SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
| For the quarterly period ended September 30, 2002 | ||
| OR | ||
| o | 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 (State of Incorporation) |
65-0716904 (IRS Employer Identification No.) |
| 110 S.E. 6TH STREET, 28TH FLOOR FT. LAUDERDALE, FLORIDA (Address of Principal Executive Offices) |
33301 (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (954) 769-2400
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
On November 7, 2002, the registrant had outstanding 163,845,130 shares of Common Stock, par value $.01 per share.
REPUBLIC SERVICES, INC.
INDEX
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| ITEM 1. | Financial Statements | |||
| Condensed Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and December 31, 2001. | 3 | |||
| Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001. | 4 | |||
| Unaudited Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income for the Nine Months Ended September 30, 2002. | 5 | |||
| Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001. | 6 | |||
| Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |||
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 27 | ||
| ITEM 4. | Controls and Procedures | 27 | ||
| PART II. OTHER INFORMATION | ||||
| ITEM 6. | Exhibits and Reports on Form 8-K | 28 | ||
| Signatures and Certifications | 29 | |||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||||||
| 2002 | 2001 | |||||||||||||
| (Unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
CURRENT ASSETS: |
||||||||||||||
Cash and cash equivalents |
$ | 62.9 | $ | 16.1 | ||||||||||
Accounts receivable, less allowance for doubtful accounts
of $19.7 and $19.0, respectively |
249.7 | 232.9 | ||||||||||||
Prepaid expenses and other current assets |
71.0 | 75.8 | ||||||||||||
Total Current Assets |
383.6 | 324.8 | ||||||||||||
RESTRICTED CASH |
141.1 | 142.3 | ||||||||||||
PROPERTY AND EQUIPMENT, NET |
1,862.1 | 1,774.9 | ||||||||||||
GOODWILL, NET |
1,532.1 | 1,522.5 | ||||||||||||
OTHER INTANGIBLE ASSETS, NET |
26.5 | 29.1 | ||||||||||||
OTHER ASSETS |
101.5 | 62.7 | ||||||||||||
| $ | 4,046.9 | $ | 3,856.3 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||
Accounts payable |
$ | 92.5 | $ | 107.9 | ||||||||||
Accrued liabilities |
116.1 | 93.6 | ||||||||||||
Amounts due to former owners |
6.9 | 6.0 | ||||||||||||
Deferred revenue |
80.3 | 72.8 | ||||||||||||
Notes payable and current maturities of long-term debt |
3.4 | 33.6 | ||||||||||||
Other current liabilities |
100.2 | 72.5 | ||||||||||||
Total Current Liabilities |
399.4 | 386.4 | ||||||||||||
LONG-TERM DEBT, NET OF CURRENT MATURITIES |
1,385.4 | 1,334.1 | ||||||||||||
ACCRUED LANDFILL AND ENVIRONMENTAL COSTS |
243.1 | 219.4 | ||||||||||||
DEFERRED INCOME TAXES |
160.8 | 118.7 | ||||||||||||
OTHER LIABILITIES |
45.3 | 41.8 | ||||||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||||||
STOCKHOLDERS’ EQUITY: |
||||||||||||||
Preferred stock, par value $.01 per share; 50,000,000
shares authorized; none issued |
— | — | ||||||||||||
Common stock, par value $.01 per share; 750,000,000 shares
authorized; 179,752,010 and 178,858,274 issued, including
shares held in treasury, respectively |
1.8 | 1.8 | ||||||||||||
Additional paid-in capital |
1,280.4 | 1,264.7 | ||||||||||||
Retained earnings |
819.2 | 641.1 | ||||||||||||
Treasury stock, at cost (16,597,500 and 9,213,600 shares,
respectively) |
(288.5 | ) | (150.1 | ) | ||||||||||
Accumulated other comprehensive loss, net of tax |
— | (1.6 | ) | |||||||||||
Total Stockholders’ Equity |
1,812.9 | 1,755.9 | ||||||||||||
| $ | 4,046.9 | $ | 3,856.3 | |||||||||||
The accompanying notes are an integral part of these statements.
3
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
REVENUE |
$ | 609.7 | $ | 582.6 | $ | 1,759.8 | $ | 1,694.0 | |||||||||
EXPENSES: |
|||||||||||||||||
Cost of operations |
377.6 | 358.2 | 1,091.1 | 1,042.4 | |||||||||||||
Depreciation, amortization and depletion |
53.4 | 56.6 | 147.2 | 160.8 | |||||||||||||
Selling, general and administrative |
60.5 | 57.4 | 180.1 | 169.7 | |||||||||||||
OPERATING INCOME |
118.2 | 110.4 | 341.4 | 321.1 | |||||||||||||
INTEREST EXPENSE |
(19.3 | ) | (20.7 | ) | (57.7 | ) | (61.2 | ) | |||||||||
INTEREST INCOME |
1.4 | 1.8 | 3.1 | 3.3 | |||||||||||||
OTHER INCOME (EXPENSE), NET |
.1 | — | .5 | 2.0 | |||||||||||||
INCOME BEFORE INCOME TAXES |
100.4 | 91.5 | 287.3 | 265.2 | |||||||||||||
PROVISION FOR INCOME TAXES |
38.2 | 34.8 | 109.2 | 100.8 | |||||||||||||
NET INCOME |
$ | 62.2 | $ | 56.7 | $ | 178.1 | $ | 164.4 | |||||||||
BASIC AND DILUTED EARNINGS PER SHARE |
$ | .38 | $ | .33 | $ | 1.07 | $ | .96 | |||||||||
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING |
164.8 | 171.1 | 167.1 | 171.4 | |||||||||||||
The accompanying notes are an integral part of these statements.
4
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
| Common Stock | Accumulated | |||||||||||||||||||||||||||
| Additional | Other | Comprehensive | ||||||||||||||||||||||||||
| Shares, | Par | Paid-In | Retained | Treasury | Comprehensive | Income | ||||||||||||||||||||||
| Net | Value | Capital | Earnings | Stock | Income (Loss) | For the Period | ||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2001 |
169.6 | $ | 1.8 | $ | 1,264.7 | $ | 641.1 | $ | (150.1 | ) | $ | (1.6 | ) | |||||||||||||||
Net income |
— | — | — | 178.1 | — | — | $ | 178.1 | ||||||||||||||||||||
Issuance of common stock |
1.0 | — | 15.7 | — | — | — | ||||||||||||||||||||||
Purchase of common stock for
treasury |
(7.4 | ) | — | — | — | (138.4 | ) | — | ||||||||||||||||||||
Change in value of derivative instruments, net of tax |
— | — | — | — | — | 1.6 | 1.6 | |||||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2002 |
163.2 | $ | 1.8 | $ | 1,280.4 | $ | 819.2 | $ | (288.5 | ) | $ | — | $ | 179.7 | ||||||||||||||
The accompanying notes are an integral part of this statement.
5
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
CASH PROVIDED BY OPERATING ACTIVITIES: |
|||||||||||
Net income |
$ | 178.1 | $ | 164.4 | |||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
|||||||||||
Depreciation, amortization and depletion of property
and equipment |
142.3 | 126.1 | |||||||||
Amortization of intangible and other assets |
4.9 | 34.7 | |||||||||
Deferred tax provision |
41.5 | 22.1 | |||||||||
Provision for doubtful accounts |
9.1 | 12.7 | |||||||||
Other non-cash charges |
.7 | .2 | |||||||||
Changes in assets and liabilities, net of effects from
business acquisitions: |
|||||||||||
Accounts receivable |
(22.6 | ) | (30.2 | ) | |||||||
Prepaid expenses and other assets |
1.6 | 2.6 | |||||||||
Accounts payable and accrued liabilities |
10.8 | 26.1 | |||||||||
Other liabilities |
48.3 | 22.4 | |||||||||
| 414.7 | 381.1 | ||||||||||
CASH USED IN INVESTING ACTIVITIES: |
|||||||||||
Purchases of property and equipment |
(162.3 | ) | (179.0 | ) | |||||||
Proceeds from sale of property and equipment |
11.3 | 7.5 | |||||||||
Cash used in business acquisitions, net of cash
acquired |
(43.1 | ) | (261.1 | ) | |||||||
Cash proceeds from business dispositions |
15.1 | 42.1 | |||||||||
Amounts due and contingent payments to former owners |
(2.6 | ) | (29.3 | ) | |||||||
Restricted cash |
1.2 | 46.4 | |||||||||
| (180.4 | ) | (373.4 | ) | ||||||||
CASH USED IN FINANCING ACTIVITIES: |
|||||||||||
Proceeds from notes payable and long-term debt |
41.3 | 71.1 | |||||||||
Payments of notes payable and long-term debt |
(1.9 | ) | (5.6 | ) | |||||||
Proceeds from issuance of unsecured notes, net of discount |
— | 447.4 | |||||||||
Net payments on revolving credit facility |
(30.0 | ) | (467.5 | ) | |||||||
Purchase of equipment under synthetic lease |
(72.6 | ) | — | ||||||||
Issuance of common stock |
14.1 | 38.1 | |||||||||
Purchases of common stock for treasury |
(138.4 | ) | (93.2 | ) | |||||||
| (187.5 | ) | (9.7 | ) | ||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
46.8 | (2.0 | ) | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
16.1 | 2.0 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 62.9 | $ | — | |||||||
The accompanying notes are an integral part of these statements.
6
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Republic Services, Inc. (together with its subsidiaries, the “Company”) is a leading provider of non-hazardous solid waste collection and disposal services in the United States.
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany accounts and transactions have been eliminated. Certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, these Unaudited Condensed Consolidated Financial Statements reflect all material adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and the results of operations for the periods presented, and the disclosures herein are adequate to make the information presented not misleading. Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These interim financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto appearing in the Company’s Form 10-K for the year ended December 31, 2001.
The Unaudited Condensed Consolidated 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 management. Actual results could differ from these amounts. Significant items subject to such estimates and assumptions include the depletion and amortization of landfill development costs, accruals for closure and post-closure costs, valuation allowances for accounts receivable, liabilities for potential litigation, claims and assessments, and liabilities for environmental remediation, deferred taxes and self-insurance.
During the fourth quarter of 2001, the Company recorded a charge of $86.1 million on an after-tax basis, or $132.0 million on a pre-tax basis, related to completed and planned divestitures and closings of certain core and non-core businesses, asset impairments, downsizing its 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. Approximately $1.0 million of this charge related to ongoing future lease commitments and other obligations associated with planned divestitures. As of September 30, 2002, the Company was still in the process of divesting and closing certain core and non-core operations pursuant to the plan adopted by management during the fourth quarter of 2001. Management believes that the estimated charges recorded during the fourth quarter of 2001 related to its planned divestitures and closings are still appropriate.
During the three and nine months ended September 30, 2002, the Company recorded unrealized gains of $.5 million ($.3 million, net of tax) and $2.9 million ($1.8 million, net of tax), respectively, relating to the change in fair value of its fuel hedge option agreements in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended. (For further information, see Note 10, Fuel Hedge.) The effective portion of the unrealized gain in the amount of $1.6 million, net of tax, was recorded to other comprehensive income (loss) during the nine months ended September 30, 2002. The Company had no other components of other comprehensive income (loss) for the periods presented.
During the first quarter of 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). In accordance with SFAS 142, the Company ceased amortizing intangibles with indefinite lives effective January 1, 2002.
7
The following table summarizes the adjustments to net income and earnings per share as if SFAS 142 were adopted on January 1, 2001:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Reported net income |
$ | 62.2 | $ | 56.7 | $ | 178.1 | $ | 164.4 | ||||||||
Goodwill amortization, net of tax |
— | 6.8 | — | 18.9 | ||||||||||||
Adjusted net income |
$ | 62.2 | $ | 63.5 | $ | 178.1 | $ | 183.3 | ||||||||
Reported basic and diluted earnings per share |
$ | .38 | $ | .33 | $ | 1.07 | $ | .96 | ||||||||
Goodwill amortization, net of tax |
— | .04 | — | .11 | ||||||||||||
Adjusted basic and diluted earnings per
share |
$ | .38 | $ | .37 | $ | 1.07 | $ | 1.07 | ||||||||