
financial and marketing resources and technical expertise, we believe that
the acquired companies are better able to secure additional municipal
franchises and other contracts.

Privatize Municipal Operations and Acquire Divested Operations. We
also seek to acquire solid waste collection operations, transfer stations
and landfills that municipalities and other governmental authorities are
privatizing. Many municipalities are seeking to outsource or sell these
types of solid waste operations, as they lack the capital, technical
expertise and/or operational resources necessary to comply with
increasingly stringent regulatory standards and/or to compete effectively
with private-sector companies. In addition, we have acquired, and will
continue to seek to acquire, operations and facilities that may be
divested by other publicly-owned waste companies.

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OPERATIONS

Our operations primarily consist of the collection and disposal of
non-hazardous solid waste.

Collection Services. We provide solid waste collection services to
commercial, industrial, municipal and residential customers in 22 states through
146 collection companies. In 2001, 76% of our revenue was derived from
collection services consisting of approximately 28% from services provided to
municipal and residential customers, 40% from services provided to commercial
customers and 32% from services provided to industrial customers.

Our residential collection operations involve the curbside collection of
refuse from small containers into collection vehicles for transport to transfer
stations or directly to landfills. Residential solid waste collection services
are typically performed under contracts with municipalities, which we generally
secure by competitive bid and which give our company exclusive rights to service
all or a portion of the homes in their respective jurisdictions. These contracts
or franchises usually range in duration from one to five years, although some of
our exclusive franchises are for as long as 33 years. Residential solid waste
collection services may also be performed on a subscription basis, in which
individual households contract directly with our company. The fees received for
subscription residential collection are based primarily on market factors,
frequency and type of service, the distance to the disposal facility and cost of
disposal. In general, subscription residential collection fees are paid
quarterly in advance by the residential customers receiving the service.

In our commercial and industrial collection operations, we supply our
customers with waste containers. We also rent compactors to large waste
generators. Commercial collection services are generally performed under one to
three-year service agreements, and fees are determined by such considerations
as:

- market factors,

- collection frequency,

- type of equipment furnished,

- type and volume or weight of the waste collected,

- distance to the disposal facility, and

- cost of disposal.

We rent waste containers to construction sites and also provide waste
collection services to industrial and construction facilities on a contractual
basis with terms generally ranging from a single pickup to one year or longer.
We collect the containers or compacted waste and transport the waste either to a
landfill or a transfer station for disposal.

We own or operate 89 transfer stations. We deposit waste at these stations,
as do other private haulers and municipal haulers, for compaction and transfer
to trailers for transport to disposal sites or recycling facilities.

Also, we currently provide recycling services in certain markets primarily
to comply with local laws or obligations under our franchise agreements. These
services include the curbside collection of residential recyclable waste and the
provision of a variety of recycling services to commercial and industrial
customers.

Disposal Services. As of December 31, 2001, we owned or operated 54
landfills, which had approximately 7,450 permitted acres and total available
permitted disposal capacity of approximately 1.7 billion in-place cubic yards.
The in-place capacity of our landfills is subject to change based on engineering
factors, requirements of regulatory authorities and the ability to expand our
sites successfully. Some of our landfills accept non-hazardous special waste,
including utility ash, asbestos and contaminated soils. See "-- Properties."

Most of our existing landfill sites have the potential for expanded
disposal capacity beyond the currently permitted acreage. We monitor the
availability of permitted disposal capacity at each of our landfills and
evaluate whether to pursue expansion at a given landfill based on estimated
future waste volumes and prices, market needs, remaining capacity and likelihood
of obtaining an expansion. To satisfy future disposal demand,

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we are currently seeking to expand permitted capacity at certain of our
landfills, although no assurances can be made that all future expansions will be
permitted as designed.

Other Services. We have 26 materials recovery facilities and other
recycling operations, which are generally required to fulfill our obligations
under long-term municipal contracts for residential collection services. These
facilities primarily sort recyclable paper, aluminum, glass and other materials.
Most of these recyclable materials are internally collected by our residential
collection operations. In some areas, we receive commercial and industrial solid
waste that is sorted at our facilities into recyclable materials and non-
recyclable waste. The recyclable materials are salvaged, repackaged and sold to
third parties and the non-recyclable waste is disposed of at landfills or
incinerators. Wherever possible, our strategy is to reduce our exposure to
fluctuations in recyclable commodity prices by utilizing third party facilities,
thereby minimizing our recycling investment.

We provide remediation and other heavy construction services primarily
through our subsidiary located in Missouri. During early 1998 this subsidiary
was awarded a contract by the Army Corps of Engineers to dredge a portion of the
Blue River. Revenue from this contract, which was completed in December 1999,
was approximately $52 million. In March 2001, we agreed to act as a
subcontractor on the next phase of the Blue River project. Revenue from this
contract, which is scheduled to be completed in December 2002, is expected to be
approximately $17 million of which approximately $13 million has already been
recorded.

We also have a compost, mulch and soil business at which yard, mill and
other waste is processed, packaged and sold as various products.

SALES AND MARKETING

We seek to provide quality services that will enable our company to
maintain high levels of customer satisfaction. We derive our business from a
broad customer base which we believe will enable our company to experience
stable growth. We focus our marketing efforts on continuing and expanding
business with existing customers, as well as attracting new customers.

We employ approximately 500 sales and marketing employees. Our sales and
marketing strategy is to provide high-quality, comprehensive solid waste
collection, recycling, transfer and disposal services to our customers at
competitive prices. We target potential customers of all sizes, from small
quantity generators to large "Fortune 500" companies and municipalities.

Most of our marketing activity is local in nature. However, in 2000 we
initiated a national accounts program in response to our customers' needs. We
will continue to develop this program in 2002. We generally do not change the
tradenames of the local businesses we acquire, and therefore we do not operate
nationally under any one mark or tradename. Rather, we rely on the goodwill
associated with the acquired companies' local tradenames as used in each
geographic market in which we operate.

CUSTOMERS

We provide services to commercial, industrial, municipal and residential
customers. No one customer has individually accounted for more than 10% of our
consolidated revenue in any of the last three years. Our largest customer in
2001 comprised less than 1% of our consolidated revenue and our largest
municipal franchise comprised less than 4%.

COMPETITION

We operate in a highly competitive industry. Entry into our business and
the ability to operate profitably in the industry requires substantial amounts
of capital and managerial experience.

Competition in the non-hazardous solid waste industry comes from a few
large, national publicly-owned companies, including Waste Management and Allied
Waste Industries, several regional publicly- and privately-owned solid waste
companies, and thousands of small privately-owned companies. Some of our
competitors have significantly larger operations, and may have significantly
greater financial resources, than

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we do. In addition to national and regional firms and numerous local companies,
we compete with municipalities that maintain waste collection or disposal
operations. These municipalities may have financial advantages due to the
availability of tax revenues and tax-exempt financing.

We compete for collection accounts primarily on the basis of price and the
quality of our services. From time to time, our competitors may reduce the price
of their services in an effort to expand market share or to win a competitively
bid municipal contract. This may have an impact on our future revenue and
profitability.

In each market in which we own or operate a landfill, we compete for
landfill business on the basis of disposal costs, geographical location and
quality of operations. Our ability to obtain landfill business may be limited by
the fact that some major collection companies also own or operate landfills to
which they send their waste. There also has been an increasing trend at the
state and local levels to mandate waste reduction at the source and to prohibit
the disposal of certain types of wastes, such as yard wastes, at landfills. This
may result in the volume of waste going to landfills being reduced in certain
areas, which may affect our ability to operate our landfills at their full
capacity and/or affect the prices that we can charge for landfill disposal
services. In addition, most of the states in which we operate landfills have
adopted plans or requirements that set goals for specified percentages of
certain solid waste items to be recycled.

REGULATION

Our facilities and operations are subject to a variety of federal, state
and local requirements which regulate public health, safety, the environment,
zoning and land use. Operating and other permits are generally required for
landfills and transfer stations, certain waste collection vehicles, fuel storage
tanks and other facilities that we own or operate, and these permits are subject
to revocation, modification and renewal in certain circumstances. Federal, state
and local regulations vary, but generally govern wastewater or stormwater
discharges, air emissions, the treatment, storage, transportation and disposal
of hazardous and non-hazardous wastes, and the remediation of contamination
associated with the release of hazardous substances. These regulations provide
governmental authorities with strict powers of enforcement, which include the
ability to obtain injunctions and/or impose fines or penalties in the case of
violations, including criminal penalties. The U.S. Environmental Protection
Agency and various other federal, state and local environmental, public and
occupational health and safety agencies and authorities, including the
Occupational Safety and Health Administration of the U.S. Department of Labor,
administer these regulations.

We strive to conduct our operations in compliance with applicable laws and
regulations. However, in the existing climate of heightened environmental
concerns, from time to time, we have been issued citations or notices from
governmental authorities which have resulted in the need to expend funds for
remedial work and related activities at various landfills and other facilities.
There is no assurance that citations and notices will not be issued in the
future despite our regulatory compliance efforts. We have established a reserve
which we believe, based on currently available information, will be adequate to
cover any potential regulatory costs. However, we cannot assure you that actual
costs will not exceed our reserve.

Federal Regulation. The following summarizes the primary environmental,
public and occupational safety-related federal statutes of the United States
affecting our facilities and operations:

(1) The Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act. RCRA and its implementing regulations
establish a framework for regulating the handling, transportation,
treatment, storage and disposal of hazardous and non-hazardous solid
wastes, and require states to develop programs to ensure the safe disposal
of solid wastes in sanitary landfills.

Subtitle D of the RCRA establishes a framework for regulating the
disposal of municipal solid wastes. Regulations under Subtitle D currently
include minimum comprehensive solid waste management criteria and
guidelines, including location restrictions, facility design and operating
criteria, closure and post-closure requirements, financial assurance
standards, groundwater monitoring requirements and corrective action
standards, many of which had not commonly been in effect or enforced in the
past in connection with municipal solid waste landfills. Each state was
required to submit a permit program designed to implement Subtitle D
regulations to the EPA by April 9, 1993. All of the states in which we

9

operate have implemented permit programs pursuant to the RCRA and Subtitle
D. These state permit programs may include landfill requirements which are
more stringent than those of Subtitle D.

All of our planned landfill expansions or new landfill development
projects have been engineered to meet or exceed Subtitle D requirements.
Operating and design criteria for existing operations have been modified to
comply with these new regulations. Compliance with the Subtitle D
regulations has resulted in increased costs and may in the future require
substantial additional expenditures in addition to other costs normally
associated with our waste management activities.

(2) The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980. CERCLA, among other things, provides for the cleanup
of sites from which there is a release or threatened release of a hazardous
substance into the environment. CERCLA may impose strict or joint and
several liability for the costs of cleanup and for damages to natural
resources upon current owners and operators of the site, parties who were
owners or operators of the site at the time the hazardous substances were
disposed of, parties who transported the hazardous substance to the site
and parties who arranged for disposal at the site. Under the authority of
this Act and its implementing regulations, detailed requirements apply to
the manner and degree of investigation and remediation of facilities and
sites where hazardous substances have been or are threatened to be released
into the environment. Liability under this Act is not dependent upon the
existence or disposal of "hazardous wastes" but can also be based upon the
existence of small quantities of more than 700 "substances" characterized
by the EPA as "hazardous," many of which may be found in common household
waste.

Among other things, this Act authorizes the federal government to
investigate and remediate sites at which hazardous substances have been or
are threatened to be released into the environment, or to order (or offer
an opportunity to) persons potentially liable for the cleanup of the
hazardous substances to do so. In addition, the EPA has established a
National Priorities List of sites at which hazardous substances have been
or are threatened to be released and which require investigation or
cleanup.

Liability under CERCLA is not dependent upon the intentional disposal
of hazardous wastes. It can be founded upon the release or threatened
release, even as a result of unintentional, non-negligent or lawful action,
of thousands of hazardous substances, including very small quantities of
such substances. Thus, even if our landfills have never knowingly received
hazardous wastes as such, it is possible that one or more hazardous
substances may have been deposited or "released" at our landfills or at
other properties which we may have owned or operated. Therefore, we could
be liable under CERCLA for the cost of cleaning up such hazardous
substances at such sites and for damages to natural resources, even if
those substances were deposited at our facilities before we acquired or
operated them. The costs of a CERCLA cleanup can be very expensive. Given
the difficulty of obtaining insurance for environmental impairment
liability, such liability could have a material impact on our business and
financial condition. For a further discussion, see "-- Liability Insurance
and Bonding."

(3) The Federal Water Pollution Control Act of 1972. This Act
regulates the discharge of pollutants from a variety of sources, including
solid waste disposal sites, into streams, rivers and other waters. Point
source runoff from our landfills and transfer stations that is discharged
into surface waters must be covered by discharge permits that generally
require us to conduct sampling and monitoring and, under certain
circumstances, reduce the quantity of pollutants in those discharges. Storm
water discharge regulations under this Act require a permit for certain
construction activities and discharges from industrial operations and
facilities, which may affect our operations. If a landfill or transfer
station discharges wastewater through a sewage system to a publicly-owned
treatment works, the facility must comply with discharge limits imposed by
that treatment works. In addition, states may adopt groundwater protection
programs under this Act or the Safe Drinking Water Act that could affect
solid waste landfills. Furthermore, development which alters or affects
"wetlands" must generally be permitted prior to such development
commencing, and certain mitigation requirements may be required by the
permitting agencies.

(4) The Clean Air Act. The Clean Air Act imposes limitations on
emissions from various sources, including landfills. In March 1996, the EPA
enacted rules that require large municipal solid waste
10

landfills to install landfill gas monitoring systems. These regulations
apply to landfills that have been operating since November 1987, and that
can accommodate 2.5 million cubic meters or more of municipal solid waste.
The regulations apply whether the landfill is active or closed. The date by
which each affected landfill must have the required gas collection and
control system is dependent upon the adoption of state regulations and the
date that the EPA approves the state program. Many state regulatory
agencies currently require monitoring systems for the collection and
control of landfill gas. We do not expect that compliance with any new
state regulations will have a material effect on us.

(5) The Occupational Safety and Health Act of 1970. This act
authorizes the Occupational Safety and Health Administration to promulgate
occupational safety and health standards. A number of these standards,
including standards for notices of hazardous chemicals and the handling of
asbestos, apply to our facilities and operations.

State Regulation. Each state in which we operate has its own laws and
regulations governing solid waste disposal, water and air pollution and, in most
cases, releases and cleanup of hazardous substances and liability for such
matters. States also have adopted regulations governing the design, operation,
maintenance and closure of landfills and transfer stations. Our facilities and
operations are likely to be subject to these types of requirements. In addition,
our solid waste collection and landfill operations may be affected by the trend
in many states toward requiring the development of waste reduction and recycling
programs. For example, several states have enacted laws that require counties or
municipalities to adopt comprehensive plans to reduce, through waste planning,
composting, recycling or other programs, the volume of solid waste deposited in
landfills. Additionally, laws and regulations restricting the disposal of
certain wastes, including yard waste, newspapers, beverage containers,
unshredded tires, lead-acid batteries and household appliances in solid waste
landfills have been promulgated in several states and are being considered in
others. Legislative and regulatory measures to mandate or encourage waste
reduction at the source and waste recycling also are under consideration by
Congress and the EPA, respectively.

In order to construct, expand and operate a landfill, one or more
construction or operating permits, as well as zoning approvals, must be
obtained. These are difficult and time-consuming to obtain, are often opposed by
neighboring landowners and citizens' groups, may be subject to periodic renewal
and are subject to modification and revocation by the issuing agency. In
connection with our acquisition of existing landfills, it may be and on occasion
has been necessary for our company to expend considerable time, effort and money
to bring the acquired facilities into compliance with applicable requirements
and to obtain the permits and approvals necessary to increase their capacity.

Many of our facilities own and operate underground storage tanks which are
generally used to store petroleum-based products. These tanks are generally
subject to federal, state and local laws and regulations that mandate their
periodic testing, upgrading, closure and removal and that, in the event of
leaks, require that polluted groundwater and soils be remediated. We believe
that all of our underground storage tanks currently meet all applicable
regulations. If underground storage tanks we own or operate leak, and the
leakage migrates onto the property of others, we could be liable for response
costs and other damages to third parties. We are unaware of facts indicating
that issues of compliance with regulations related to underground storage tanks
will have a material adverse effect on our business or financial condition.

Finally, with regard to our solid waste transportation operations, we are
subject to the jurisdiction of the Surface Transportation Board and are
regulated by the Federal Highway Administration, Office of Motor Carriers and by
regulatory agencies in each state. Various states have enacted, or are
considering enacting, laws and regulations that would restrict the interstate
transportation and processing of solid waste. In 1978, the United States Supreme
Court held similar laws and regulations unconstitutional; however, states have
attempted to distinguish proposed laws and regulations from the laws and
regulations involved in that ruling. In 1994, the Supreme Court ruled that state
and local flow control laws and ordinances, which attempt to restrict waste from
leaving its place of generation, were an impermissible burden on interstate
commerce, and therefore, were unconstitutional; however, states have also
attempted to distinguish proposed laws and regulations from the laws and
regulations involved in that ruling. In response to these Supreme Court rulings,
Congress has considered passing legislation authorizing states and local
governments to restrict the free

11

movement of solid waste in interstate commerce. If federal legislation
authorizing state and local governments to restrict the free movement of solid
waste in interstate commerce is enacted, such legislation could adversely affect
our operations.

We have established a reserve for landfill and environmental costs, which
includes landfill site closure and post-closure costs. We periodically reassess
such costs based on various methods and assumptions regarding landfill airspace
and the technical requirements of Subtitle D of the RCRA and adjust our rates
used to expense closure and post-closure costs accordingly. Based on current
information and regulatory requirements, we believe that our reserves for such
environmental and landfill expenditures are adequate. However, environmental
laws may change, and there can be no assurance that our reserves will be
adequate to cover requirements under existing or new environmental regulations,
future changes or interpretations of existing regulations or the identification
of adverse environmental conditions previously unknown to us. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Landfill and Environmental Matters" and "Risk
Factors -- Compliance with environmental regulation may impede our growth."

LIABILITY INSURANCE AND BONDING

The nature of our business exposes our company to the risk of liabilities
arising out of our operations, including possible damages to the environment.
Such potential liabilities could involve, for example, claims for remediation
costs, personal injury, property damage and damage to the environment in cases
where we may be held responsible for the escape of harmful materials; claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of our operations; or claims alleging negligence in the
planning or performance of work. We could also be subject to fines and civil and
criminal penalties in connection with alleged violations of regulatory
requirements. Because of the nature and scope of the possible environmental
damages, liabilities imposed in environmental litigation can be significant. Our
solid waste operations have third party environmental liability insurance with
limits in excess of those required by permit regulations, subject to certain
limitations and exclusions. However, we cannot assure you that the limits of
such environmental liability insurance would be adequate in the event of a major
loss, nor can we assure you that we would continue to carry excess environmental
liability insurance should market conditions in the insurance industry make such
coverage costs prohibitive.

We have general liability, vehicle liability, employment practices
liability, pollution liability, directors and officers liability, worker's
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. We also carry property insurance. Although we try to
operate safely and prudently and while we have, subject to limitations and
exclusions, substantial liability insurance, no assurance can be given that we
will not be exposed to uninsured liabilities which could have a material adverse
effect on our financial condition, results of operations or cash flows.

Our 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.

In the normal course of business, we may be required to post performance
bonds, insurance policies, letters of credit and/or cash deposits in connection
with municipal residential collection contracts, the operation, closure or
post-closure of landfills, certain remediation contracts, certain environmental
permits, and certain business licenses and permits. Bonds issued by surety
companies operate as a financial guarantee of our performance. To date, we have
satisfied financial responsibility requirements by making cash deposits or by
obtaining bank letters of credit, insurance policies or surety bonds.

EMPLOYEES

As of December 31, 2001, we employed approximately 12,700 full-time
employees, approximately 3,200 of whom were covered by collective bargaining
agreements. Our management believes that we have good relations with our
employees.

12

COMPENSATION

We believe that our compensation program effectively aligns our field and
corporate management team with the company's overall goal of generating
increasing amounts of free cash flow while achieving targeted earnings and
returns on invested capital. This is done by utilizing simple and measurable
metrics on which incentive pay is based. At the field level, these metrics are
based upon free cash flow, earnings and return on invested capital for each
manager's geographic area of responsibility. Great effort is taken to ensure
that these individual goals agree to the overall goals of the company. Incentive
compensation at the corporate level is based on the obtainment of our company's
overall goals. In addition, certain field and corporate employees also
participate in a long-term incentive program. We believe this program aligns our
company's short- and long-term goals and helps ensure that the long-term success
of our company is not sacrificed for the obtainment of short-term goals.

CORPORATE HISTORY

We were incorporated as a Delaware corporation in 1996 by our former parent
company, AutoNation. In 1995, H. Wayne Huizenga, Harris W. Hudson and their
associates made an investment in AutoNation, then known as Republic Waste
Industries, Inc., and AutoNation subsequently acquired businesses in several
industries, including automotive dealerships and car rental businesses in
addition to over 100 non-hazardous solid waste companies. In 1998, AutoNation
separated its non-hazardous solid waste services division from its other
businesses by forming our company and we completed an initial public offering of
shares of our common stock. In 1999, AutoNation sold substantially all of its
remaining interest in our company in a secondary public offering.

RISK FACTORS

This Annual Report on Form 10-K includes "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, including, in particular, certain statements about our plans,
strategies and prospects. Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that such plans, intentions or expectations
will be achieved. Important factors that could cause our actual results to
differ materially from our forward-looking statements include those set forth in
this Risk Factors section. All forward-looking statements attributable to us or
any persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements set forth below. Unless the context requires
otherwise, all references to the "company," "we," "us" or "our" include Republic
Services, Inc. and its subsidiaries.

If any of the following risks, or other risks not presently known to us or
that we currently believe to not be significant, develop into actual events,
then our business, financial condition, results of operations, cash flows or
prospects could be materially adversely affected.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY AND MAY BE UNABLE TO COMPETE
EFFECTIVELY.

We operate in a highly competitive business environment. Some of our
competitors have significantly larger operations and may have significantly
greater financial resources than we do. In addition, the solid waste industry is
constantly changing as a result of rapid consolidation which may create
additional competitive pressures in our business environment.

We also compete with municipalities that maintain their own waste
collection or disposal operations. These municipalities may have a financial
advantage over us as a result of the availability of tax revenue and tax-exempt
financing.

We compete for collection accounts primarily on the basis of price and the
quality of services. From time to time our competitors may reduce the price of
their services in an effort to expand their market share or to win a
competitively bid municipal contract.

In each market in which we own or operate a landfill, we compete for solid
waste volume on the basis of disposal or "tipping" fees, geographical location
and quality of operations. Our ability to obtain solid waste
13

volume for our landfills may be limited by the fact that some major collection
companies also own or operate landfills to which they send their waste. In
markets in which we do not own or operate a landfill, our collection operations
may operate at a disadvantage to fully integrated competitors.

As a result of these factors, we may have difficulty competing effectively
from time to time.

ECONOMIC CONDITIONS MAY CONTINUE TO ADVERSELY AFFECT OUR BUSINESS, OPERATIONS
AND INTERNAL GROWTH.

During 2001, commodity prices were lower primarily due to the economic
slowdown. This reduction in commodity prices negatively impacted our operating
margins. The economic slowdown also negatively impacted the portion of our
business servicing the manufacturing sector and the non-residential construction
industry. Landfill volumes attributable to manufacturing and construction
activity began to weaken. Furthermore, the portion of our business that services
the residential construction industry was negatively impacted toward the latter
part of 2001. A continued slowdown in the economy could further adversely affect
volumes, pricing and operating margins in our collection, transfer and disposal
operations.

The waste business is labor intensive. During 2000, the nation experienced
record lows in unemployment. This tight labor market resulted in higher labor
costs for our company as we competed for a dwindling number of available
workers. While we do not anticipate a significant reduction in available
workers, our labor costs could increase in the future as we attempt to attract
and retain experienced employees in tight labor markets.

WE MAY BE UNABLE TO EXECUTE OUR FINANCIAL STRATEGY.

Our ability to execute our financial strategy is dependent upon our ability
to maintain an investment grade rating on our senior debt. The credit rating
process is contingent upon a number of factors, many of which are beyond our
control.

Our financial strategy is also dependent upon our ability to generate
sufficient cash flow to reinvest in our existing business, to fund our internal
growth, to acquire other solid waste businesses, repurchase shares of our common
stock and/or minimize our borrowings. We cannot assure you that we will generate
sufficient cash flow to execute our financial strategy or that we will be able
to repurchase our common stock at prices that are accretive to earnings per
share.

WE MAY BE UNABLE TO EXECUTE OUR ACQUISITION GROWTH STRATEGY.

Our ability to execute our growth strategy still depends in part on our
ability to identify and acquire desirable acquisition candidates as well as our
ability to successfully consolidate acquired operations into our business. The
consolidation of our operations with the operations of acquired companies,
including the consolidation of systems, procedures, personnel and facilities,
the relocation of staff, and the achievement of anticipated cost savings,
economies of scale and other business efficiencies, presents significant
challenges to our management, particularly if several acquisitions occur at the
same time. In short, we cannot assure you that:

- desirable acquisition candidates exist or will be identified,

- we will be able to acquire any of the candidates identified,

- we will effectively consolidate companies which are acquired and fully or
timely realize the expected cost savings, economies of scale or business
efficiencies, or

- any acquisitions will be profitable or accretive to our earnings.

Additional factors may negatively impact our acquisition growth strategy.
Our acquisition strategy requires spending significant amounts of capital. If we
are unable to obtain additional needed financing on acceptable terms, we may
need to reduce the scope of our acquisition growth strategy, which could have a
material adverse effect on our growth prospects. The intense competition among
our competitors pursuing the same acquisition candidates may increase purchase
prices for solid waste businesses and increase our capital requirements and/or
prevent us from acquiring certain acquisition candidates. If any of the
aforementioned

14

factors force us to alter our growth strategy, our financial condition, results
of operations and growth prospects could be adversely affected.

WE MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.

Our growth strategy places significant demands on our financial,
operational and management resources. In order to continue our growth, we will
need to add administrative and other personnel, and make additional investments
in operations and systems. We cannot assure you that we will be able to find and
train qualified personnel, or do so on a timely basis, or expand our operations
and systems to the extent, and in the time, required.

BUSINESSES WE ACQUIRE MAY HAVE UNDISCLOSED LIABILITIES.

In pursuing our acquisition strategy, our investigations of the acquisition
candidates may fail to discover certain undisclosed liabilities of the
acquisition candidates. If we acquire a company having undisclosed liabilities,
as a successor owner we may be responsible for such undisclosed liabilities. We
typically try to minimize our exposure to such liabilities by obtaining
indemnification from each seller of the acquired companies, by deferring payment
of a portion of the purchase price as security for the indemnification and by
acquiring only specified assets. However, we cannot assure you that we will be
able to obtain indemnifications or that they will be enforceable, collectible or
sufficient in amount, scope or duration to fully offset any undisclosed
liabilities arising from our acquisitions.

WE DEPEND ON KEY PERSONNEL.

Our future success depends on the continued contributions of several key
employees and officers. We do not maintain key man life insurance policies on
any of our officers. The loss of the services of key employees and officers,
whether such loss is through resignation or other causes, or the inability to
attract additional qualified personnel, could have a material adverse effect on
our financial condition, results of operations and growth prospects.

COMPLIANCE WITH ENVIRONMENTAL REGULATION MAY IMPEDE OUR GROWTH.

We may need to spend considerable time, effort and capital to keep our
facilities in compliance with federal, state and local requirements regulating
health, safety, environment, zoning and land use. In addition, some of our waste
operations that cross state boundaries could be adversely affected if the
federal government, or the state or locality in which these waste operations are
located, imposes discriminatory fees on, or otherwise limits or prohibits, the
transportation or disposal of solid waste. If environmental laws become more
stringent, our environmental capital expenditures and costs for environmental
compliance may increase in the future. In addition, due to the possibility of
unanticipated events or regulatory developments, the amounts and timing of
future environmental expenditures could vary substantially from those we
currently anticipate. Because of the nature of our operations, we have in the
past, currently are, and may in the future be named as a potentially responsible
party in connection with the investigation or remediation of environmental
conditions. We cannot assure you that the resolution of any such investigations
will not have a material adverse effect on our financial condition, results of
operations or cash flows. A significant judgment or fine against our company, or
our loss of significant permits or licenses, could have a material adverse
effect on our financial condition, results of operations, cash flows or
prospects.

REGULATORY APPROVAL TO DEVELOP OR EXPAND OUR LANDFILLS AND TRANSFER STATIONS MAY
BE DELAYED OR DENIED.

Our plans include developing new landfills and transfer stations, as well
as expanding the disposal and transfer capacities of certain of our landfills
and transfer stations, respectively. Various parties, including citizens' groups
and local politicians, sometimes challenge these projects. Responding to these
challenges has, at times, increased our costs and extended the time associated
with establishing new facilities and expanding existing facilities. In addition,
failure to receive regulatory approval may prohibit us from establishing new
facilities and expanding existing facilities.

15

OUR FINANCIAL STATEMENTS ARE BASED UPON ESTIMATES AND ASSUMPTIONS THAT MAY
DIFFER FROM ACTUAL RESULTS.

Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and necessarily include
amounts based on estimates and assumptions made by us. Actual results could
differ from these amounts. Significant items subject to such estimates and
assumptions include the carrying value of long-lived assets, 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.

We currently accrue for landfill closure and post-closure costs based on
consumption of landfill airspace. As of December 31, 2001, assuming that all
available landfill capacity is used, we expect to expense approximately $490.4
million of landfill closure and post-closure costs over the remaining lives of
these facilities. We cannot assure you that our reserves for landfill and
environmental costs will be adequate to cover the requirements of existing
environmental regulations, future changes or interpretations of existing
regulations, or the identification of adverse environmental conditions
previously unknown to us.

AN INCREASE IN THE PRICE OF FUEL MAY ADVERSELY AFFECT OUR BUSINESS.

Our operations are dependent upon fuel, which we purchase in the open
market on a daily basis. During 2000, we experienced a significant increase in
the cost of fuel. A portion of this increase was passed on to our customers.
However, because of the competitive nature of the waste industry, there can be
no assurances that we will be able to pass on future fuel price increases to our
customers. Accordingly, a significant increase in fuel costs could adversely
affect our business.

SEASONAL CHANGES MAY ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS.

Our operations may 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.

WE MAY BE UNABLE TO EXTEND THE MATURITY OF OUR REVOLVING SHORT-TERM CREDIT
FACILITY.

We have a revolving short-term credit facility in the principal amount of
$300.0 million which expires in July 2002. We anticipate extending the maturity
of this credit facility until July 2003. However, we cannot assure you that we
will receive such extension and, if so, whether such extension will be on terms
as favorable to us as those currently contained in the credit facility.

THE OUTCOME OF AN AUDIT BY THE INTERNAL REVENUE SERVICE MAY ADVERSELY AFFECT OUR
COMPANY.

Through the date of our initial public offering in July 1998, we filed
consolidated federal income tax returns with AutoNation. The Internal Revenue
Service is auditing AutoNation's consolidated tax returns for fiscal years 1995
through 1999. In accordance with the tax sharing agreement we have with
AutoNation, we may be liable for certain assessments imposed by the Internal
Revenue Service for the periods through June 1998 resulting from this audit. No
assurance can be given with respect to the outcome of this audit or the effect
it may have on us, or that our reserves with respect thereto are adequate. A
significant assessment against us could have a material adverse effect on our
financial position, results of operations or cash flows.

16

ITEM 2. PROPERTIES

Our corporate headquarters are located in Ft. Lauderdale, Florida in leased
premises. As of December 31, 2001, we operated approximately 5,300 collection
vehicles. Certain of our property and equipment are subject to operating leases
or liens securing payment of portions of our indebtedness. We also lease certain
of our offices and equipment. We believe that our facilities are sufficient for
our current needs.

The following table provides certain information regarding the 54 landfills
owned or operated by us as of December 31, 2001:

- ---------------

(1) Operated but not owned by us.

17

ITEM 3. 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 our company and certain of our officers and directors in the United
States District Court for the Southern District of Florida. The plaintiffs in
these lawsuits claimed, on behalf of a purported class of purchasers of our
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 our company's growth and the assets acquired from Waste
Management. The Court subsequently consolidated these lawsuits into an action
entitled In Re: Republic Services, Inc. Securities Litigation. The plaintiffs
filed a consolidated complaint in February 2000 which was subsequently dismissed
by the Court without prejudice in February 2001. A motion to the Court by the
plaintiffs to reconsider this decision was thereafter denied and the Court
dismissed with prejudice the plaintiffs' consolidated complaint in October 2001.
No appeal of this dismissal was filed by the plaintiffs and the litigation was
concluded in our favor.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our stockholders during the fourth quarter of
2001.

18

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET INFORMATION, HOLDERS AND DIVIDENDS

Our common stock began trading on the New York Stock Exchange on July 1,
1998.

The following table sets forth the range of the high and low sales prices
of our common stock for the periods indicated:

On March 26, 2002 the last reported sales price of our common stock was
$19.35.

There were approximately 97 record holders of our common stock at March 26,
2002.

We did not pay in 2000 and 2001, nor do we intend to pay in the foreseeable
future, cash dividends on our common stock. We intend to retain all earnings for
use in the operation and expansion of our business. However, if we are unable to
expand our business by acquiring businesses that satisfy our acquisition growth
strategy, we intend to use a portion of our future earnings to repurchase our
common stock.

During 2000, our board of directors authorized the repurchase of up to
$150.0 million of our common stock. During 2001, our board of directors
authorized the repurchase of up to an additional $125.0 million of our common
stock. As of December 31, 2001, we paid $150.1 million to repurchase
approximately 9.2 million shares of our stock of which approximately 5.6 million
shares were acquired during 2001 for $99.2 million.

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ITEM 6. SELECTED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE DATA)

The following Selected Financial Data should be read in conjunction with
our Consolidated Financial Statements and notes thereto as of December 31, 2001
and 2000 and for each of the three years in the period ended December 31, 2001
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K. The selected
statements of operations data and the other operating data for the years 1998
and 1997 and the selected balance sheet data at December 31, 1999 and 1998 were
derived from our Consolidated Financial Statements, which have been audited by
Arthur Andersen LLP, independent certified public accountants. Certain amounts
in the historical Consolidated Financial Statements have been reclassified to
conform to the 2001 presentation. See Notes 1, 3 and 7 of the Notes to our
Consolidated Financial Statements for a discussion of basis of presentation,
business combinations and stockholders' equity and their effect on comparability
of year-to-year data.

- ---------------

(a) Prior to our initial public offering on July 1, 1998, we had 100 shares of
common stock outstanding, all of which were owned by AutoNation. Historical
share and per share data have been retroactively adjusted for the
recapitalization of our 100 shares of common stock into 95.7 million shares
of common stock in July 1998.
(b) Adjusted basic and diluted earnings per share excludes an $86.1 million
after-tax charge we recorded in the fourth quarter of 2001 related to the
completed and planned divestitures and closings of certain core and non-core
businesses, asset impairments, downsizing our compost, mulch and soil
business and related inventory adjustments, an increase in insurance
reserves and an increase in bad debt expense related to the economic
slowdown.
(c) EBITDA represents operating income plus depreciation, amortization and
depletion. While EBITDA data should not be construed as a substitute for
operating income, net income or cash flows from operations in analyzing our
operating performance, financial position and cash flows, we have included
EBITDA data, which is not a measure of financial performance under generally
accepted accounting principles, because we believe that this data is
commonly used by certain investors to evaluate a company's performance in
the solid waste industry. Due to the fact that not all companies calculate
non-GAAP measures in the same manner, the EBITDA presentation herein may not
be comparable to similarly titled measures reported by other companies.
(d) EBITDA margin represents EBITDA divided by revenue.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following discussion in conjunction with our
Consolidated Financial Statements and their Notes contained in this Annual
Report on Form 10-K.

2001 FINANCIAL OBJECTIVES

In January 2001, we publicly announced our objectives for the year. These
objectives included the following:

- Increasing free cash flow by 18% to $145 million, or over 60% of net
income.

- Growing revenue by 5%, with 2% from price and 3% from volume.

- Increasing earnings per share by 6% to $1.36. This objective assumed a
V-shaped recovery in the economy during the second half of the year.

- Using free cash flow to enhance shareholder value by completing strategic
acquisitions and repurchasing up to $100.0 million of our stock.

- Maintaining our strong balance sheet evidenced by a debt to total
capitalization ratio in the mid to low 40% range.

2001 BUSINESS PERFORMANCE

Revenue and operating margins were pressured by falling commodity prices
during the first quarter. Our internal growth for the quarter, excluding the
impact of commodity prices, was 4.3% with 2.2% coming from price and 2.1% from
volume. Higher fuel costs also pressured margins during the quarter. In
addition, we strengthened our regional management structure by adding sales,
maintenance and operational personnel during this period. This increase in staff
resulted in increased selling, general and administrative costs placing further
downward pressure on operating margins.

During the second quarter of 2001, revenue and operating margins were
negatively impacted by continued weakness in commodity prices. In addition, we
began to see a slowdown in the manufacturing sector, particularly in the
Midwestern and Mid-Atlantic states. Our internal growth for the quarter,
excluding the negative impact of commodity prices and the positive impact of
non-core operations, was 5.0% with 2.0% coming from price and 3.0% coming from
volume. Higher labor costs also pressured margins during the quarter.

During the second quarter, we acquired Richmond Sanitary Services, located
in Northern California. Richmond complemented our business platform by providing
us with a vertically integrated business in a growth market.

During the third quarter of 2001, the economic slowdown began to impact our
industrial business servicing the non-residential construction industry.
Landfill volumes attributable to manufacturing and construction activity began
to weaken. In addition, the slowdown we began to experience in the second
quarter in the manufacturing sector became more acute as we began to see
significant shift reductions and plant closings in the Southeastern United
States, particularly in the textile and home furnishing industries in the
Carolinas. These conditions were reflected in our internal growth numbers. Our
internal growth for the quarter, excluding the negative impact of commodity
prices and the positive impact of non-core operations, was 2.1% with 1.6% coming
from price and .5% coming from volume. This rate of internal growth was
approximately half of what we experienced in prior quarters of 2001. While we
continued to be successful in attracting municipal customers, these customers
generally produce less revenue and lower margins than other types of customers.

Also during the third quarter, operating margins continued to be pressured
by lower commodity prices and higher labor costs. Selling, general and
administrative costs were also higher due to the previously

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discussed strengthening of our regional management structure and due to an
increase in bad debt expense attributable to the economic slowdown.

During the third quarter, we sold $450.0 million of unsecured notes with a
coupon rate of 6 3/4% that mature in 2011. This transaction allowed us to secure
long-term financing at, what we believe, is a very favorable rate.

During the fourth quarter of 2001, we continued to see a weakening in waste
volumes from the manufacturing sector. We also continued to see a slowdown in
commercial construction and special waste activity which resulted in both volume
reductions and price sensitivity for these services. Furthermore, we began to
see a softening in residential construction activity. As a result, internal
growth for the quarter, excluding the negative impact of commodity prices and
the positive impact of non-core operations, was 2.6% with 1.8% coming from price
and .8% coming from volume. Internal growth for all of 2001, excluding the
negative impact of commodity prices and the positive impact of non-core
operations, was 3.4% with 1.9% coming from price and 1.5% coming from volume.

Operating margins also weakened during the fourth quarter for the reasons
mentioned above. We continued to see medical costs escalate and we began to
experience higher costs for risk insurance. We also continued to experience
higher labor costs and selling, general and administrative costs due to the
strengthening of our regional management structure. In addition, bad debt
expense continued to increase as a result of the economic slowdown.

During the fourth quarter of 2001, we recorded a charge of $86.1 million on
an after-tax basis, or $132.0 million on a pre-tax basis. Included in this
charge are the completed and planned divestitures and closings of certain core
and non-core businesses, asset impairments, downsizing our compost, mulch and
soil business and related inventory adjustments, an increase in insurance
reserves and an increase in bad debt expense related to the economic slowdown.
On a reported basis, including the impact of the charge, our earnings per share
for 2001 were $.73.

On an adjusted basis, before considering the impact of the charge we
recorded during the fourth quarter, our earnings per share were $1.24. While we
did not achieve our announced earnings per share objective for 2001 for reasons
primarily attributable to the economic slowdown, our free cash flow was $147.0
million or 69% of adjusted net income. Our disciplined approach to managing
capital expenditures and our focus on monetizing accounts receivable helped us
to exceed our free cash flow objective. Our debt to total capitalization as of
December 31, 2001 was 41.3%.

During 2001, we used our free cash flow to repurchase 5.6 million shares of
our common stock for $99.2 million. In addition, we acquired Richmond Sanitary
Services, a fully integrated waste disposal company located in Northern
California.

2002 FINANCIAL OBJECTIVES

Our financial objectives for 2002 assume no deterioration or improvement in
the overall economy from that experienced during the fourth quarter 2001.
Specific guidance is as follows:

- Our goal is to generate $147.0 million in free cash flow. This includes
the net impact of the change in accounting for goodwill. The comparable
amount in 2001, assuming the change in accounting for goodwill was
effective January 1, 2001, would have been $132.0 million.

- We anticipate using our free cash flow to repurchase shares of our common
stock under our $125.0 million share repurchase program approved by our
board of directors in October 2001.

- We anticipate earnings per share of $1.37 to $1.39. This includes the
expected decrease in goodwill amortization resulting from the change in
accounting for goodwill.

- We anticipate internal growth from core operations to be 1.5% to 2.0%,
approximately 1.0% attributable to price and .5% to 1.0% attributable to
volume.

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BUSINESS INITIATIVES

Our business initiatives for 2002 are generally a continuation of those
initiated in 2001 and are dependent on standardizing our business processes and
improving our systems. Ensuring that our people understand our initiatives and
processes and are trained in our new systems is essential to the overall success
of our initiatives. Our business initiatives for 2002 are as follows:

- Improve our revenue. The first step in this process was completed in
2001 and included installing a standardized billing and operating system.
This system enables us to, among other things, stratify our customers to
determine how our rates compare to current market pricing. During 2002,
we expect to implement the second generation of this software which we
call RSI 1.0. RSI 1.0 will be our company's core business system
providing a variety of functionalities including customer service,
dispatch, billing, sales analysis and route productivity analysis.

We are in the process of instituting a return on investment pricing
model. This model will eventually allow us to track our return on
investment by customer.

During 2001, we also implemented a customer relationship management
system. This system will improve the productivity of our sales force by
helping to establish marketing priorities and track sales leads. It also
tracks renewal periods for existing and potential commercial, industrial
and franchise contracts. Our focus during 2002 will be to ensure our
sales force is properly trained on this system and using it as intended.

- Improve the productivity of our operations. We have instituted a grid
productivity program that enables us to benchmark the performance of our
drivers. In addition, in our larger markets, we routinely use a route
optimization program to minimize drive times and improve operational
density. During 2001, we completed a disposal optimization review. This
review determines which local disposal option maximizes our return on
invested capital and cash flow.

- Improve fleet management and procurement. In February 2002, we selected
Dossier as our fleet management and procurement system. Among other
features, this system will track parts inventories, generate automatic
quantity order points and log all maintenance work. It will allow us to
capture and review information to ensure our preventive maintenance
programs comply with manufacturers' warranties. In addition, the purchase
order module within this system will allow us to cross-reference
purchasing information with our inventory. We expect to have Dossier
implemented at all of our hauling operations by the end of 2002, and we
expect to roll this system out to our landfill operations in 2003.

- Enhance operational and financial reporting systems. We currently have
several initiatives underway aimed at improving our operational and
financial reporting systems. The overall goal of these initiatives is to
provide us with detailed information, prepared in a consistent manner,
that will allow us to quickly analyze and act upon trends in our
business.

The most significant of these systems is our enterprise-wide general
ledger package. By February 2002, we successfully converted 40% of our
locations to Lawson general ledger software. We expect to have the entire
company converted to Lawson by the third quarter of 2002.

All of the system initiatives mentioned above will provide us with more
consistent and detailed information, thus allowing us to make quicker and
more informed business decisions. In addition, during 2001 all of our
software applications were standardized and centralized at our data
center in Fort Lauderdale, Florida. This standardization and
centralization provides us with consolidated information concerning our
operations across a variety of operational and financial disciplines. It
also significantly enhances our ability to execute our disaster recovery
plan, if necessary.

- Expand our safety training programs. As part of our ongoing emphasis on
safe work practices and in light of the recent increase in insurance
costs, we are expanding our safety training programs in 2002. We have
signed a multi-year agreement with DuPont Safety Resources to assist us
in successfully completing this initiative.

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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 89 transfer
stations, 54 solid waste landfills and 26 recycling facilities.

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 compost, mulch and soil operations.

The following table reflects our total revenue by source for the years
ended December 31, 2001, 2000 and 1999 (in millions):

Certain amounts for 2000 and 1999 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 last three years. During 2001, our largest
customer comprised less than 1% of our consolidated revenue and our largest
municipal franchise comprised less than 4%.

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 December 31, 2001,
approximately 52% of the total volume of waste we collected was disposed of at
landfills we own or operate.

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 or accrued 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

24

primarily relate to changes in available airspace, inflation rates and
applicable regulations. Changes in available airspace include changes in design
and changes due to the addition of airspace lying in expansion areas deemed
likely to be permitted.

CRITICAL ACCOUNTING POLICIES AND DISCLOSURES

Our Consolidated Financial Statements have been prepared using accounting
principles generally accepted in the United States and necessarily include
certain estimates and judgments made by management. In 1999, we significantly
expanded our accounting disclosures in a number of areas that require subjective
or complex judgments including landfill accounting, fixed assets and the
activity in various balance sheet accounts such as closure and post-closure
accruals, insurance reserves and allowance for doubtful accounts. As part of our
continuing commitment to reliable and transparent financial reporting that
allows the users of our financial statements to make more informed decisions, we
have prepared the following list of accounting policies that we believe are the
most critical in understanding our company's financial condition, results of
operations and cash flows, and may require management to make subjective or
complex judgments about matters that are inherently uncertain.