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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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
(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 August 8, 2000 the registrant had outstanding 175,424,700 shares of
Common Stock, par value $.01 per share.
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REPUBLIC SERVICES, INC.
INDEX
Page
----
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
(Unaudited) and December 31, 1999........................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended June 30,
2000 and 1999............................................... 4
Unaudited Condensed Consolidated Statement of Stockholders'
Equity for the Six Months Ended June 30, 2000............... 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000 and 1999............. 6
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................. 25
ITEM 4. Submission of Matters to a Vote of Security Holders........... 26
ITEM 6. Exhibits and Reports on Form 8-K.............................. 26
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
June 30, December 31,
2000 1999
---------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ -- $ 13.1
Restricted cash .......................................... 23.4 10.3
Accounts receivable, less allowance for doubtful accounts
of $13.8 and $14.2, respectively........................ 246.8 250.9
Prepaid expenses and other current assets ................ 69.3 57.7
---------- ----------
Total Current Assets ........................... 339.5 332.0
PROPERTY AND EQUIPMENT, NET ................................ 1,608.8 1,605.5
INTANGIBLE ASSETS, NET ..................................... 1,376.9 1,297.3
OTHER ASSETS ............................................... 50.4 53.5
---------- ----------
$ 3,375.6 $ 3,288.3
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 64.9 $ 76.1
Accrued liabilities ...................................... 88.9 88.3
Amounts due to former owners ............................. 24.3 47.0
Deferred revenue ......................................... 68.4 64.1
Notes payable and current maturities of long-term debt ... 53.8 57.2
Other current liabilities ................................ 66.5 52.6
---------- ----------
Total Current Liabilities ...................... 366.8 385.3
---------- ----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES .................. 1,103.0 1,152.1
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS ................... 148.3 129.8
DEFERRED INCOME TAXES ...................................... 118.5 94.4
OTHER LIABILITIES .......................................... 25.4 24.0
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; 175,597,280 and 175,481,842 issued and
outstanding, respectively .............................. 1.8 1.8
Additional paid-in capital ............................... 1,207.8 1,206.3
Retained earnings ........................................ 404.0 294.6
---------- ----------
Total Stockholders' Equity ..................... 1,613.6 1,502.7
---------- ----------
$ 3,375.6 $ 3,288.3
========== ==========
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 Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
REVENUE........................................ $ 533.5 $ 463.8 $1,035.0 $ 871.4
EXPENSES:
Cost of operations........................... 320.5 278.3 626.6 527.1
Depreciation, amortization and depletion..... 49.2 39.6 95.5 73.0
Selling, general and administrative.......... 47.9 43.3 95.3 89.3
------- ------- ------- -------
OPERATING INCOME............................... 115.9 102.6 217.6 182.0
INTEREST EXPENSE............................... (20.2) (14.4) (40.6) (25.7)
INTEREST INCOME................................ .3 .4 .4 3.0
OTHER INCOME (EXPENSE), NET.................... .2 -- .4 (.1)
------- ------------------ -------
INCOME BEFORE INCOME TAXES..................... 96.2 88.6 177.8 159.2
PROVISION FOR INCOME TAXES..................... 37.0 34.1 68.4 61.3
------- ------- ------- -------
NET INCOME..................................... $ 59.2 $ 54.5 $ 109.4 $ 97.9
======= ======= ======= =======
BASIC AND DILUTED EARNINGS PER SHARE........... $ .34 $ .31 $ .62 $ .56
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.................. 175.9 176.5 175.9 176.0
======= ======= ======= =======
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, 1999............................................... $ 1.8 $ 1,206.3 $ 294.6
Net income............................................................... -- -- 109.4
Issuance of common stock.................................................. -- 1.5 --
------ ----------- -------
BALANCE AT JUNE 30, 2000................................................... $ 1.8 $ 1,207.8 $ 404.0
====== =========== =======
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)
Six Months Ended
June 30,
-------------------------
2000 1999
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income .............................................. $ 109.4 $ 97.9
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and depletion of property
and equipment ....................................... 76.1 58.3
Amortization of intangible assets .................... 19.4 14.7
Deferred tax provision ............................... 22.1 16.0
Provision for doubtful accounts ...................... 5.3 3.2
Other non-cash charges ............................... 1.0 2.0
Changes in assets and liabilities, net of effects from
business acquisitions:
Accounts receivable ................................ (6.7) (45.0)
Prepaid expenses and other assets .................. (2.4) (2.6)
Accounts payable and accrued liabilities ........... (12.2) (15.6)
Other liabilities .................................. 15.2 11.4
-------- --------
227.2 140.3
-------- --------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment ..................... (97.8) (138.4)
Proceeds from sale of equipment ......................... 9.1 2.5
Cash used in business acquisitions, net of cash
acquired ............................................... (84.4) (629.4)
Cash proceeds from business dispositions ................ 29.5 33.4
Amounts due former owners ............................... (27.1) (5.4)
Other ................................................... (13.1) (1.3)
-------- --------
(183.8) (738.6)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt .......... 19.5 21.5
Payments of notes payable and long-term debt ............ (4.4) (17.3)
Net payments on revolving credit facility ............... (72.0) (516.0)
Proceeds from issuance of public notes, net of discount . -- 598.4
Issuance of common stock ................................ .4 --
-------- --------
(56.5) 86.6
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ..................... (13.1) (511.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......... 13.1 556.6
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................ $ -- $ 44.9
======== ========
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. (together with its subsidiaries, the "Company") is
a leading provider of non-hazardous solid waste collection and disposal services
in the United States.
The accompanying Unaudited Condensed Consolidated Financial Statements
include the accounts of the Company and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts and transactions have been eliminated.
Certain information related to the Company's organization, significant
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with 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, 1999. Certain amounts in the 1999
Unaudited Condensed Consolidated Financial Statements, as previously reported,
have been reclassified to conform to the fiscal 2000 presentation.
The Unaudited Condensed Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles and necessarily
include amounts based on estimates and assumptions made by management. Actual
results could differ from these amounts. Significant items subject to such
estimates and assumptions include the depletion and amortization of landfill
development costs, accruals for closure and post-closure costs, valuation
allowances for accounts receivable, liabilities for potential litigation, claims
and assessments, and liabilities for environmental remediation, deferred taxes
and self-insurance.
In May 1999, the Company completed a secondary offering, in which
AutoNation, Inc. (together with its subsidiaries, "AutoNation") sold
substantially all of the Common Stock it owned in the Company. 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, subject to 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.
Other charges of $4.0 million for the six months ended June 30, 1999 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 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) and $2.0 million
of additional charges directly related to the separation.
The Company has no components of other comprehensive income. Accordingly,
net income equals comprehensive income for all periods presented.
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2. BUSINESS COMBINATIONS
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.
In September 1998, the Company entered into a definitive agreement with
Waste Management, Inc. ("Waste Management") to acquire certain assets. The
assets acquired included 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 six months ended June
30, 1999. The aggregate purchase price paid by the Company in these transactions
was $339.4 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 one landfill operation, five
transfer stations and a subset of small container hauling assets from four
collection operations for a reduced purchase price. By June 30, 2000, the
Company had completed the purchase of these assets for approximately $68.0
million in cash, $48.3 million of which were acquired during the six months
ended June 30, 2000. In addition, the Company entered into a definitive
agreement with Allied for the simultaneous purchase and sale of certain other
solid waste assets. During the six months ended June 30, 2000, the Company and
Allied closed on a majority of these assets. Proceeds from the cash portion of
the exchange of assets were $26.1 million. The remaining portion of these
transactions were closed in July 2000. All of these transactions will be
accounted for under the purchase method of accounting.
In addition to the acquisitions from Allied, the Company also acquired
various other solid waste businesses during the six months ended June 30, 2000.
The aggregate purchase price paid by the Company in these transactions was $36.1
million in cash.
The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting
consummated during the periods presented:
Six Months
Ended June 30,
-------------------------
2000 1999
------- --------
Property and equipment.................... $ 84.4 $ 404.9
Cost in excess of net assets acquired..... 178.2 302.8
Other assets.............................. -- 2.2
Working capital deficit................... (157.8) (56.2)
Debt assumed.............................. (4.2) (1.8)
Other liabilities......................... (16.2) (22.5)
------- ---------
Cash used in acquisitions, net of cash acquired $ 84.4 $ 629.4
======= =========
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The Company's unaudited pro forma consolidated results of operations
assuming all significant acquisitions during the six months ended June 30, 2000
accounted for under the purchase method of accounting had occurred as of the
beginning of each six month period presented are as follows:
2000 1999
-------- ------
Revenue............................................. $1,069.5 $936.7
Net income.......................................... $ 108.5 $101.9
Basic and diluted earnings per share................ $ .62 $ .58
Weighted average common and common equivalent shares
outstanding........................................ 175.6 176.0
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
LIFE CYCLE ACCOUNTING
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. 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
changes in available airspace, inflation rates and applicable regulations.
Changes in available airspace include changes due to the addition of airspace
lying in expansion areas deemed likely to be permitted.
TOTAL AVAILABLE DISPOSAL CAPACITY
As of June 30, 2000, the Company owned or operated 53 solid waste landfills
with total available disposal capacity of approximately 1.7 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.
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.
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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 landfills generally
follow to obtain expansion permits. 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 and 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.
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. Accruals for closure and post-closure costs totaled
approximately $10.7 million and $8.1 million during the six months ended June
30, 2000 and 1999, respectively.
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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. 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 June 30, 2000, assuming that all available
landfill capacity is used, the Company expects to expense approximately $545.3
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 monitoring and reporting to certain regulatory agencies.
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 six months ended June 30,
2000 and 1999.
4. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while maintenance and repairs are
charged to expense as incurred. When property is retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in the Unaudited Condensed
Consolidated Statements of Operations.
The Company revises the estimated useful lives of property and equipment
acquired through business acquisitions to conform with its policies regarding
property and equipment. Depreciation is provided over the estimated useful lives
of the assets involved using the straight-line method. The estimated useful
lives are twenty to forty years for buildings and improvements, three to fifteen
years for trucks and equipment, and five to ten years for furniture and
fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. All indirect landfill development costs are
expensed as incurred. (For further information, see Note 3, Landfill and Accrued
Environmental Costs.)
The Company capitalizes interest on landfill cell construction and other
construction projects in accordance with Statement of Financial Accounting
Standards No. 34, "Capitalization of Interest Cost". 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 capitalized was $1.5
million and $3.0 million for the six months ended June 30, 2000 and 1999,
respectively.
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A summary of property and equipment is as follows:
June 30, December 31,
2000 1999
-------- ------------
Other land....................................... $ 82.6 $ 82.8
Non-depletable landfill land..................... 47.2 46.4
Landfill development costs....................... 839.9 827.6
Vehicles and equipment........................... 951.4 961.3
Buildings and improvements....................... 192.0 187.5
Construction-in-progress-landfill................ 45.2 44.3
Construction-in-progress-other................... 40.2 24.4
-------- --------
2,198.5 2,174.3
-------- --------
Less: Accumulated depreciation, depletion and
amortization -
Landfill development costs..................... (154.1) (135.1)
Vehicles and equipment......................... (400.6) (399.9)
Building and improvements...................... (35.0) (33.8)
-------- --------
(589.7) (568.8)
-------- --------
Property and equipment, net...................... $ 1,608.8 $ 1,605.5
========= =========
The Company 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
assessing their recoverability. The Company measures impairment loss as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
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 is
amortized over forty 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 was $111.0 million and $100.4
million at June 30, 2000 and December 31, 1999, respectively.
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
assessing their recoverability. The Company measures impairment loss as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
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6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
June 30, December 31,
2000 1999
---------- ------------
$225.0 million unsecured notes, net of unamortized discount
of $.8 million and $1.0 million, respectively; interest payable
semi-annually in May and November at 6 5/8%; principal due
at maturity in 2004................................................ $ 224.2 $ 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............. 374.5 374.5
$1.0 billion unsecured revolving credit facility; interest
payable using LIBOR-based rates; $500.0 million matures
July 2001 and $500.0 million matures 2003......................... 430.0 552.0
Tax exempt bonds; interest at prevailing market rates............... 61.8 42.0
Other debt; unsecured and secured by real property,
equipment and other assets........................................ 66.3 16.8
---------- ----------
1,156.8 1,209.3
---------- ----------
Less: current portion .............................................. (53.8) (57.2)
---------- ----------
$ 1,103.0 $ 1,152.1
========== ==========
Interest expense paid was $43.6 million (net of $1.5 million of capitalized
interest) and $21.9 million (net of $3.0 million of capitalized interest) for
the six months ended June 30, 2000 and 1999, 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 $17.3 million and $44.6
million for the six months ended June 30, 2000 and 1999, respectively.
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. Options
granted under the Stock Incentive Plan are non-qualified and are granted at a
price equal to the fair market value of the Company's Common Stock at the date
of grant. Generally, options granted have a term of ten years from the date of
grant, and vest in increments of 25% per year over a four year period on the
anniversary date of the grant. Options granted to non-employee directors have a
term of ten years and are fully vested at the grant date. The Company has
reserved 20.0 million shares of Common Stock for issuance pursuant to options
granted under the Stock Incentive Plan.
Prior to the Company's 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 ("Replacement Options"). The Replacement Options retained the vesting and
exercise rights of the original options. The exercise prices for individual
replacement options were established to maintain the unrealized gain or loss on
each option of 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 six months ended June 30, 1999.
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A summary of stock option transactions for the six months ended June 30,
2000 is as follows:
Weighted-Average
Shares Exercise Price
------ ----------------
Options outstanding at beginning of year.... 15.0 $ 16.57
Granted..................................... .1 12.49
Cancelled................................... .(3) 14.41
---- -------
Options outstanding at June 30, 2000........ 14.8 $ 16.57
==== =======
Options exercisable at June 30, 2000........ 7.6 $ 17.55
==== ========
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 three months and six months ended June 30, 2000
and 1999 is calculated as follows (in thousands, except per share data):
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Numerator:
Net income ......................................... $ 59,200 $ 54,500 $109,400 $ 97,900
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share ........... 175,557 175,412 175,520 175,412
Effect of dilutive securities -- Options to purchase
common stock...................................... 297 1,068 153 547
-------- -------- -------- --------
Denominator for diluted earnings per share ........ 175,854 176,480 175,673 175,959
======== ======== ======== ========
Basic and diluted earnings per share .............. $ .34 $ .31 $ .62 $ .56
======== ======== ======== ========
Antidilutive securities not included in the diluted
earnings per share calculation:
Options to purchase common stock .................. 11,966 664 13,389 6,332
Weighted average exercise price ................... $ 17.75 $ 24.37 $ 17.12 $ 18.97
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 financial position, results of
operations or cash flows. However, unfavorable resolution could affect the
consolidated financial position, 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 by, among other things, allegedly making materially false and misleading
statements regarding the Company's growth and the assets acquired from Waste
Management. On December 29, 1999 the Court consolidated these lawsuits and the
consolidated action has been named In Re: Republic Services, Inc. Securities
Litigation. The plaintiffs filed a consolidated complaint in February 2000 and
the defendants filed a motion to dismiss the consolidated complaint in April
2000. The motion to dismiss has been fully briefed by the parties to the lawsuit
and oral argument on the motion to dismiss has not yet
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been scheduled. Management believes the allegations contained in the
consolidated complaint are without merit and will vigorously defend this and any
related actions. However, an unfavorable resolution of this lawsuit could have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows in one or more future periods.
LEASE COMMITMENTS
During December 1999, the Company entered into a $100.0 million operating
lease facility established to finance the acquisition of operating equipment. At
June 30, 2000, $64.2 million was outstanding under the lease facility, of which
$20.3 million and $7.7 million was added during the three months ended June 30
and March 31, 2000, respectively. In addition, the Company and its subsidiaries
lease real property, equipment and software under various other operating leases
with terms from one to twenty-five years.
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 insurance programs for worker's compensation, general
liability, vehicle liability and employee related health care benefits are
effectively self-insured. Claims in excess of self-insurance levels are fully
insured. Accruals are based on claims filed and estimates of claims incurred but
not reported.
The Company's liabilities for unpaid and incurred but not reported claims at
June 30, 2000 were $39.1 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 June
30, 2000, surety bonds and letters of credit totaling $671.3 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. Any revocation, modification or denial of permits could have a
material adverse effect on the Company.
Through the date of the Company's initial public offering in July 1998, the
Company filed consolidated federal income tax returns with AutoNation. The
Internal Revenue Service is auditing AutoNation's consolidated tax returns for
fiscal years 1995 and 1996. In accordance with the Company's tax sharing
agreement with AutoNation, the Company may be liable for certain assessments
imposed by the Internal Revenue Service resulting from this audit. Management
believes that the tax liabilities recorded are adequate. However, a significant
assessment in excess of liabilities recorded against the Company could have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
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11. RELATED PARTY TRANSACTIONS
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 have been obtained internally or
from unaffiliated third parties.
Charges under the Services Agreement during the three and six months ended
June 30, 1999 were approximately $2.7 million and $5.3 million, respectively,
and are included in selling, general and administrative expenses.
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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 our audited Consolidated
Financial Statements and notes thereto and related Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing in our Form
10-K as of and for the year ended December 31, 1999.
The accompanying historical Unaudited Condensed Consolidated Financial
Statements through the date of the secondary offering in May 1999 reflect our
accounts as a subsidiary of AutoNation subject to 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 our financial position or results of operations as a
separate, stand-alone entity.
OUR BUSINESS
We are a leading provider of non-hazardous solid waste collection and
disposal services in the United States. We provide solid waste collection
services for commercial, industrial, municipal and residential customers through
136 collection companies in 22 states. We also own or operate 75 transfer
stations and 53 solid waste landfills.
We generate revenue primarily from our solid waste collection operations.
Our remaining revenue is obtained from landfill disposal services and other
services, including recycling and composting operations.
The following table reflects our total revenue by source for the three
and six months ended June 30, 2000 and 1999 (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------- -------------------------------------------
2000 1999 2000 1999
---------------- ------------------ ------------------ --------------------
Collection:
Residential .............. $ 105.5 19.8% $ 93.5 20.2% $ 206.2 19.9% $ 176.9 20.3%
Commercial ............... 154.4 29.0 132.5 28.5 304.5 29.5 257.8 29.6
Industrial ............... 123.5 23.1 107.5 23.2 238.3 23.0 197.1 22.6
Other .................... 15.6 2.9 11.9 2.6 31.0 3.0 22.9 2.6
-------- ----- ------- ----- -------- ------ -------- -----
Total collection . 399.0 74.8 345.4 74.5 780.0 75.4 654.7 75.1
Transfer and disposal ...... 155.4 118.4 289.1 208.7
Less: Intercompany ......... (63.6) (39.8) (113.2) (67.3)
-------- ------- -------- --------
Transfer and disposal, net 91.8 17.2 78.6 17.0 175.9 17.0 141.4 16.2
Other ...................... 42.7 8.0 39.8 8.5 79.1 7.6 75.3 8.7
-------- ----- ------- ----- -------- ------ -------- -----
Total revenue .... $ 533.5 100.0% $ 463.8 100.0% $1,035.0 100.0% $ 871.4 100.0%
======== ===== ======= ===== ======== ===== ======== =====
Our revenue from collection operations consists of fees we receive from
commercial, industrial, municipal and residential customers. Our residential and
commercial collection operations in some markets are based on long-term
contracts with municipalities. We generally provide industrial and commercial
collection operations to individual customers under contracts with terms up to
three years. Our revenue from landfill operations is from disposal or tipping
fees charged to third parties. In general, we integrate our recycling operations
with our collection operations and obtain revenue from the sale of recyclable
materials. No one customer has individually accounted for more than 10% of our
consolidated revenue in any of the periods presented.
The cost of our collection operations is primarily variable and includes
disposal, labor, fuel and equipment maintenance costs. We try to be more
efficient by controlling the movement of waste streams from the point of
collection through disposal. During the three months ended June 30, 2000,
approximately 50% of the total volume of waste we collected was disposed of at
our landfills.
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Our landfill cost of operations includes daily operating expenses, costs of
capital for cell development, accruals for closure and post-closure costs, and
the legal and administrative costs of ongoing environmental compliance. We
expense all indirect landfill development costs as they are incurred. We use
life cycle accounting and the units-of-consumption method to recognize certain
direct landfill costs. In life cycle accounting, certain direct costs are
capitalized and charged to expense based upon the consumption of cubic yards of
available airspace. These costs include all costs to:
o acquire,
o construct,
o close and
o maintain a site during the post closure period.
Cost and airspace estimates are developed annually by independent engineers
together with our engineers. These estimates are used by our operating and
accounting personnel to annually adjust our rates used to expense capitalized
costs and accrue closure and post-closure costs. Changes in these estimates
primarily relate to changes in available airspace, inflation rates and
applicable regulations. Changes in available airspace include changes due to the
addition of airspace lying in expansion areas deemed likely to be permitted.
BUSINESS COMBINATIONS
We make decisions to acquire or invest in businesses based on financial and
strategic considerations. Businesses acquired are accounted for using the
purchase method of accounting and are included in the Unaudited Condensed
Consolidated Financial Statements from the date of acquisition.
In September 1998, we entered into a definitive agreement with Waste
Management, Inc. to acquire certain assets. The assets acquired included 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, we 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, we also acquired
various other solid waste businesses during the six months ended June 30, 1999.
The aggregate purchase price paid by us in these transactions was $339.4 million
in cash.
In July 1999, we entered into a definitive agreement with Allied Waste
Industries, Inc. 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 us to acquire one landfill operation, five transfer stations and a subset of
small container hauling assets from four collection operations for a reduced
purchase price. By June 30, 2000, we had completed the purchase of these assets
for approximately $68.0 million in cash, $48.3 million of which were acquired
during the six months ended June 30, 2000. In addition, we entered into a
definitive agreement with Allied for the simultaneous purchase and sale of
certain other solid waste assets. During the six months ended June 30, 2000, we
and Allied closed on a majority of these assets. Our proceeds from the cash
portion of the exchange of assets were $26.1 million. The remaining portion of
these transactions were closed in July 2000. All of these transactions will be
accounted for under the purchase method of accounting.
In addition to the acquisitions from Allied, we also acquired various other
solid waste businesses during the six months ended June 30, 2000. The aggregate
purchase price paid by us in these transactions was $36.1 million in cash.
See Note 2, Business Combinations, of the Notes to the Unaudited Condensed
Consolidated Financial Statements, for further discussion of business
combinations.
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.
CONSOLIDATED RESULTS OF OPERATIONS
Net income was $59.2 million for the three months ended June 30, 2000, or
$.34 per share, as compared to $54.5 million, or $.31 per share, for the three
months ended June 30, 1999. Net income was $109.4 million for the six months
ended June 30, 2000, or $.62 per share, as compared to $97.9 million, or $.56
per share, for the six months ended June 30, 1999.
The following table summarizes our costs and expenses in millions of dollars
and as a percentage of our revenue for the three and six months ended June 30,
2000 and 1999:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ------------------------------------
2000 1999 2000 1999
--------------- --------------- ----------------- ----------------
Revenue........................................ $533.5 100.0% $463.8 100.0% $1,035.0 100.0% $ 871.4 100.0%
Expenses:
Cost of operations........................... 320.5 60.1 278.3 60.0 626.6 60.5 527.1 60.5
Depreciation, amortization and depletion of
property and equipment...................... 39.2 7.3 32.0 6.9 76.1 7.4 58.3 6.7
Amortization of intangible assets............ 10.0 1.9 7.6 1.6 19.4 1.9 14.7 1.7
Selling, general and administrative expenses. 47.9 9.0 43.3 9.4 95.3 9.2 85.3 9.8
Other charges................................ -- -- -- -- -- -- 4.0 .4
------- ---- ------ ----- -------- ----- ------- -----
Operating income............................... $ 115.9 21.7% $102.6 22.1% $ 217.6 21.0% $ 182.0 20.9%
======= ===== ====== ===== ======== ===== ======= =====
Revenue was $533.5 million and $463.8 million for the three months ended
June 30, 2000 and 1999, respectively, an increase of 15.0%. Revenue was $1,035.0
million and $871.4 million for the six months ended June 30, 2000 and 1999,
respectively, an increase of 18.8%. The following table reflects the components
of our revenue growth for the three and six months ended June 30, 2000 and 1999:
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ -----
Price...................... 2.5% 2.2% 2.5% 2.2%
Volume..................... 5.3 6.1 5.6 6.0
----- ----- ----- -----
Total internal growth... 7.8 8.3 8.1 8.2
Acquisitions............... 7.2 28.6 10.7 27.8
----- ----- ----- -----
Total revenue growth.... 15.0% 36.9% 18.8% 36.0%
===== ===== ===== =====
The increases in revenue for the three and six months ended June 30, 2000
versus the comparable 1999 periods are due primarily to increases in collection
and transfer and disposal operations.
Cost of operations was $320.5 million and $626.6 million for the three and
six months ended June 30, 2000 versus $278.3 million and $527.1 million for the
comparable 1999 periods. The increase in aggregate dollars is primarily due to
acquisitions. Cost of operations as a percentage of revenue was 60.1% and 60.5%
for the three and six months ended June 30, 2000 versus 60.0% and 60.5% for the
comparable 1999 periods. The increase in costs of operation as a percentage of
revenue for the three months ended June 30, 2000 versus the comparable period
last year is primarily due to increased fuel costs partially offset by various
cost reductions.
Expenses for depreciation, amortization and depletion of property and
equipment were $39.2 million and $76.1 million for the three and six months
ended June 30, 2000 versus $32.0 million and $58.3 million for the comparable
1999 periods. Expenses for depreciation, amortization and depletion of property
and equipment as a percentage of revenue were 7.3% and 7.4% for the three and
six months ended June 30, 2000 versus 6.9% and 6.7% for the comparable 1999
periods. The increase in such expenses in
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aggregate dollars and as a percentage of revenue is primarily due to
acquisitions and capital expenditures.
Expenses for amortization of intangible assets were $10.0 million and $19.4
million for the three and six months ended June 30, 2000 versus $7.6 million and
$14.7 million for the comparable 1999 periods. Amortization of intangible assets
as a percentage of revenue was 1.9% for the three and six months ended June 30,
2000 versus 1.6% and 1.7% for the comparable 1999 periods. The increase in such
expenses in aggregate dollars and as a percentage of revenue is primarily due to
acquisitions accounted for using the purchase method of accounting.
Selling, general and administrative expenses were $47.9 million and $95.3
million for the three and six months ended June 30, 2000 versus $43.3 million
and $85.3 million for the comparable 1999 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 9.2% for the three and six
months ended June 30, 2000 versus 9.4% and 9.8% for the comparable 1999 periods.
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 $2.7 million and $5.3 million for the
three and six months ended June 30, 1999. See Note 11, Related Party
Transactions, of the Notes to Unaudited Condensed Consolidated Financial
Statements for further information.
Other charges were $4.0 million for the six months ended June 30, 1999.
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 our Common Stock at the date of grant (see Note 8, Stock
Options, of the Notes to Unaudited Condensed Consolidated Financial Statements)
and approximately $2.0 million of additional charges directly related to the
separation.
INTEREST EXPENSE
Interest expense was $20.2 million and $40.6 million for the three and six
months ended June 30, 2000 versus $14.4 million and $25.7 million for the
comparable 1999 periods. Interest expense for the three and six months ended
June 30, 2000 relates primarily to borrowings under our unsecured notes and
revolving credit facility. Proceeds from the sale of the unsecured notes in 1999
were used to repay the revolving credit facility. Borrowings under the revolving
credit facility were used primarily to fund acquisitions and capital
expenditures.
Capitalized interest was $.8 million and $1.5 million for the three and six
months ended June 30, 2000 versus $1.3 million and $3.0 million for the
comparable 1999 periods.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income, net of other expense, was $.5 million and $.8
million for the three and six months ended June 30, 2000 versus $.4 million and
$2.9 million for the comparable prior year periods. The decrease in interest
income for the six months ended June 30, 2000 versus the comparable period in
1999 is primarily due to higher average cash balances on hand during 1999.
INCOME TAXES
The provision for income taxes was $37.0 million and $68.4 million for the
three and six months ended June 30, 2000 versus $34.1 million and $61.3 million
for the comparable prior year periods. The effective income tax rate was 38.5%
for the three and six months ended June 30, 2000 and 1999. Income taxes have
been provided based upon our anticipated annual effective tax rate.
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LANDFILL AND ENVIRONMENTAL MATTERS
AVAILABLE AIRSPACE
The following table reflects landfill airspace activity for landfills owned
or operated by us for the six months ended June 30, 2000:
Balance Landfills Balance
as of New Acquired, as of
December 31, Expansion Net of Permits Airspace June 30,
1999 Undertaken Divestitures Granted Consumed 2000
------------ ----------- ------------ ------- -------- --------
Permitted airspace:
Cubic yards (in millions).. 1,304.1 8.9 28.3 (15.6) 1,325.7
Number of sites............ 55 (2) 53
Expansion airspace:
Cubic yards (in millions).. 369.7 31.4 (27.1) (28.3) 345.7
Number of sites............ 20 2 (1) (1) 20
------- ---- ----- ---- ----- -------
Total available airspace:
Cubic yards (in millions).. 1,673.8 31.4 (18.2) -- (15.6) 1,671.4
======= ==== ===== ==== ===== =======
Number of sites............ 55 (2) 53
======= ===== =======
As of June 30, 2000, we owned or operated 53 solid waste landfills with
total available disposal capacity estimated to be 1.7 billion in-place cubic
yards. Total available disposal capacity represents the sum of estimated
permitted airspace plus an estimate of airspace we have deemed likely to be
permitted. These estimates are developed annually by independent engineers
together with our engineers utilizing information provided by annual aerial
surveys. As of June 30, 2000, total available disposal capacity is estimated to
be 1.3 billion in-place cubic yards of permitted airspace plus .4 billion
in-place cubic yards of expansion airspace which we have deemed likely to be
permitted. Before airspace included in an expansion area is determined as likely
to be permitted and, therefore, included in our calculation of total available
disposal capacity, it must meet our expansion criteria. See Note 3, Landfill and
Accrued Environmental Costs, of the Notes to our Unaudited Condensed
Consolidated Financial Statements for further information.
As of June 30, 2000, 20 of our landfills meet 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 33 years, including the expansion airspace. The average estimated remaining
life of all of our landfills is 38 years.
As of June 30, 2000, 4 of our 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 June 30, 2000, 6 of
our 20 landfills that meet the criteria for including expansion airspace had
submitted permit applications to state authorities. The remaining 10 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 expansions at either the local or state
level.
CLOSURE AND POST-CLOSURE COSTS
During the six months ended June 30, 2000, we consumed approximately 15.6
million cubic yards of airspace. During this same period, charges to expense for
closure and post-closure were $10.7 million, or $.69 per cubic yard. As of June
30, 2000, accrued closure and post-closure costs were $166.9 million. The
current portion of these costs of $18.6 million is reflected in our Unaudited
Condensed Consolidated Balance Sheet in other current liabilities. The long-term
portion of these costs of $148.3 million is reflected in our Unaudited Condensed
Consolidated Balance Sheet in accrued environmental and landfill costs. As of
June 30, 2000, assuming that all available landfill capacity is used, we expect
to expense approximately $545.3 million of additional closure and post-closure
costs over the remaining lives of our facilities.
Our estimates for closure and post-closure do not take into account
discounts for the present value of total estimated costs. If total estimated
costs were discounted to present value, they would be lower. Thus, if we
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discounted such costs, assuming closure and post-closure payments were made
ratably over the life of the landfill and the post-closure period, respectively,
and assuming the costs in current dollars are inflated by 2% until the expected
time of payment and then discounted to present value at 6%, closure and
post-closure expense would be reduced to $5.9 million, or $.38 per cubic yard,
for the six months ended June 30, 2000, a reduction of $4.8 million, or $.31 per
cubic yard, from recorded expense. In addition, if we discounted such costs, the
present value of the expected future expense related to closure and post-closure
assuming all available landfill capacity is used would decrease to $237.1
million.
INVESTMENT IN LANDFILLS
The following table reflects changes in our investments in landfills for the
six months ended June 30, 2000 and the future expected investment as of June 30,
2000 (in millions):
Balance
as of Landfills Additions Balance
December Acquired, Transfers Charged as of Expected Total
31, Capital Net of and to June 30, Future Expected
1999 Additions Divestures Adjustments Expense 2000 Investment Investment
--------- --------- ---------- ----------- --------- -------- ---------- -----------
Non-depletable landfill
land..................... $ 46.4 $ -- $ .7 $ .1 $ -- $ 47.2 $ -- $ 47.2
Landfill development costs 827.6 4.3 (12.7) 20.7 -- 839.9 1,014.0 1,853.9
Construction in
progress -- landfill..... 44.3 24.4 (.1) (23.4) -- 45.2 -- 45.2
Accumulated depletion and
amortization............. (135.1) -- 10.5 .3 (29.7) (154.0) -- (154.0)
------- ----- ------ ------ ------ ------- -------- --------
Net investment in landfill
land and development
costs..................... $ 783.2 $28.7 $ (1.6) $ (2.3) $(29.7) $ 778.3 $1,014.0 $1,792.3
======= ===== ====== ====== ====== ======= ======== ========
As of December 31, 1999, we owned or operated 55 solid waste landfills with
total available disposal capacity estimated to be 1.7 billion in-place cubic
yards. Our net investment in these landfills, excluding non-depletable land, was
$736.8 million, or approximately $.44 per cubic yard.
As of June 30, 2000, we owned or operated 53 solid waste landfills with
total available disposal capacity estimated to be 1.7 billion in-place cubic
yards. Our net investment in these landfills, excluding non-depletable land, was
$731.1 million, or $.44 per cubic yard. During the six months ended June 30,
2000, our depletion and amortization expense relating to landfills was $29.7
million, or $1.90 per cubic yard.
As of June 30, 2000, we expect to spend an estimated additional $1.0 billion
on existing landfills, primarily related to cell construction and environmental
structures, over their expected remaining lives. Our total expected gross
investment, excluding non-depletable land, estimated to be $1,745.1 million, or
$1.04 per cubic yard, is used in determining our depletion and amortization
expense based upon airspace consumed using the units-of-consumption method. Our
estimates for expected future investment in landfills do not take into account
discounts for the present value of total estimated costs. For further
information, see "Closure and Post-Closure Costs."
We accrue costs related to environmental remediation activities 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 six
months ended June 30, 2000 and 1999, respectively.
FINANCIAL CONDITION
In July 1998, we entered into a $1.0 billion unsecured revolving credit
facility with a group of banks. $500.0 million of the credit facility expires
July 2001 and the remaining $500.0 million expires in July 2003. Borrowings
under the credit facility bear interest at LIBOR-based rates. We use our own
operating cash flow and proceeds from our credit facilities to finance our
working capital, capital expenditures, acquisitions and other requirements. As
of June 30, 2000, we had approximately $498.2 million of availability under the
credit facility.
In May 1999, we sold $600.0 million of unsecured notes in the public market.
$225.0 million of these notes bear interest at 6 5/8% per annum and mature in
2004. The remaining $375.0 million bear interest at 7 1/8% per annum and mature
in 2009. Interest on these notes is payable semi-annually in May and November.
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The $225.0 million and $375.0 million in notes were offered at a discount of
$1.0 million and $.5 million, respectively. Proceeds from the notes were used to
repay our revolving credit facility.
In December 1999, we entered into a $100.0 million operating lease facility
established to finance the acquisition of operating equipment. As of June 30,
2000, $64.2 million was outstanding under this facility.
We believe that we currently have sufficient financial resources to meet our
anticipated capital requirements and obligations as they come due. We believe
that we would be able to raise additional debt or equity financing, if
necessary, to fund special corporate needs or to complete acquisitions. However,
we cannot assure you that we would be able to obtain additional financing under
terms as favorable as our existing facilities and notes, or to extend the
existing short-term credit facility on the same terms.
SELECTED BALANCE SHEET ACCOUNTS
The following table reflects the activity in our allowance for doubtful
accounts, accrued closure and post-closure, accrued self-insurance and amounts
due to former owners during the six months ended June 30, 2000 (in millions):
Allowance for Closure and Amounts Due to
Doubtful Accounts Post-Closure Self-Insurance Former Owners
----------------- ------------- -------------- -------------
Balance, December 31, 1999.......... $ 14.2 $ 152.3 $ 38.4 $ 47.0
Additions charged to expense........ 5.3 10.7 45.0 --
Additions due to acquisitions, net
of divestitures.................... .5 9.6 -- 4.4
Usage............................... (6.2) (5.7) (44.3) (27.1)
------ ------- ------ ------
Balance, June 30, 2000.............. 13.8 166.9 39.1 24.3
Current portion..................... 13.8 19.7 20.8 24.3
------ ------- ------ ------
Long-term portion................... $ -- $ 147.2 $ 18.3 $ --
====== ======= ====== ======
Additions to accrued liabilities related to acquisitions are periodically
reviewed during the year subsequent to the acquisition. During such reviews,
accrued liabilities which are considered to be in excess of amounts required for
a specific acquisition are reversed and charged against goodwill (cost in excess
of net fair value of assets acquired).
As of June 30, 2000, accounts receivable were $246.8 million, net of
allowance for doubtful accounts of $13.8 million, resulting in days sales
outstanding of 43, or 32 days net of deferred revenue.
PROPERTY, PLANT AND EQUIPMENT
The following tables reflect the activity in our property, plant and
equipment accounts for the six months ended June 30, 2000 (in millions):
Gross Property, Plant and Equipment
----------------------------------------------------------------------------------------
Balance Landfills Balance
as of Acquired, as of
December 31, Capital Net of Transfers and June 30,
1999 Additions Retirements Divestures Adjustments 2000
------------ --------- ----------- ---------- ----------- --------
Other land..................... $ 82.8 $ .1 $ -- $ (1.2) $ .9 $ 82.6
Non-depletable landfill land... 46.4 -- -- .7 .1 47.2
Landfill development costs..... 827.6 4.3 -- (12.7) 20.7 839.9
Vehicles and equipment......... 961.3 29.3 (20.4) (30.9) 12.1 951.4
Buildings and improvements..... 187.5 4.8 (.1) (5.5) 5.3 192.0
Construction in
progress -- landfill......... 44.3 24.4 -- (.1) (23.4) 45.2
Construction in
progress -- other............ 24.4 34.9 -- (1.8) (17.3) 40.2
-------- ----- ------ ------ ------ --------
Total................. $2,174.3 $97.8 $(20.5) $(51.5) $ (1.6) $2,198.5
======== ===== ====== ====== ====== ========
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Accumulated Depreciation, Amortization and Depletion
-------------------------------------------------------------------------------------------
Balance as of Additions Balance as of
December 31, Charged to Transfers and June 30,
1999 Expense Retirements Divestitures Adjustments 2000
-------------- ----------- ----------- ------------ ------------- --------------
Landfill development costs $ (135.1) $(29.7) $ -- $10.5 $ .2 $(154.1)
Vehicles and equipment... (399.9) (43.2) 12.5 29.0 1.0 (400.6)
Buildings and improvements (33.8) (3.2) .1 1.9 -- (35.0)
-------- ------ ----- ----- ---- -------
Total........... $ (568.8) $(76.1) $12.6 $41.4 $1.2 $(589.7)
========= ====== ===== ===== ==== =======
The tables above exclude $64.2 million of operating equipment consisting
primarily of revenue producing vehicles that were subject to our operating lease
facility as of June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The major components of changes in cash flows for the six months ended June
30, 2000 and 1999 are discussed below.
CASH FLOW FROM OPERATING ACTIVITIES. Cash provided by operating activities
was $227.2 million and $140.3 million for the six months ended June 30, 2000 and
1999, respectively. The changes in cash provided by operating activities during
the periods are due to expansion of our business.
CASH FLOWS FROM INVESTING ACTIVITIES. Cash flows from investing activities
consist primarily of cash used for business acquisitions and capital additions.
Cash used to acquire businesses, net of cash acquired, was $84.4 million and
$629.4 million during the six months ended June 30, 2000 and 1999, respectively.
We intend to finance capital expenditures and acquisitions through cash on
hand, cash flow from operations, our $1.0 billion revolving credit facility and
other financing. We expect to use primarily cash for future business
acquisitions.
CASH FLOWS FROM FINANCING ACTIVITIES. Cash flows from financing activities
for the six months ended June 30, 2000 and 1999 included net repayments of
commercial bank debt. In May 1999, we sold unsecured notes with a face value of
$600.0 million at a discounted price of $598.5 million. Proceeds from the notes
were used to repay our revolving credit facility. In December 1999, we entered
into a $100.0 million operating lease facility established to finance the
acquisition of operating equipment consisting primarily of revenue-producing
vehicles. At June 30, 2000, $64.2 million was outstanding under this facility.
We used proceeds from bank facilities and unsecured notes to fund
acquisitions and capital additions, and repay debt.
SEASONALITY
Our 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 our landfill sites and
other facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133". SFAS 137 amends FASB Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," by deferring the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. SFAS
133 was further amended in June 2000 by the issuance of SFAS 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities - An Amendment
of FASB Statement No. 133". SFAS 133, as amended, 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, as amended, requires that changes in the derivative's fair value be
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recognized currently in earnings unless specific hedge accounting criteria are
met. We will adopt SFAS 133, as amended, beginning January 1, 2001. We do not
expect adoption of this standard to have a material impact on our consolidated
financial position or results of operations.
DISCLOSURE REGARDING 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 which include, among other things, the
discussions of our growth and operating strategies and expectations concerning
market position, future operations, margins, revenue, profitability, liquidity
and capital resources, as well as statements concerning the integration of the
operations of acquired businesses and achievement of financial benefits and
operational efficiencies in connection therewith. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of our company
to be materially different from any future results, performance, or achievements
expressed or implied, in or by such forward-looking statements. Such factors
include, among other things, whether our estimates and assumptions concerning
our selected balance sheet accounts, closure and post-closure costs, available
airspace, and projected costs and expenses related to our landfills and
property, plant and equipment, turn out to be correct or appropriate, and
various factors that will impact our actual business and financial performance
such as competition in the solid waste industry; our dependence on acquisitions
for growth; our ability to manage growth; compliance with and future changes in
environmental regulations; our ability to obtain approval from regulatory
agencies in connection with expansions at our landfills; the ability to obtain
financing on acceptable terms to finance our operations and growth strategy and
of our company to operate within the limitations imposed by financing
arrangements; our dependence on key personnel; general economic conditions; our
dependence on large, long-term collection contracts; risk associated with
undisclosed liabilities of acquired businesses; risks associated with pending
legal proceedings; and other factors contained in this section and other factors
contained in our filings with the Securities and Exchange Commission. We assume
no duty to update the forward looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our 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. We manage
interest rate risk through a combination of fixed and floating rate debt.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are and will continue to be involved in various administrative and legal
proceedings in the ordinary course of business. We can give you no assurance
regarding the outcome of these proceedings or the effect their outcomes may
have, or that our insurance coverages or reserves are adequate. A significant
judgment against our company, the loss of significant permits or licenses, or
the imposition of a significant fine could have a material adverse effect on our
financial position, results of operations or prospects.
In September 1999, several lawsuits were filed by certain shareholders
against us and certain of our 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 our 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 by, among other
things, allegedly making materially false and misleading statements regarding
our growth and the assets we acquired from Waste Management. On December 29,
1999, the Court consolidated these lawsuits and the consolidated action has been
named In Re: Republic Services, Inc. Securities Litigation. The plaintiffs filed
a consolidated complaint in February 2000 and the defendants filed a motion to
dismiss the consolidated complaint in April 2000. The motion to dismiss has been
fully briefed by the parties to the lawsuit and oral argument on the motion to
dismiss has not yet been scheduled. We believe the allegations contained in the
consolidated complaint are without merit and we will vigorously
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defend this and any related actions. However, an unfavorable resolution of this
lawsuit could have a material adverse effect on our financial position, results
of operations or cash flow in one or more future periods.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2000, we held our annual stockholders meeting. The holders of
159,509,315 shares of Common Stock were present in person or represented by
proxy at the meeting. At the meeting, our stockholders took the following
actions:
The stockholders elected the following persons to serve as our
directors until the next annual meeting of stockholders or until their
respective successors are duly elected and qualified:
Number of Votes For Number of Votes Withheld
------------------- ------------------------
H. Wayne Huizenga 157,810,426 1,698,889
Harris W. Hudson 157,869,353 1,639,962
James E. O'Connor 157,876,083 1,633,232
John W. Croghan 159,160,351 348,964
Ramon A. Rodriguez 159,167,033 342,282
Allan C. Sorensen 159,163,801 345,514
The stockholders approved and adopted our 1998 Stock Incentive Plan in
order to qualify grants under the plan as performance-based compensation. This
proposal received 146,070,437 votes for adoption and 12,967,655 votes against
adoption. 471,223 votes were withheld.
The stockholders also ratified the appointment of Arthur Andersen LLP
as our independent public accountants for fiscal 2000. This proposal received
159,405,295 votes for ratification and 62,567 votes against ratification. 41,453
votes were withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 The Common Stock Certificate of the Company.
4.2 Second Amendment to the Long Term Credit Agreement, dated June 20,
2000, among the Company, Bank of America National Trust and Savings
Association, as Administrative Agent, and the several financial
institutions party thereto.
27.1 Financial Data Schedule for the Three and Six Months Ended June 30,
2000 (for SEC use only).
(b) Reports on Form 8-K:
Form 8-K, dated April 25, 2000 and filed April 26, 2000, including a
press release announcing the Company's operating results for the three
months ended March 31, 2000.
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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: August 9, 2000
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.1 The Common Stock Certificate of the Company.
4.2 Second Amendment to the Long Term Credit Agreement, dated June
20, 2000, among the Company, Bank of America National Trust
and Savings Association, as Administrative Agent, and the
several financial institutions party thereto.
27.1 Financial Data Schedule for the Three and Six Months Ended
June 30, 2000 (for SEC use only).
1
Exhibit 4.1
STOCK CERTIFICATE
NUMBER SHARES
RSG
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE CUSIP 760759 10 0
IN CHARLOTTE, NC AND NEW YORK, NY.
REPUBLIC SERVICES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT SEE REVERSE
FOR CERTAIN
DEFINITIONS
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01, OF
Republic Services, Inc. transferable on the books of the Corporation in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This certificate and the shares evidenced hereby are issued under and
shall be subject to all of the provisions of the Certificate of Incorporation of
the Corporation and any amendments thereto, copies of which are on file with the
Corporation and the Transfer Agent, to all of which the holder by acceptance
hereof assumes. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:____________
/s/ Harris W. Hudson /s/ H. Wayne Huizenga
- ------------------------ ------------------------
VICE CHAIRMAN AND SECRETARY CHAIRMAN
[CORPORATE SEAL OMITTED]
REPUBLIC SERVICES, INC.
SEAL 1996
DELAWARE
Countersigned and Registered:
FIRST UNION NATIONAL BANK
(CHARLOTTE, NC)
Transfer Agent
and Registrar
By
Authorized Signature
2
REPUBLIC SERVICES, INC.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE COMPANY AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-___________CUSTODIAN ___________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with rights of Act ______________
surviorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received, ______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________ Attorney to transfer the said stock on the books
of the within named Corporation with full power of substitution in the premises.
Dated:__________________
--------------------------------------------------------------
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S)
GUARANTEED:
---------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
1
Exhibit 4.2
SECOND AMENDMENT AGREEMENT
TO LONG TERM CREDIT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and
entered into as of this 20th day of June, 2000, by and among REPUBLIC SERVICES,
INC., a Delaware corporation (herein called the "Company"), the several
financial institutions signatory hereto (collectively, the "Lenders";
individually each a "Lender") and BANK OF AMERICA, N.A. (successor by merger of
Bank of America National Trust and Savings Association), as administrative agent
for the Lenders (the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Administrative Agent and the Lenders have
entered into a Long Term Credit Agreement dated July 10, 1998, as amended (the
"Agreement") pursuant to which the Lenders have agreed to make loans to the
Company in the aggregate principal amount of up to $500,000,000 as evidenced by
the Notes (as defined in the Agreement) and to issue Letters of Credit for the
benefit of the Company; and
WHEREAS, the Company has requested that the Agreement be amended in the
manner described herein and the Administrative Agent and the Lenders have
agreed, subject to the terms and conditions hereof, to make such amendment, as
provided herein;
NOW, THEREFORE, the Company, the Administrative Agent and the Lenders
do hereby agree as follows:
2
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. AMENDMENT. Subject to the conditions set forth herein, the Agreement
is hereby amended, effective as of the date hereof, as follows:
(a) The following new definitions are hereby added to SECTION
1.1 in the appropriate alphabetical order:
"CANADIAN CURRENCY EQUIVALENT AMOUNT means, with
respect to the Canadian Dollar and a specified Dollar amount,
the amount of Canadian Dollars into which such Dollar amount
would be converted, based on the Exchange Rate.
CANADIAN DOLLARS means the lawful currency of Canada.
CANADIAN L/C means a Letter of Credit which is
denominated in Canadian Dollars.
DOLLAR EQUIVALENT AMOUNT means, with respect to a
Canadian Dollar amount, the amount of Dollars into which the
Canadian Dollar amount would be converted, based on the
applicable Exchange Rate.
DOLLAR VALUE of a Letter of Credit in a Canadian
Dollar amount means the Dollar Equivalent Amount of the stated
amount of such Letter of Credit as recorded in the
Administrative Agent's records pursuant to SECTION 3.1(C).
EXCHANGE RATE means, with respect to the issuance of
a Canadian L/C, the Spot Rate of Exchange as of the date two
Business Days preceding the Valuation Date.
SPOT RATE OF EXCHANGE means, (i) in determining the
Dollar Equivalent Amount of a specified Canadian Dollar amount
as of any date, the spot exchange rate determined by the
Administrative Agent in accordance with its usual procedures
for the purchase by the Administrative Agent of Dollars with
Canadian Dollars at approximately 10:00 A.M. on the Business
Day that is two (2) Business Days prior to such date, and (ii)
in determining the Canadian Currency Equivalent Amount of a
specified Dollar amount on any date, the spot exchange rate
determined by the Administrative Agent in accordance with its
usual procedures for the purchase by the Administrative Agent
of Canadian
2
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Dollars with Dollars at approximately 10:00 A.M. on the
Business Day that is two (2) Business Days prior to such date.
VALUATION DATE means any of (i) the date of any
Credit Extension, (ii) the date of any L/C Borrowing, and
(iii) any other date when there are outstanding Canadian L/Cs
that the Administrative Agent shall determine the Dollar
Equivalent Amount of Canadian L/Cs."
(b) The definition of "L/C Obligations" in SECTION 1.1 is
hereby amended in its entirety so that as amended it shall read as
follows:
"L/C OBLIGATIONS means at any time the sum of (a) the
aggregate Dollar Equivalent Amount of all undrawn Canadian
L/Cs and Dollar amount of all other undrawn Letters of Credit
then outstanding, plus (b) the Dollar Equivalent Amount of all
unreimbursed drawings under all Canadian L/Cs, plus (c) the
Dollar amount of all unreimbursed drawings under all other
Letters of Credit, including all outstanding L/C Borrowings."
(c) CLAUSE (V) of SECTION 3.1(B) is amended in its entirety so
that as amended it shall read as follows:
"(v) such Letter of Credit is denominated in a
currency other than Dollars, or, in the case of BofA only, in
a currency other than Dollars or Canadian Dollars."
(d) A new subsection (c) is hereby added to SECTION 3.1 which
subsection (c) shall read as follows:
"(c) On the terms and conditions set forth herein,
BofA may Issue upon request and for the account of the Company
a standby Canadian L/C. For purposes of determining L/C
Obligations, any Canadian L/C shall be recorded in the
Administrative Agent's account in Dollars based on the Dollar
Equivalent Amount on the date of issuance of such Canadian
L/C; PROVIDED, HOWEVER, that the Administrative Agent shall
determine the Dollar Equivalent Amount of any Canadian L/C on
the Valuation Date for the purpose of determining L/C
Obligations. Any draw on a Canadian L/C shall be repaid in
Canadian Dollars in an amount equal to the amount of the draw
in Canadian Dollars. If at any time there is a drawing under a
Canadian L/C and the Company shall not promptly reimburse such
drawing as provided in SECTION 3.3, the Company shall be
obligated to immediately repay to the Administrative Agent for
the benefit of the Lenders an amount in Dollars equal to the
Dollar Equivalent Amount of the Canadian Dollars paid by BofA
to the beneficiary of such Canadian L/C on the date of such
drawing."
3
4
(e) Subsection (a) of SECTION 3.8 is amended in its entirety
so that as amended it shall read as follows:
"(a) The Company shall pay to the Administrative
Agent for the account of each Lender a letter of credit fee
with respect to each Letter of Credit equal to the L/C Fee
Rate (plus, upon notice from the Administrative Agent (acting
at the request or with the consent of the Required Lenders)
during the existence of an Event of Default, and for so long
as such Event of Default shall continue, 2%) per annum of the
average daily maximum amount available to be drawn on such
Letter of Credit or in the case of a Canadian L/C the Dollar
Equivalent Amount of the average daily maximum amount,
computed on a quarterly basis and on the Termination Date (or
such later date on which such Letter of Credit shall expire or
be fully drawn)."
(f) SECTION 8.6 is hereby amended in its entirety so that as
amended it shall read as follows:
"8.6 LIMITATIONS ON SUBSIDIARY INDEBTEDNESS. The
Company shall not permit the sum of the aggregate amount of
all Indebtedness of Subsidiaries (excluding (i) the existing
Indebtedness listed on SCHEDULE 8.6 and extensions, renewals
and refinancings thereof so long as the principal amount
thereof is not increased and (ii) extensions of credit
permitted under SECTION 8.5(C)) to exceed 20% of Consolidated
Tangible Assets."
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants that:
(a) The representations and warranties made by Company in
ARTICLE VI of the Agreement are true on and as of the date hereof;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Company and its Subsidiaries
since the date of the most recent financial reports of the Company
received by each Lender under SECTION 7.1 thereof, other than changes
in the ordinary course of business, none of which has a Material
Adverse Effect;
(c) The business and properties of the Company and its
Subsidiaries are not and have not been adversely affected in any
substantial way as the result of any fire, explosion, earthquake,
accident, strike, lockout, combination of workers, flood, embargo,
riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
4
5
(d) No event has occurred and no condition exists which, upon
the consummation of the transaction contemplated hereby, constitutes an
Unmatured Event of Default or an Event of Default on the part of the
Company under the Agreement, the Notes or any other Loan Document
either immediately or with the lapse of time or the giving of notice,
or both.
4. CONDITIONS. This Amendment Agreement shall become effective upon the
Company delivering to the Administrative Agent (i) seventeen (17) counterparts
of this Amendment Agreement duly executed by the Company, the Administrative
Agent and the Lenders and (ii) receipt by the Administrative Agent of all fees
and expenses due in connection with this Amendment Agreement.
5. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, conditions, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any other party
to the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing, in
the manner provided in the Agreement, specifying such change, modification,
waiver or cancellation of such terms or conditions, or of any proceeding or
succeeding breach thereof.
6. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically
amended, modified or supplemented, the Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
5
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
COMPANY:
REPUBLIC SERVICES, INC.
WITNESS:
/s/ R. MALLOY MCKEITHEN By: /s/ EDWARD LANG
- ---------------------------- --------------------------------
Name: Edward Lang
Title: Vice President-Finance & Treasurer
/s/ TERRY L. WITCHER
- ----------------------------
6
7
BANK OF AMERICA, N.A.,
as Administrative Agent and a
Documentation Agent
By: /s/ RICHARD M. STARKE
--------------------------------
Name: Richard M. Starke
Title: Managing Director
BANK OF AMERICA, N.A., as Swing Line
Lender, as an Issuing Lender and as a Lender
By: /s/ RICHARD M. STARKE
--------------------------------
Name: Richard M. Starke
---------------------------
Title: Managing Director
--------------------------
7
8
THE CHASE MANHATTAN BANK,
as Documentation Agent and as a Lender
By: /s/ GAIL WEISS
--------------------------------
Name: Gail Weiss
------------------------------
Title: Vice President
-----------------------------
8
9
BANK ONE, N.A.,
as Documentation Agent, as an Issuing
Lender and as a Lender
By: /s/ DIANNA MCCARTHY
--------------------------------
Name: Dianna McCarthy
------------------------------
Title: Vice President
-----------------------------
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10
ABN AMRO BANK, N.V.,
as a Lender
By: /s/ LAURIE D. FLOM
--------------------------------
Name: Laurie D. Flom
------------------------------
Title: Group Vice President
-----------------------------
By: /s/ MARY L. HONDA
--------------------------------
Name: Mary L. Honda
------------------------------
Title: Vice President
-----------------------------
10
11
BANCA DI ROMA,
as a Lender
By: /s/ STEVEN PALEY
--------------------------------
Name: Steven Paley
------------------------------
Title: FVP
-----------------------------
By: /s/ ALESSANDRO PAOLI
--------------------------------
Name: Alessandro Paoli
------------------------------
Title: Asst. Treasurer
-----------------------------
11
12
BANK OF NEW YORK,
as a Lender
By: /s/ DAVID SIEGEL
--------------------------------
Name: David Siegel
------------------------------
Title: Vice President
-----------------------------
12
13
CIBC, INC.,
as a Lender
By: /s/ STEPHANIE E. DEVANE
-------------------------------------
Name: Stephanie E. Devane
-----------------------------------
Title: Executive Director
----------------------------------
CIBC World Market Corp., as agent
13
14
CITIBANK, N.A.,
as a Lender
By: /s/ DAVID L. HARRIS
--------------------------------
Name: David L. Harris
------------------------------
Title: Vice President
-----------------------------
14
15
COMMERZBANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES,
as a Lender
By: /s/ HARRY P. YERGEY
----------------------------------
Name: Harry P. Yergey
--------------------------------
Title: Senior Vice President & Manager
--------------------------------
By: /s/ SUBASH R. VISWANATHAN
----------------------------------
Name: Subash R. Viswanathan
--------------------------------
Title: Vice President
--------------------------------
15
16
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCH
as a Lender
By: /s/ IAIN STUART
--------------------------------
Name: Iain Stuart
------------------------------
Title: Vice President
-----------------------------
By: /s/ STEPHANIE STROKE
--------------------------------
Name: Stephanie Stroke
------------------------------
Title: Vice President
-----------------------------
16
17
AMSOUTH BANK,
as a Lender
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
17
18
FIRST UNION NATIONAL BANK,
as a Lender
By: /s/ MARY A. MORGAN
--------------------------------
Name: Mary A. Morgan
------------------------------
Title: SVP
-----------------------------
18
19
FLEET NATIONAL BANK,
as a Lender
By: /s/ MICHAEL NATOCA
--------------------------------
Name: Michael Natoca
------------------------------
Title: Vice President
-----------------------------
19
20
SUNTRUST BANK,
as a Lender
By: /s/ W. DAVID WISDOM
--------------------------------
Name: W. David Wisdom
------------------------------
Title: Vice President
-----------------------------
20
21
WELLS FARGO BANK,
as a Lender
By: /s/ RON SINGH
--------------------------------
Name: Ron Singh
------------------------------
Title: Vice President
-----------------------------
21
22
WESTDEUTSCHE LANDESBANK,
GIROZENTRALE, New York Branch
as a Lender
By: /s/ DUNCAN M. ROBERTSON
--------------------------------
Name: Duncan M. Robertson
------------------------------
Title: Director
-----------------------------
By: /s/ BARRY S. WADLER
--------------------------------
Name: Barry S. Wadler
------------------------------
Title: Manager
-----------------------------
22
5
3-MOS 6-MOS
DEC-31-2000 DEC-31-2000
APR-01-2000 JAN-01-2000
JUN-30-2000 JUN-30-2000
0 0
0 0
260,600,000 260,600,000
13,800,000 13,800,000
0 0
339,500,000 339,500,000
2,198,500,000 2,198,500,000
589,700,000 589,700,000
3,375,600,000 3,375,600,000
366,800,000 366,800,000
1,103,000,000 1,103,000,000
0 0
0 0
1,800,000 1,800,000
1,611,800,000 1,611,800,000
3,375,600,000 3,375,600,000
0 0
533,500,000 1,035,000,000
0 0
320,500,00 626,600,000
97,100,000 190,800,000
0 0
20,200,000 40,600,000
96,200,000 177,800,000
37,000,000 68,400,000
59,200,000 109,400,000
0 0
0 0
0 0
59,200,000 109,400,000
.34 .62
.34 .62
