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, 1999
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, 28TH FLOOR
FT. LAUDERDALE, FLORIDA 33301
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (954) 769-2400
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On November 5, 1999 the registrant had outstanding 175,447,962 shares of
Common Stock, par value $.01 per share.
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REPUBLIC SERVICES, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998.................................. 3
Unaudited Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 1999 and 1998 ... 4
Unaudited Condensed Consolidated Statement of Stockholders'
Equity for the Nine Months Ended September 30, 1999 ............... 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 ............. 6
Notes to Unaudited Condensed Consolidated Financial
Statements ........................................................ 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 16
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk .............................................................. 21
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................... 21
ITEM 6. Exhibits and Reports on Form 8-K .................................... 21
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 9.8 $ 556.6
Restricted cash ........................................ 10.3 7.1
Accounts receivable, less allowance for doubtful
accounts of $13.6 and $22.1, respectively .......... 249.8 182.7
Prepaid expenses and other current assets .............. 52.2 37.6
-------- --------
Total Current Assets ........................... 322.1 784.0
PROPERTY AND EQUIPMENT, NET .............................. 1,564.7 1,096.1
INTANGIBLE AND OTHER ASSETS, NET ......................... 1,380.8 932.0
-------- --------
$3,267.6 $2,812.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 65.0 $ 64.7
Accrued liabilities .................................... 107.9 119.5
Amounts due to former owners ........................... 54.8 26.7
Deferred revenue ....................................... 61.1 46.6
Notes payable and current maturities of long-term debt.. 76.8 499.9
Other current liabilities .............................. 56.1 26.4
-------- --------
Total Current Liabilities ...................... 421.7 783.8
LONG-TERM DEBT, NET OF CURRENT MATURITIES ................ 1,153.9 557.2
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS ................. 147.1 77.3
DEFERRED INCOME TAXES .................................... 71.3 71.4
OTHER LIABILITIES ........................................ 22.1 23.3
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 50,000,000
shares authorized; none issued ...................... -- --
Common stock, par value $.01 per share; 750,000,000
shares authorized; 175,447,962 and 175,412,500 issued
and outstanding, respectively ....................... 1.8 1.8
Additional paid-in capital ............................. 1,205.5 1,203.5
Retained earnings ...................................... 244.2 93.8
-------- --------
Total Stockholders' Equity ..................... 1,451.5 1,299.1
-------- --------
$3,267.6 $2,812.1
======== ========
The accompanying notes are an integral part of these statements.
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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,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUE ....................................... $ 490.6 $ 355.0 $ 1,349.7 $ 991.7
EXPENSES:
Cost of operations .......................... 295.9 220.1 810.7 611.7
Depreciation, amortization and depletion .... 44.8 26.7 117.8 76.5
Selling, general and administrative ......... 46.4 32.9 135.7 98.6
--------- --------- --------- ---------
OPERATING INCOME .............................. 103.5 75.3 285.5 204.9
INTEREST EXPENSE .............................. (18.8) (3.2) (44.5) (40.4)
INTEREST INCOME ............................... .3 .3 3.3 1.0
OTHER INCOME (EXPENSE), NET ................... .3 (.2) .2 .3
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .................... 85.3 72.2 244.5 165.8
PROVISION FOR INCOME TAXES .................... 32.8 26.0 94.1 59.7
--------- --------- --------- ---------
NET INCOME .................................... $ 52.5 $ 46.2 $ 150.4 $ 106.1
========= ========= ========= =========
BASIC AND DILUTED EARNINGS PER
SHARE ....................................... $ .30 $ .26 $ .86 $ .87
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ............... 175.5 175.4 175.8 122.3
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
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REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
-------- ----------- --------
BALANCE AT DECEMBER 31, 1998 ................ $ 1.8 $1,203.5 $ 93.8
Net income ................................ -- -- 150.4
Issuance of compensatory stock options .... -- 2.0 --
-------- -------- --------
BALANCE AT SEPTEMBER 30, 1999 ............... $ 1.8 $1,205.5 $ 244.2
======== ======== ========
The accompanying notes are an integral part of this statement.
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REPUBLIC SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income ............................................................ $ 150.4 $ 106.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and depletion of property
and equipment .................................................... 93.9 64.3
Amortization of intangible assets .................................. 23.9 12.2
Deferred tax provision ............................................. 24.1 20.1
Non-cash charge .................................................... 2.0 --
Changes in assets and liabilities, net of effects from business
acquisitions:
Accounts receivable ........................................... (55.3) (24.6)
Prepaid expenses and other assets ............................. (14.7) (.6)
Accounts payable and accrued liabilities ...................... (19.7) 22.3
Amounts due to former owners .................................. (14.8) --
Other liabilities ............................................. 35.4 30.2
-------- --------
225.2 230.0
-------- --------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment ................................... (215.4) (110.1)
Cash used in business acquisitions, net of cash acquired .............. (723.9) (68.6)
Other ................................................................. (4.5) 9.9
-------- --------
(943.8) (168.8)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt ........................ 114.6 --
Payments of notes payable and long-term debt .......................... (96.3) (45.9)
Net proceeds(payments)on revolving credit facility .................... (445.0) 42.0
Proceeds from issuance of unsecured notes, net of discount ............ 598.5 --
Proceeds from sale of common stock .................................... -- 1,433.6
Decrease in notes payable to AutoNation ............................... -- (1,469.5)
-------- --------
171.8 (39.8)
-------- --------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS ......................... (546.8) 21.4
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 556.6 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 9.8 $ 21.4
======== ========
The accompanying notes are an integral part of these statements.
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REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tables in millions, except per share data)
1. BASIS OF PRESENTATION
Republic Services, Inc. and its subsidiaries (the "Company") is a leading
provider of non-hazardous solid waste collection and disposal services in the
United States.
The accompanying Unaudited Condensed Consolidated Financial Statements
include the accounts of the Company and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts and transactions have been eliminated.
Certain information related to the Company's organization, significant
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. In the opinion of management, these Unaudited
Condensed Consolidated Financial Statements reflect all material adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and the results of operations for the periods presented, and
the disclosures herein are adequate to make the information presented not
misleading. Operating results for interim periods are not necessarily indicative
of the results that can be expected for a full year. These interim financial
statements should be read in conjunction with the Company's audited Consolidated
Financial Statements and notes thereto appearing in the Company's Form 10-K as
of and for the year ended December 31, 1998.
The historical Unaudited Condensed Consolidated Financial Statements through
the date of the secondary offering in May 1999 reflect the accounts of the
Company as a subsidiary of AutoNation, Inc., formerly known as Republic
Industries, Inc. (together with its subsidiaries, "AutoNation"), 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 was formerly designated as either
"Class A Common Stock" or "Class B Common Stock"), for the nine months ended
September 30, 1998 in the Unaudited Condensed Consolidated Financial Statements
and the notes thereto have been retroactively adjusted for the recapitalization
of AutoNation's 100 shares of Common Stock previously outstanding into 95.7
million shares of Class B Common Stock in July 1998.
In July 1998, the Company completed an initial public offering 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 amounts due to AutoNation as of June 30, 1998 through the issuance of 16.5
million shares of Class A Common Stock and through the payment of all proceeds
from the Initial Public Offering. Following the Initial Public Offering and the
repayment of amounts due to AutoNation, approximately 63.9% of the outstanding
shares of Common Stock were owned by AutoNation.
In March 1999, AutoNation converted all 95.7 million shares of its Class B
Common Stock into Class A Common Stock on a one-for-one basis. In April 1999,
AutoNation transferred all of its Class A Common Stock to its indirect,
wholly-owned subsidiary, AutoNation Insurance Company, and the Company
registered all 112.2 million shares of its Common Stock owned by AutoNation. In
May 1999, the Company completed a secondary offering, in which AutoNation sold
substantially all of the Class A Common Stock it owned in the Company. In June
1999, the Company amended its certificate of incorporation to eliminate the
classifications of common stock.
Other charges were $2.4 million and $6.4 million for the three and nine
months ended September 30, 1999, which are included in selling, general and
administrative expenses in the Unaudited Condensed Consolidated Financial
Statements. These costs relate to the Company's separation from AutoNation and
consist of approximately $2.0 million of compensation expenses related to the
granting of certain replacement employee stock options at exercise prices below
the quoted market price of the Company's Common Stock at the date of grant (see
Note 8, Stock Options) and approximately $4.4 million of additional charges
directly related to the separation. The Company expects to incur approximately
$.8 million in additional separation costs during the fourth quarter of 1999.
The Company does not anticipate incurring additional separation costs subsequent
to the fourth quarter of 1999.
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REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following unaudited pro forma consolidated statements of operations for
the three and nine months ended September 30, 1999 exclude the $2.4 million and
$6.4 million pre-tax charge resulting from the Company's separation from
AutoNation, respectively:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1999
-------------- -------------
Revenue ........................................ $ 490.6 $ 1,349.7
Expenses:
Cost of operations .......................... 295.9 810.7
Depreciation, amortization and depletion .... 44.8 117.8
Selling, general and administrative ......... 44.0 129.3
--------- ---------
Operating income ............................... 105.9 291.9
Interest expense ............................... (18.8) (44.5)
Interest income ................................ .3 3.3
Other income (expense), net .3 .2
--------- ---------
Income before income taxes ..................... 87.7 250.9
Provision for income taxes 33.8 96.6
--------- ---------
Net income ..................................... $ 53.9 $ 154.3
========= =========
Basic and diluted earnings per share ........... $ .31 $ .88
========= =========
Weighted average common and common
equivalent shares outstanding ............... 175.5 175.8
========= =========
The unaudited pro forma consolidated statement of operations is provided for
informational purposes only and does not project the Company's results of
operations for any future date or period.
The Company has no components of other comprehensive income. Accordingly,
net income equals comprehensive income for all periods presented.
2. BUSINESS COMBINATIONS
Prior to the Initial Public Offering, AutoNation acquired various businesses
operating in the solid waste services industry using cash and/or shares of its
common stock. The aggregate purchase price paid by AutoNation in transactions
accounted for under the purchase method of accounting during the six months
ended June 30, 1998 was $128.3 million consisting of cash and 3.4 million shares
of AutoNation common stock. These businesses were contributed by AutoNation to
the Company subsequent to their acquisition.
The Company uses the purchase method of accounting to account for business
acquisitions. Businesses acquired are included in the Unaudited Condensed
Consolidated Financial Statements from the date of acquisition.
Subsequent to the initial public offering on July 1, 1998, the Company
acquired various businesses for an aggregate purchase price of $72.4 million in
cash.
In September 1998, the Company entered into an agreement with Waste
Management, Inc. ("Waste Management") to acquire certain assets consisting of 16
landfills, 11 transfer stations and 136 commercial collection routes across the
United States, as well as disposal agreements at various Waste Management
facilities. By June 1999, the Company had completed the purchases of the assets
for approximately $479.6 million in cash plus properties, $292.7 million of
which were acquired during the six months ended June 30, 1999.
In addition to the acquisitions from Waste Management, the Company also
acquired various other solid waste businesses during the nine months ended
September 30, 1999. The aggregate purchase price paid by the Company in these
transactions was $433.7 million in cash.
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REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In July 1999, the Company entered into a definitive agreement with Allied
Waste Industries, Inc. ("Allied") to acquire certain solid waste assets for
approximately $230.0 million in cash. In October 1999, after failing to receive
regulatory approval relating to the acquisition of certain of the assets, the
agreement was amended for the Company to acquire certain solid waste assets for
a purchase price of $92.0 million in cash. The assets to be acquired include one
landfill operation, six transfer stations and a subset of small container
hauling assets from four collection operations. In addition, the Company and
Allied entered into a definitive agreement for the simultaneous purchase and
sale of certain other solid waste assets. These transactions will be accounted
for under the purchase method of accounting. The closing of the transactions,
which were pending as of September 30, 1999, are subject to approval by various
state and federal agencies as well as satisfaction of customary closing
conditions.
The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting
consummated during the periods presented:
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1999 1998
------ ------
Property and equipment ............................. $376.3 $ 34.6
Cost in excess of net assets acquired .............. 432.6 239.8
Other assets ....................................... 2.9 .3
Working capital deficit ............................ (64.6) (53.8)
Debt assumed ....................................... (1.8) (40.3)
Other liabilities .................................. (21.5) 16.3
Investment by AutoNation ........................... -- (128.3)
------ ------
Cash used in acquisitions, net of cash acquired .... $723.9 $ 68.6
====== ======
The Company's unaudited pro forma consolidated results of operations
assuming all significant acquisitions during the nine months ended September 30,
1999 accounted for under the purchase method of accounting had occurred as of
the beginning of each nine month period presented are as follows:
1999 1998
--------- ---------
Revenue .......................................... $ 1,415.7 $ 1,114.9
Net income ....................................... $ 145.7 $ 90.5
Basic and diluted earnings per share ............. $ .83 $ .74
Weighted average common and common equivalent
shares outstanding ............................. 175.8 122.3
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. LANDFILL AND ACCRUED ENVIRONMENTAL COSTS
The Company uses life cycle accounting and the Units-of-Consumption
method to recognize certain landfill costs. In life cycle accounting, all costs
to acquire, construct, close and maintain a site during the post-closure period
are capitalized or accrued and charged to expense based upon the consumption of
cubic yards of available airspace ("Units-of-Consumption"). Costs and airspace
estimates are developed annually by independent engineers together with the
Company's engineers. These estimates are used by the Company's operating and
accounting personnel to annually adjust the Company's rates used to expense
capitalized costs and accrue closure and post-closure costs. Changes in these
estimates primarily relate to modifications of available airspace, inflation and
changes in regulations. Modifications of available airspace include the addition
of airspace which lies in an expansion area that is determined as likely to be
permitted.
TOTAL AVAILABLE DISPOSAL CAPACITY
As of September 30, 1999, the Company owned or operated 56 solid waste
landfills with total available disposal capacity of approximately 1.9 billion
in-place cubic yards. Total available disposal capacity represents the sum of
estimated permitted airspace plus an estimate of airspace which is likely to be
permitted.
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REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
LIKELY TO BE PERMITTED EXPANSION AIRSPACE
Before airspace included in an expansion area is determined as likely to be
permitted and, therefore, included in the Company's calculation of total
available disposal capacity, the following criteria must be met:
1. The land associated with the expansion airspace is either owned by the
Company or is controlled by the Company pursuant to an option agreement;
2. The Company is committed to supporting the expansion project financially
and with appropriate resources;
3. There are no identified fatal flaws or impediments associated with the
project, including political impediments;
4. Progress is being made on the project;
5. The expansion is attainable within a reasonable time frame; and
6. The Company believes it is likely the expansion permit will be received.
Upon meeting the Company's expansion criteria, the rates used at each
applicable landfill to expense costs to acquire, construct, close and maintain a
site during the post-closure period are adjusted to include likely to be
permitted airspace and all additional costs to be capitalized or accrued
associated with the expansion airspace.
The Company has identified three sequential steps that a landfill, which
includes likely to be permitted expansion airspace in its total available
disposal capacity, generally follows to obtain an expansion permit. These steps
are as follows:
1. Obtaining approval from local authorities;
2. Submitting a permit application with state authorities; and
3. Obtaining permit approval from state authorities.
Once a landfill meets the Company's expansion criteria, management
continuously monitors each site's progress in obtaining the expansion permit. If
at any point it is determined that an expansion area no longer meets the
required criteria, the likely to be permitted airspace is removed from the
landfill's total available capacity and the rates used at the landfill to
expense costs to acquire, construct, close and maintain a site during the
post-closure period are adjusted accordingly. The Company has never been denied
an expansion permit for a landfill that included likely to be permitted airspace
in its total available disposal capacity, although no assurances can be made
that all future expansions will be permitted as designed.
CAPITALIZED LANDFILL COSTS
Capitalized landfill costs include expenditures for land, permitting costs,
cell construction costs and environmental structures. Capitalized permitting and
cell construction costs are limited to direct costs relating to these
activities, including legal, engineering, and construction associated with
excavation, liners and site berms. Interest is capitalized on landfill
construction projects while the assets are undergoing activities to ready them
for their intended use.
Costs related to acquiring land, excluding the estimated residual value of
unpermitted land, and costs related to permitting and cell construction are
depleted as airspace is consumed using the Units-of-Consumption method.
Environmental structures, which include leachate collection systems, methane
collection systems and groundwater monitoring wells, are charged to expense over
the shorter of their useful life or the life of the landfill.
Capitalized landfill costs may also include an allocation of purchase price
paid for landfills. For landfills purchased as part of a group of several
assets, the purchase price assigned to the landfill is determined based upon the
discounted future expected cash flows of the landfill relative to the other
assets within the group. If the landfill meets the Company's expansion criteria,
the purchase price is further allocated between permitted airspace and expansion
airspace based upon the ratio of permitted versus likely to be permitted
airspace to total available airspace. Landfill purchase price is amortized using
the Units-of-Consumption method over the total available airspace including
likely to be permitted airspace where appropriate.
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REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 and charged to cost of operations based upon consumed airspace in
relation to total available disposal capacity using the Units-of-Consumption
method of amortization. The Company estimates future cost requirements for
closure and post-closure monitoring and maintenance for its solid waste
facilities based on the technical standards of the Environmental Protection
Agency's Subtitle D regulations and applicable state and local regulations.
These estimates do not take into account discounts for the present value of
total estimated costs.
A number of the Company's landfills were previously operated by other
entities. Accordingly, the Company assessed and recorded a closure and
post-closure liability as of the date the landfill was acquired based upon the
estimated total closure and post-closure costs and the percentage of total
available disposal capacity utilized as of such date. Thereafter, the difference
between the closure and post-closure costs accrued and the total estimated
closure and post-closure costs to be incurred are accrued and charged to expense
as airspace is consumed. Accrued closure and post-closure costs as of September
30, 1999, were $153.6 million. The current portion of these costs of $9.8
million and the long-term portion of these costs of $143.8 million reflected in
the Company's Unaudited Condensed Consolidated Balance Sheet are included in
other current liabilities and accrued environmental costs, respectively.
Estimated aggregate closure and post-closure costs will be fully accrued for the
Company's landfills at the time such facilities cease to accept waste and are
closed. As of September 30, 1999, assuming that all available landfill capacity
is used, the Company expects to expense approximately $613.0 million of such
costs over the remaining lives of these facilities.
ENVIRONMENTAL COSTS
In the normal course of business, the Company is subject to ongoing
environmental investigations by certain regulatory agencies, as well as other
claims and disputes that could result in litigation. Environmental costs are
accrued by the Company through a charge to income in the period such liabilities
become probable and can be reasonably estimated. No material amounts were
charged to expense during the nine months ended September 30, 1999 and 1998.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
Land, landfills and improvements ....... $ 989.2 $ 611.7
Vehicles and equipment ................. 952.5 806.8
Buildings and improvements ............. 168.6 150.6
-------- --------
2,110.3 1,569.1
Less: Accumulated depreciation,
amortization and depletion ........... (545.6) (473.0)
-------- --------
$1,564.7 $1,096.1
======== ========
Management periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of property and
equipment or whether the remaining balance of property and equipment should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the property and equipment in
measuring their recoverability.
5. 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, 1999 and
December 31, 1998 was $92.5 million and $73.0 million, respectively.
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REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
$225.0 million unsecured notes, net of unamortized discount of $1.0
million; interest payable semi-annually in May and November at
6 5/8%; principal due at maturity in 2004 ............................ $ 224.0 $ --
$375.0 million unsecured notes, net of unamortized discount of $.5
million; interest payable semi-annually in May and November at
7 1/8%; principal due at maturity in 2009 ............................ 374.5 --
$1.0 billion unsecured revolving credit facility;
interest payable using LIBOR-based rates; $500.0 million
matures July 2000 and $500.0 million matures 2003 .................... 535.0 980.0
Bonds payable under loan agreements with the California Pollution
Control Financing Authority; interest at
prevailing market rates .............................................. 42.0 42.0
Other notes; unsecured and secured by real property, equipment
and other assets ................................................. 55.2 35.1
-------- --------
1,230.7 1,057.1
Less: current portion .................................................. (76.8) (499.9)
-------- --------
$1,153.9 $ 557.2
======== ========
The Company capitalizes interest on landfill cell construction and other
construction projects in accordance with Statement of Financial Accounting
Standards No. 34. Construction projects must meet the following criteria before
interest is capitalized:
1. Total construction costs are $250,000 or greater;
2. The construction phase is three months or longer; and
3. The assets have a useful life of three years or longer.
Interest is capitalized on qualified assets while they undergo activities to
ready them for their intended use. Capitalization of interest ceases once an
asset is placed into service or if construction activity is suspended for more
than a brief period of time. The interest capitalization rate is based upon the
Company's weighted average cost of indebtedness.
Interest expense paid was $28.1 million (net of $4.5 million of capitalized
interest) and $40.0 million (net of $0 million of capitalized interest) for the
nine months ended September 30, 1999 and 1998, respectively.
7. INCOME TAXES
Income taxes have been provided for based upon the Company's anticipated
annual effective income tax rate. Income taxes paid were $64.3 million for the
nine months ended September 30, 1999. Through June 30, 1998, the Company was
included in the consolidated federal income tax return of AutoNation.
8. 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 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 Common Stock for issuance pursuant to
options granted under the Stock Incentive Plan.
12
13
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Prior to the Initial Public Offering, employees of the Company were granted
stock options under AutoNation stock option plans. As of March 2, 1999, options
to purchase approximately 8.0 million shares of AutoNation common stock held by
the Company's employees were canceled by AutoNation, and the Company's
Compensation Committee granted replacement options on a one-for-one basis. The
replacement options to purchase shares of Common Stock retained the vesting and
exercise rights of the original options, subject to certain exercise limitations
for individuals who signed stock option repricing agreements with AutoNation.
The exercise prices for individual replacement options were established to
maintain the unrealized gain or loss on each option for AutoNation stock that
was cancelled. Compensation expense related to the granting of certain
replacement options at exercise prices below the fair market value of the Common
Stock at the date of grant was approximately $2.0 million, and has been included
in selling, general and administrative expenses in the Company's Unaudited
Condensed Consolidated Statement of Operations for the nine months ended
September 30, 1999.
A summary of stock option transactions for the nine months ended
September 30, 1999 is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ ---------------
Options outstanding at beginning of year ....... .6 $18.12
Granted to replace AutoNation options .......... 8.0 17.51
Granted, other ................................. 3.6 18.25
Exercised ...................................... -- --
Cancelled ...................................... (.1) 17.60
------ ------
Options outstanding at September 30, 1999 ...... 12.1 $17.76
====== ======
Options exercisable at September 30, 1999 ...... 4.6 $17.59
====== ======
In October 1999, the Board of Directors approved the Company's annual grant
of options for the fiscal year 2000. This grant allows participants to acquire
approximately 2.8 million shares of Common Stock at an exercise price of $11 7/8
per share, which was the quoted market price as of the grant date.
9. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is based on the combined weighted average number of common shares and
common share equivalents outstanding which include, where appropriate, the
assumed exercise of employee stock options. In computing diluted earnings per
share, the Company utilizes the treasury stock method.
Earnings per share for the nine months ended September 30, 1998 includes the
retroactive effect of the recapitalization of the 100 shares of Common Stock
held by AutoNation into 95.7 million shares of Class B Common Stock.
Earnings per share for the three and nine months ended September 30 is
calculated as follows (in thousands, except per share data):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
Numerator:
Net income ....................................................... $ 52,500 $ 46,200 $150,400 $106,100
-------- -------- -------- --------
Denominator:
Denominator for basic earnings per share ......................... 175,424 175,412 175,416 122,263
Effect of dilutive securities -- Options to purchase
common stock .................................................. 55 -- 383 --
-------- -------- -------- --------
Denominator for diluted earnings per share ....................... 175,479 175,412 175,799 122,263
-------- -------- -------- --------
Basic and diluted earnings per share ............................... $ .30 $ .26 $ .86 $ .87
======== ======== ======== ========
Antidilutive securities not included in the diluted earnings per
share calculation:
Options to purchase common stock ................................. 11,176 -- 7,946 --
Weighted average exercise price .................................. $ 17.97 -- $ 18.49 --
13
14
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
10. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
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.
In September 1999, several lawsuits were filed by certain shareholders
against the Company and certain of its officers and directors in the United
States District Court for the Southern District of Florida. The plaintiffs in
these lawsuits claim, on behalf of a purported class of purchasers of the
Company's common stock between January 28, 1999 and August 28, 1999, that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, among other things, in alledgedly making materially false and misleading
statements regarding the Company's growth and the assets acquired from Waste
Management. The Company expects that the lawsuits will be consolidated by the
Court as they allege common facts and claims, and the Company will file a motion
to dismiss the claims in the consolidated lawsuit. The Company believes the
allegations contained in the complaints to be without merit and will vigorously
defend these and any related actions. Nevertheless, unfavorable resolution of
these lawsuits could have a material adverse effect on the Company's
consolidated results of operations, cash flow or financial position in one or
more future periods.
LIABILITY INSURANCE
The Company carries general liability, vehicle liability, employment
practices liability, pollution liability, directors and officers liability,
workers compensation and employer's liability coverage, as well as umbrella
liability policies to provide excess coverage over the underlying limits
contained in these primary policies. The Company also carries property
insurance.
The Company's liabilities for unpaid and incurred but not reported claims at
September 30, 1999 was $39.8 million and are included in other current and other
liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets.
While the ultimate amount of claims incurred is dependent on future
developments, in management's opinion, recorded reserves are adequate to cover
the future payment of claims. However, it is reasonably possible that recorded
reserves may not be adequate to cover the future payment of claims. Adjustments,
if any, to estimates recorded resulting from ultimate claim payments will be
reflected in operations in the periods in which such adjustments are known.
OTHER MATTERS
In the normal course of business, the Company is required to post
performance bonds, letters of credit and/or cash deposits as a financial
guarantee of the Company's performance. To date, the Company has satisfied
financial responsibility requirements for regulatory agencies by making cash
deposits, obtaining bank letters of credit or by obtaining surety bonds. At
September 30, 1999, surety bonds and letters of credit totaling $556.1 million
were outstanding and will expire on various dates through 2007.
The Company's business activities are conducted in the context of a
developing and changing statutory and regulatory framework. Governmental
regulation of the waste management industry requires the Company to obtain and
retain numerous governmental permits to conduct various aspects of its
operations. These permits are subject to revocation, modification or denial. The
costs and other capital expenditures which may be required to obtain or retain
the applicable permits or comply with applicable regulations could be
significant.
11. RELATED PARTY TRANSACTIONS
Prior to the Initial Public Offering, AutoNation'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 AutoNation's consolidated invested capital. Such allocations are
included in the Company's selling, general and administrative expenses and were
approximately $7.5 million for the nine months ended September 30, 1998. These
amounts approximate management's estimate of AutoNation'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 were 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.
14
15
REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In June 1998, the Company and AutoNation entered into a services agreement
(the "Services Agreement") pursuant to which AutoNation agreed to provide 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. The Services Agreement expired June 30, 1999. In exchange for the
provision of such services, fees were payable by the Company to AutoNation in
the amount of $1.25 million per month, subject to review and adjustment from
time to time as the Company reduced the amount of services it obtained from
AutoNation. Effective January 1, 1999, such fees payable by the Company to
AutoNation were reduced to approximately $.9 million per month. The Company
believes that the fees for services provided under the Services Agreement were
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 nine months ended
September 30, 1999 and 1998 were approximately $5.3 million and $3.7 million,
respectively, and are included in selling, general and administrative expenses.
Prior to the Initial Public Offering, the Company participated in
AutoNation's combined risk management programs for property, casualty and
general liability insurance. The Company was charged for annual premiums of $9.7
million for the nine months ended September 30, 1998.
Interest expense on notes payable to AutoNation was $37.3 million for the
nine months ended September 30, 1998. All amounts due AutoNation were repaid in
full in July 1998 through the issuance of shares of Class A Common Stock and
proceeds from the Initial Public Offering.
15
16
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 Form 10-K as of and for the year ended December 31,
1998. All references to historical share and per share data of the Company's
Common Stock, par value $.01 per share ("Common Stock," which was formerly
designated as either "Class A Common Stock" or "Class B Common Stock"), have
been retroactively adjusted for the recapitalization of AutoNation's 100 shares
of Common Stock previously outstanding into 95.7 million shares of Class B
Common Stock in July 1998.
The accompanying historical Unaudited Condensed Consolidated Financial
Statements through the date of the secondary offering in May 1999 reflect the
accounts of the Company as a subsidiary of AutoNation, Inc., formerly known as
Republic Industries, Inc. (together with its subsidiaries, "AutoNation"),
subject to corporate general and administrative expense allocations or charges
under the Services Agreement as described in Note 11, Related Party
Transactions, of the Notes to Unaudited Condensed Consolidated Financial
Statements. The historical consolidated financial information contained in this
Form 10-Q 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.
Prior to the Initial Public Offering, AutoNation acquired various businesses
operating in the solid waste services industry using cash and/or shares of its
common stock. The aggregate purchase price paid by AutoNation in transactions
accounted for under the purchase method of accounting during the six months
ended June 30, 1998 was $128.3 million consisting of cash and 3.4 million shares
of AutoNation common stock. These businesses were contributed by AutoNation to
the Company subsequent to their acquisition.
The Company uses the purchase method of accounting to account for business
acquisitions. Businesses acquired are included in the Unaudited Condensed
Consolidated Financial Statements from the date of acquisition.
Subsequent to the initial public offering on July 1, 1998, the Company
acquired various businesses for aggregate purchase price of $72.4 million in
cash.
In September 1998, the Company entered into an agreement with Waste
Management, Inc. ("Waste Management") to acquire certain assets consisting of 16
landfills, 11 transfer stations and 136 commercial collection routes across the
United States as well as disposal agreements at various Waste Management
facilities. By June 1999, the Company had completed the purchases of the assets
for approximately $479.6 million in cash plus properties, $292.7 million of
which were acquired during the six months ended June 30, 1999.
In addition to the acquisitions from Waste Management, the Company also
acquired various other solid waste businesses during the nine months ended
September 30, 1999. The aggregate purchase price paid by the Company in these
transactions was $433.7 million in cash.
In July 1999, the Company entered into a definitive agreement with Allied
Waste Industries, Inc. ("Allied") to acquire certain solid waste assets for
approximately $230.0 million in cash. In October 1999, after failing to receive
regulatory approval relating to the acquisition of certain of the assets, the
agreement was amended for the Company to acquire certain solid waste assets for
a purchase price of $92.0 million in cash. The assets to be acquired include one
landfill operation, six transfer stations and a subset of small container
hauling assets from four collection operations. In addition, the Company and
Allied entered into a definitive agreement for the simultaneous purchase and
sale of certain other solid waste assets. These transactions will be accounted
for under the purchase method of accounting. The closing of the transactions,
which were pending as of September 30, 1999, are subject to approvals by various
state and federal agencies as well as satisfaction of customary closing
conditions.
PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
Pro forma net income was $154.3 million, or $.88 per share, for the nine
months ended September 30, 1999. Pro forma operating results exclude the $6.4
million pre-tax charge that was recorded during the nine months ended September
30, 1999 resulting from the Company's separation from AutoNation. See Note 1,
Basis of Presentation, of the Notes to Unaudited Condensed Consolidated
Financial Statements, for further discussion of pro forma operating results.
16
17
CONSOLIDATED RESULTS OF OPERATIONS
Net income was $52.5 million for the three months ended September 30, 1999,
or $.30 per share, as compared to $46.2 million, or $.26 per share, for the
three months ended September 30, 1998. Net income was $150.4 million for the
nine months ended September 30, 1999, or $.86 per share, as compared to $106.1
million, or $.87 per share, for the nine months ended September 30, 1999.
The following table sets forth revenue and cost of operations, depreciation,
amortization and depletion of property and equipment, amortization of intangible
assets, selling, general and administrative expenses, other charges and
operating income with percentages of revenue for the three and nine months ended
September 30 (in millions):
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------ ------------------------------------------
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
Revenue................................. $ 490.6 100.0% $ 355.0 100.0% $1,349.7 100.0% $ 991.7 100.0%
Expenses:
Cost of operations.................... 295.9 60.3% 220.1 62.0% 810.7 60.0% 611.7 61.7%
Depreciation, amortization and
depletion of property and equipment.. 35.6 7.2% 22.2 6.2% 93.9 7.0% 64.3 6.5%
Amortization of intangible assets..... 9.2 1.9% 4.5 1.3% 23.9 1.7% 12.2 1.2%
Selling, general and administrative
expenses............................. 44.0 9.0% 32.9 9.3% 129.3 9.6% 98.6 9.9%
Other charges......................... 2.4 .5% -- -- 6.4 .5% -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating Income...................... $ 103.5 21.1% $ 75.3 21.2% $ 285.5 21.2% $ 204.9 20.7%
======== ======== ======== ======== ======== ======== ======== ========
Revenue was $490.6 million and $355.0 million for the three months ended
September 30, 1999 and 1998, respectively, an increase of 38.2%. Internal
growth, consisting of price and primarily volume, accounted for 8.2% of the
increase, and "tuck-in" acquisitions contributed 10.5%. Other acquisitions
accounted for the remaining 19.5% of the increase.
Revenue was $1,349.7 million and $991.7 million for the nine months ended
September 30, 1999 and 1998, respectively, an increase of 36.1%. Internal
growth, consisting of price and primarily volume, accounted for 8.2% of the
increase, and "tuck-in" acquisitions contributed 10.7%. Other acquisitions
accounted for the remaining 17.2% of the increase.
The increase in revenue for the three months ended September 30, 1999 versus
the comparable 1998 period is due to an increase in collection, transfer and
disposal operations offset by a decrease in other revenue. All of the Company's
revenue sources showed increases in aggregate dollar amounts for the nine months
ended September 30, 1999 versus the comparable 1998 period. 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,
------------------------------------------ ------------------------------------------
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
Collection ........................... $ 372.9 76.0% $ 275.8 77.7% $1,030.2 76.3% $ 778.1 78.5%
Transfer and disposal ................ 75.1 15.3% 35.2 9.9% 201.7 14.9% 97.5 9.8%
Other ................................ 42.6 8.7% 44.0 12.4% 117.8 8.8% 116.1 11.7%
-------- -------- -------- -------- -------- -------- -------- --------
Total Revenue ...................... $ 490.6 100.0% $ 355.0 100.0% $1,349.7 100.0% $ 991.7 100.0%
======== ======== ======== ======== ======== ======== ======== ========
Cost of operations was $295.9 million and $810.7 million for the three and
nine months ended September 30, 1999, versus $220.1 million and $611.7 million
for the comparable 1998 periods. The increase in aggregate dollars is primarily
due to acquisitions. Cost of operations as a percentage of revenue was 60.3% and
60.0% for the three and nine months ended September 30, 1999, respectively,
versus 62.0% and 61.7% for the comparable 1998 periods. The decrease in such
costs as a percentage of revenue is primarily a result of improved operating
efficiencies and an increase in higher margin landfill operations primarily due
to acquisitions.
Expenses for depreciation, amortization and depletion of property and
equipment were $35.6 million and $93.9 million for the three and nine months
ended September 30, 1999, respectively, versus $22.2 million and $64.3 million
for the comparable 1998 periods. Expenses for depreciation, amortization and
depletion of property and equipment as a percentage of revenue were 7.2% and
7.0% for the three and nine months ended September 30, 1999, respectively,
versus 6.2% and 6.5% for the comparable 1998 periods. The increase in such
expenses in aggregate dollars and as a percentage of revenue is primarily due to
acquisitions and capital expenditures.
Expenses for amortization of intangible assets were $9.2 million and $23.9
million for the three and nine months ended September 30, 1999, respectively,
versus $4.5 million and $12.2 million for the comparable 1998 periods.
Amortization of intangible assets as a percentage of revenue were 1.9% and 1.7%
for the three and nine months ended September 30, 1999 versus 1.3% and 1.2% for
the comparable 1998 periods. The increase in aggregate dollars and as a
percentage of revenue is primarily due to acquisitions.
17
18
Selling, general and administrative expenses were $44.0 million and $129.3
million for the three and nine months ended September 30, 1999, respectively,
versus $32.9 million and $98.6 million for the comparable 1998 periods. The
increase in aggregate dollars is primarily due to acquisitions. Selling, general
and administrative expenses as a percentage of revenue were 9.0% and 9.6% for
the three and nine months ended September 30, 1999, respectively, versus 9.3%
and 9.9% for the comparable 1998 period. The decrease in such expenses as a
percentage of revenue is primarily due to leveraging the existing overhead
structure over an expanding revenue base.
Included in selling, general and administrative expenses are fees paid to
AutoNation under the Services Agreement of $5.3 million for the nine months
ended September 30, 1999, and $3.7 million for the three months ended September
30, 1998, and allocations of AutoNation's corporate general and administrative
costs of $7.5 million for the nine months ended September 30, 1998. See Note 11,
Related Party Transactions, of the Notes to Unaudited Condensed Consolidated
Financial Statements for further information.
Other charges were $2.4 million and $6.4 million for the three and nine
months ended September 30, 1999, respectively. These costs relate to the
Company's separation from AutoNation and consist of approximately $2.0 million
of compensation expense related to the granting of certain replacement employee
stock options at exercise prices below the quoted market price of the Company's
Common Stock at the date of grant (see Note 8, Stock Options, of the Notes to
Unaudited Condensed Consolidated Financial Statements) and approximately $4.4
million of additional charges directly related to the separation. The Company
expects to incur $.8 million of additional separation costs during the fourth
quarter of 1999. The Company does not anticipate incurring additional separation
costs subsequent to the fourth quarter of 1999.
INTEREST EXPENSE
Interest expense was $18.8 million and $44.5 million for three and nine
months ended September 30, 1999, respectively, versus $3.2 million and $40.4
million for the comparable 1998 periods. Interest expense for the nine months
ended September 30, 1999 is primarily due to borrowings under the Company's
unsecured notes and revolving credit facility. Proceeds from the sale of the
unsecured notes were used to repay the revolving credit facility. Borrowings
under the revolving credit facility were used primarily to fund acquisitions.
Interest expense for the three and nine months ended September 30, 1998 was
primarily due to interest expense on borrowings from AutoNation. All amounts due
to AutoNation were repaid in full in July 1998 through the issuance of shares of
Class A Common Stock and through payments of all proceeds from the Initial
Public Offering.
Capitalized interest was $1.5 million and $4.5 million for the three and
nine months ended September 30, 1999, respectively, versus $0 for the three and
nine months ended September 30, 1998, respectively.
INTEREST INCOME
Interest income was $.3 million and $3.3 million for the three and nine
months ended September 30, 1999, respectively, versus $.3 million and $1.0
million for the comparable 1998 periods. The increase in interest income for the
nine months ended September 30, 1999 versus the comparable period in 1998 is
primarily due to higher average cash balances on hand during 1999.
INCOME TAXES
The provision for income taxes was $32.8 million and $94.1 million for the
three and nine months ended September 30, 1999, respectively, versus $26.0
million and $59.7 million for the comparable 1998 periods. The effective income
tax rate was 38.5% and 36.0% for the three and nine months ended September 30,
1999 and 1998, respectively. Income taxes have been provided based upon the
Company's anticipated annual effective tax rate.
LANDFILL AND ENVIRONMENTAL MATTERS
As of September 30, 1999, the Company owned or operated 56 solid waste
landfills with total available disposal capacity of approximately 1.9 billion
in-place cubic yards. Total available disposal capacity represents the sum of
estimated permitted airspace plus an estimate of airspace which is likely to be
permitted. These estimates are developed annually by independent engineers
together with the Company's engineers utilizing information provided by annual
aerial surveys. As of September 30, 1999, total available disposal capacity
consists of 1.5 billion in-place cubic yards of permitted airspace and .4
billion in-place cubic yards of airspace included in expansion areas which have
been determined by the Company as likely to be permitted. Before airspace
included in an expansion area is determined as likely to be permitted and,
therefore, included in the Company's calculation of total available disposal
capacity, it must meet the Company's expansion criteria (see Note 3, Landfill
and Accrued Environmental Costs, of the Notes to Unaudited Condensed
Consolidated Financial Statements).
As of September 30, 1999, 20 of the Company's landfills met the criteria for
including expansion airspace in their total available disposal capacity. At
projected annual volumes, these 20 landfills have an estimated remaining average
site life of 38 years, including the expansion airspace. The total estimated
remaining life of all of the Company's landfills in 36 years.
18
19
As of September 30, 1999, three of the Company's landfills that meet the
criteria for including expansion airspace had obtained approval from local
authorities and are proceeding into the state permitting process. Also, as of
September 30, 1999, eight of the Company's 20 landfills that meet the criteria
for including expansion airspace had submitted permit applications to state
authorities. The remaining nine landfills that meet the criteria for including
expansion airspace are in the process of obtaining approval from local
authorities and have not identified any fatal flaws or impediments associated
with the expansion at either the local or state level.
FINANCIAL CONDITION
At September 30, 1999, the Company had $9.8 million of unrestricted cash.
The cash on hand as of December 31, 1998 was used primarily to fund acquisitions
in the first quarter of 1999.
Prior to the Initial Public Offering, the Company's needs for working
capital and capital for general corporate purposes, including acquisitions, were
satisfied pursuant to AutoNation corporate-wide cash management policies.
Following the Initial Public Offering, the Company has been financed
autonomously and AutoNation has not provided 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. 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 had an original
term of 364 days and the remaining $500.0 million expires July 2003. During July
1999, the Company extended the short-term portion of the credit facility for an
additional one year term expiring in July 2000. Borrowings under the facility
bear interest at LIBOR-based rates. At September 30, 1999, the Company had
approximately $447.3 million of availability under this facility. Proceeds from
the facility are used to satisfy working capital requirements, capital
expenditures and acquisitions.
In May 1999, the Company sold $600.0 million of unsecured notes in the
public market. $225.0 million of these notes bear interest at 6 5/8% and mature
in 2004. The remaining $375.0 million bear interest at 7 1/8% and mature in
2009. Interest on both notes is payable semi-annually in May and November. The
$225.0 million and $375.0 million notes were offered at a discount of $1.0
million and $.6 million, respectively. Proceeds from the notes were used to
repay the Company's revolving credit facility.
CASH FLOWS
Cash and cash equivalents decreased by $546.8 million during the nine months
ended September 30, 1999 and increased by $21.4 million during the nine months
ended September 30, 1998. The major components of these changes are discussed
below.
Management believes that it has sufficient financial resources available to
meet anticipated capital requirements and obligations as they come due.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $225.2 million and $230.0 million
during the nine months ended September 30, 1999 and 1998, respectively. The
decrease is due to increased working capital requirements as a result of
business acquisitions and internal growth.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities consist primarily of cash used for
capital expenditures and business acquisitions. Capital expenditures were $215.4
million and $110.1 million during the nine months ended September 30, 1999 and
1998, respectively. Cash used in business acquisitions, net of cash acquired was
$723.9 million and $68.6 million during the nine months ended September 30, 1999
and 1998, respectively. Business acquisitions for the six months ended June 30,
1998 were funded by AutoNation.
The Company believes capital expenditures and cash used in business
acquisitions will increase during the remainder of 1999 and in the foreseeable
future due to expansion of the Company's business. 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, the
Company's $600.0 million of unsecured notes and other financings.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the nine months ended September
30, 1999 and 1998 included unsecured notes, commercial bank and affiliate
borrowings, and repayments of debt. Proceeds from bank and affiliate borrowings
were used to fund acquisitions and capital additions, and to repay debt. In May
1999, the Company sold unsecured notes with a face value of $600.0 million at a
discounted price of $598.4 million. Proceeds from the notes were used to repay
the Company's revolving credit facility.
19
20
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
Y2K project office to coordinate the compliance efforts and monitor and report
project status throughout the organization.
The Company has identified four core phases in preparing for Y2K:
Assessment. In the assessment phase, an inventory of software, hardware,
telecommunications equipment, embedded chip technology and significant third
party suppliers is performed and critical systems and vendors are identified and
prioritized.
Analysis. In the analysis phase, each system or item assessed as critical is
reviewed to determine its Y2K compliance. Key vendors are also evaluated at this
time to determine their compliance status.
Remediation. In the remediation phase, modifications or replacements are
made to critical systems and equipment to make them Y2K compliant or the systems
and/or vendors are replaced with compliant systems or vendors. Decisions are
also made as to whether changes are necessary or feasible for key third party
suppliers.
Testing and Validation. In this phase, the Company prepares, executes and
verifies the testing of critical systems.
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 primarily uses industry standard automated
applications in most of its locations, which are provided by third parties. The
majority of these applications are believed to be Y2K compliant, but the Company
is currently testing compliance in coordination with its vendors. The Company
expects to complete the testing and validation of these applications prior to
year end. Two of the Company's locations use proprietary software. The
remediation of the software at these locations has been completed and the
Company has completed testing and validation of this software.
The Company has completed its inventory and assessment of embedded chips and
third party suppliers. The Company has completed testing and validating the
compliance of products and has developed strategies for repair or replacement of
non-compliant systems. The Company expects to complete the repair or replacement
of non-compliant systems prior to year end.
To date, the Company estimates that it has spent approximately $2.6 million
on Y2K efforts across all areas of the Company and expects to have spent a total
of approximately $3.0 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. 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 Company's 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 or 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 Company believes
that the most likely reasonable worst-case scenario would involve the failure of
one of the Company's critical systems, delaying or disrupting the 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. In response to this scenario, comprehensive contingency and business
continuation plans, which address the six critical processes described above
have been developed. The Company expects its contingency and business
continuation plans to be implemented prior to year end. These plans include the
manual performance of processes that are currently automated, such as billing,
accounts payable and payroll.
Determining the Y2K readiness of third party products (information
technology and other computerized equipment) and business dependencies
(including suppliers, distributors or ancillary industry groups) requires
pursuit, collection and appraisal of voluntary statements made or provided by
those parties, if available, together with independent factual research. The
Company has identified a number of material third party relationships, the most
significant of which includes billing services provided by municipalities,
delivery of fuel for collection vehicles and delivery of parts and supplies for
collection vehicles. Surveys have been distributed to each of the material third
parties identified and results are being analyzed as surveys are received.
Employees of the Company are independently verifying and validating these
responses as they are received. This validation and notification phase is
expected to be complete prior to year end. In addition, during the fourth
quarter of 1999, management at each of the Company's locations will meet with
their material third party
20
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vendors to further assess the Y2K readiness of third party products and
dependencies. 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. Furthermore, 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 or a
business dependency is Y2K ready.
NEW ACCOUNTING PRONOUNCEMENTS
In September 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, 2001. Adoption of this statement is not expected to have a
material impact on the Company's consolidated financial position or results of
operations.
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; the Company's ability to manage growth; compliance with environmental
regulations; 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; risks associated with undisclosed liabilities of acquired
businesses; the risks and costs associated with the date change in the year
2000; risks associated with pending legal proceedings; and other factors
contained in the Company's filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market sensitive financial instruments consist primarily of
variable rate debt. Therefore, the Company's market risk exposure is with
changing interest rates in the United States and fluctuations in LIBOR. The
Company manages interest rate risk through a combination of fixed and floating
rate debt.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1999, several lawsuits were filed by certain shareholders
against the Company and certain of its officers and directors in the United
States District Court for the Southern District of Florida. The plaintiffs in
these lawsuits claim, on behalf of a purported class of purchasers of the
Company's common stock between January 28, 1999 and August 28, 1999, that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, among other things, in alledgedly making materially false and misleading
statements regarding the Company's growth and the assets acquired from Waste
Management. The Company expects that the lawsuits will be consolidated by the
Court as they allege common facts and claims, and the Company will file a motion
to dismiss the claims in the consolidated lawsuit. The Company believes the
allegations contained in the complaints to be without merit and will vigorously
defend these and any related actions. Nevertheless, unfavorable resolution of
these lawsuits could have a material adverse effect on the Company's
consolidated results of operations, cash flow or financial position in one or
more future periods.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Employment Agreement dated as of July 1, 1999 by and between
Tod C. Holmes and the Company
27.1 Financial Data Schedule for the Three and Nine Months Ended
September 30, 1999 (for SEC use only)
(b) Reports on Form 8-K:
None
21
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SIGNATURES
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 Financial Officer)
By: /s/ Charles F. Serianni
-----------------------------
Charles F. Serianni
Chief Accounting Officer
(Principal Accounting Officer)
Date: November 12, 1999
22
1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into this 1st day
of July, 1999, by and between REPUBLIC SERVICES, INC., a Delaware corporation
(the "Company"), and TOD C. HOLMES, a Florida resident (the "Employee").
A G R E E M E N T
In consideration of the mutual representations, warranties, covenants
and agreements contained in this Agreement, the parties hereto agree as
follows:
1. EMPLOYMENT.
(a) Retention. The Company agrees to employ the Employee as
its Senior Vice President and Chief Financial Officer, and the Employee agrees
to accept such employment, subject to the terms and conditions of this
Agreement.
(b) Employment Period. The period during which the Employee
shall serve as an employee of the Company shall commence on the date hereof
(the "Effective Date") and, unless earlier terminated pursuant to this
Agreement, shall expire on the third anniversary of the Effective Date;
provided that commencing on the third anniversary of the Effective Date and on
each anniversary date thereafter, the Employment Period shall automatically be
extended for one additional year unless at least 90 days prior to such
anniversary, the Company or the Employee shall have given written notice that
it or he, as applicable, does not wish to extend this Agreement (the
"Employment Period").
(c) Duties and Responsibilities. During the Employment
Period, the Employee shall serve as Senior Vice President and Chief Financial
Officer and shall have such authority and responsibility and perform such
duties as may be assigned to him from time to time by the Chief Executive
Officer of the Company, and in the absence of such assignment, such duties
customary to Employee's office as are necessary to the business and operations
of the Company. During the Employment Period, the Employee's employment shall
be full time and the Employee shall perform his duties honestly, diligently, in
good faith and in the best interests of the Company and shall use his best
efforts to promote the interests of the Company.
(d) Other Activities. Except upon the prior written consent
of the Company, the Employee, during the Employment Period, will not accept any
other employment. The Employee shall be permitted to engage in any
non-competitive businesses, not-for-profit organizations and other ventures,
such as passive real estate investments, serving on charitable and civic boards
and organizations, and similar activities, so long as such activities do not
materially interfere with or detract from the performance of his duties or
constitute a breach of any of the provisions contained in Section 4 hereof.
1
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2. COMPENSATION.
(a) Base Salary. In consideration for the Employee's services
hereunder and the restrictive covenants contained herein, during the Employment
Period, the Employee shall be paid an annual base salary of $250,000.00 (the
"Salary"), payable in accordance with the Company's customary payroll
practices, which Salary shall be reviewed annually by the Board of Directors of
the Company.
(b) Bonus. In addition to the Salary, the Employee shall be
eligible for an annual bonus ("Bonus") in an amount of up to 30% of the
Employee's Base Salary during the Employment Period. The Bonus shall be based
on the achievement of corporate goals and objectives, and both such goals and
objectives and the achievement thereof shall be determined in the sole
discretion of the Board of Directors of the Company. With respect to any Fiscal
Year during the Employment Period in which the Employee is employed by the
Company for less than the entire Fiscal Year, the Bonus shall be prorated for
the period during which the Employee was so employed. The Bonus shall be
payable within thirty (30) days after the end of the Company's Fiscal Year. The
term "Fiscal Year" as used herein shall mean each period of twelve (12)
calendar months commencing on January 1st of each calendar year during the
Employment Period and expiring on the following December 31st.
(c) Benefits. During the Employment Period, the Employee
shall be entitled to participate in any health insurance programs, life
insurance programs, disability programs, stock option plans, bonus plans,
pension plans and other fringe benefit plans and programs as are from time to
time established and maintained for the benefit of the Company's employees or
executive officers generally, subject to the provisions of such plans and
programs.
(d) Expenses. In addition to the Base Salary and benefits
described above, during the Employment Period, the Employee shall be reimbursed
for all out-of-pocket expenses reasonably incurred by him on behalf of or in
connection with the business of the Company, pursuant to the normal standards
and guidelines followed from time to time by the Company.
3. TERMINATION.
(a) For Cause. At any time during the Employment Period, the
Company shall have the right to terminate the Employment Period and to
discharge the Employee for Cause (as defined below) effective upon delivery of
written notice to the Employee. Upon any such termination by the Company for
Cause, the Employee or his legal representatives shall be entitled to that
portion of the Salary prorated through the date of termination, and the Company
shall have no further obligations hereunder from and after the date of such
termination. Termination for Cause shall mean termination because of (i) the
Employee's material breach of his covenants contained in this Agreement (other
than the covenants set forth in Sections 4 and 5 of this Agreement, the breach
of which shall not be subject to a standard of materiality), (ii) the
Employee's failure or refusal to perform the duties and responsibilities
required to be performed by the Employee under the terms of this Agreement,
(iii) the Employee's gross negligence or willful misconduct in the performance
2
3
of his duties hereunder, (iv) the Employee's commission of an act constituting
a felony, (v) the Employee's commission of an act (other than the good faith
exercise of his business judgment in the exercise of his responsibilities)
resulting in material damages to the Company or any of its subsidiaries or
affiliates (the "Republic Group"), or (vi) the Employee's inability to perform
his duties and responsibilities as provided herein for reasons other than due
to his death, physical or mental disability or sickness extending for, or
reasonably expected to extend for, greater than sixty days ("death or
disability"). In the event of termination for Cause pursuant to clauses (i) or
(ii) above, the Company shall first advise the Employee of the nature of such
breach or the failure or refusal to perform, and shall provide the Employee
with a 30 day period to cure such breach or to perform prior to the notice of
termination for Cause becoming effective. If the Employee shall resign or
otherwise terminate his employment with the Company, other than for Good Reason
(as defined in (b) below), the Employee shall be deemed for purposes of this
Agreement to have been terminated for Cause, and the Company shall have no
further obligations hereunder from and after the date of such resignation or
other termination.
(b) Without Cause And For Good Reason. At any time during the
Employment Period, (i) the Company shall have the right to terminate the
Employment Period and to discharge the Employee without Cause effective upon
delivery of written notice to the Employee, and (ii) the Employee shall have
the right to terminate the Employment Period for Good Reason effective upon
delivery of written notice to the Company. For purposes of this Agreement,
"Good Reason" shall mean: (A) the Company's demand that the Employee relocate
his principal office to an location outside of Broward County, Florida, (B) the
Company has materially reduced the duties and responsibilities of the Employee
to a level not appropriate for a Senior Vice President and Chief Financial
Officer, (C) a majority of the directors in office as of the date hereof (to
the extent they are nominated for reelection) are not reelected to serve by
vote of the Company's stockholders, (D) the Company has materially breached any
provision of this Agreement and has not cured such breach following 30 days'
notice of such breach from the Employee. Upon any such termination by the
Company without Cause, or by the Employee for Good Reason (or due to the
Employee's death or disability), the Employee (or his estate) shall be
entitled, without any mitigation obligation, to continue to receive his Salary
(at the level in effect at the time of such termination) payable in accordance
with Section 2(a), when and as the same would have been due and payable
hereunder but for such termination, and his health insurance benefits, for a
period ending on the later of the first anniversary of the date of such
termination or the end of the current Employment Period (the "Severance
Period"), and otherwise the Company shall have no further obligations hereunder
from and after the date of such termination; provided, however, that the
Employee shall only be entitled to such Salary continuation payments as long as
he is in compliance with the provisions of Sections 4 and 5 below. In addition,
in the event of termination by the Company without Cause, or by the Employee
for Good Reason, the Employee shall be entitled to exercise any stock options
which are vested and exercisable as of the date of such termination at any time
prior to the end of the Severance Period.
3
4
4. RESTRICTIVE COVENANTS.
In consideration of the foregoing, the Employee agrees that during the
Employment Period, and for a period of three (3) years following the
termination of the Employment Period, the Employee shall not directly or
indirectly: (a) alone or as a partner, joint venturer, officer, director,
member, employee, consultant, agent, independent contractor or stockholder of,
or lender to, any company or business, (i) engage in the business of solid
waste collection, disposal or recycling (the "Solid Waste Services Business")
in any market in which the Republic Group does business, or any other line of
business which is entered into by the Republic Group during the Employment
Period, or (ii) compete with the Republic Group in acquiring or merging with
any other business or acquiring the assets of such other business; or (b) for
any reason, (i) induce any customer of the Republic Group to patronize any
business directly or indirectly in competition with the Solid Waste Services
Business conducted by the Republic Group in any market in which the Republic
Group does business; (ii) canvass, solicit or accept from any customer of the
Republic Group any such competitive business; or (iii) requestor advise any
customer or vendor of the Republic Group to withdraw, curtail or cancel any
such customer's or vendor's business with the Republic Group; or (c) for any
reason, employ, or knowingly permit any company or business directly or
indirectly controlled by him, to employ, any person who was employed by the
Republic Group at or within the prior six months, or in any manner seek to
induce any such person to leave his or her employment. Notwithstanding the
foregoing, the beneficial ownership of less than five percent (5%) of the
shares of stock of any corporation having a class of equity securities actively
traded on a national securities exchange or over-the-counter market shall not
be deemed, in and of itself, to violate the prohibitions of this Section.
5. CONFIDENTIALITY.
The Employee agrees that at all times during and after the Employment
Period, the Employee shall (i) hold in confidence and refrain from disclosing
to any other party all information, whether written or oral, tangible or
intangible, of a private, secret, proprietary or confidential nature, of or
concerning the Republic Group and their business and operations, and all files,
letters, memoranda, reports, records, computer disks or other computer storage
medium, data, models or any photographic or other tangible materials containing
such information ("Confidential Information"), including without limitation,
any sales, promotional or marketing plans, programs, techniques, practices or
strategies, any expansion plans (including existing and entry into new
geographic and/or product markets), and any customer lists, (ii) use the
Confidential Information solely in connection with his employment with the
Republic Group and for no other purpose, (iii) take all precautions necessary
to ensure that the Confidential Information shall not be, or be permitted to
be, shown, copied or disclosed to third parties, without the prior written
consent of the Republic Group, and (iv) observe all security policies
implemented by the Republic Group from time to time with respect to the
Confidential Information. In the event that the Employee is ordered to disclose
any Confidential Information, whether in a legal or regulatory proceeding or
otherwise, the Employee shall provide the Republic Group with prompt notice of
such request or order so that the Republic Group may seek to prevent
disclosure. In the case of any disclosure, the Employee shall disclose only
that portion of the Confidential Information that he is ordered to disclose.
4
5
6. SPECIFIC PERFORMANCE; INJUNCTION.
The parties agree and acknowledge that the restrictions contained in
Sections 4 and 5 are reasonable in scope and duration and are necessary to
protect the Republic Group. If any provision of Section 4 or 5 as applied to
any party or to any circumstance is adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other circumstance or the
validity or enforceability of any other provision of this Agreement. If any
such provision, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the duration
and/or area of such provision, and/or to delete specific words or phrases, and
in its reduced form, such provision shall then be enforceable and shall be
enforced. The Employee agrees and acknowledges that the breach of Section 4 or
5 will cause irreparable injury to the Republic Group and upon breach of any
provision of such Sections, the Republic Group shall be entitled to injunctive
relief, specific performance or other equitable relief, without being required
to post a bond; provided, however, that, this shall in no way limit any other
remedies which the Republic Group may have (including, without limitation, the
right to seek monetary damages).
7. NOTICES.
All notices, requests, demands, claims and other communications
hereunder shall be in writing and shall be deemed given if delivered by
certified or registered mail (first class postage pre-paid), guaranteed
overnight delivery or facsimile transmission if such transmission is confirmed
by delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery to, the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall
designate in writing to the other parties): (a) if to the Company, at its
principal executive offices, addressed to the Chairman of the Board, with a
copy to the Chief Executive Officer; and (b) if to the Employee, at the address
listed on the signature page hereto.
5
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8. AMENDMENT; WAIVER.
This Agreement may not be modified, amended, supplemented, canceled or
discharged, except by written instrument executed by all parties. No failure to
exercise, and no delay in exercising, any right, power or privilege under this
Agreement shall operate as a waiver, nor shall any single or partial exercise
of any right, power or privilege hereunder preclude the exercise of any other
right, power or privilege. No waiver of any breach of any provision shall be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other provision, nor shall any waiver be implied from any course of dealing
between the parties. No extension of time for performance of any obligations or
other acts hereunder or under any other agreement shall be deemed to be an
extension of the time for performance of any other obligations or any other
acts. The rights and remedies of the parties under this Agreement are in
addition to all other rights and remedies, at law or equity, that they may have
against each other.
9. ASSIGNMENT; THIRD PARTY BENEFICIARY.
This Agreement, and the Employee's rights and obligations hereunder,
may not be assigned or delegated by him. The Company may assign its rights, and
delegate its obligations, hereunder to any affiliate of the Company, or any
successor to the Company or its Solid Waste Services Business, specifically
including the restrictive covenants set forth in Section 4 hereof. The rights
and obligations of the Company under this Agreement shall inure to the benefit
of and be binding upon its respective successors and assigns.
10. SEVERABILITY; SURVIVAL.
In the event that any provision of this Agreement is found to be void
and unenforceable by a court of competent jurisdiction, then such unenforceable
provision shall be deemed modified so as to be enforceable (or if not subject
to modification then eliminated herefrom) for the purpose of those procedures
to the extent necessary to permit the remaining provisions to be enforced. The
provisions of Sections 4 and 5 will survive the termination for any reason of
the Employee's relationship with the Company.
11. COUNTERPARTS.
This Agreement may be signed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one and
the same instrument.
12. GOVERNING LAW.
This Agreement shall be construed in accordance with and governed for
all purposes by the laws of the State of Florida applicable to contracts
executed and to be wholly performed within such State.
6
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13. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the parties in
respect of its subject matter and supersedes all prior agreements and
understandings (oral or written) between or among the parties with respect to
such subject matter.
14. HEADINGS.
The headings of Paragraphs and Sections are for convenience of
reference and are not part of this Agreement and shall not affect the
interpretation of any of its terms.
15. CONSTRUCTION.
This Agreement shall be construed as a whole according to its fair
meaning and not strictly for or against any party. The parties acknowledge that
each of them has reviewed this Agreement and has had the opportunity to have it
reviewed by their respective attorneys and that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
apply in the interpretation of this Agreement.
16. ATTORNEY'S FEES.
The prevailing party in any litigation arising out of this Agreement
shall be entitled to recover its attorneys' fees and costs from the other
party.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW
7
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IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
REPUBLIC SERVICES, INC., a Delaware
corporation
By: /s/ James E. O'Connor
----------------------------------------
Name: James E. O'Connor
Title: Chief Executive Officer
EMPLOYEE:
/s/ Tod C. Holmes
--------------------------------------------
TOD C. HOLMES
Address: 128 Golden Shadow Circle
The Woodlands, TX 77381-3100
8
5
3-MOS 9-MOS
DEC-31-1999 DEC-31-1999
JUL-01-1999 JAN-01-1999
SEP-30-1999 SEP-30-1999
9,800,000 9,800,000
0 0
263,400,000 263,400,000
13,600,000 13,600,000
0 0
322,100,000 322,100,000
2,110,300,000 2,110,300,000
545,600,000 545,600,000
3,267,600,000 3,267,600,000
421,700,000 421,700,000
1,153,900,000 1,153,900,000
0 0
0 0
1,800,000 1,800,000
1,449,700,000 1,449,700,000
3,267,600,000 3,267,600,000
0 0
490,600,000 1,349,700,000
0 0
295,900,000 810,700,000
91,200,000 253,500,000
0 0
18,800,000 44,500,000
85,300,000 244,500,000
32,800,000 94,100,000
52,500,000 150,400,000
0 0
0 0
0 0
52,500,000 150,400,000
.30 .86
.30 .86
