UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2020
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
_________________________________________________________
(Exact name of registrant as specified in its charter)
_________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: (480 ) 627-2700
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| þ | Accelerated filer | ¨ | Smaller reporting company | ||||||||||||||
Non-accelerated filer | ¨ | Emerging growth company | |||||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨ | ||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of April 30, 2020, the registrant had outstanding 318,312,189 shares of Common Stock, par value $0.01 per share (excluding treasury shares of 35,784,616).
REPUBLIC SERVICES, INC.
INDEX
| Item 1. | ||||||||
| Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019 | ||||||||
| Unaudited Consolidated Statement of Income for the Three Months Ended March 31, 2020 and 2019 | ||||||||
| Unaudited Consolidated Statement of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 | ||||||||
| Unaudited Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 2020 and 2019 | ||||||||
| Unaudited Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2020 and 2019 | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
REPUBLIC SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
| March 31, | December 31, | ||||||||||
| 2020 | 2019 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, less allowance for doubtful accounts and other of $ | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Restricted cash and marketable securities | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Notes payable and current maturities of long-term debt | |||||||||||
| Deferred revenue | |||||||||||
| Accrued landfill and environmental costs, current portion | |||||||||||
| Accrued interest | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current maturities | |||||||||||
| Accrued landfill and environmental costs, net of current portion | |||||||||||
| Deferred income taxes and other long-term tax liabilities, net | |||||||||||
| Insurance reserves, net of current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Accumulated other comprehensive income (loss), net of tax | ( | ||||||||||
| Total Republic Services, Inc. stockholders’ equity | |||||||||||
| Non-controlling interests in consolidated subsidiary | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these statements.
3
REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Revenue | $ | $ | |||||||||
| Expenses: | |||||||||||
| Cost of operations | |||||||||||
| Depreciation, amortization and depletion | |||||||||||
| Accretion | |||||||||||
| Selling, general and administrative | |||||||||||
Withdrawal costs - multiemployer pension funds | |||||||||||
| (Gain) loss on business divestitures and impairments, net | ( | ||||||||||
| Restructuring charges | |||||||||||
| Operating income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Loss from unconsolidated equity method investments | ( | ( | |||||||||
| Interest income | |||||||||||
| Other (loss) income, net | ( | ||||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | |||||||||||
Net income attributable to non-controlling interests in consolidated subsidiary | ( | ( | |||||||||
| Net income attributable to Republic Services, Inc. | $ | $ | |||||||||
Basic earnings per share attributable to Republic Services, Inc. stockholders: | |||||||||||
| Basic earnings per share | $ | $ | |||||||||
| Weighted average common shares outstanding | |||||||||||
Diluted earnings per share attributable to Republic Services, Inc. stockholders: | |||||||||||
| Diluted earnings per share | $ | $ | |||||||||
Weighted average common and common equivalent shares outstanding | |||||||||||
| Cash dividends per common share | $ | $ | |||||||||
The accompanying notes are an integral part of these statements.
4
REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive loss, net of tax | |||||||||||
| Hedging activity: | |||||||||||
| Realized loss (gain) reclassified into earnings | ( | ||||||||||
| Unrealized loss | ( | ( | |||||||||
| Pension activity: | |||||||||||
Change in funded status of pension plan obligations | |||||||||||
| Other comprehensive loss, net of tax | ( | ( | |||||||||
| Comprehensive income | |||||||||||
| Comprehensive income attributable to non-controlling interests | ( | ( | |||||||||
| Comprehensive income attributable to Republic Services, Inc. | $ | $ | |||||||||
The accompanying notes are an integral part of these statements.
5
REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
| Republic Services, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income, Net of Tax | Non-controlling Interests In Consolidated Subsidiary | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuances of common stock | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common stock for treasury | — | — | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions paid | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Republic Services, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income, Net of Tax | Non-controlling Interests In Consolidated Subsidiary | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2018 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Adoption of accounting standard, net of tax | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuances of common stock | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common stock for treasury | — | — | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2019 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these statements.
6
REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash provided by operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
| Depreciation, amortization, depletion and accretion | |||||||||||
| Non-cash interest expense | |||||||||||
| Restructuring related charges | |||||||||||
| Stock-based compensation | |||||||||||
| Deferred tax provision | |||||||||||
| Provision for doubtful accounts, net of adjustments | |||||||||||
| Gain on disposition of assets and asset impairments, net | ( | ( | |||||||||
| Withdrawal costs - multiemployer pension funds | |||||||||||
| Environmental adjustments | ( | ( | |||||||||
| Loss from unconsolidated equity method investments | |||||||||||
| Other non-cash items | ( | ||||||||||
| Change in assets and liabilities, net of effects from business acquisitions and divestitures: | |||||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Accounts payable | ( | ( | |||||||||
| Restructuring expenditures | ( | ( | |||||||||
| Capping, closure and post-closure expenditures | ( | ( | |||||||||
| Remediation expenditures | ( | ( | |||||||||
| Other liabilities | ( | ( | |||||||||
| Cash provided by operating activities | |||||||||||
| Cash used in investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sales of property and equipment | |||||||||||
| Cash used in acquisitions and investments, net of cash and restricted cash acquired | ( | ( | |||||||||
| Cash received from business divestitures | ( | ||||||||||
| Purchases of restricted marketable securities | ( | ( | |||||||||
| Sales of restricted marketable securities | |||||||||||
| Other | ( | ( | |||||||||
| Cash used in investing activities | ( | ( | |||||||||
| Cash provided by (used in) financing activities: | |||||||||||
| Proceeds from notes payable and long-term debt, net of fees | |||||||||||
| Proceeds from issuance of senior notes, net of discount and fees | |||||||||||
| Payments of notes payable and long-term debt and senior notes | ( | ( | |||||||||
| Issuances of common stock, net | ( | ( | |||||||||
| Purchases of common stock for treasury | ( | ( | |||||||||
| Cash dividends paid | ( | ( | |||||||||
| Distributions paid to non-controlling interests in consolidated subsidiary | ( | ||||||||||
| Contingent consideration payments | ( | ( | |||||||||
| Cash provided by (used in) financing activities | ( | ||||||||||
| Increase in cash, cash equivalents, restricted cash and restricted cash equivalents | |||||||||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year | |||||||||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these statements.
7
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Republic Services, Inc., a Delaware corporation, and its consolidated subsidiaries (also referred to collectively as Republic, the Company, we, us, or our), is the second largest provider of non-hazardous solid waste collection, transfer, recycling, disposal and environmental services in the United States, as measured by revenue. We manage and evaluate our operations through two field groups, Group 1 and Group 2, which we have identified as our reportable segments.
The unaudited consolidated financial statements include the accounts of Republic Services, Inc. and its wholly owned and majority owned subsidiaries in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We account for investments in entities in which we do not have a controlling financial interest under either the equity method or cost method of accounting, as appropriate. All material intercompany accounts and transactions have been eliminated in consolidation.
We have prepared these unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted. In the opinion of management, these financial statements include all adjustments that, unless otherwise disclosed, are of a normal recurring nature and necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of the results you can expect for a full year. You should read these financial statements in conjunction with our audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation. All dollar amounts in tabular presentations are in millions, except per share amounts and unless otherwise noted.
Management’s Estimates and Assumptions
In preparing our financial statements, we make numerous estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. We must make these estimates and assumptions because certain information we use is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methodologies. In preparing our financial statements, the more critical and subjective areas that deal with the greatest amount of uncertainty relate to our accounting for our long-lived assets, including recoverability, landfill development costs, and final capping, closure and post-closure costs; our valuation allowances for accounts receivable and deferred tax assets; our liabilities for potential litigation, claims and assessments; our liabilities for environmental remediation, multiemployer pension funds, employee benefit plans, deferred taxes, uncertain tax positions, and insurance reserves; and our estimates of the fair values of assets acquired and liabilities assumed in any acquisition. Each of these items is discussed in more detail in our description of our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our actual results may differ significantly from our estimates.
In March 2020, the World Health Organization declared the outbreak of a new strain of coronavirus (COVID-19) a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our operations and financial performance will depend on future developments, including the duration and spread of the pandemic, all of which are uncertain and cannot be predicted at this time. An extended period of economic disruption could materially and adversely affect our business, results of operations, access to sources of liquidity and financial condition. We will continue to monitor the evolving COVID-19 pandemic along with the effect on our business and review our estimates for recoverability of our assets and the valuation of our obligations on, at least, a quarterly basis.
8
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
New Accounting Pronouncements
Accounting Standards Adopted
Effective January 1, 2020, we adopted the following accounting standards updates (ASUs) as issued by the Financial Accounting Standards Board (FASB):
| ASU | Effective Date | |||||||
| ASU 2016-13 | Credit Losses (Topic 326) | January 1, 2020 | ||||||
| ASU 2018-13 | Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) | January 1, 2020 | ||||||
Credit Losses
Effective January 1, 2020, we adopted ASU 2016-13, Credit Losses Topic 326 (ASU 2016-13 or the new credit losses standard) using the modified retrospective approach. The comparative periods have not been restated and continue to be reported under the accounting standard in effect for those periods. The new credit losses standard amends the impairment model to use a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Our adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements for the three months ended March 31, 2020, and we did not recognize a cumulative effect adjustment to retained earnings as of January 1, 2020.
To assist in quantifying the impact on our consolidated financial statements and supplementing our existing disclosures, we identified financial assets measured at an amortized cost basis in our consolidated balance sheet and evaluated the collectability considerations based on an expected credit loss assessment. We are exposed to credit losses primarily through the collection, transfer and disposal of non-hazardous solid waste and environmental services we provide our customers as well as the recovering and sale of certain recyclable materials. We perform ongoing credit evaluations of our customers, but generally do not require collateral to support customer receivables. We establish an allowance for doubtful accounts based on various factors including the age of receivables outstanding, historical trends, economic conditions and other information. We also review outstanding balances on an account-specific basis based on the credit risk of the customer. We determined that all of our accounts receivable share similar risk characteristics. We monitor our credit exposure on an ongoing basis and assess whether assets in the pool continue to display similar risk characteristics.
The consolidated statement of income for the three months ended March 31, 2020 reflects the measurement of credit losses for newly recognized financial assets as well as any changes to historical financial assets. The following table reflects the activity in our allowance for doubtful accounts during the three months ended March 31, 2020.
| Allowance for Doubtful Accounts and Other | |||||
| Balance as of December 31, 2019 | $ | ||||
| Additions charged to expense | |||||
| Accounts written-off | ( | ||||
| Balance as of March 31, 2020 | $ | ||||
As a result of the unprecedented nature of COVID-19 and the various uncertainties surrounding the pandemic (e.g., the duration and spread of the pandemic), we continue to apply our historical loss rate assumptions and reserve against outstanding balances on an account-specific basis as we assess the collectability of our receivables. In certain situations, we may offer credit extensions to our customers as they navigate the current economic environment. In accordance with our accounting policy, we are actively monitoring the credit risk of our specific customers, age of receivables outstanding, recent collection trends and general economic conditions to evaluate the risk of credit loss.
Fair Value Measurement
Effective January 1, 2020, we adopted the FASB's ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). ASU 2018-13 intends to increase the consistency and comparability of fair value measurements used in financial reporting through eliminating, modifying, and adding certain disclosure requirements within Topic 820. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements for the three months ended March 31, 2020.
9
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Accounting Standards Updates Issued but not yet Adopted
Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). ASU 2018-14 removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the FASB’s efforts to improve the effectiveness of disclosures in the notes to financial statements. ASU 2018-14 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Early adoption is permitted for all entities. We are currently assessing the effect this guidance may have on our consolidated financial statements.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(ASU 2019-12). ASU 2019-12 attempts to simplify aspects of accounting for franchise taxes and enacted changes in tax laws or
rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The amended guidance contains a model under which an entity can consider a list of factors in determining whether the step-up in tax basis of goodwill is related to the business combination that caused the initial recognition of goodwill or to a separate transaction. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Early adoption is permitted for all entities. We are currently assessing the effect this guidance may have on our consolidated financial statements.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting (ASU 2020-04). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently assessing the effect this guidance may have on our consolidated financial statements.
10
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. BUSINESS ACQUISITIONS, INVESTMENTS AND RESTRUCTURING CHARGES
Acquisitions
We acquired various waste businesses during the three months ended March 31, 2020 and 2019. The purchase price for these business acquisitions and the allocations of the purchase price follows:
| 2020 | 2019 | ||||||||||
| Purchase price: | |||||||||||
Cash used in acquisitions, net of cash acquired | $ | $ | |||||||||
Holdbacks | |||||||||||
Fair value, future minimum finance lease payments | |||||||||||
| Total | $ | $ | |||||||||
| Allocated as follows: | |||||||||||
Accounts receivable | $ | $ | |||||||||
Property and equipment | |||||||||||
Operating right-of-use lease assets | |||||||||||
Other assets | |||||||||||
Accounts payable | ( | ||||||||||
Environmental remediation liabilities | ( | ||||||||||
Operating right-of-use lease liabilities | ( | ||||||||||
Other liabilities | ( | ( | |||||||||
| Fair value of tangible assets acquired and liabilities assumed | |||||||||||
| Excess purchase price to be allocated | $ | $ | |||||||||
| Excess purchase price allocated as follows: | |||||||||||
Other intangible assets | $ | $ | |||||||||
Goodwill | |||||||||||
| Total allocated | $ | $ | |||||||||
The purchase price allocations are based on information existing at the acquisition dates. Accordingly, certain of the purchase price allocations are preliminary and subject to change. Substantially all of the goodwill and intangible assets recorded for these acquisitions are deductible for tax purposes.
These acquisitions are not material to our results of operations, individually or in the aggregate. As a result, no pro forma financial information is provided.
Investments
In 2020, we continued to acquire non-controlling equity interests in certain limited liability companies that qualified for investment tax credits under Section 48 of the Internal Revenue Code. In exchange for our non-controlling interests, we made capital contributions of $9.4 million, which were recorded to other assets in our March 31, 2020 consolidated balance sheet. During the three months ended March 31, 2020 and 2019, we also reduced the carrying value of these investments by $13.2 million and $11.6 million, respectively, as a result of tax credits allocated to us, cash distributions and our share of income and loss pursuant to the terms of the limited liability company agreements.
Restructuring Charges
In 2019, we incurred costs related to the redesign of certain back-office software systems, which continued into 2020. During the three months ended March 31, 2020 and 2019, we incurred restructuring charges of $3.8 million and $3.0 million, respectively, that primarily related to these restructuring efforts. During the three months ended March 31, 2020 and 2019, we paid $3.8 million and $4.6 million, respectively, related to these restructuring efforts.
In 2020, we expect to incur additional restructuring charges of approximately $10 million primarily related to the redesign of certain of our back-office software systems. Substantially all of these restructuring charges will be recorded in our corporate segment.
11
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Our senior management evaluates, oversees and manages the financial performance of our operations through two field groups, referred to as Group 1 and Group 2.
Goodwill
A summary of the activity and balances in goodwill accounts by reporting segment follows:
| Balance as of December 31, 2019 | Acquisitions | Divestitures | Adjustments to Acquisitions | Balance as of March 31, 2020 | ||||||||||||||||||||||||||||
| Group 1 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Group 2 | ( | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
Other Intangible Assets, Net
Other intangible assets, net, include values assigned to customer relationships, non-compete agreements and trade names, and are amortized over periods ranging from 1 to 17 years. A summary of the activity and balances by intangible asset type follows:
| Gross Intangible Assets | Accumulated Amortization | Other Intangible Assets, Net as of March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | Acquisitions | Adjustments and Other | Balance as of March 31, 2020 | Balance as of December 31, 2019 | Additions Charged to Expense | Adjustments and Other | Balance as of March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
Customer relationships | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
Non-compete agreements | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other intangible assets | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
We evaluate goodwill for impairment annually as of October 1, or when an indicator of impairment exists. In accordance with our accounting policy, we also perform a quarterly review of our long-lived and intangible assets. During the performance of our first quarter impairment review, we considered the impact of the COVID-19 pandemic on our business, noting no indicators of impairment for goodwill or other intangible assets.
4. OTHER ASSETS
Prepaid Expenses and Other Current Assets
A summary of prepaid expenses and other current assets as of March 31, 2020 and December 31, 2019 follows:
| 2020 | 2019 | ||||||||||
| Income tax receivable | $ | $ | |||||||||
| Prepaid expenses | |||||||||||
| Other non-trade receivables | |||||||||||
| Inventories | |||||||||||
| Reinsurance receivable | |||||||||||
| Investments, current | |||||||||||
| Prepaid fees for cloud-based hosting arrangements, current | |||||||||||
| Interest rate swap locks | |||||||||||
| Other current assets | |||||||||||
| Total | $ | $ | |||||||||
12
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other Assets
A summary of other assets as of March 31, 2020 and December 31, 2019 follows:
| 2020 | 2019 | ||||||||||
| Operating right-of-use lease assets | $ | $ | |||||||||