REPUBLIC SERVICES INC - 10-Q Quarterly Report

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 June 30, 2003

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 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

On July 29, 2003, the registrant had outstanding 160,648,005 shares of Common Stock, par value $.01 per share.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

REPUBLIC SERVICES, INC.

INDEX


		Page

	PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002	3

	Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2003 and 2002	4

	Unaudited Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income for the Six Months Ended June 30, 2003	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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	35

ITEM 4.	Controls and Procedures	35

	PART II. OTHER INFORMATION

ITEM 4.	Submission of Matters to a Vote of Security Holders	36

ITEM 6.	Exhibits and Reports on Form 8-K	36

	Signatures	37

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPUBLIC SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)


				June 30,			December 31,
				2003			2002

				(Unaudited)
		ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	247.6		$	141.5
	Accounts receivable, less allowance for doubtful accounts of $18.7 and $19.0, respectively				264.6			238.6
	Prepaid expenses and other current assets				63.9			63.0
	Deferred tax assets				8.9			9.2

			Total Current Assets		585.0			452.3
RESTRICTED CASH					192.8			175.0
PROPERTY AND EQUIPMENT, NET					1,827.5			1,910.0
GOODWILL, NET					1,553.7			1,544.2
OTHER INTANGIBLE ASSETS, NET					24.1			25.7
OTHER ASSETS					108.4			101.9

				$	4,291.5		$	4,209.1

		LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	104.3		$	123.5
	Accrued liabilities				110.9			109.3
	Amounts due to former owners				5.7			7.5
	Deferred revenue				86.0			82.9
	Notes payable and current maturities of long-term debt				227.7			2.8
	Other current liabilities				103.8			66.2

			Total Current Liabilities		638.4			392.2
LONG-TERM DEBT, NET OF CURRENT MATURITIES					1,252.5			1,439.3
ACCRUED LANDFILL, ENVIRONMENTAL AND LEGAL COSTS					233.4			234.7
DEFERRED INCOME TAXES					197.0			195.0
OTHER LIABILITIES					70.9			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; 182,311,942 and 180,825,749 issued, including shares held in treasury, respectively				1.8			1.8
	Additional paid-in capital				1,326.5			1,298.7
	Retained earnings				957.9			880.7
	Treasury stock, at cost (21,513,900 and 17,167,600 shares, respectively)				(386.9	)		(300.1	)

			Total Stockholders’ Equity		1,899.3			1,881.1

				$	4,291.5		$	4,209.1

The accompanying notes are an integral part of these statements.

REPUBLIC SERVICES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data)


			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2003			2002			2003			2002

REVENUE			$	637.3		$	598.2		$	1,231.9		$	1,150.1
EXPENSES:
	Cost of operations			399.3			371.5			767.0			713.5
	Depreciation, amortization and depletion			59.4			49.4			116.2			93.8
	Accretion			3.1			—			6.2			—
	Selling, general and administrative			62.0			61.0			123.6			119.6

OPERATING INCOME				113.5			116.3			218.9			223.2
INTEREST EXPENSE				(19.8	)		(19.2	)		(40.2	)		(38.4	)
INTEREST INCOME				2.3			1.0			4.5			1.7
OTHER INCOME (EXPENSE), NET				1.5			.3			2.3			.4

INCOME BEFORE INCOME TAXES				97.5			98.4			185.5			186.9
PROVISION FOR INCOME TAXES				37.1			37.4			70.5			71.0

INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES				60.4			61.0			115.0			115.9
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX				—			—			37.8			—

NET INCOME			$	60.4		$	61.0		$	77.2		$	115.9

BASIC AND DILUTED EARNINGS PER SHARE:
	Before cumulative effect of changes in accounting principles		$	.37		$	.36		$	.70		$	.69
	Cumulative effect of changes in accounting principles, net of tax			—			—			(.23	)		—

	Basic and diluted earnings per share		$	.37		$	.36		$	.47		$	.69

WEIGHTED AVERAGE DILUTED COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING				162.5			167.5			162.9			168.3

PRO FORMA AMOUNTS ASSUMING THE CHANGES IN ACCOUNTING PRINCIPLES ARE APPLIED RETROACTIVELY:
		Net income	$	60.4		$	60.4		$	115.0		$	114.8
		Basic and diluted earnings per share	$	.37		$	.36		$	.70		$	.68

The accompanying notes are an integral part of these statements.

REPUBLIC SERVICES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME

(in millions)


		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			—			—		—		77.2		—		$	77.2
Issuance of common stock			1.5			—		27.8		—		—			—
Purchase of common stock for treasury			(4.3	)		—		—		—		(86.8	)		—

	Total comprehensive income		—			—		—		—		—		$	77.2

BALANCE AT JUNE 30, 2003			160.8		$	1.8	$	1,326.5	$	957.9	$	(386.9	)

The accompanying notes are an integral part of this statement.

REPUBLIC SERVICES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


				Six Months Ended
				June 30,

				2003			2002

CASH PROVIDED BY OPERATING ACTIVITIES:
	Net income			$	77.2		$	115.9
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization of property and equipment			69.1			76.0
		Landfill depletion and amortization			44.6			14.2
		Amortization of intangible and other assets			2.5			3.6
		Accretion			6.2			—
		Deferred tax provision			25.3			21.4
		Provision for doubtful accounts			4.6			6.9
		Income tax benefit from stock option exercises			(3.1	)		(.1	)
		Other non-cash items			(2.0	)		.2
		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		(31.2	)		(19.9	)
			Prepaid expenses and other assets		(3.7	)		.6
			Accounts payable and accrued liabilities		(20.3	)		4.8
			Other liabilities		45.3			63.4

					252.3			287.0

CASH USED IN INVESTING ACTIVITIES:
	Purchases of property and equipment				(88.1	)		(105.2	)
	Proceeds from sale of property and equipment				2.9			8.2
	Cash used in business acquisitions, net of cash acquired				(18.2	)		(5.5	)
	Cash proceeds from business dispositions				3.2			5.0
	Amounts due and contingent payments to former owners				(3.9	)		(2.3	)
	Restricted cash				(17.8	)		(5.2	)

					(121.9	)		(105.0	)

CASH USED IN FINANCING ACTIVITIES:
	Proceeds from notes payable and long-term debt				36.3			25.2
	Payments of notes payable and long-term debt				(1.6	)		(1.2	)
	Net payments on revolving credit facility				—			(30.0	)
	Issuance of common stock				27.8			11.0
	Purchases of common stock for treasury				(86.8	)		(92.7	)

					(24.3	)		(87.7	)

INCREASE IN CASH AND CASH EQUIVALENTS					106.1			94.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					141.5			16.1

CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	247.6		$	110.4

The accompanying notes are an integral part of these statements.

REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in millions, except per share data)

1. BASIS OF PRESENTATION

Republic Services, Inc. (together with its subsidiaries, the “Company”) is a leading provider of non-hazardous solid waste collection and disposal services in the United States.

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany accounts and transactions have been eliminated. Certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with 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 and six months ended June 30, 2002, the Company recorded unrealized gains of $.3 million ($.2 million, net of tax), and $2.5 million ($1.5 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 11, Fuel Hedge.) The effective portion of the unrealized gain in the amount of $1.4 million, net of tax, was recorded to comprehensive income during the three and six months ended June 30, 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. As of January 1, 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 principle for its 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.

The following table summarizes the adjustments to net income and earnings per share for the three and six months ended June 30, 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

Six Months Ended

June 30, 2002

Basic and Diluted

Net Income

Earnings Per Share

Net Income

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