SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| (Mark One) | ||
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
|
| For the quarterly period ended March 31, 2003 | ||
| 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.
| DELAWARE | 65-0716904 | |
| (State of Incorporation) | (IRS Employer Identification No.) | |
| 110 S.E. 6TH STREET, 28TH FLOOR | ||
| FT. LAUDERDALE, FLORIDA | 33301 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (954) 769-2400
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
On May 9, 2003, the registrant had outstanding 160,318,748 shares of Common Stock, par value $.01 per share.
1
REPUBLIC SERVICES, INC.
INDEX
| Page | ||||||||
| PART I. FINANCIAL INFORMATION | ||||||||
ITEM 1. |
Financial Statements | |||||||
| Condensed Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002 | 3 | |||||||
| Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 | 4 | |||||||
| Unaudited Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income for the Three Months Ended March 31, 2003 | 5 | |||||||
| Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 | 6 | |||||||
| Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |||||||
ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||||||
ITEM 3. |
Quantitative and Qualitative Disclosures about Market Risk | 34 | ||||||
ITEM 4. |
Controls and Procedures | 34 | ||||||
| PART II. OTHER INFORMATION | ||||||||
ITEM 6. |
Exhibits and Reports on Form 8-K | 35 | ||||||
| Signatures and Certifications | 36 | |||||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| (Unaudited) | ||||||||||||
ASSETS |
||||||||||||
CURRENT ASSETS: |
||||||||||||
Cash and cash equivalents |
$ | 166.1 | $ | 141.5 | ||||||||
Accounts receivable, less allowance for doubtful accounts
of $19.6 and $19.0, respectively |
251.3 | 238.6 | ||||||||||
Prepaid expenses and other current assets |
69.1 | 63.0 | ||||||||||
Deferred tax assets |
9.2 | 9.2 | ||||||||||
Total Current Assets |
495.7 | 452.3 | ||||||||||
RESTRICTED CASH |
165.4 | 175.0 | ||||||||||
PROPERTY AND EQUIPMENT, NET |
1,815.9 | 1,910.0 | ||||||||||
GOODWILL, NET |
1,545.7 | 1,544.2 | ||||||||||
OTHER INTANGIBLE ASSETS, NET |
24.8 | 25.7 | ||||||||||
OTHER ASSETS |
106.4 | 101.9 | ||||||||||
| $ | 4,153.9 | $ | 4,209.1 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
CURRENT LIABILITIES: |
||||||||||||
Accounts payable |
$ | 97.1 | $ | 123.5 | ||||||||
Accrued liabilities |
106.9 | 109.3 | ||||||||||
Amounts due to former owners |
5.9 | 7.5 | ||||||||||
Deferred revenue |
85.9 | 82.9 | ||||||||||
Notes payable and current maturities of long-term debt |
2.7 | 2.8 | ||||||||||
Other current liabilities |
88.9 | 66.2 | ||||||||||
Total Current Liabilities |
387.4 | 392.2 | ||||||||||
LONG-TERM DEBT, NET OF CURRENT MATURITIES |
1,441.4 | 1,439.3 | ||||||||||
ACCRUED LANDFILL, ENVIRONMENTAL AND LEGAL
COSTS |
225.8 | 234.7 | ||||||||||
DEFERRED INCOME TAXES |
184.8 | 195.0 | ||||||||||
OTHER LIABILITIES |
67.6 | 66.8 | ||||||||||
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; 181,114,213 and 180,825,749 issued, including
shares held in treasury, respectively |
1.8 | 1.8 | ||||||||||
Additional paid-in capital |
1,303.9 | 1,298.7 | ||||||||||
Retained earnings |
897.5 | 880.7 | ||||||||||
Treasury stock, at cost (20,073,200 and 17,167,600 shares,
respectively) |
(356.3 | ) | (300.1 | ) | ||||||||
Total Stockholders’ Equity |
1,846.9 | 1,881.1 | ||||||||||
| $ | 4,153.9 | $ | 4,209.1 | |||||||||
The accompanying notes are an integral part of these statements.
3
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
REVENUE |
$ | 594.6 | $ | 551.9 | ||||||
EXPENSES: |
||||||||||
Cost of operations |
367.7 | 342.0 | ||||||||
Depreciation, amortization and depletion |
56.8 | 44.4 | ||||||||
Accretion |
3.1 | — | ||||||||
Selling, general and administrative |
61.6 | 58.6 | ||||||||
OPERATING INCOME |
105.4 | 106.9 | ||||||||
INTEREST EXPENSE |
(20.4 | ) | (19.2 | ) | ||||||
INTEREST INCOME |
1.3 | .7 | ||||||||
OTHER INCOME (EXPENSE), NET |
1.7 | .1 | ||||||||
INCOME BEFORE INCOME TAXES |
88.0 | 88.5 | ||||||||
PROVISION FOR INCOME TAXES |
33.4 | 33.6 | ||||||||
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES |
54.6 | 54.9 | ||||||||
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES, NET OF TAX |
(37.8 | ) | — | |||||||
NET INCOME |
$ | 16.8 | $ | 54.9 | ||||||
BASIC AND DILUTED EARNINGS PER SHARE: |
||||||||||
Before cumulative effect of changes in accounting
principles |
$ | .33 | $ | .32 | ||||||
Cumulative effect of changes in accounting
principles, net of tax |
(.23 | ) | — | |||||||
Basic and diluted earnings per share |
$ | .10 | $ | .32 | ||||||
WEIGHTED AVERAGE DILUTED COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING |
163.3 | 169.1 | ||||||||
PRO FORMA AMOUNTS ASSUMING THE
CHANGES IN ACCOUNTING PRINCIPLES ARE
APPLIED RETROACTIVELY: |
||||||||||
Net income |
$ | 54.6 | $ | 54.4 | ||||||
Basic and diluted earnings per share |
$ | .33 | $ | .32 | ||||||
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 | |||||||||||||||||||||||||
| Additional | Comprehensive | ||||||||||||||||||||||||
| Shares, | Par | Paid-In | Retained | Treasury | Income | ||||||||||||||||||||
| Net | Value | Capital | Earnings | Stock | For the Period | ||||||||||||||||||||
BALANCE AT DECEMBER 31, 2002 |
163.6 | $ | 1.8 | $ | 1,298.7 | $ | 880.7 | $ | (300.1 | ) | |||||||||||||||
Net income |
— | — | — | 16.8 | — | $ | 16.8 | ||||||||||||||||||
Issuance of common stock |
.4 | — | 5.2 | — | — | — | |||||||||||||||||||
Purchase of common stock for treasury |
(2.9 | ) | — | — | — | (56.2 | ) | — | |||||||||||||||||
Total comprehensive income |
— | — | — | — | — | $ | 16.8 | ||||||||||||||||||
BALANCE AT MARCH 31, 2003 |
161.1 | $ | 1.8 | $ | 1,303.9 | $ | 897.5 | $ | (356.3 | ) | |||||||||||||||
The accompanying notes are an integral part of this statement.
5
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
CASH PROVIDED BY OPERATING ACTIVITIES: |
|||||||||||
Net income |
$ | 16.8 | $ | 54.9 | |||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
|||||||||||
Depreciation and amortization of property and equipment |
34.5 | 28.0 | |||||||||
Landfill depletion and amortization |
21.0 | 14.1 | |||||||||
Amortization of intangible and other assets |
1.3 | 2.3 | |||||||||
Accretion |
3.1 | — | |||||||||
Deferred tax provision |
12.8 | 8.4 | |||||||||
Provision for doubtful accounts |
2.8 | 3.5 | |||||||||
Income tax benefit from stock option exercises |
(.3 | ) | (.1 | ) | |||||||
Other non-cash charges |
(.5 | ) | .1 | ||||||||
Cumulative effect of changes in accounting principles, net of tax |
37.8 | — | |||||||||
Changes in assets and liabilities, net of effects from
business acquisitions and dispositions: |
|||||||||||
Accounts receivable |
(15.9 | ) | 5.4 | ||||||||
Prepaid expenses and other assets |
(7.6 | ) | (6.5 | ) | |||||||
Accounts payable and accrued liabilities |
(33.1 | ) | (9.3 | ) | |||||||
Other liabilities |
28.1 | 33.7 | |||||||||
| 100.8 | 134.5 | ||||||||||
CASH USED IN INVESTING ACTIVITIES: |
|||||||||||
Purchases of property and equipment |
(24.0 | ) | (37.6 | ) | |||||||
Proceeds from sale of property and equipment |
1.4 | 3.9 | |||||||||
Cash used in business acquisitions, net of cash acquired |
(7.7 | ) | (4.2 | ) | |||||||
Cash proceeds from business dispositions |
— | 5.0 | |||||||||
Amounts due and contingent payments to former owners |
(3.5 | ) | (.2 | ) | |||||||
Restricted cash |
9.7 | 7.0 | |||||||||
| (24.1 | ) | (26.1 | ) | ||||||||
CASH USED IN FINANCING ACTIVITIES: |
|||||||||||
Payments of notes payable and long-term
debt |
(1.1 | ) | (.8 | ) | |||||||
Net payments on revolving credit facility |
— | (30.0 | ) | ||||||||
Issuance of common
stock |
5.2 | 1.3 | |||||||||
Purchases of common stock for
treasury |
(56.2 | ) | (46.5 | ) | |||||||
| (52.1 | ) | (76.0 | ) | ||||||||
INCREASE IN CASH AND CASH EQUIVALENTS |
24.6 | 32.4 | |||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
141.5 | 16.1 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 166.1 | $ | 48.5 | |||||||
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, 2002.
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, liabilities for final capping, 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 three months ended March 31, 2002, the Company recorded unrealized gains of $2.2 million ($1.3 million, net of tax), 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 11, Fuel Hedge.) The effective portion of the unrealized gain in the amount of $1.2 million, net of tax, was recorded to comprehensive income during the three months ended March 31, 2002. The Company had no other components of other comprehensive income for the periods presented.
During the first quarter of 2003, the Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 required the Company to change the methodology it used to record final capping, closure and post-closure costs relating to its landfills. During the three months ended March 31, 2003, the Company recorded an after-tax expense of $20.8 million, or $33.6 million on a pre-tax basis, as a cumulative effect of a change in accounting principle resulting from the adoption of SFAS 143. In addition, the Company also recorded an after-tax expense of $17.0 million, or $27.4 million on a pre-tax basis, as a cumulative effect of a change in accounting relating to its accounting for methane gas collection systems. This change in accounting for methane gas collection systems was prompted by a thorough evaluation of the Company’s landfill accounting policies in connection with the adoption of SFAS 143 and is consistent with the methodology used by other participants in the waste industry.
7
The following table summarizes the adjustments to net income and earnings per share for the three months ended March 31, 2002 as if SFAS 143 and the Company’s change in accounting principle relating to its methane gas collection systems were effective in 2002:
| Three Months Ended | |||||||||
| March 31, 2002 | |||||||||
| Net Income | Basic and Diluted | ||||||||
| (in millions) | Earnings Per Share | ||||||||
Reported |
$ | 54.9 | $ | .32 | |||||
SFAS 143: |
|||||||||
Reversal of closure and post-closure expense previously reported |
3.4 | .02 | |||||||
Reversal of landfill purchase price amortization previously reported |
.2 | — | |||||||
Accretion expense |
(1.4 | ) | (.01 | ) | |||||
Landfill amortization |
(2.3 | ) | (.01 | ) | |||||
Total adjustments for SFAS 143 |
(.1 | ) | — | ||||||
Methane Gas Collection Systems: |
|||||||||
Reversal of depreciation previously reported |
.1 | — | |||||||
Depletion expense |
(.5 | ) | — | ||||||
Total adjustment for methane gas collection systems |
(.4 | ) | — | ||||||
Adjusted |
$ | 54.4 | $ | .32 | |||||
The following table summarizes the balance sheet impact of adopting SFAS 143 and the Company’s change in accounting relating to methane gas collection systems:
| Balance at | Balance at | ||||||||||||
| December 31, | January 1, | ||||||||||||
| 2002 | Change | 2003 | |||||||||||
Property and equipment: |
|||||||||||||
Landfill development costs |
$ | 1,026.3 | $ | 188.6 | $ | 1,214.9 | |||||||
Buildings
and improvements |
270.9 | (11.7 | ) | ||||||||||