Republic Services, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 24, 2008
(Exact name of registrant as specified in its charter)
| |
|
|
|
|
| Delaware |
|
1-14267 |
|
65-0716904 |
| |
| (State or other jurisdiction
|
|
(Commission
|
|
(IRS Employer |
| of incorporation)
|
|
File Number)
|
|
Identification No.) |
| |
|
|
|
|
| 110 SE 6th Street, 28th Floor, Fort Lauderdale, Florida |
|
33301 |
| |
| (Address of principal executive offices) |
|
(Zip Code) |
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
| þ |
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| |
| o |
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| |
| o |
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) |
| |
| o |
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13d-4(c)) |
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On July 24, 2008, Republic Services, Inc. (the “Company”) issued a press release to announce
operating results for the three and six months ended June 30, 2008, a copy of which is incorporated
herein by reference and attached hereto as Exhibit 99.1 and furnished according to this item.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
| |
|
|
| Exhibit No. |
|
Description |
99.1
|
|
Press Release of the Company dated July 24, 2008 to announce the operating results for the
three and six months ended June 30, 2008. |
Additional Information and Where to Find It
This communication is being made in respect of the proposed business combination involving
Republic and Allied. In connection with the proposed transaction, Republic plans to file with the
SEC a Registration Statement on Form S-4 containing a Joint Proxy Statement/Prospectus and each of
Republic and Allied plan to file with the SEC other documents regarding the proposed transaction.
The definitive Joint Proxy Statement/Prospectus will be mailed to stockholders of Republic and
Allied. INVESTORS AND SECURITY HOLDERS OF REPUBLIC AND ALLIED ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain free copies of the Registration Statement and
the definitive Joint Proxy Statement/Prospectus (when available) and other documents filed with the
SEC by Republic and Allied through the website maintained by the SEC at www.sec.gov. Free copies of
the Registration Statement and the definitive Joint Proxy Statement/Prospectus (when available) and
other documents filed with the SEC can also be obtained by directing a request to Republic
Services, Inc., 110 SE 6th Street, 28th Floor, Fort Lauderdale, Florida, 33301 Attention: Investor
Relations or by directing a request to Allied Waste Industries, Inc., 18500 North Allied Way,
Phoenix, Arizona 85054, Attention: Investor Relations.
Participants in Solicitation
Republic, Allied and their respective directors and executive officers and other persons may
be deemed to be participants in the solicitation of proxies in respect of the proposed transaction.
Information regarding Republic’s directors and executive officers is available in its Annual Report
on Form 10-K for the year ended December 31, 2007, which was filed with the SEC on February 21,
2008, and its proxy statement for its 2008 annual meeting of stockholders, which was filed with the
SEC on April 2, 2008, and information regarding Allied’s directors and executive officers is
available in Allied’s Annual Report on Form 10-K, for the year ended December 31, 2007, which was
filed with the SEC on February 21, 2008 and its proxy statement for its 2008 annual meeting of
stockholders, which was filed with the SEC on April 10, 2008. Other information regarding the
participants in the proxy solicitation and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the definitive Joint Proxy
Statement/Prospectus and other relevant materials to be filed with the SEC when they become
available.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| |
|
|
July 24, 2008
|
|
REPUBLIC SERVICES, INC. |
|
|
|
|
|
By: /s/ Tod C. Holmes |
|
|
|
|
|
Tod C. Holmes |
|
|
Senior Vice President and |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
|
|
|
|
By: /s/ Charles F. Serianni |
|
|
|
|
|
Charles F. Serianni |
|
|
Vice President and |
|
|
Chief Accounting Officer |
|
|
(Principal Accounting Officer) |
3
Exhibit 99.1
NEWS
| |
|
|
|
|
|
|
| |
|
|
|
REPUBLIC CONTACTS |
|
|
Media Inquiries:
|
|
Will Flower
|
|
(954) 769-6392 |
|
|
Investor Inquiries:
|
|
Tod Holmes
|
|
(954) 769-2387 |
|
|
|
|
Ed Lang
|
|
(954) 769-3591 |
REPUBLIC SERVICES, INC. REPORTS
SECOND QUARTER EARNINGS
| |
• |
|
Reaffirms 2008 earnings guidance |
| |
| |
• |
|
Expects 2008 free cash flow of $350 million |
| |
| |
• |
|
Increases quarterly dividend 12 percent to $0.19 per share |
Fort Lauderdale, Fla., July 24, 2008 — Republic Services, Inc. (NYSE: RSG) today reported that
revenue for the three months ended June 30, 2008 increased 2.4 percent to $827.5 million compared
to $808.4 million for the same period in 2007. The Company’s internal growth during the period was
3.9 percent, with a 7.0 percent increase from price, partially offset by a 3.1 percent decrease in
volume. Net income for the three months ended June 30, 2008 was $62.3 million, or $.34 per diluted
share, compared to $87.2 million, or $0.45 per diluted share, last year. The Company’s income
before income taxes for the three months ended June 30, 2008 includes a $34.0 million pre-tax
charge ($21.8 million, or approximately $.12 per diluted share, net of tax) related to
environmental conditions at the Company’s Countywide Recycling and Disposal Facility in Ohio. Net
income for the three months ended June 30, 2007 includes a tax benefit of $5.0 million, or
approximately $0.03 per diluted share, related to the effective closing of the Internal Revenue
Service’s audits of the Company’s consolidated tax returns for fiscal years 2001 through 2004.
Operating income for the three months ended June 30, 2008 was $119.6 million, or 14.5 percent of
revenue, compared to $153.1 million, or 18.9 percent of revenue, for the same period last year.
Excluding the $34.0 million charge to operating expenses for the Company’s Countywide Recycling and
Disposal Facility, operating income for the three months ended June 30, 2008 would have been $153.6
million, or 18.6 percent of revenue.
Revenue for the six months ended June 30, 2008 increased 2.1 percent to $1,606.7 million from
$1,574.0 million for the same period in 2007. Net income for the six months ended June 30, 2008
was $138.4 million, or $0.75 per diluted share, compared to $141.1 million, or $0.72 per diluted
share, for the same period last year. The Company’s income before income taxes for the six months
ended June 30, 2008 includes a $34.0 million pre-tax charge ($21.8 million, or approximately $.12
per diluted share, net of tax) related to environmental conditions at the Company’s Countywide
Recycling and Disposal Facility. The
Company’s income before income taxes for the six months ended June 30, 2007 includes a $22.0
million pre-tax charge ($13.5 million, or approximately $.07 per diluted share, net of tax) related
to environmental conditions at Countywide.
Operating income for the six months ended June 30, 2008 was $261.8 million, or 16.3 percent of
revenue, compared to $267.8 million, or 17.0 percent of revenue, for the same period last year.
Excluding $34.0 million and $21.3 million of operating expenses included in the charges for the
Company’s Countywide Recycling and Disposal Facility during 2008 and 2007, respectively, operating
income for the six months ended June 30, 2008 and 2007 would have been $295.8 million, or 18.4
percent of revenue, and $289.1 million, or 18.4 percent of revenue, respectively.
Financial Guidance
Republic Services also announced today that it has updated its financial guidance for 2008.
“The Company’s performance was strong during the first half of 2008,” said James E. O’Connor,
Chairman and CEO of Republic Services. “Excluding the charge associated with the environmental
remediation project in Ohio, we are on track to achieve the earnings guidance that we provided at
the beginning of the year. I am especially pleased to see margins holding steady despite extensive
pressure from diesel fuel costs.”
Based upon its performance for the first six months of 2008, the Company has updated its financial
guidance as follows:
| • |
|
Earnings Per Share: The Company reaffirmed earnings per share guidance in the range of
$1.78 to $1.82 per diluted share, excluding the environmental remediation charge for
Countywide. |
| |
| • |
|
Operating Margins: The Company expects margins at or above prior year margins, excluding
the environmental remediation charge. |
| |
| • |
|
Free Cash Flow: The Company expects free cash flow to be approximately $350 million. |
| |
| • |
|
Internal Growth: The Company expects higher internal growth of approximately 3.5 percent
to 4.0 percent, with approximately 6.5 percent to 7.0 percent growth from price increases,
while volume is expected to decline by 3.0 percent. |
| |
| • |
|
Capital Spending: The Company anticipates 2008 net capital spending of approximately
$335 million. |
Quarterly Dividend Increased
Republic also announced that its Board of Directors has approved a 12 percent increase in the
Company’s
2
regular quarterly dividend from $0.17 per share to $0.19 per share. The quarterly dividend of
$0.19 per share will be paid on October 15, 2008 to shareholders of record on October 1, 2008.
“The combination of solid earnings and efficient use of capital has allowed us to increase our
shareholder dividend,” said James E. O’Connor.
Share Repurchase Program
Republic reiterated the suspension of the Company’s share repurchase program due to the planned
merger with Allied Waste Industries, Inc.
Republic Services, Inc. is a leading provider of solid waste collection, transfer and disposal
services in the United States. The Company’s operating units are focused on providing solid waste
services for commercial, industrial, municipal and residential customers.
Certain statements and information included herein constitute “forward-looking statements” within
the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors that may cause the
actual results, performance, or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied in or by such forward-looking
statements. Such factors include, among other things:
| • |
|
whether the Company’s estimates and assumptions concerning its selected balance sheet
accounts, income tax accounts, final capping, closure, post-closure and remediation costs,
available airspace, and projected costs and expenses related to the Company’s landfills and
property and equipment, and labor, fuel rates, and economic and inflationary trends, turn
out to be correct or appropriate; |
| |
| • |
|
various factors that will impact the actual business and financial performance of the
Company such as competition and demand for services in the solid waste industry; |
| |
| • |
|
the Company’s ability to manage growth; |
| |
| • |
|
the Company’s ability to complete its merger with Allied Waste Industries, Inc.; |
| |
| • |
|
compliance with, and future changes in, environmental regulations; |
| |
| • |
|
the Company’s ability to obtain approvals from regulatory agencies in connection with
operating and expanding the Company’s landfills; |
| |
| • |
|
the ability to obtain financing on acceptable terms to finance the Company’s operations
and growth strategy and for the Company to operate within the limitations imposed by
financing arrangements; |
| |
| • |
|
the ability of the Company to repurchase common stock at prices that are accretive to
earnings per share; |
| |
| • |
|
the Company’s dependence on key personnel; |
| |
| • |
|
general economic and market conditions including, but not limited to, inflation and
changes in commodity pricing, fuel, labor, risk and health insurance, and other variable
costs that are generally not within control of the Company; |
| |
| • |
|
the Company’s dependence on large, long-term collection, transfer and disposal
contracts; |
| |
| • |
|
the Company’s dependence on acquisitions for growth; |
| |
| • |
|
risks associated with undisclosed liabilities of acquired businesses; |
| |
| • |
|
risks associated with pending legal proceedings; and |
| |
| • |
|
other factors contained in the Company’s filings with the Securities and Exchange
Commission. |
3
REPUBLIC SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007(1) |
|
| |
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
13.1 |
|
|
$ |
21.8 |
|
Accounts receivable, less allowance for doubtful accounts
of $14.4 and $14.7, respectively |
|
|
320.1 |
|
|
|
298.2 |
|
Other current assets |
|
|
117.4 |
|
|
|
93.8 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
450.6 |
|
|
|
413.8 |
|
|
|
|
|
|
|
|
|
|
RESTRICTED CASH |
|
|
177.8 |
|
|
|
165.0 |
|
PROPERTY AND EQUIPMENT, NET |
|
|
2,167.5 |
|
|
|
2,164.3 |
|
GOODWILL AND OTHER INTANGIBLE ASSETS, NET |
|
|
1,586.8 |
|
|
|
1,582.2 |
|
OTHER ASSETS |
|
|
152.3 |
|
|
|
142.5 |
|
|
|
|
|
|
|
|
|
|
$ |
4,535.0 |
|
|
$ |
4,467.8 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable, deferred revenue and other current liabilities |
|
$ |
581.4 |
|
|
$ |
626.4 |
|
Notes payable and current maturities of long-term debt |
|
|
101.6 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
683.0 |
|
|
|
628.7 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, NET OF CURRENT MATURITIES |
|
|
1,515.4 |
|
|
|
1,565.5 |
|
ACCRUED LANDFILL AND ENVIRONMENTAL COSTS |
|
|
333.9 |
|
|
|
279.2 |
|
OTHER LIABILITIES |
|
|
719.2 |
|
|
|
690.6 |
|
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; 196,773,081 and 195,761,969 issued,
including shares held in treasury, respectively |
|
|
2.0 |
|
|
|
2.0 |
|
Additional paid-in capital |
|
|
64.6 |
|
|
|
38.7 |
|
Retained earnings |
|
|
1,648.6 |
|
|
|
1,572.3 |
|
Treasury stock, at cost (14,894,412 and 10,338,970 shares,
respectively) |
|
|
(456.7 |
) |
|
|
(318.3 |
) |
Accumulated other comprehensive income, net of tax |
|
|
25.0 |
|
|
|
9.1 |
|
|
|
|
|
|
|
|
Total Stockholders’ Equity |
|
|
1,283.5 |
|
|
|
1,303.8 |
|
|
|
|
|
|
|
|
|
|
$ |
4,535.0 |
|
|
$ |
4,467.8 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Derived from the December 31, 2007
consolidated balance sheet.
|
4
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
REVENUE
|
|
$ |
827.5 |
|
|
$ |
808.4 |
|
|
$ |
1,606.7 |
|
|
$ |
1,574.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations |
|
|
543.5 |
|
|
|
497.9 |
|
|
|
1,020.0 |
|
|
|
986.3 |
|
Depreciation, amortization and depletion |
|
|
76.2 |
|
|
|
76.9 |
|
|
|
149.6 |
|
|
|
155.9 |
|
Accretion |
|
|
4.5 |
|
|
|
4.2 |
|
|
|
8.9 |
|
|
|
8.3 |
|
Selling, general and administrative |
|
|
83.7 |
|
|
|
76.3 |
|
|
|
166.4 |
|
|
|
155.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
119.6 |
|
|
|
153.1 |
|
|
|
261.8 |
|
|
|
267.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
(21.1 |
) |
|
|
(23.2 |
) |
|
|
(42.5 |
) |
|
|
(47.2 |
) |
INTEREST INCOME |
|
|
2.5 |
|
|
|
3.1 |
|
|
|
5.3 |
|
|
|
6.4 |
|
OTHER INCOME (EXPENSE), NET |
|
|
1.7 |
|
|
|
0.7 |
|
|
|
1.9 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
102.7 |
|
|
|
133.7 |
|
|
|
226.5 |
|
|
|
228.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
40.4 |
|
|
|
46.5 |
|
|
|
88.1 |
|
|
|
87.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
62.3 |
|
|
$ |
87.2 |
|
|
$ |
138.4 |
|
|
$ |
141.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.34 |
|
|
$ |
0.45 |
|
|
$ |
0.76 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding |
|
|
182.0 |
|
|
|
192.7 |
|
|
|
182.7 |
|
|
|
193.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.34 |
|
|
$ |
0.45 |
|
|
$ |
0.75 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common
equivalent shares outstanding |
|
|
183.9 |
|
|
|
194.6 |
|
|
|
184.5 |
|
|
|
195.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS PER COMMON SHARE |
|
$ |
0.1700 |
|
|
$ |
0.1067 |
|
|
$ |
0.3400 |
|
|
$ |
0.2134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| |
|
|
|
|
|
|
|
|
| |
|
Six Months Ended June 30, |
|
| |
|
2008 |
|
|
2007 |
|
CASH PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
138.4 |
|
|
$ |
141.1 |
|
Adjustments to reconcile net income
to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation, amortization, and depletion |
|
|
149.6 |
|
|
|
155.9 |
|
Accretion |
|
|
8.9 |
|
|
|
8.3 |
|
Other non-cash items |
|
|
22.7 |
|
|
|
15.1 |
|
Change in operating assets and liabilities, net of effects from business acquisitions and dispositions |
|
|
(8.1 |
) |
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
311.5 |
|
|
|
343.9 |
|
|
|
|
|
|
|
|
CASH USED IN
INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(165.4 |
) |
|
|
(147.3 |
) |
Proceeds from sales of property and equipment |
|
|
3.3 |
|
|
|
2.7 |
|
Cash used in business acquisitions, net of cash acquired |
|
|
(12.2 |
) |
|
|
— |
|
Cash proceeds from business dispositions, net of cash disposed |
|
|
— |
|
|
|
4.9 |
|
Change in restricted cash |
|
|
(12.8 |
) |
|
|
23.9 |
|
Other |
|
|
(0.2 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(187.3 |
) |
|
|
(115.8 |
) |
|
|
|
|
|
|
|
CASH USED IN FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from notes payable and long-term debt |
|
|
167.0 |
|
|
|
105.0 |
|
Payments of notes payable and long-term debt |
|
|
(116.5 |
) |
|
|
(151.7 |
) |
Issuances of common stock |
|
|
14.9 |
|
|
|
19.3 |
|
Excess income tax benefits from stock option exercises |
|
|
2.8 |
|
|
|
2.8 |
|
Purchases of common stock for treasury |
|
|
(138.4 |
) |
|
|
(165.1 |
) |
Cash dividends paid |
|
|
(62.7 |
) |
|
|
(41.6 |
) |
|
|
|
|
|
|
|
|
|
|
(132.9 |
) |
|
|
(231.3 |
) |
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(8.7 |
) |
|
|
(3.2 |
) |
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD |
|
|
21.8 |
|
|
|
29.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD |
|
$ |
13.1 |
|
|
$ |
25.9 |
|
|
|
|
|
|
|
|
6
REPUBLIC SERVICES, INC.
SUPPLEMENTAL UNAUDITED FINANCIAL INFORMATION
The following information should be read in conjunction with the Company’s audited
Consolidated Financial Statements and notes thereto appearing in the Company’s Form 10-K as of and
for the year ended December 31, 2007. It should also be read in conjunction with the Company’s
Unaudited Condensed Consolidated Financial Statements and notes thereto appearing in the Company’s
Form 10-Q as of and for the three months ended March 31, 2008.
INCOME TAXES
The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“the Interpretation”) effective January 1, 2007, as required. During the first
quarter of 2007, the Company recorded $4.2 million of additional income taxes related to the
resolution of various income tax matters. During the second quarter of 2007, the Company recorded
a $5.0 million reduction in income taxes related to the resolution of various income tax matters,
including the effective closing of the Internal Revenue Service’s audits of the Company’s tax returns for fiscal years 2001 through
2004. The Company expects its effective tax rate for fiscal year 2008 to be approximately 38.5%.
OTHER MATTERS
Proposed Merger with Allied. As previously reported, on June 22, 2008, the Company entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with Allied Waste Industries, Inc.
(“Allied”). The completion of the Merger is subject to certain terms and conditions, including,
but not limited to, approval of the transaction by the shareholders of both Republic and Allied,
regulatory approval from the Department of Justice, and receipt of credit ratings for the combined
company classifying its senior unsecured debt as investment grade. The Merger Agreement also
contains other terms and conditions that are customary for a merger of equals transaction. At the
effective time of the Merger, each share of Allied common stock outstanding will be converted into .45 shares of Republic common stock. Republic expects to issue approximately 198 million shares of
common stock to Allied shareholders in the transaction. Mr. James E. O’Connor, currently Chairman
of the Board of Directors and Chief Executive Officer of Republic, and Mr. Tod Holmes, the
Company’s Chief Financial Officer, will continue in their present positions with the combined
company. The transaction is expected to close in the fourth quarter of 2008. As of June 30, 2008,
the Company had capitalized $4.9 million of costs to other assets that are directly related to the
transaction.
Countywide Landfill Remediation. During the first quarter of 2007, the Company recorded a
pre-tax charge of $22.0 million ($13.5 million, or $.07 per diluted share, net of tax), related to
estimated costs the Company believed would be required to comply with Final Findings and Orders
(“F&Os”) issued by the Ohio Environmental Protection Agency (“OEPA”) in response to environmental
conditions at the Company’s Countywide Recycling and Disposal Facility (“Countywide”) in East
Sparta, Ohio. The Company has complied with and will continue to comply with the F&Os. However,
even though indications existed that the reaction had begun to subside, the Company nevertheless
agreed with the OEPA to take certain additional remedial actions at Countywide. Consequently,
during the three months ended September 30, 2007, the Company recorded an additional pre-tax charge
of $23.3 million ($14.4 million, or $.08 per diluted share, net of tax).
During the second quarter of 2008, the Company received additional orders from the OEPA. The
Company also entered into an Agreed Order on Consent (“AOC”) with the United States Environmental
Protection Agency (“U.S. EPA”). As a result of the additional orders received from the OEPA and the
orders received from the U.S. EPA, the Company recorded an additional pre-tax charge of $34.0
million ($21.8 million, or $.12 per diluted share, net of tax) during the three months ended June
30, 2008.
The remediation liability remaining as of June 30, 2008 for Countywide is $46.8 million, of which
approximately $14.0 million is expected to be paid out during the remainder of 2008. The majority of the remaining
costs are expected to be paid during 2009
7
through 2011. While the Company is vigorously pursuing financial contributions from third
parties for its costs to comply with the F&Os and the additional remedial actions, the Company has
not recorded any receivables for potential recoveries.
It is reasonably possible that the Company will need to adjust the charges noted above to
reflect the effects of new or additional information, to the extent that such information impacts
the costs, timing or duration of the required actions. Future changes in the Company’s estimates
of the costs, timing or duration of the required actions could have a material adverse effect on
the Company’s financial position, results of operations or cash flows.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, DEPLETION AND ACCRETION
Operating income before depreciation, amortization, depletion and accretion, which is not a
measure determined in accordance with U.S. generally accepted accounting principles (“GAAP”), for the
three and six months ended June 30, 2008 and 2007 is calculated as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Six Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
62.3 |
|
|
$ |
87.2 |
|
|
$ |
138.4 |
|
|
$ |
141.1 |
|
Provision for income taxes |
|
|
40.4 |
|
|
|
46.5 |
|
|
|
88.1 |
|
|
|
87.0 |
|
Other (income) expense, net |
|
|
(1.7 |
) |
|
|
(.7 |
) |
|
|
(1.9 |
) |
|
|
(1.1 |
) |
Interest expense |
|
|
21.1 |
|
|
|
23.2 |
|
|
|
42.5 |
|
|
|
47.2 |
|
Interest income |
|
|
(2.5 |
) |
|
|
(3.1 |
) |
|
|
(5.3 |
) |
|
|
(6.4 |
) |
Depreciation, amortization and depletion |
|
|
76.2 |
|
|
|
76.9 |
|
|
|
149.6 |
|
|
|
155.9 |
|
Accretion |
|
|
4.5 |
|
|
|
4.2 |
|
|
|
8.9 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before depreciation, amortization,
depletion and accretion |
|
$ |
200.3 |
|
|
$ |
234.2 |
|
|
$ |
420.3 |
|
|
$ |
432.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that the presentation of operating income before depreciation,
amortization, depletion and accretion is useful to investors because it provides important
information concerning the Company’s operating performance exclusive of certain non-cash costs.
Operating income before depreciation, amortization, depletion and accretion demonstrates the
Company’s ability to execute its financial strategy which includes reinvesting in existing capital
assets to ensure a high level of customer service, investing in capital assets to facilitate growth
in the Company’s customer base and services provided, pursuing strategic acquisitions that augment
the Company’s existing business platform, repurchasing shares of common stock at prices that
provide value to the Company’s shareholders, paying cash dividends, maintaining the Company’s
investment grade rating and minimizing debt. This measure has material limitations. Although
depreciation, amortization, depletion and accretion are considered operating costs in accordance
with GAAP, they represent the allocation of non-cash costs generally associated with long-lived
assets acquired or constructed in prior years.
CASH FLOW
The Company defines free cash flow, which is not a measure determined in accordance with GAAP,
as cash provided by operating activities less purchases of property and equipment plus proceeds
from sales of property and equipment as presented in the Company’s unaudited condensed consolidated
statements of cash flows. The Company’s free cash flow for the three and six months ended June 30,
2008 and 2007 is calculated as follows (in millions):
8
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Six Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cash provided by operating activities |
|
$ |
163.5 |
|
|
$ |
204.7 |
|
|
$ |
311.5 |
|
|
$ |
343.9 |
|
Purchases of property and equipment |
|
|
(83.8 |
) |
|
|
(63.2 |
) |
|
|
(165.4 |
) |
|
|
(147.3 |
) |
Proceeds from sales of property and
equipment |
|
|
2.3 |
|
|
|
1.7 |
|
|
|
3.3 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow |
|
$ |
82.0 |
|
|
$ |
143.2 |
|
|
$ |
149.4 |
|
|
$ |
199.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment as reflected on the Company’s unaudited condensed
consolidated statements of cash flows and the free cash flow presented above represent amounts paid
during the period for such expenditures. A reconciliation of property and equipment reflected on
the unaudited condensed consolidated statements of cash flows to property and equipment received
during the period is as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Six Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Purchases of property and equipment per the unaudited
condensed consolidated statements of cash flows |
|
$ |
83.8 |
|
|
$ |
63.2 |
|
|
$ |
165.4 |
|
|
$ |
147.3 |
|
Adjustments for property and equipment received during
the prior period but paid for in the following period, net |
|
|
5.9 |
|
|
|
5.8 |
|
|
|
(27.9 |
) |
|
|
(34.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment received during the current period |
|
$ |
89.7 |
|
|
$ |
69.0 |
|
|
$ |
137.5 |
|
|
$ |
113.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjustments noted above do not affect either the Company’s net change in cash and cash
equivalents as reflected in its unaudited condensed consolidated statements of cash flows or its
free cash flow.
The Company believes that the presentation of free cash flow provides useful information
regarding the Company’s recurring cash provided by operating activities after expenditures for
property and equipment, net of proceeds from sales of property and equipment. It also demonstrates
the Company’s ability to execute its financial strategy as previously discussed and is a key metric
used by the Company to determine compensation. The presentation of free cash flow has material
limitations. Free cash flow does not represent the Company’s cash flow available for discretionary
expenditures because it excludes certain expenditures that are required or that the Company has
committed to such as debt service requirements and dividend payments. The Company’s definition of
free cash flow may not be comparable to similarly titled measures presented by other companies.
Capital expenditures include $.7 million and $1.0 million of capitalized interest for the
three and six months ended June 30, 2008, and $.7 million and $1.3 million of capitalized interest
for the three and six months ended June 30, 2007.
As of June 30, 2008, accounts receivable were $320.1 million, net of allowance for doubtful
accounts of $14.4 million, resulting in days sales outstanding of approximately 34.7 (or 20.8 net
of deferred revenue).
STOCK REPURCHASE PROGRAM
During the three months ended June 30, 2008, the Company paid $40.6 million to repurchase 1.4
million shares of its common stock. During the six months ended June 30, 2008, the Company
repurchased a total of 4.6 million shares of its common stock for $138.4 million. As of June 30,
2008, the Company was authorized to repurchase up to an additional $248.0 million of its common
stock under its existing stock repurchase program. During the second quarter of 2008, the Company
suspended its share repurchase program as a result of its planned merger with Allied.
9
CASH DIVIDENDS
In April 2008, the Company paid a cash dividend of $31.1 million to shareholders of record as
of April 1, 2008. As of June 30, 2008, the Company recorded a dividend payable of $30.9 million to
shareholders of record at the close of business on July 1, 2008, which has been paid. In July
2008, the Company’s Board of Directors approved a 12% increase in the Company’s quarterly dividend
to $.19 per share. The Board also declared a regular quarterly dividend of $.19 per share payable
to shareholders of record as of October 1, 2008.
REVENUE
The following table reflects total revenue of the Company by revenue source for the three and
six months ended June 30, 2008 and 2007 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Six Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Collection: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
212.3 |
|
|
$ |
201.6 |
|
|
$ |
417.2 |
|
|
$ |
397.4 |
|
Commercial |
|
|
254.8 |
|
|
|
233.6 |
|
|
|
503.3 |
|
|
|
464.0 |
|
Industrial |
|
|
162.1 |
|
|
|
166.8 |
|
|
|
315.0 |
|
|
|
322.5 |
|
Other |
|
|
5.4 |
|
|
|
5.0 |
|
|
|
10.3 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collection |
|
|
634.6 |
|
|
|
607.0 |
|
|
|
1,245.8 |
|
|
|
1,193.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer and disposal |
|
|
307.0 |
|
|
|
313.1 |
|
|
|
581.9 |
|
|
|
591.9 |
|
Less: Intercompany |
|
|
(156.7 |
) |
|
|
(160.2 |
) |
|
|
(301.2 |
) |
|
|
(305.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer and disposal, net |
|
|
150.3 |
|
|
|
152.9 |
|
|
|
280.7 |
|
|
|
286.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
42.6 |
|
|
|
48.5 |
|
|
|
80.2 |
|
|
|
93.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
827.5 |
|
|
$ |
808.4 |
|
|
$ |
1,606.7 |
|
|
$ |
1,574.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the Company’s revenue growth for the three and six months ended
June 30, 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Core price |
|
|
4.1 |
% |
|
|
4.0 |
% |
|
|
4.1 |
% |
|
|
4.2 |
% |
Fuel surcharges |
|
|
1.9 |
|
|
|
.1 |
|
|
|
1.5 |
|
|
|
.1 |
|
Environmental fee |
|
|
.4 |
|
|
|
.3 |
|
|
|
.3 |
|
|
|
.4 |
|
Commodities |
|
|
.6 |
|
|
|
.8 |
|
|
|
.7 |
|
|
|
.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total price |
|
|
7.0 |
|
|
|
5.2 |
|
|
|
6.6 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core volume |
|
|
(3.4 |
) |
|
|
(.9 |
) |
|
|
(2.9 |
) |
|
|
(1.3 |
) |
Non-core volume |
|
|
.3 |
|
|
|
(.2 |
) |
|
|
.1 |
|
|
|
(.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume |
|
|
(3.1 |
) |
|
|
(1.1 |
) |
|
|
(2.8 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total internal growth |
|
|
3.9 |
|
|
|
4.1 |
|
|
|
3.8 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of divestitures |
|
|
(1.7 |
) |
|
|
(.5 |
) |
|
|
(1.8 |
) |
|
|
(.4 |
) |
Taxes |
|
|
.2 |
|
|
|
.1 |
|
|
|
.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue growth |
|
|
2.4 |
% |
|
|
3.7 |
% |
|
|
2.1 |
% |
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10