1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0716904
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
110 S.E. 6TH STREET
FT. LAUDERDALE, FLORIDA 33301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 769-6000
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[ ]
On November 9, 1998 the registrant had 79,724,417 outstanding shares of
class A common stock, par value $.01 per share and had 95,688,083 outstanding
shares of class B common stock, par value $.01 per share.
2
REPUBLIC SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as
of September 30, 1998 and December 31, 1997.......................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 1998 and
1997................................................................. 4
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Nine Months Ended September 30, 1998.................. 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997................ 6
Notes to Unaudited Condensed Consolidated Financial Statements.......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................ 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............. 23
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................... 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................ 24
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 21.4 $ --
Restricted cash..................................................... 12.7 18.8
Accounts receivable, less allowance for
doubtful accounts of $18.1 and $13.6,
respectively.................................................... 162.5 131.0
Inventory ..................................................... 12.6 11.7
Other current assets................................................ 14.8 14.4
-------- --------
Total Current Assets.......................................... 224.0 175.9
Property and equipment, net............................................ 887.8 801.8
Intangible and other assets, net....................................... 601.9 370.3
-------- --------
$1,713.7 $1,348.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 40.4 $ 40.2
Accrued income taxes................................................ 15.5 --
Accrued liabilities................................................. 93.3 57.6
Deferred revenue.................................................... 41.9 29.5
Amounts due to Parent............................................... 3.7 266.1
Other current liabilities........................................... 49.0 42.7
-------- --------
Total Current Liabilities..................................... 243.8 436.1
Long-term debt, net of current maturities.............................. 102.2 64.3
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS............................... 49.4 46.0
DEFERRED INCOME TAXES AND OTHER LIABILITIES............................ 66.8 50.8
Commitments and contingencies..........................................
Shareholders' equity:
Investment by Parent................................................ -- 749.8
Preferred stock, par value $.01 per share;
50,000,000 shares authorized; none issued........................ -- --
Common stock:
Class A, par value $.01 per share; 250,000,000 shares
authorized; 79,724,417 and none issued and outstanding,
respectively.................................................. .8 --
Class B, par value $.01 per share;
125,000,000 shares authorized; 95,688,083
shares issued and outstanding................................. 1.0 1.0
Additional paid-in capital.......................................... 1,203.5 --
Retained earnings................................................... 46.2 --
-------- --------
Total Shareholders' Equity.................................... 1,251.5 750.8
-------- --------
$1,713.7 $1,348.0
======== ========
The accompanying notes are an integral part of these statements.
3
4
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE................................................. $355.0 $287.6 $991.7 $834.5
EXPENSES:
Cost of operations................................... 220.1 179.8 611.7 538.8
Depreciation and amortization........................ 26.7 22.2 76.5 64.3
Selling, general and administrative.................. 32.9 29.3 98.6 87.0
------- ------ ------ ------
OPERATING INCOME........................................ 75.3 56.3 204.9 144.4
INTEREST EXPENSE........................................ (3.2) (6.2) (40.4) (20.6)
INTEREST INCOME......................................... .3 .7 1.0 3.6
OTHER INCOME (EXPENSE).................................. (.2) .2 .3 .5
------ ------ ------ ------
INCOME BEFORE INCOME TAXES.............................. 72.2 51.0 165.8 127.9
PROVISION FOR INCOME TAXES.............................. 26.0 18.5 59.7 46.3
------ ------ ------ ------
NET INCOME.............................................. $ 46.2 $ 32.5 $106.1 $ 81.6
====== ====== ====== ======
BASIC AND DILUTED EARNINGS PER
SHARE................................................ $ .26 $ .34 $ .87 $ .85
====== ====== ====== ======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.......................................... 175.4 95.7 122.3 95.7
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
4
5
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
COMMON STOCK ADDITIONAL
INVESTMENT ------------------- PAID-IN RETAINED
BY PARENT CLASS A CLASS B CAPITAL EARNINGS
---------- ------- ------- ---------- --------
BALANCE AT DECEMBER 31, 1997..................... $ 749.8 $ -- $1.0 $ -- $ --
Net income................................... 59.9 -- -- -- 46.2
Business acquisitions
contributed by Parent..................... 128.3 -- -- -- --
Dividend to Parent........................... (2,000.0) -- -- -- --
Dividend from Resources...................... 437.3 -- -- -- --
Transfer to additional
paid-in capital........................... 624.7 -- -- (624.7) --
Issuance of Class A Common Stock
to Parent................................. -- .2 -- 395.2 --
Sale of Class A Common Stock................. -- .6 -- 1,433.0 --
-------- ---- ---- --------- -----
BALANCE AT SEPTEMBER 30, 1998.................... $ -- $ .8 $1.0 $1,203.5 $46.2
======== ==== ==== ========= =====
The accompanying notes are an integral part of this statement.
5
6
REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
--------- -------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income ............................................................. $ 106.1 $ 81.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................ 76.5 64.3
Changes in assets and liabilities, net of
effects from business acquisitions:
Accounts receivable............................................ (24.6) (14.6)
Other assets................................................... (.6) 27.2
Accounts payable and accrued liabilities....................... (34.4) (11.0)
Current and deferred income taxes
payable..................................................... 56.7 7.9
Other liabilities.............................................. 50.3 33.5
------ -------
230.0 188.9
------ -------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment..................................... (110.1) (107.7)
Cash used in business acquisitions, net of
cash acquired........................................................ (68.6) 1.3
Other .................................................................. 9.9 (9.9)
------- -------
(168.8) (116.3)
------- -------
CASH USED IN FINANCING ACTIVITIES:
Proceeds from sale of common stock...................................... 1,433.6 --
(Decrease) increase in amounts due to Parent............................ (1,469.5) 9.0
Payments of notes payable and long-term debt............................ (45.9) (79.8)
Net proceeds from revolving credit facility............................. 42.0 --
Other .................................................................. -- (4.3)
--------- -------
(39.8) (75.1)
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 21.4 (2.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................... -- 24.2
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 21.4 $ 21.7
========= ========
The accompanying notes are an integral part of these statements.
6
7
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Republic Services, Inc. and its subsidiaries (the
"Company") and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
related to the Company's organization, significant accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. As of September 30, 1998, approximately 63.9% of the Company's stock
was owned by Republic Industries, Inc. (together with its subsidiaries, the
"Parent"). These unaudited condensed consolidated financial statements exclude
the accounts of the Company's subsidiary, Republic Resources Company, Inc.
("Resources"), the common stock of which was distributed to Parent in June 1998.
All significant intercompany accounts and transactions have been eliminated.
These unaudited condensed consolidated financial statements reflect, in the
opinion of management, 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 Prospectus dated June 30, 1998.
These unaudited condensed consolidated financial statements reflect the
accounts of the Company as a subsidiary of Parent subject to corporate general
and administrative expense allocations or charges under the Services Agreement
as described in Note 11, Related Party Transactions. Such information does not
necessarily reflect the financial position or results of operations of the
Company as a separate, stand-alone entity.
All historical share and per share data of the Company's common stock,
par value $.01 per share ("Common Stock" which is designated when issued as
"Class A Common Stock" or "Class B Common Stock"), for all periods included in
the unaudited condensed consolidated financial statements and the notes thereto
have been retroactively adjusted for the recapitalization of Parent's 100 shares
of common stock previously outstanding into 95,688,083 shares of Class B Common
Stock in July 1998, as more fully described in Note 7, Shareholders' Equity.
In May 1998, Parent announced its intention to separate the Company
from the Parent (the "Separation"). Parent also announced its intention to
distribute its remaining shares of Common Stock in the Company as of the
distribution date to Parent's shareholders in 1999, subject to certain
conditions and consents (the "Distribution"). The Company and Parent have
entered into certain agreements providing for the Separation and governing
various interim and ongoing relationships between the companies. The
Distribution is contingent, in part, on Parent obtaining a private letter ruling
from the Internal Revenue Service to the effect that, among other things, the
Distribution will qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Internal Revenue Code of 1986, as amended, in
form and substance satisfactory to Parent.
7
8
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
On July 1, 1998, the Company completed an initial public offering of
approximately 63.2 million shares of its Class A Common Stock ("Initial Public
Offering") resulting in net proceeds of approximately $1.4 billion. In addition,
in July 1998 the Company repaid in full all remaining amounts due to Parent as
of June 30, 1998 through the issuance of shares of Class A Common Stock and
through all of the proceeds from the Initial Public Offering. Following the
Initial Public Offering and the repayment of amounts due to Parent, Parent owned
approximately 63.9% of the outstanding shares of Class A and Class B Common
Stock which represents approximately 88.7% of the combined voting power of all
of the outstanding shares of the Class A and Class B Common Stock.
The following unaudited pro forma consolidated statement of operations
data has been prepared assuming the Initial Public Offering and the repayment in
full of the amounts due to Parent had occurred as of the beginning of each
period presented:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
------ ---- ------ ------
Operating income.......................................... $ 75.3 $ 56.3 $204.9 $144.4
Interest expense.......................................... (1.8) (1.3) (3.1) (5.0)
Interest income........................................... .3 .7 1.0 3.6
Other income (expense).................................... (.2) .2 .3 .5
------ ------ ------ ------
Income before income taxes................................ 73.6 55.9 203.1 143.5
Provision for income taxes................................ 26.5 20.3 73.1 52.0
------ ------ ------ ------
Net income................................................ $ 47.1 $ 35.6 $130.0 $ 91.5
====== ====== ====== ======
Basic and diluted earnings per share...................... $ .27 $ .20 $ .74 $ .52
====== ====== ====== ======
Weighted average shares outstanding....................... 175.4 175.4 175.4 175.4
====== ====== ====== ======
The unaudited pro forma consolidated statement of operations data are
provided for informational purposes only and should not be construed to be
indicative of the Company's consolidated results of operations had the
transactions and events described above been consummated on the dates assumed
and do not project the Company's results of operations for any future date or
period.
8
9
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. BUSINESS COMBINATIONS
In September 1998, the Company entered into a definitive agreement with
Waste Management, Inc. ("Waste Management") to acquire certain assets. The
assets to be acquired include 16 landfills, 11 transfer stations and 136
commercial collection routes across the United States as well as disposal
agreements at various Waste Management facilities. The Company will pay
approximately $500.0 million in cash plus certain additional properties in this
transaction, which will be accounted for under the purchase method of
accounting. The closing of this transaction is subject to approvals by various
state and federal agencies.
Prior to the Initial Public Offering, Parent acquired various
businesses operating in the solid waste services industry using cash and/or
shares of its common stock ("Parent Common Stock"). These businesses were
contributed by Parent to the Company subsequent to their acquisition. The
Company has applied the same accounting method used by Parent in accounting for
business combinations.
Businesses acquired through September 30, 1998 and accounted for under
the purchase method of accounting are included in the unaudited condensed
consolidated financial statements from the date of acquisition.
During 1998, Parent acquired various solid waste services businesses
which were contributed to the Company. The aggregate purchase price paid by
Parent in transactions accounted for under the purchase method of accounting was
$128.3 million consisting of $60.3 million in cash and 3.4 million shares of
Parent Common Stock valued at $68.0 million. Subsequent to the Initial Public
Offering on July 1, 1998, the Company acquired various businesses accounted for
under the purchase method of accounting for an aggregate purchase price of $72.4
million in cash.
The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting
consummated during the nine months ended September 30:
1998 1997
-------- ---------
Property and equipment.................................... $ 34.6 $ 30.8
Intangible assets......................................... 239.8 87.8
Other assets.............................................. 16.6 5.0
Working capital (deficiency).............................. (53.8) (13.4)
Debt assumed.............................................. (40.3) (19.7)
Contribution from Parent.................................. (128.3) (91.8)
------- ------
Cash used in acquisitions, net of cash acquired........... $ 68.6 $ (1.3)
======= ======
9
10
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company's unaudited pro forma consolidated results of operations
assuming all significant acquisitions accounted for under the purchase method of
accounting had occurred as of the beginning of each period presented are as
follows:
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
-------- ---------
S>
Revenue.............................................. $1,017.8 $933.4
Net income........................................... $ 106.8 $ 83.9
Basic and diluted earnings per share................. $ .87 $ .88
Common shares outstanding............................ 122.3 95.7
The unaudited pro forma consolidated results of operations are
presented for informational purposes only and may not necessarily reflect the
future results of operations of the Company or what the results of operations
would have been had the Company owned and operated these businesses as of the
beginning of each period presented.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------- ---------
Land, landfills and improvements........................... $ 451.8 $ 420.1
Furniture, fixtures, trucks and equipment.................. 742.3 668.9
Buildings and improvements................................. 150.1 126.6
-------- --------
1,344.2 1,215.6
Less: accumulated depreciation, amortization
and depletion.......................................... (456.4) (413.8)
-------- --------
$ 887.8 $ 801.8
======== ========
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired and other
intangible assets. The cost in excess of the fair value of net assets acquired
is amortized over 40 years on a straight-line basis. Other intangible assets
include values assigned to customer lists, long-term contracts and covenants not
to compete and are amortized generally over periods ranging from 5 to 25 years.
Accumulated amortization of intangible assets at September 30, 1998 and
December 31, 1997 was $67.6 million and $57.9 million, respectively.
10
11
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
$1.0 billion revolving credit facility; interest
payable using LIBOR based rates; unsecured;
$500.0 million matures July 1999 and
$500.0 million matures 2003.......................... $ 42.0 $ --
Bonds payable under loan agreements with California
Pollution Control Financing Authority; interest
at prevailing market rates......................... 43.1 43.1
Other notes; secured by real property,
equipment and other assets......................... 27.4 32.0
------ ------
112.5 75.1
Less: current portion (included in other
current liabilities)...................... (10.3) (10.8)
------ ------
$102.2 $ 64.3
====== ======
6. AMOUNTS DUE TO PARENT
Amounts due to Parent consist of the following:
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- -----
Due to Republic Corporate Management Company
("RCMC")........................................... $3.7 $107.8
Notes payable to Resources............................. -- 158.3
---- ------
$3.7 $266.1
==== ======
Prior to the Initial Public Offering, due to RCMC included allocations
of various expenses from Parent including general and administrative expenses,
risk management premiums, income taxes and other costs. Such liabilities were
non-interest bearing and had no specified repayment terms. In July 1998, the
Company repaid in full amounts due to RCMC as of June 30, 1998 through the
issuance of approximately 5.8 million shares of Class A Common Stock. Subsequent
to the Initial Public Offering, due to RCMC consists primarily of charges under
the Services Agreement described in Note 11, Related Party Transactions. Such
amounts are non-interest bearing and are repaid periodically using cash.
Notes payable to Resources represent borrowings prior to the Initial
Public Offering under revolving credit facilities to fund the Company's
operations and to repay debt assumed in acquisitions. Borrowings under these
facilities bear interest at prime plus 50 basis points and are payable on
demand. In July 1998, the Company repaid the notes payable to Resources through
the issuance of approximately 10.7 million shares of Class A Common Stock.
Interest expense on notes payable to Resources was $0 and $4.9 million for the
three months ended September 30, 1998 and 1997, respectively, and $9.7 million
and $15.6 million for the nine months ended September 30, 1998 and 1997,
respectively.
11
12
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. SHAREHOLDERS' EQUITY
In April 1998, the Company declared a $2.0 billion dividend to Parent
that it paid in the form of notes payable ("Company Notes"). Interest expense on
the Company Notes was $1.4 million and $27.6 million during the three and nine
months ended September 30, 1998, respectively.
In June 1998, the Company received a dividend of certain assets from
Resources totaling approximately $437.3 million (the "Resources Dividend"). In
June 1998, the Company prepaid a portion of the amounts outstanding under the
Company Notes totaling $565.4 million using the Resources Dividend, cash and
certain other assets.
In July 1998, the Company amended and restated its Certificate of
Incorporation to authorize capital stock consisting of (a) 50,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), and (b)
750,000,000 shares of Common Stock of which 250,000,000 shares have been
authorized as Class A Common Stock, 125,000,000 shares have been authorized as
Class B Common Stock and 375,000,000 shares may be designated by the Company's
Board of Directors as either Class A Common Stock or Class B Common Stock. In
addition, all 100 shares of common stock previously held by Parent were
converted into 95,688,083 shares of Class B Common Stock. The Class A Common
Stock and Class B Common Stock are identical in all respects, except holders of
Class A Common Stock are entitled to one vote per share while holders of Class B
Common Stock are entitled to five votes per share on all matters submitted to a
vote of the stockholders, including the election of directors.
In July 1998, the Company repaid amounts due to Parent totaling $395.4
million through the issuance of approximately 16.5 million shares of Class A
Common Stock.
In July 1998, the Company completed the Initial Public Offering of
approximately 63.2 million shares of its Class A Common Stock resulting in net
proceeds of approximately $1.4 billion. All of the proceeds from the Initial
Public Offering were used to repay remaining amounts due under the Company
Notes.
8. INCOME TAXES
Income taxes have been provided for based upon the Company's
anticipated annual effective income tax rate.
9. STOCK OPTIONS
In July 1998, the Company adopted the 1998 Stock Incentive Plan ("Stock
Incentive Plan") to provide for grants of options to purchase shares of Class A
Common Stock to employees, non-employee directors and independent contractors of
the Company who are eligible to participate in the Stock Incentive Plan. The
Company has reserved 20.0 million shares of Class A Common Stock for issuance
pursuant to options granted under the Stock Incentive Plan and Substitute
Options (as defined below). As of September 30, 1998, options to acquire 50,000
shares of Class A Common Stock at an exercise price of $25.69 were outstanding
under the Stock Incentive Plan.
12
13
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Following the Distribution the Company intends to issue substitute
options under the Stock Incentive Plan (collectively, "Substitute Options") in
substitution for grants under Parent's stock option plans as of the date of the
Distribution (collectively, "Parent Stock Options") held by individuals employed
by the Company as of the date of the Distribution (the "Company Employees").
Such Substitute Options will provide for the purchase of a number of shares of
Class A Common Stock determined based on a ratio of average trading prices of
Parent Common Stock and Class A Common Stock immediately prior to the
Distribution. It is not possible to specify how many shares of Class A Common
Stock will be subject to Substitute Options. It is expected that some Parent
Stock Options consisting of stock options held by the Company Employees will be
exercised and that some will be forfeited, and that additional Parent Stock
Options will be granted prior to the date of the Distribution. In addition, the
remaining balance of unexercised Parent Stock Options will be converted into
Substitute Options by reference to the ratio described above, which will not be
known until the time of the Distribution.
10. EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the number of
common shares outstanding during the period after giving retroactive effect to
the recapitalization of the 100 shares of common stock held by Parent into
95,688,083 shares of Class B Common Stock. Diluted earnings per share equals
basic earnings per share for all periods presented since there was no dilutive
effect of common share equivalents outstanding during the periods presented.
11. RELATED PARTY TRANSACTIONS
Prior to the Initial Public Offering, Parent's corporate general and
administrative costs not specifically attributable to its operating subsidiaries
were allocated to the Company based upon the ratio of the Company's invested
capital to Parent's consolidated invested capital. Such allocations are included
in the Company's selling, general and administrative costs and were
approximately $0 and $2.6 million for the three months ended September 30, 1998
and 1997, respectively, and $7.6 million and $7.2 million for the nine months
ended September 30, 1998 and 1997, respectively. These amounts approximate
management's estimate of Parent's corporate general and administrative costs
required to support the Company's operations. Management believes that the
amounts allocated to the Company are reasonable and are no less favorable to the
Company than the expenses the Company would have incurred to obtain such
services on its own or from unaffiliated third parties.
In June 1998, the Company and Parent entered into a services agreement
(the "Services Agreement") pursuant to which Parent provides to the Company
certain accounting, auditing, cash management, corporate communications,
corporate development, financial and treasury, human resources and benefit plan
administration, insurance and risk management, legal, purchasing and tax
services. In exchange for the provision of such services, fees are payable by
the Company to Parent in the amount of $1.25 million per month, subject to
review and adjustment from time to time as the Company reduces the amount of
services it obtains from Parent. The Company believes that the fees for services
provided under the Services Agreement are no less favorable to the Company than
could be obtained by the Company internally or from unaffiliated third parties.
Charges under the Services Agreement during the three and nine months ended
September 30, 1998 were approximately $3.7 million and are included in selling,
general and administrative expenses.
13
14
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Prior to the Initial Public Offering, the Company participated in
Parent's combined risk management programs for property, casualty and general
liability insurance. The Company was charged for annual premiums of $0 and $4.2
million for the three months ended September 30, 1998 and 1997, respectively,
and $9.7 million and $11.8 million during the nine months ended September 30,
1998 and 1997, respectively. The Company's liability for unpaid and incurred but
not reported claims under its risk management program was estimated to be
approximately $21.8 million at September 30, 1998 and is included in other
current liabilities in the accompanying unaudited condensed consolidated balance
sheet.
12. LEGAL MATTERS
The Company is a party to various general legal proceedings which have
arisen in the ordinary course of business. While the results of these matters
cannot be predicted with certainty, the Company believes that losses, if any,
resulting from the ultimate resolution of these matters will not have a material
adverse effect on the Company's consolidated results of operations, cash flows
or financial position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the quarterly periods in
which they are resolved.
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
under Item 1. In addition, reference should be made to the Company's audited
consolidated financial statements and notes thereto and related Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in the Company's Prospectus dated June 30, 1998. As of September 30,
1998, approximately 63.9% of the Company's stock was owned by Republic
Industries, Inc. (together with its subsidiaries, the "Parent"). All references
to historical share and per share data of the Company's common stock, par value
$.01 per share ("Common Stock" which is designated when issued as either "Class
A Common Stock" or "Class B Common Stock") have been retroactively adjusted for
the recapitalization of Parent's 100 shares of common stock previously
outstanding into 95,688,083 shares of Class B Common Stock in July 1998, as more
fully described in Note 7, Shareholders' Equity, of notes to unaudited condensed
consolidated financial statements.
In May 1998, Parent announced its intention to separate the Company
from the Parent (the "Separation"). Parent also announced its intention to
distribute its remaining shares of Common Stock in the Company as of the
distribution date to Parent's shareholders in 1999, subject to certain
conditions and consents (the "Distribution"). The Company and Parent have
entered into certain agreements providing for the Separation and governing
various interim and ongoing relationships between the companies. The
Distribution is contingent, in part, on Parent obtaining a private letter ruling
from the Internal Revenue Service to the effect that, among other things, the
Distribution will qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Internal Revenue Code of 1986, as amended, in
form and substance satisfactory to Parent.
In July 1998, the Company completed an initial public offering of
approximately 63.2 million shares of its Class A Common Stock ("Initial Public
Offering") resulting in net proceeds of approximately $1.4 billion. In addition,
in July 1998 the Company repaid in full all remaining amounts due to Parent
through the issuance of Class A shares of Common Stock and through proceeds from
the Initial Public Offering. Following the Initial Public Offering and the
repayment of amounts due to Parent, Parent owned approximately 63.9% of the
outstanding shares of Class A and Class B Common Stock which represents
approximately 88.7% of the combined voting power of all of the outstanding
shares of the Class A and Class B Common Stock.
The accompanying unaudited condensed consolidated financial statements
reflect the accounts of the Company as a subsidiary of Parent subject to
corporate general and administrative expense allocations or charges under the
Services Agreement as described in Note 11, Related Party Transactions. Such
information does not necessarily reflect the financial position or results of
operations of the Company as a separate, stand-alone entity.
BUSINESS COMBINATIONS
The Company makes decisions to acquire or invest in businesses based on
financial and strategic considerations.
In September 1998, the Company entered into a definitive agreement with
Waste Management, Inc. ("Waste Management") to acquire certain assets. The
assets to be acquired include 16 landfills, 11 transfer stations and 136
commercial collection routes across the United States as well as disposal
agreements at various Waste Management facilities. The Company will pay
approximately $500.0 million in cash plus certain additional properties in this
transaction, which will be accounted for under the purchase method of
accounting. The closing of this transaction is subject to approvals by various
state and federal agencies.
15
16
Prior to the Initial Public Offering, Parent acquired various
businesses operating in the solid waste services industry using cash and/or
shares of its common stock ("Parent Common Stock"). These businesses were
contributed by Parent to the Company subsequent to their acquisition. The
Company has applied the same accounting method used by Parent in accounting for
business combinations.
Businesses acquired through September 30, 1998 and accounted for under
the purchase method of accounting are included in the unaudited condensed
consolidated financial statements from the date of acquisition.
During 1998, Parent acquired various solid waste services businesses
which were contributed to the Company. The aggregate purchase price paid by
Parent in transactions accounted for under the purchase method of accounting was
$128.3 million consisting of $60.3 million in cash and 3.4 million shares of
Parent Common Stock valued at $68.0 million. Subsequent to the Initial Public
Offering on July 1, 1998, the Company acquired various businesses accounted for
under the purchase method of accounting for an aggregate purchase price of $72.4
million in cash.
PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
Pro forma net income was $47.1 million or $.27 per share for the three
months ended September 30, 1998 as compared to $35.6 million or $.20 per share
for the three months ended September 30, 1997. Pro forma net income was $130.0
million or $.74 per share for the nine months ended September 30, 1998 as
compared to $91.5 million or $.52 per share for the nine months ended September
30, 1997. Pro forma operating results assume the Initial Public Offering and the
repayment in full of the amounts due to Parent had occurred as of the beginning
of each period indicated.
CONSOLIDATED RESULTS OF OPERATIONS
Net income was $46.2 million for the three months ended September 30,
1998 as compared to $32.5 million for the three months ended September 30, 1997.
Net income was $106.1 million for the nine months ended September 30, 1998 as
compared to $81.6 million for the nine months ended September 30, 1997.
The following table sets forth revenue and cost of operations,
depreciation and amortization, selling, general and administrative expenses
and operating income with percentages of revenue forthe periods indicated
(in millions):
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------- -------------------------------------
1998 % 1997 % 1998 % 1997 %
---- - ---- - ---- - ---- -
Revenue.......................... $355.0 100.0 $287.6 100.0 $991.7 100.0 $834.5 100.0
Expenses:
Cost of operations............. 220.1 62.0 179.8 62.5 611.7 61.7 538.8 64.6
Depreciation and
amortization................. 26.7 7.5 22.2 7.7 76.5 7.7 64.3 7.7
Selling, general
and administrative
expenses................... 32.9 9.3 29.3 10.2 98.6 9.9 87.0 10.4
------ ----- ------ ----- ------ ----- ------ -----
Operating Income $ 75.3 21.2 $ 56.3 19.6 $204.9 20.7 $144.4 17.3
====== ===== ====== ===== ====== ===== ====== =====
16
17
Revenue was $355.0 million and $287.6 million for the three months
ended September 30, 1998 and 1997, respectively, an increase of 23.4%. Internal
growth accounted for 14.9% of the increase, of which price and primarily volume
contributed 10.1% and "tuck-in" acquisitions contributed 4.8%. Acquisitions
accounted for the remaining 8.5% of the increase. Revenue was $991.7 million and
$834.5 million for the nine months ended September 30, 1998 and 1997,
respectively, an increase of 18.8%. Internal growth accounted for 11.5% of the
increase, of which price and primarily volume contributed 6.7% and "tuck-in"
acquisitions contributed 4.8%. Acquisitions accounted for the remaining 7.3% of
the increase.
All of the Company's revenue sources showed increases in aggregate
dollar amounts for the three and nine months ended September 30, 1998 versus the
comparable 1997 periods. The following table reflects total revenue of the
Company by revenue source excluding intercompany disposal revenue (in millions):
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
Collection................... $275.8 77.7% $232.8 80.9% $778.1 78.5% $661.0 79.2%
Transfer and disposal........ 35.2 9.9% 30.2 10.5% 97.5 9.8% 91.5 11.0%
Other ....................... 44.0 12.4% 24.6 8.6% 116.1 11.7% 82.0 9.8%
------ ------ ------ ------ ------ ------ ------ ------
Total Revenue......... $355.0 100.0% $287.6 100.0% $991.7 100.0% $834.5 100.0%
====== ====== ====== ====== ====== ====== ====== ======
Cost of operations was $220.1 million and $611.7 million for the three
and nine months ended September 30, 1998, respectively, versus $179.8 million
and $538.8 million for the comparable 1997 periods. The increases in aggregate
dollars are primarily due to acquisitions. Cost of operations as a percentage of
revenue was 62.0% and 61.7% for the three and nine months ended September 30,
1998, respectively, versus 62.5% and 64.6% for the comparable 1997 periods. The
decreases in such costs as percentages of revenue are primarily a result of
improved operating efficiencies.
Depreciation and amortization was $26.7 million and $76.5 million for
the three and nine months ended September 30, 1998, respectively, versus $22.2
million and $64.3 million for the comparable 1997 periods. The increases in
aggregate dollars are primarily due to acquisitions. Depreciation and
amortization as a percentage of revenue was 7.5% and 7.7% for the three and nine
months ended September 30, 1998, respectively, versus 7.7% for the comparable
1997 periods. The decrease in such costs as a percentage of revenue for the
three months ended September 30, 1998 compared to 1997 is primarily the result
of an expanding revenue base.
Selling, general and administrative expenses were $32.9 million and
$98.6 million for the three and nine months ended September 30, 1998,
respectively, versus $29.3 million and $87.0 million for the comparable 1997
periods. The increases in aggregate dollars are primarily due to acquisitions.
Selling, general and administrative expenses as a percentage of revenue were
9.3% and 9.9% for the three and nine months ended September 30, 1998,
respectively, versus 10.2% and 10.4% for the comparable 1997 periods. The
decreases in such expenses as percentages of revenue are primarily due to
leveraging the existing overhead structure on an expanding revenue base.
17
18
PARENT OVERHEAD CHARGES
Prior to the Initial Public Offering, Parent overhead charges included
allocations of general and administrative costs not specifically attributable to
its operating subsidiaries. Such allocations were based upon the ratio of the
Company's invested capital to Parent's consolidated invested capital. These
allocations approximate management's estimate of Parent's corporate overhead
required to support the Company's operations. Management believes that the
amounts allocated to the Company are reasonable and are no less favorable to the
Company than the expenses the Company would have incurred to obtain such
services on its own or from unaffiliated third parties.
In June 1998, the Company and Parent entered into a services agreement
(the "Services Agreement") pursuant to which Parent provides certain services to
the Company for a fee of $1.25 million per month. See Note 11, Related Party
Transactions, of notes to unaudited condensed consolidated financial statements
for discussion of the Services Agreement.
Parent overhead charges and fees under the Services Agreement are
included in the Company's selling, general and administrative expenses and were
approximately $3.7 million and $11.3 million for the three and nine months ended
September 30, 1998, respectively, versus $2.6 million and $7.2 million for the
comparable 1997 periods.
INTEREST EXPENSE
Interest expense was incurred primarily on amounts due to Parent.
Interest expense was $3.2 million and $40.4 million for three and nine months
ended September 30, 1998, respectively, as compared to $6.2 million and $20.6
for the comparable 1997 periods. The increase in interest expense for the nine
months ended September 30, 1998 versus the comparable period in 1997 is
attributable to interest on the amounts due to Parent. All amounts due to Parent
were repaid in full in July 1998 through the issuance of shares of Class A
Common Stock and proceeds from the Initial Public Offering.
Pro forma interest expense was $1.8 million and $3.1 million for the
three and nine months ended September 30, 1998, respectively, versus $1.3
million and $5.0 million for the comparable 1997 periods.
INCOME TAXES
The provision for income taxes was $26.0 million and $59.7 million for
the three and nine months ended September 30, 1998, respectively, as compared to
$18.5 million and $46.3 million for the comparable 1997 periods. Income taxes
have been provided based upon the Company's anticipated annual effective tax
rate.
Effective with the Initial Public Offering on July 1, 1998, the Company
is no longer included in the Parent's consolidated federal income tax return.
18
19
ENVIRONMENTAL AND LANDFILL MATTERS
The Company provides for accrued environmental and landfill costs which
include landfill site closure and post-closure costs. Landfill site closure and
post-closure costs include estimated costs to be incurred for final closure of
the landfills and estimated costs for providing required post-closure monitoring
and maintenance of landfills. These costs are accrued based on consumed
airspace. The Company estimates its future cost requirements for closure and
post-closure monitoring and maintenance for its solid waste facilities based on
its interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations. These estimates do not take into account
discounts for the present value of such total estimated costs. Engineering
reviews of the future cost requirements for closure and post-closure monitoring
and maintenance for the Company's operating landfills are performed on an annual
basis. Such reviews provide the basis upon which the Company estimates future
costs and revises the related accruals. Changes in these estimates primarily
relate to modifications in available airspace, inflation and changes in
regulations, all of which are taken into consideration annually.
The current and long-term portion of accrued closure and post-closure
costs associated with landfills are included in other current liabilities and
accrued environmental and landfill costs, respectively, in the Company's
unaudited condensed consolidated balance sheets. The increase in such accruals
resulted from the normal accrual of closure and post-closure costs based on
airspace consumed plus additional costs associated with new landfills acquired
and internally developed during the period.
Costs related to environmental remediation activities are accrued by
the Company through a charge to income in the period such liabilities become
probable and can be reasonably estimated.
FINANCIAL CONDITION
At September 30, 1998, the Company had $21.4 million of unrestricted
cash.
As previously discussed, on July 1, 1998, the Company completed the
Initial Public Offering resulting in net proceeds of approximately $1.4 billion.
In July 1998, the Company repaid in full all remaining amounts due to Parent
through the issuance of shares of Class A Common Stock and through all of the
proceeds from the Initial Public Offering.
Prior to the Initial Public Offering, the Company's needs for working
capital and capital for general corporate purposes, including acquisitions, was
satisfied pursuant to Parent's corporate-wide cash management policies.
Following the Initial Public Offering, the Company is financed autonomously and
Parent is no longer providing funds to finance the Company's operations or
acquisitions. The Company's operating cash flow is used by the Company to
finance its working capital, acquisitions and other requirements. Additionally,
in July 1998, the Company entered into a $1.0 billion unsecured revolving credit
facility with a group of banks. $500.0 million of the facility has a term of 364
days and the remaining $500.0 million has a term of 5 years. Borrowings
under the facility bear interest at LIBOR based rates. At September 30, 1998,
the Company had approximately $949.0 million of availability under this
facility. Proceeds from the facility are used to satisfy working capital
requirements, capital expenditures and acquisitions.
The Company believes that it has sufficient financial resources
available to meet its anticipated capital requirements and obligations as they
come due.
19
20
CASH FLOWS
Cash and cash equivalents increased by $21.4 million and decreased by
$2.5 million during the nine months ended September 30, 1998 and 1997,
respectively. The major components of these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $230.0 million and $188.9
million during the nine months ended September 30, 1998 and 1997, respectively.
The increase is due to expansion of the Company's business.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities consist primarily of cash used for
capital additions and business acquisitions. Capital additions were $110.1
million and $107.7 million during the nine months ended September 30, 1998 and
1997, respectively. Cash used in business acquisitions was $68.6 million during
the nine months ended September 30, 1998.
The Company believes capital expenditures will increase due to
expansion of the Company's business. In addition, the Company expects to use
primarily cash for business acquisitions. The Company intends to finance capital
expenditures and acquisitions through cash on hand, cash flow from operations,
the Company's $1.0 billion revolving credit facility and other financings.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the nine months ended
September 30, 1998 and 1997 included commercial bank and affiliate borrowings,
repayments of debt and, in 1998, proceeds from the sale of Class A Common Stock
in the Initial Public Offering. Proceeds from bank and affiliate borrowings were
used to fund capital additions, repay debt and expand the Company's business
during the periods. All of the proceeds from the Initial Public Offering were
used to repay amounts due to Parent.
SEASONALITY
The Company's operations can be adversely affected by periods of
inclement weather which could delay the collection and disposal of waste, reduce
the volume of waste generated or delay the construction or expansion of the
Company's landfill sites and other facilities.
YEAR 2000
The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000 ("Y2K"). The
Company is currently addressing the impact of Y2K on its computer programs,
embedded chips and third party suppliers. The Company has developed a dedicated
Year 2000 Project Office to coordinate the compliance efforts and ensure that
the project status is monitored and reported throughout the organization.
20
21
Six critical systems or processes have been the focus of the Company's
Y2K compliance efforts. These are hauling and disposal fleet operations,
electrical systems, telecommunications, payroll processing, billing systems and
payments to critical third parties. The Company expects to be complete with the
inventory and assessment of this information by December 1998. As information is
received related to these areas, the Company analyzes the compliance of products
and develops a strategy for repair or replacement of non-compliant systems as
well as testing and validation of such items. The Company expects to be
substantially complete with the analysis of this information by early 1999. The
remediation phase is expected to be complete by mid 1999.
To date, the Company estimates that it has spent approximately $1.0
million on Y2K efforts across all areas and expects to spend a total of
approximately $4.0 million when complete. The Company expects to fund Y2K costs
through operating cash flows. All system modification costs associated with Y2K
will be expensed as incurred. Y2K expenditures vary significantly in project
phases and vary depending on remedial methods used, and past expenditures in
relation to total estimated costs should not be considered or relied on as a
basis for estimating progress to completion for any element of the Y2K project.
The Company presently believes, that upon remediation of its business
software applications, as well as other equipment with embedded technology, the
Y2K issue will not present a materially adverse risk to the Company's future
consolidated results of operations, liquidity, and capital resources. However,
if such remediation is not completed in a timely manner or the level of timely
compliance by key suppliers or vendors is not sufficient, the Y2K issue could
have a material impact on the Company's operations including, but not limited
to, delays in delivery of services resulting in loss of revenue, increased
operating costs, loss of customers or suppliers, or other significant
disruptions to the Company's business. The Company has initiated comprehensive
contingency and business continuation plans to be in place in early 1999 in
order to ensure enough time for implementation of such plan, if necessary and
thus possibly avoid such risks.
Determining the Y2K readiness of third party products and business
dependencies requires pursuit, collection and appraisal of voluntary statements
made or provided by those parties, if available, together with independent
factual research. Although the Company has taken, and will continue to take,
reasonable efforts to gather information to determine and verify the readiness
of products and dependencies, there can be no assurance that reliable
information will be offered or otherwise available. In addition, verification
methods (including testing methods) may not be reliable or fully implemented.
Accordingly, notwithstanding the foregoing efforts, there are no assurances that
the Company is correct in its determination or belief that a product
(information technology and other computerized equipment) or a business
dependency (including a supplier, distributor or ancillary industry group) is
Y2K ready.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 beginning January 1, 1999. Adoption of this statement will
not have a material impact on the Company's consolidated financial position or
results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company's accounting policies conform with the
requirements of SOP 98-5, therefore adoption of this statement will not impact
the Company's consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS 133 cannot be applied retroactively. The Company will adopt SFAS 133
beginning January 1, 2000. Adoption of this statement is not expected to have a
material impact on the Company's consolidated financial position or results of
operations.
21
22
FORWARD-LOOKING STATEMENTS
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 which 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 by such forward-looking statements. Such factors include, among other
things, competition in the solid waste industry; dependence on acquisitions for
growth; compliance with environmental regulations; dependence on Parent for
certain services; 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 Company's
dependence on key personnel; general economic conditions; dependence on large,
long-term collection contracts; the risks and costs associated with the date
change in the year 2000; and other factors contained in the Company's filings
with the Securities and Exchange Commission.
22
23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market sensitive financial instruments consist primarily
of variable rate debt that is not material to the Company's consolidated
financial position. Therefore, management believes the Company does not have
material exposure to market risk.
23
24
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SALES OF UNREGISTERED SECURITIES. On July 1, 1998, the Company issued 16,474,416
shares of Class A Common Stock to subsidiaries of Parent in satisfaction of an
aggregate of approximately $395.4 million of intercompany payables and amounts
due to such subsidiaries, which amounts were included in amounts due to Parent
in the Company's unaudited condensed consolidated financial statements. The
issuance of the Class A Common Stock was made pursuant to the exemption from the
registration requirements provided by Section 4(2) of the Securities Act of
1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule for the Nine Months Ended September 30, 1998
(for SEC use only)
27.2 Financial Data Schedule for the Nine Months Ended September 30, 1997
(for SEC use only)
(b) Reports on Form 8-K:
Form 8-K, dated September 28, 1998 (filed October 1, 1998), Item 5,
reporting that the Company had entered into a definitive agreement with
Waste Management, Inc. ("Waste Management") to acquire certain assets.
24
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant, Republic Services, Inc., has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
REPUBLIC SERVICES, INC.
By: /s/ Tod C. Holmes
-----------------------------
Tod C. Holmes
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
Date: November 13, 1998
25
5
1,000
9-MOS
DEC-31-1998
JAN-01-1998
SEP-30-1998
34,100
0
180,600
18,100
12,600
224,000
1,344,200
456,400
1,713,700
243,800
102,200
0
0
1,800
1,249,700
1,713,700
0
991,700
0
688,200
0
0
40,400
165,800
59,700
106,100
0
0
0
106,100
.87
.87
5
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
18,800
0
144,600
13,600
11,700
175,900
1,215,600
413,800
1,348,000
436,100
64,300
0
0
1,000
749,800
1,348,000
0
834,500
0
603,100
0
0
20,600
127,900
46,300
81,600
0
0
0
81,600
.85
.85
