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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission file number: 1-14267
REPUBLIC SERVICES, INC.
(Exact name of Registrant as Specified in its Charter)
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Delaware |
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65-0716904 |
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(State of Incorporation) |
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(I.R.S. Employer Identification No.) |
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Republic Services, Inc.
110 S.E. 6th Street, 28th Floor
Fort Lauderdale, Florida
(Address of Principal Executive Offices) |
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33301
(Zip Code) |
Registrant’s telephone number, including area
code: (954) 769-2400
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on which Registered |
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Common Stock, par value $.01 per share |
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The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
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 o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. x
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act). Yes x No o
As of June 30, 2004, the aggregate market value of the
shares of the Common Stock held by non-affiliates of the
registrant was approximately $4,395,636,476.
As of February 18, 2005, the registrant had outstanding
149,670,988 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant’s Proxy Statement
relative to the 2005 Annual Meeting of Stockholders.
INDEX
TO FORM 10-K
PART I
Company Overview
We are a leading provider of services in the domestic
non-hazardous solid waste industry. We provide non-hazardous
solid waste collection services for commercial, industrial,
municipal and residential customers through 140 collection
companies in 22 states. We also own or operate
96 transfer stations, 58 solid waste landfills and
35 recycling facilities.
As of December 31, 2004, our operations were organized into
five regions whose boundaries may change from time to time:
Eastern, Central, Southern, Southwestern and Western. Each
region is organized into several operating areas and each area
contains a group of operating locations. Each of our regions and
substantially all our areas provide collection, transfer,
recycling and disposal services. We believe that this
organizational structure facilitates the integration of our
operations within each region, which is a critical component of
our operating strategy. See Note 10 of the Notes to
Consolidated Financial Statements for further discussion of
operating segments.
We had revenue of $2,708.1 million and
$2,517.8 million and operating income of
$452.3 million and $412.7 million for the years ended
December 31, 2004 and 2003, respectively. The
$190.3 million, or 7.6%, increase in revenue from 2003 to
2004 is primarily attributable to the successful execution of
our operating and growth strategies described below. The
$39.6 million, or 9.6%, increase in operating income from
2003 to 2004 is partially due to higher self-insurance expense
during 2003 related to existing claims and was attributable to
the expansion of our operations and various changes in estimates
as a result of continued negative trends through the 2003 policy
year. The remaining increase in operating income is due to the
successful execution of our operating and growth strategies
described below.
Our presence in high growth markets throughout the Sunbelt,
including California, Florida, Georgia, Nevada, North Carolina,
South Carolina and Texas, and in other domestic markets that
have experienced higher than average population growth during
the past several years, supports our internal growth strategy.
We believe that our presence in these markets positions our
company to experience growth at rates that are generally higher
than the industry’s overall growth rate.
We continue to focus on enhancing stockholder value by
implementing our financial, operating and growth strategies as
described below.
Industry Overview
Based on analysts’ reports and industry trade publications,
we believe that the United States non-hazardous solid waste
services industry generates annual revenue of approximately
$44.0 billion, of which approximately 50% is generated by
publicly-owned waste companies, 21% is generated by
privately-held waste companies, and 29% is generated by
municipal and other local governmental authorities. Three
companies generate the substantial majority of the
publicly-owned companies’ total revenue. However, according
to industry data, the domestic non-hazardous waste industry
remains highly fragmented as privately-held companies and
municipal and other local governmental authorities generate
approximately 50% of total industry revenue. In general, growth
in the solid waste industry is linked to growth in the overall
economy, including the level of new household and business
formation.
The solid waste industry experienced a period of rapid
consolidation in the late 1990’s. During that time we were
able to grow significantly through acquisitions. However,
acquisitions in the industry have slowed considerably since late
1999. Despite this, we believe that the opportunity to grow
through acquisitions still exists, albeit at a slower pace than
experienced in previous years, as a result of the following
factors:
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Subtitle D Regulation. Subtitle D of the Resource
Conservation and Recovery Act of 1976, as currently in effect,
and similar state regulations have significantly increased the
amount of capital, technical expertise, operating costs and
financial assurance obligations required to own and operate a |
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landfill and other solid waste facilities. Many of the smaller
participants in our industry have found these costs difficult,
if not impossible, to bear. Large publicly-owned companies, like
our company, have greater access to, and a lower cost of, the
capital necessary to finance such increased capital expenditures
and costs relative to many of the privately-owned companies in
the industry. Additionally, the required permits for landfill
development, expansion or construction have become more
difficult, time-consuming and costly to acquire. Consequently,
many smaller, independent operators have decided to either close
their operations or sell them to larger operators that have
greater access to capital. |
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Integration of Solid Waste Businesses. By being able to
control the waste stream in a market through the collection,
transfer and disposal process, integrated solid waste companies
gain a further competitive advantage over non-integrated
operators. The ability of the integrated companies to both
collect and dispose of solid waste, coupled with access to
significant capital resources necessary for acquisitions, has
created an environment in which large publicly-owned, integrated
companies can operate more cost effectively and competitively
than non-integrated operators. |
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Municipal Privatization. The trend toward consolidation
in the solid waste services industry is further supported by the
increasing tendency of a number of municipalities to privatize
their waste disposal operations. Privatization of municipal
waste operations is often an attractive alternative to funding
the changes required by Subtitle D. |
These developments, as well as the fact that there are a limited
number of viable exit strategies for many of the owners and
principals of numerous privately-held companies in the industry,
have contributed to the overall consolidation trend in the solid
waste industry.
Financial Strategy
A key component of our financial strategy is our ability to
generate free cash flow. Our definition of free cash flow, which
is not a measure determined in accordance with generally
accepted accounting principles, is cash provided by operating
activities less purchases of property and equipment plus
proceeds from the sale of property and equipment as presented in
our consolidated statement of cash flows. We believe that free
cash flow provides useful information regarding the recurring
cash provided by our operating activities after expenditures for
property and equipment. It also demonstrates our ability to
execute our financial strategy. Consequently, we have developed
incentive programs and we conduct monthly field operating
reviews that help focus our entire company on the importance of
increasing free cash flow.
Free cash flow does not represent our cash flow available for
discretionary expenditures because it excludes certain
expenditures that are required or that we have committed to such
as debt service requirements and dividend payments. Our
definition of free cash flow may not be comparable to similarly
titled measures presented by other companies.
We manage our free cash flow primarily by ensuring that capital
expenditures and operating asset levels are appropriate in light
of our existing business and growth opportunities and by closely
managing our working capital, which consists primarily of
accounts receivable and accounts payable.
We have used and will continue to use our cash flow to maximize
stockholder value as well as our return on investment. This
includes the following:
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Customer Service. We will continue to reinvest in
our existing fleet of vehicles, equipment, landfills and
facilities to ensure a high level of service to our customers. |
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Internal Growth. Growth through increases in our
customer base and services provided is the most capital
efficient means for us to build our business. This includes not
only expanding landfill and transfer capacity and investing in
trucks and containers, but also includes investing in
information tools and training needed to ensure high
productivity and quality service throughout all functional areas
of our business. |
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Strategic Acquisitions. We have and will continue
to pursue strategic acquisitions that augment our existing
business platform. |
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Share Repurchases. If we are unable to identify
opportunities that satisfy our growth strategy, we intend to
continue to use our free cash flow to repurchase shares of our
common stock at prices that provide value to our stockholders.
As of December 31, 2004, we had repurchased a total of
35.2 million shares, or approximately 20% of our common
stock outstanding at the commencement of our share repurchase
program in 2000, for $750.4 million. In October 2004, our
board of directors authorized the repurchase of up to an
additional $275.0 million of our common stock, of which
$274.6 million remained available at December 31,
2004. We believe that our share repurchase program will continue
to enhance stockholder value. |
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Dividends. In July 2003, our board of directors
initiated a quarterly cash dividend of $.06 per share.
Effective October 2004, our quarterly cash dividend was
increased to $.12 per share. We may consider increasing our
quarterly cash dividend if we believe it will enhance
stockholder value. |
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Minimize Borrowings. To the extent that the
opportunities to enhance stockholder value mentioned above are
not available, we also intend to continue to use our free cash
flow to minimize our borrowings. |
Another key component of our financial strategy includes
maintaining an investment grade rating on our senior debt. This
has allowed us to secure favorable, long-term, fixed-rate
financing that reduces our exposure to changing interest rates.
This has also allowed us, and will continue to allow us, to
readily access capital markets.
For certain risks related to our financial strategy, see
“Risk Factors.”
Operating Strategy
We seek to leverage existing assets and revenue growth to
increase operating margins and enhance stockholder value. Our
operating strategy to accomplish this goal is to:
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utilize the extensive industry knowledge and experience of our
executive management, |
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utilize a decentralized management structure in overseeing
day-to-day operations, |
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integrate waste operations, |
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improve operating margins through economies of scale, cost
efficiencies and asset utilization, |
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achieve high levels of customer satisfaction, and |
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utilize systems to improve consistency in financial and
operational performance. |
For certain risks related to our operating strategy, see
“Risk Factors.”
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Experienced Executive Management Team. We believe
that we have one of the most experienced executive management
teams in the solid waste industry. |
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James E. O’Connor, who has served as our Chief Executive
Officer since December 1998, also became our Chairman in January
2003. He worked at Waste Management, Inc. from 1972 to 1978 and
from 1982 to 1998. During that time, he served in various
management positions, including Senior Vice President in 1997
and 1998, and Area President of Waste Management of Florida,
Inc. from 1992 to 1997. Mr. O’Connor has over
30 years of experience in the solid waste industry. |
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Michael J. Cordesman, who has served as our Chief Operating
Officer since March 2002 and also as our President since
February 2003, has over 24 years of experience in the solid
waste industry. He joined us in June 2001 as our Eastern Region
Vice President. From 1999 to 2001, Mr. Cordesman served as
Vice President of the Central Region for Superior Services Inc.
From 1980 to 1999, he served in various positions with Waste
Management, including Vice President of the Mid-Atlantic Region
from 1992 to 1999. |
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The other corporate officers with responsibility for our
operations have an average of over 23 years of management
experience in the solid waste industry. Our five regional vice
presidents and our 23 area presidents have an average of
24 years of experience in the industry. |
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In addition, Harris W. Hudson, who has served as our Vice
Chairman since our initial public offering, has over
40 years of experience in the solid waste industry,
including 11 years with Waste Management and 19 years
with private waste collection companies. |
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Decentralized Management Structure. We maintain a
relatively small corporate headquarters staff, relying on a
decentralized management structure to minimize administrative
overhead costs and to manage our day-to-day operations more
efficiently. Our local management has extensive industry
experience in growing, operating and managing solid waste
companies and has substantial experience in their local
geographic markets. In early 2001, we added a sales, maintenance
and operations manager to each of our regional management teams,
which previously consisted of a regional vice president and a
regional controller. We believe that strengthening our regional
management teams allows us to more effectively and efficiently
drive our company’s initiatives and helps ensure
consistency throughout our organization. Our regional management
teams and our area presidents have extensive authority,
responsibility and autonomy for operations within their
respective geographic markets. Compensation for regional and
area management teams is primarily based on the improvement in
operating income produced and the free cash flow and return on
invested capital generated in each manager’s geographic
area of responsibility. In addition, through long-term incentive
programs, including stock options, we believe we have one of the
lowest turnover levels in the industry for our local management
teams. As a result of retaining experienced managers with
extensive knowledge of and involvement in their local
communities, we are proactive in anticipating our
customers’ needs and adjusting to changes in our markets.
We also seek to implement the best practices of our various
regions and areas throughout our operations to improve operating
margins. |
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Integrated Operations. We seek to achieve a high
rate of internalization by controlling waste streams from the
point of collection through disposal. We expect that our fully
integrated markets generally will have a lower cost of
operations and more favorable cash flows than our non-integrated
markets. Through acquisitions and other market development
activities, we create market-specific, integrated operations
typically consisting of one or more collection companies,
transfer stations and landfills. We consider acquiring companies
that own or operate landfills with significant permitted
disposal capacity and appropriate levels of waste volume. We
also seek to acquire solid waste collection companies in markets
in which we own or operate landfills. In addition, we generate
internal growth in our disposal operations by developing new
landfills and expanding our existing landfills from time to time
in markets in which we have significant collection operations or
in markets that we determine lack sufficient disposal capacity.
During the three months ended December 31, 2004,
approximately 54% of the total volume of waste that we collected
was disposed of at landfills we own or operate. In a number of
our larger markets, we and our competitors are required to take
waste to government-controlled disposal facilities. This
provides us with an opportunity to effectively compete in these
markets without investing in landfill capacity. Because we do
not have landfill facilities or government-controlled disposal
facilities for all markets in which we provide collection
services, we believe that through landfill and transfer station
acquisitions and development we have the opportunity to increase
our waste internalization rate and further integrate our
operations. By further integrating operations in existing
markets through acquisitions and development of landfills and
transfer stations, we may be able to reduce our disposal costs. |
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Economies of Scale, Cost Efficiencies and Asset
Utilization. To improve operating margins, our
management focuses on achieving economies of scale and cost
efficiencies. The consolidation of acquired businesses into
existing operations reduces costs by decreasing capital and
expenses used for routing, personnel, equipment and vehicle
maintenance, inventories and back-office administration.
Generally, we consolidate our acquired administrative centers to
reduce our general and administrative costs. Our goal is to
maintain our selling, general and administrative costs in the
range of 10% of revenue, which we feel is appropriate given our
existing business platform. In addition, our size allows |
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our company to negotiate volume discounts for certain purchases,
including waste disposal rates at landfills operated by third
parties. Furthermore, we have taken steps to increase
utilization of our assets. For example, to reduce the number of
collection vehicles and maximize the efficiency of our fleet, we
have instituted a grid productivity program which allows us to
benchmark the performance of all of our drivers. In our larger
markets, we also use a route optimization program to minimize
drive times and improve operating density. By using assets more
efficiently, operating expenses can be significantly reduced. |
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High Levels of Customer Satisfaction. Our goal of
maintaining high levels of customer satisfaction complements our
operating strategy. Our personalized sales process is oriented
towards maintaining relationships and ensuring that service is
being properly provided. |
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Utilize Systems to Improve Consistency in Financial and
Operational Reporting. We continue to focus on systems
and training initiatives that complement our operating strategy.
These initiatives include contact management, billing,
productivity, maintenance and general ledger systems. These
systems provide us with detailed information, prepared in a
consistent manner, that will allow us to quickly analyze and act
upon trends in our business. |
For certain risks related to our operating strategy, see
“Risk Factors.”
Growth Strategy
Our growth strategy focuses on increasing revenue, gaining
market share and enhancing stockholder value through internal
growth and acquisitions. For certain risks related to our growth
strategy, see “Risk Factors.”
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Internal Growth. Our internal growth strategy
focuses on retaining existing customers and obtaining
commercial, municipal and industrial customers through our
well-managed sales and marketing activities. |
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Pricing Activities. We seek to secure price increases
necessary to offset increased costs. During the fourth quarter
of 2003, we implemented a broad-based pricing initiative across
all lines of our business. |
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Long-Term Contracts. We seek to obtain long-term
contracts for collecting solid waste in high-growth markets.
These include exclusive franchise agreements with municipalities
as well as commercial and industrial contracts. By obtaining
such long-term agreements, we have the opportunity to grow our
contracted revenue base at the same rate as the underlying
population growth in these markets. For example, we have secured
exclusive, long-term franchise agreements in high-growth markets
such as Los Angeles, Orange and Contra Costa Counties in
California, Las Vegas, Nevada, Arlington, Texas, and many areas
of Florida. We believe that this positions our company to
experience internal growth rates that are generally higher than
our industry’s overall growth rate. In addition, we believe
that by securing a base of long-term recurring revenue in growth
markets, we are better able to protect our market position from
competition and our business may be less susceptible to
downturns in economic conditions. |
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Sales and Marketing Activities. We seek to manage our
sales and marketing activities to enable our company to
capitalize on our leading positions in many of the markets in
which we operate. We currently have approximately 500 sales and
marketing employees in the field, who are compensated using a
commission structure that is focused on generating high levels
of quality revenue. For the most part, these employees directly
solicit business from existing and prospective commercial,
industrial, municipal and residential customers. We emphasize
our rate and cost structures when we train new and existing
sales personnel. In addition, we utilize a contact management
system that assists our sales people in tracking leads. It also
tracks renewal periods for potential commercial, industrial and
franchise contracts. |
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Development Activities. We seek to identify opportunities
to further our position as an integrated service provider in
markets where we provide services for a portion of the waste
stream. Where appropriate, we seek to obtain permits to build
transfer stations and/or landfills that would provide |
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vertically integrated waste services or expand the service area
for our existing disposal sites. Development projects, while
generally less capital intensive, typically require extensive
permitting efforts that can take years to complete with no
assurance of success. We undertake development projects when we
believe there is a reasonable probability of success and where
reasonably priced acquisition opportunities are not available. |
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Acquisition Growth. During the late 1990’s,
the solid waste industry experienced a period of rapid
consolidation. We were able to grow significantly through
acquisitions during this period. However, the rate of
consolidation in the industry has slowed considerably. Despite
this, we continue to look to acquire businesses that complement
our existing business platform. Our acquisition growth strategy
focuses on privately-held solid waste companies and municipal
and other local governmental authorities. We believe that our
ability to acquire privately-held companies is enhanced by
increasing competition in the solid waste industry, increasing
capital requirements as a result of changes in solid waste
regulatory requirements, and the limited number of exit
strategies for these privately-held companies’ owners and
principals. We also seek to acquire operations and facilities
from municipalities that are privatizing, which occur for many
of the same reasons that privately-held companies sell their
solid waste businesses. In addition, we will continue to
evaluate opportunities to acquire operations and facilities that
may be divested by other publicly-owned waste companies. In sum,
our acquisition growth strategy focuses on: |
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acquiring businesses that position our company for growth in
existing and new markets, |
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acquiring well-managed companies and, when appropriate,
retaining local management, |
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acquiring operations and facilities from municipalities that are
privatizing and publicly-owned companies that are divesting of
assets. |
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For certain risks involved with our acquisition growth strategy,
see “Risk Factors — We may be unable to execute
our acquisition growth strategy,” “— We may
be unable to manage our growth effectively,” and
“— Businesses we acquire may have undisclosed
liabilities.” |
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Acquire Businesses Positioning the Company for Growth. In
making acquisitions, we principally target high quality
businesses that will allow our company to be, or provide our
company favorable prospects of becoming, a leading provider of
integrated solid waste services in markets with favorable
demographic growth. Generally, we have acquired, and will
continue to seek to acquire, solid waste collection, transfer
and disposal companies that: |
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have strong operating margins, |
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are in growth markets, |
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are among the largest or have a significant presence in their
local markets, and |
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have long-term contracts or franchises with municipalities and
other customers. |
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Once we have a base of operations in a particular market, we
focus on acquiring trucks and routes of smaller businesses that
also operate in that market and surrounding markets, which are
typically referred to as “tuck-in” acquisitions. We
seek to consolidate the operations of such tuck-in businesses
into our existing operations in that market. We also seek to
acquire landfills, transfer stations and collection companies
that operate in markets that we are already servicing in order
to fully integrate our operations from collection to disposal.
In addition, we have in the past and may continue in the future
to exchange businesses with other solid waste companies if by
doing so there is a net benefit to our business platform. These
activities allow us to increase our revenue and market share,
lower our cost of operations as a percentage of revenue, and
consolidate duplicative facilities and functions to maximize
cost efficiencies and economies of scale. |
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Acquire Well-Managed Companies. We also seek to acquire
businesses that have experienced management teams that are
willing to join the management of our company. We generally seek
to maintain continuity in management of larger acquired
companies in order to capitalize on their local |
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market knowledge, community relations and name recognition, and
to instill their entrepreneurial drive at all levels of our
operations. By furnishing the local management of such acquired
companies with our financial and marketing resources and
technical expertise, we believe that the acquired companies are
better able to secure additional municipal franchises and other
contracts. |
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Privatize Municipal Operations and Acquire Divested
Operations. We also seek to acquire solid waste collection
operations, transfer stations and landfills that municipalities
and other governmental authorities are privatizing. Many
municipalities are seeking to outsource or sell these types of
solid waste operations, as they lack the capital, technical
expertise and/or operational resources necessary to comply with
increasingly stringent regulatory standards and/or to compete
effectively with private-sector companies. In addition, we have
acquired, and will continue to seek to acquire, operations and
facilities that may be divested by other publicly-owned waste
companies. |
Operations
Our operations primarily consist of the collection, transfer and
disposal of non-hazardous solid waste.
Collection Services. We provide solid waste collection
services to commercial, industrial, municipal and residential
customers in 22 states through 140 collection companies. In
2004, 74.3% of our revenue was derived from collection services
consisting of approximately 32.5% from services provided to
municipal and residential customers, 36.6% from services
provided to commercial customers, and 30.9% from services
provided to industrial and other customers.
Our residential collection operations involve the curbside
collection of refuse from small containers into collection
vehicles for transport to transfer stations or directly to
landfills. Residential solid waste collection services are
typically performed under contracts with municipalities, which
we generally secure by competitive bid and which give our
company exclusive rights to service all or a portion of the
homes in their respective jurisdictions. These contracts or
franchises usually range in duration from one to five years,
although some of our exclusive franchises are for significantly
longer periods. Residential solid waste collection services may
also be performed on a subscription basis, in which individual
households contract directly with our company. The fees received
for subscription residential collection are based primarily on
market factors, frequency and type of service, the distance to
the disposal facility and cost of disposal. In general,
subscription residential collection fees are paid quarterly in
advance by the residential customers receiving the service.
In our commercial and industrial collection operations, we
supply our customers with waste containers of varying sizes. We
also rent compactors to large waste generators. Commercial
collection services are generally performed under one- to
three-year service agreements, and fees are determined by such
considerations as:
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market factors, |
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collection frequency, |
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type of equipment furnished, |
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the type and volume or weight of the waste collected, |
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the distance to the disposal facility and |
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the cost of disposal. |
We rent waste containers to construction sites and also provide
waste collection services to industrial and construction
facilities on a contractual basis with terms generally ranging
from a single pickup to one year or longer. We collect the
containers or compacted waste and transport the waste either to
a landfill or a transfer station for disposal.
Also, we currently provide recycling services in certain markets
primarily to comply with local laws or obligations under our
franchise agreements. These services include the curbside
collection of residential recyclable waste and the provision of
a variety of recycling services to commercial and industrial
customers.
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Transfer and Disposal Services. We own or operate 96
transfer stations. We deposit waste at these stations, as do
other private haulers and municipal haulers, for compaction and
transfer to trailers for transport to disposal sites or
recycling facilities. As of December 31, 2004, we owned or
operated 58 landfills, which had approximately 8,904
permitted acres and total available permitted and probable
expansion disposal capacity of approximately 1.7 billion
in-place cubic yards. The in-place capacity of our landfills is
subject to change based on engineering factors, requirements of
regulatory authorities and the ability to expand our sites
successfully. Some of our landfills accept non-hazardous special
waste, including utility ash, asbestos and contaminated soils.
See “— Properties.”
Most of our existing landfill sites have the potential for
expanded disposal capacity beyond the currently permitted
acreage. We monitor the availability of permitted disposal
capacity at each of our landfills and evaluate whether to pursue
expansion at a given landfill based on estimated future waste
volumes and prices, market needs, remaining capacity and
likelihood of obtaining an expansion. To satisfy future disposal
demand, we are currently seeking to expand permitted capacity at
certain of our landfills, although no assurances can be made
that all future expansions will be permitted as designed.
Other Services. We have 35 materials recovery facilities
and other recycling operations, which are generally required to
fulfill our obligations under long-term municipal contracts for
residential collection services. These facilities sort
recyclable paper, aluminum, glass and other materials. Most of
these recyclable materials are internally collected by our
residential collection operations. In some areas, we receive
commercial and industrial solid waste that is sorted at our
facilities into recyclable materials and non-recyclable waste.
The recyclable materials are salvaged, repackaged and sold to
third parties and the non-recyclable waste is disposed of at
landfills or incinerators. Wherever possible, our strategy is to
reduce our exposure to fluctuations in recyclable commodity
prices by utilizing third party recycling facilities, thereby
minimizing our recycling investment.
We provide remediation and other heavy construction services
primarily through our subsidiary located in Missouri.
We also have a Texas-based compost, mulch and soil business at
which yard, mill and other waste is processed, packaged and sold
as various products.
Sales and Marketing
We seek to provide quality services that will enable our company
to maintain high levels of customer satisfaction. We derive our
business from a broad customer base which we believe will enable
our company to experience stable growth. We focus our marketing
efforts on continuing and expanding business with existing
customers, as well as attracting new customers.
We employ approximately 500 sales and marketing employees. Our
sales and marketing strategy is to provide high-quality,
comprehensive solid waste collection, recycling, transfer and
disposal services to our customers at competitive prices. We
target potential customers of all sizes, from small quantity
generators to large “Fortune 500” companies and
municipalities.
Most of our marketing activity is local in nature. However, in
2000 we initiated a national accounts program in response to our
customers’ needs.
We generally do not change the tradenames of the local
businesses we acquire, and therefore we do not operate
nationally under any one mark or tradename. Rather, we rely on
the goodwill associated with the acquired companies’ local
tradenames as used in each geographic market in which we operate.
Customers
We provide services to commercial, industrial, municipal and
residential customers. No one customer has individually
accounted for more than 10% of our consolidated revenue or of
our reportable segment revenue in any of the last three years.
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Competition
We operate in a highly competitive industry. Entry into our
business and the ability to operate profitably in the industry
requires substantial amounts of capital and managerial
experience.
Competition in the non-hazardous solid waste industry comes from
a few large, national publicly-owned companies, including Waste
Management and Allied Waste Industries, several regional
publicly- and privately-owned solid waste companies, and
thousands of small privately-owned companies. Some of our
competitors have significantly larger operations, and may have
significantly greater financial resources, than we do. In
addition to national and regional firms and numerous local
companies, we compete with municipalities that maintain waste
collection or disposal operations. These municipalities may have
financial advantages due to the availability of tax revenues and
tax-exempt financing.
We compete for collection accounts primarily on the basis of
price and the quality of our services. From time to time, our
competitors may reduce the price of their services in an effort
to expand market share or to win a competitively bid municipal
contract. This may have an impact on our future revenue and
profitability.
In each market in which we own or operate a landfill, we compete
for landfill business on the basis of disposal costs,
geographical location and quality of operations. Our ability to
obtain landfill business may be limited by the fact that some
major collection companies also own or operate landfills to
which they send their waste. There also has been an increasing
trend at the state and local levels to mandate waste reduction
at the source and to prohibit the disposal of certain types of
waste, such as yard waste, at landfills. This may result in the
volume of waste going to landfills being reduced in certain
areas, which may affect our ability to operate our landfills at
their full capacity and/or affect the prices that we can charge
for landfill disposal services. In addition, most of the states
in which we operate landfills have adopted plans or requirements
that set goals for specified percentages of certain solid waste
items to be recycled.
Regulation
Our facilities and operations are subject to a variety of
federal, state and local requirements that regulate the
environment, public health, safety, zoning and land use.
Operating and other permits, licenses and other approvals are
generally required for landfills and transfer stations, certain
solid waste collection vehicles, fuel storage tanks and other
facilities that we own or operate, and these permits are subject
to revocation, modification and renewal in certain
circumstances. Federal, state and local laws and regulations
vary, but generally govern wastewater or stormwater discharges,
air emissions, the handling, transportation, treatment, storage
and disposal of hazardous and non-hazardous waste, and the
remediation of contamination associated with the release or
threatened release of hazardous substances. These laws and
regulations provide governmental authorities with strict powers
of enforcement, which include the ability to obtain injunctions
and/or impose fines or penalties in the case of violations,
including criminal penalties. The U.S. Environmental
Protection Agency and various other federal, state and local
environmental, public and occupational health and safety
agencies and authorities administer these regulations, including
the Occupational Safety and Health Administration of the
U.S. Department of Labor.
We strive to conduct our operations in compliance with
applicable laws and regulations. However, in the existing
climate of heightened environmental concerns, from time to time,
we have been issued citations or notices from governmental
authorities that have resulted in the need to expend funds for
remedial work and related activities at various landfills and
other facilities. There is no assurance that citations and
notices will not be issued in the future despite our regulatory
compliance efforts. We have established remediation reserves
that we believe, based on currently available information, will
be adequate to cover our current estimates of regulatory costs.
However, we cannot assure you that actual costs will not exceed
our reserves.
Federal Regulation. The following summarizes the primary
environmental, public and occupational health and safety-related
statutes of the United States that affect our facilities and
operations:
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(1) The Solid Waste Disposal Act, as amended, including
the Resource Conservation and Recovery Act. RCRA and its
implementing regulations establish a framework for regulating
the handling, |
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transportation, treatment, storage and disposal of hazardous and
non-hazardous solid waste, and require states to develop
programs to ensure the safe disposal of solid waste in sanitary
landfills. |
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Subtitle D of RCRA establishes a framework for regulating the
disposal of municipal solid waste. Regulations under Subtitle D
currently include minimum comprehensive solid waste management
criteria and guidelines, including location restrictions,
facility design and operating criteria, closure and post-closure
requirements, financial assurance standards, groundwater
monitoring requirements and corrective action standards, many of
which had not commonly been in effect or enforced in the past in
connection with municipal solid waste landfills. Each state was
required to submit to the U.S. EPA a permit program
designed to implement Subtitle D regulations by April 9,
1993. All of the states in which we operate have implemented
permit programs pursuant to RCRA and Subtitle D. These state
permit programs may include landfill requirements which are more
stringent than those of Subtitle D. |
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All of our planned landfill expansions or new landfill
development projects have been engineered to meet or exceed
Subtitle D requirements. Operating and design criteria for
existing operations have been modified to comply with these new
regulations. Compliance with Subtitle D regulations has resulted
in increased costs and may in the future require substantial
additional expenditures in addition to other costs normally
associated with our waste management activities. |
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(2) The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended. CERCLA,
among other things, provides for the cleanup of sites from which
there is a release or threatened release of a hazardous
substance into the environment. CERCLA may impose strict joint
and several liability for the costs of cleanup and for damages
to natural resources upon current owners and operators of the
site, parties who were owners or operators of the site at the
time the hazardous substances were disposed of, parties who
transported the hazardous substances to the site and parties who
arranged for the disposal of the hazardous substances at the
site. Under the authority of CERCLA and its implementing
regulations, detailed requirements apply to the manner and
degree of investigation and remediation of facilities and sites
where hazardous substances have been or are threatened to be
released into the environment. Liability under CERCLA is not
dependent upon the existence or disposal of only “hazardous
wastes” but can also be based upon the existence of small
quantities of more than 700 “substances” characterized
by the U.S. EPA as “hazardous,” many of which may
be found in common household waste. |
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Among other things, CERCLA authorizes the federal government to
investigate and remediate sites at which hazardous substances
have been or are threatened to be released into the environment
or to order (or offer an opportunity to) persons potentially
liable for the cleanup of the hazardous substances to do so. In
addition, the U.S. EPA has established a National
Priorities List of sites at which hazardous substances have been
or are threatened to be released and which require investigation
or cleanup. |
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Liability under CERCLA is not dependent upon the intentional
disposal of hazardous waste or hazardous substances. It can be
founded upon the release or threatened release, even as a result
of unintentional, non-negligent or lawful action, of thousands
of hazardous substances, including very small quantities of such
substances. Thus, even if our landfills have never knowingly
received hazardous waste as such, it is possible that one or
more hazardous substances may have been deposited or
“released” at our landfills or at other properties
which we currently own or operate or may have owned or operated.
Therefore, we could be liable under CERCLA for the cost of
cleaning up such hazardous substances at such sites and for
damages to natural resources, even if those substances were
deposited at our facilities before we acquired or operated them.
The costs of a CERCLA cleanup can be very expensive. Given the
difficulty of obtaining insurance for environmental impairment
liability, such liability could have a material impact on our
business and financial condition. For a further discussion, see
“— Liability Insurance and Bonding.” |
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(3) The Federal Water Pollution Control Act of 1972, as
amended. This Act regulates the discharge of pollutants from
a variety of sources, including solid waste disposal sites, into
streams, rivers and other waters of the United States. Point
source runoff from our landfills and transfer stations that is
discharged into surface waters must be covered by discharge
permits that generally require us to conduct |
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sampling and monitoring, and under certain circumstances, reduce
the quantity of pollutants in those discharges. Storm water
discharge regulations under this Act require a permit for
certain construction activities and discharges from industrial
operations and facilities, which may affect our operations. If a
landfill or transfer station discharges wastewater through a
sewage system to a publicly-owned treatment works, the facility
must comply with discharge limits imposed by that treatment
works. In addition, states may adopt groundwater protection
programs under this Act or the Safe Drinking Water Act that
could affect solid waste landfills. Furthermore, development
which alters or affects wetlands must generally be permitted
prior to such development commencing, and certain mitigation
requirements may be required by the permitting agencies. |
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(4) The Clean Air Act, as amended. The Clean Air Act
imposes limitations on emissions from various sources, including
landfills. In March 1996, the U.S. EPA promulgated
regulations that require large municipal solid waste landfills
to install landfill gas monitoring systems. These regulations
apply to landfills that commenced construction, reconstruction
or modification on or after May 30, 1991, and, principally,
to landfills that can accommodate 2.5 million cubic meters
or more of municipal solid waste. The regulations apply whether
the landfill is active or closed. The date by which each
affected landfill is required to have a gas collection and
control system installed and made operational varies depending
upon calculated emission rates at the landfill. Many state
regulatory agencies also currently require monitoring systems
for the collection and control of certain landfill gas. We do
not expect that compliance with any new state regulations will
have a material effect on us. |
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(5) The Occupational Safety and Health Act of 1970, as
amended. This Act authorizes the Occupational Safety and
Health Administration of the U.S. Department of Labor to
promulgate occupational safety and health standards. A number of
these standards, including standards for notices of hazardous
chemicals and the handling of asbestos, apply to our facilities
and operations. |
State Regulation. Each state in which we operate has its
own laws and regulations governing solid waste disposal, water
and air pollution, and, in most cases, releases and cleanup of
hazardous substances and liability for such matters. States also
have adopted regulations governing the design, operation,
maintenance and closure of landfills and transfer stations. Our
facilities and operations are likely to be subject to these
types of requirements. In addition, our solid waste collection
and landfill operations may be affected by the trend in many
states toward requiring the development of solid waste reduction
and recycling programs. For example, several states have enacted
laws that require counties or municipalities to adopt
comprehensive plans to reduce, through solid waste planning,
composting, recycling or other programs, the volume of solid
waste deposited in landfills. Additionally, laws and regulations
restricting the disposal of certain waste in solid waste
landfills, including yard waste, newspapers, beverage
containers, unshredded tires, lead-acid batteries and household
appliances, have been promulgated in several states and are
being considered in others. Legislative and regulatory measures
to mandate or encourage waste reduction at the source and waste
recycling also are or have been under consideration by the
U.S. Congress and the U.S. EPA, respectively.
In order to construct, expand and operate a landfill, one or
more construction or operating permits, as well as zoning and
land use approvals, must be obtained. These are difficult and
time-consuming to obtain, are often opposed by neighboring
landowners and citizens’ groups, may be subject to periodic
renewal and are subject to modification and revocation by the
issuing agency. In connection with our acquisition of existing
landfills, it may be and on occasion has been necessary for our
company to expend considerable time, effort and money to bring
the acquired facilities into compliance with applicable
requirements and to obtain the permits and approvals necessary
to increase their capacity.
Many of our facilities own and operate underground storage tanks
which are generally used to store petroleum-based products.
These tanks are generally subject to federal, state and local
laws and regulations that mandate their periodic testing,
upgrading, closure and removal, and that, in the event of leaks,
require that polluted groundwater and soils be remediated. We
believe that all of our underground storage tanks currently
meet, in all material respects, all applicable regulations. If
underground storage tanks we own or operate leak, and the
leakage migrates onto the property of others, we could be liable
for response costs and other damages to third parties. We are
unaware of facts indicating that issues of compliance with
regulations
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related to underground storage tanks will have a material
adverse effect on our financial condition, results of operations
or cash flows.
Finally, with regard to our solid waste transportation
operations, we are subject to the jurisdiction of the Surface
Transportation Board and are regulated by the Federal Highway
Administration, Office of Motor Carriers, and by regulatory
agencies in states that regulate such matters. Various states
have enacted or promulgated, or are considering enacting or
promulgating, laws and regulations that would restrict the
interstate transportation and processing of solid waste. In
1978, the U.S. Supreme Court ruled that a law that
restricts the importation of out-of-state solid waste was
unconstitutional; however, states have attempted to distinguish
proposed laws from that involved in and implicated by that
ruling. In 1994, the Supreme Court ruled that a flow control
law, which attempted to restrict solid waste from leaving its
place of generation, imposed an impermissible burden upon
interstate commerce, and, therefore, was unconstitutional;
however, states have also attempted to distinguish proposed laws
from that involved in and implicated by that ruling. In response
to these Supreme Court rulings, the U.S. Congress has
considered passing legislation authorizing states and local
governments to restrict the free movement of solid waste in
interstate commerce. If federal legislation authorizing state
and local governments to restrict the free movement of solid
waste in interstate commerce is enacted, such legislation could
adversely affect our operations.
We have established a reserve for landfill and environmental
costs, which includes landfill site final capping, closure and
post-closure costs. We periodically reassess such costs based on
various methods and assumptions regarding landfill airspace and
the technical requirements of Subtitle D of RCRA and adjust our
rates used to expense final capping, closure and post-closure
costs accordingly. Based on current information and regulatory
requirements, we believe that our reserves for such landfill and
environmental expenditures are adequate. However, environmental
laws may change, and there can be no assurance that our reserves
will be adequate to cover requirements under existing or new
environmental laws and regulations, future changes or
interpretations of existing laws and regulations, or the
identification of adverse environmental conditions previously
unknown to us. See “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Landfill and Environmental Matters”
and “Risk Factors — Compliance with environmental
regulation may impede our growth.”
Liability Insurance and Bonding
The nature of our business exposes our company to the risk of
liabilities arising out of our operations, including possible
damages to the environment. Such potential liabilities could
involve, for example, claims for remediation costs, personal
injury, property damage and damage to the environment in cases
where we may be held responsible for the escape of harmful
materials; claims of employees, customers or third parties for
personal injury or property damage occurring in the course of
our operations; or claims alleging negligence in the planning or
performance of work. We could also be subject to fines and civil
and criminal penalties in connection with alleged violations of
regulatory requirements. Because of the nature and scope of the
possible environmental damages, liabilities imposed in
environmental litigation can be significant. Our solid waste
operations have third party environmental liability insurance
with limits in excess of those required by permit regulations,
subject to certain limitations and exclusions. However, we
cannot assure you that the limits of such environmental
liability insurance would be adequate in the event of a major
loss, nor can we assure you that we would continue to carry
excess environmental liability insurance should market
conditions in the insurance industry make such coverage costs
prohibitive.
We have general liability, vehicle liability, employment
practices liability, pollution liability, directors and officers
liability, worker’s 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. We also carry property insurance.
Although we try to operate safely and prudently and while we
have, subject to limitations and exclusions, substantial
liability insurance, no assurance can be given that we will not
be exposed to uninsured liabilities which could have a material
adverse effect on our financial condition, results of operations
or cash flows.
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Our 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 subject to policy
limits. Accruals are based on claims filed and actuarial
estimates of claims development and claims incurred but not
reported. Due to the variable condition of the insurance market,
we have experienced, and may continue to experience in the
future, increased self-insurance retention levels and increased
premiums. As we assume more risk for self-insurance through
higher retention levels, we may experience more variability in
our self-insurance reserves and expense.
In the normal course of business, we may be required to post
performance bonds, insurance policies, letters of credit and/or
cash or marketable securities deposits in connection with
municipal residential collection contracts, the operation,
closure or post-closure of landfills, certain remediation
contracts, certain environmental permits, and certain business
licenses and permits. Bonds issued by surety companies operate
as a financial guarantee of our performance. To date, we have
satisfied financial responsibility requirements by making cash
or marketable securities deposits or by obtaining bank letters
of credit, insurance policies or surety bonds.
Employees
As of December 31, 2004, we employed approximately
13,400 full-time employees, approximately 3,100 of whom
were covered by collective bargaining agreements. Our management
believes that we have good relations with our employees.
Compensation
We believe that our compensation program effectively aligns our
field and corporate management team with the company’s
overall goal of generating increasing amounts of free cash flow
while achieving targeted earnings and returns on invested
capital. This is done by utilizing simple and measurable metrics
on which incentive pay is based. At the field level, these
metrics are based upon free cash flow, earnings and return on
invested capital for each manager’s geographic area of
responsibility. Great effort is taken to ensure that these
individual goals agree to the overall goals of the company.
Incentive compensation at the corporate level is based on the
obtainment of our company’s overall goals. In addition,
certain field and corporate employees also participate in a
long-term incentive program. We believe this program aligns our
company’s short- and long-term goals and helps ensure that
the long-term success of our company is not sacrificed for the
obtainment of short-term goals.
Corporate History
We were incorporated as a Delaware corporation in 1996 by our
former parent company, AutoNation, Inc. In 1998, AutoNation
separated its non-hazardous solid waste services division from
its other businesses and we completed an initial public offering
of shares of our common stock. In 1999, AutoNation sold
substantially all of its remaining interest in our company in a
secondary public offering.
Availability of Reports and Other Information
Our corporate website is http://www.republicservices.com. We
make available on this website, free of charge, access to our
Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, Proxy
Statement on Schedule 14A and amendments to those materials
filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities and Exchange Act of 1934 as soon as reasonably
practicable after we electronically submit such material to the
Securities and Exchange Commission. Our corporate website also
contains our Corporate Governance Guidelines, Code of Ethics and
Charters of the Nominating and Corporate Governance Committee,
Audit Committee and Compensation Committee of the Board of
Directors. In addition, the Commission’s website is
http://www.sec.gov. The Commission makes available on this
website, free of charge, reports, proxy and information
statements, and other information regarding issuers, such as us,
that file electronically with the Commission. Information on our
website or the Commission’s website is not part of this
document.
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Risk Factors
This Annual Report on Form 10-K includes
“forward-looking statements” within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended, including, in particular, certain statements about our
plans, strategies and prospects. Although we believe that our
plans, intentions and expectations reflected in or suggested by
such forward-looking statements are reasonable, we cannot assure
you that such plans, intentions or expectations will be
achieved. Important factors that could cause our actual results
to differ materially from our forward-looking statements include
those set forth in this Risk Factors section. All
forward-looking statements attributable to us or any persons
acting on our behalf are expressly qualified in their entirety
by the cautionary statements set forth below. Unless the context
requires otherwise, all references to the “company,”
“we,” “us” or “our” include
Republic Services, Inc. and its subsidiaries.
If any of the following risks, or other risks not presently
known to us or that we currently believe to not be significant,
develop into actual events, then our business, financial
condition, results of operations, cash flows or prospects could
be materially adversely affected.
We operate in a highly competitive industry and may be unable
to compete effectively.
We operate in a highly competitive business environment. Some of
our competitors have significantly larger operations and may
have significantly greater financial resources than we do. In
addition, the solid waste industry is constantly changing as a
result of consolidation which may create additional competitive
pressures in our business environment.
We also compete with municipalities that maintain their own
waste collection or disposal operations. These municipalities
may have a financial advantage over us as a result of the
availability of tax revenue and tax-exempt financing.
We compete for collection accounts primarily on the basis of
price and the quality of services. From time to time our
competitors may reduce the price of their services in an effort
to expand their market share or to win a competitively bid
municipal contract.
In each market in which we own or operate a landfill, we compete
for solid waste volume on the basis of disposal or
“tipping” fees, geographical location and quality of
operations. Our ability to obtain solid waste volume for our
landfills may be limited by the fact that some major collection
companies also own or operate landfills to which they send their
waste. In markets in which we do not own or operate a landfill,
our collection operations may operate at a disadvantage to fully
integrated competitors.
As a result of these factors, we may have difficulty competing
effectively from time to time.
Economic conditions could adversely affect our business,
operations and internal growth.
In the past, economic slowdowns have negatively impacted the
portion of our collection business servicing the manufacturing
sector and the non-residential construction industry. Landfill
volumes attributable to manufacturing and construction activity
were also impacted. A slowdown in the economy in any of the
markets we service could adversely affect volumes, pricing and
operating margins in our collection, transfer and disposal
operations.
An increase in the price of fuel may adversely affect our
business.
Our operations are dependent upon fuel, which we generally
purchase in the open market on a daily basis. During 2003 and
2004, we experienced increases in the cost of fuel. A portion of
this increase was passed on to our customers. However, because
of the competitive nature of the waste industry, there can be no
assurances that we will be able to pass on current or any future
increases in fuel prices to our customers. Due to political
instability in oil-producing countries, fuel prices may continue
to increase significantly in 2005. A significant increase in
fuel costs could adversely affect our business.
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We may be unable to execute our financial strategy.
Our ability to execute our financial strategy is dependent upon
our ability to maintain an investment grade rating on our senior
debt. The credit rating process is contingent upon a number of
factors, many of which are beyond our control.
Our financial strategy is also dependent upon our ability to
generate sufficient cash flow to reinvest in our existing
business, to fund our internal growth, to acquire other solid
waste businesses, repurchase shares of our common stock, pay
dividends, minimize our borrowings and take other actions to
enhance stockholder value. We cannot assure you that we will be
successful in executing our broad-based pricing program, that we
will generate sufficient cash flow to execute our financial
strategy, that we will continue to repurchase our common stock,
or that we will be able to pay cash dividends or increase the
amount of our dividends.
We may be unable to execute our acquisition growth
strategy.
Our ability to execute our growth strategy depends in part on
our ability to identify and acquire desirable acquisition
candidates as well as our ability to successfully consolidate
acquired operations into our business. The consolidation of our
operations with the operations of acquired companies, including
the consolidation of systems, procedures, personnel and
facilities, the relocation of staff, and the achievement of
anticipated cost savings, economies of scale and other business
efficiencies, presents significant challenges to our management,
particularly if several acquisitions occur at the same time. In
short, we cannot assure you that:
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desirable acquisition candidates exist or will be identified, |
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we will be able to acquire any of the candidates identified, |
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we will effectively consolidate companies which are acquired and
fully or timely realize the expected cost savings, economies of
scale or business efficiencies, or |
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any acquisitions will be profitable or accretive to our earnings. |
Additional factors may negatively impact our acquisition growth
strategy. Our acquisition strategy may require spending
significant amounts of capital. If we are unable to obtain
additional needed financing on acceptable terms, we may need to
reduce the scope of our acquisition growth strategy, which could
have a material adverse effect on our growth prospects. The
intense competition among our competitors pursuing the same
acquisition candidates may increase purchase prices for solid
waste businesses and increase our capital requirements and/or
prevent us from acquiring certain acquisition candidates. If any
of the aforementioned factors force us to alter our growth
strategy, our financial condition, results of operations and
growth prospects could be adversely affected.
We may be unable to manage our growth effectively.
Our growth strategy places significant demands on our financial,
operational and management resources. In order to continue our
growth, we will need to add administrative and other personnel,
and make additional investments in operations and systems. We
cannot assure you that we will be able to find and train
qualified personnel, or do so on a timely basis, or expand our
operations and systems to the extent, and in the time, required.
Businesses we acquire may have undisclosed liabilities.
In pursuing our acquisition strategy, our investigations of the
acquisition candidates may fail to discover certain undisclosed
liabilities of the acquisition candidates. If we acquire a
company having undisclosed liabilities, as a successor owner we
may be responsible for such undisclosed liabilities. We
typically try to minimize our exposure to such liabilities by
obtaining indemnification from each seller of the acquired
companies, by deferring payment of a portion of the purchase
price as security for the indemnification and by acquiring only
specified assets. However, we cannot assure you that we will be
able to obtain indemnifications or that they will be
enforceable, collectible or sufficient in amount, scope or
duration to fully offset any undisclosed liabilities arising
from our acquisitions.
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Our financial statements are based upon estimates and
assumptions that may differ from actual results.
Our financial statements have been prepared in accordance with
U.S. generally accepted accounting principles and necessarily
include amounts based on estimates and assumptions made by us.
Actual results could differ from these amounts. Significant
items subject to such estimates and assumptions include the
carrying value of long-lived assets, the depletion and
amortization of landfill development costs, accruals for final
capping, 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.
We cannot assure you that our reserves for landfill and
environmental costs will be adequate to cover the requirements
of existing environmental regulations, future changes or
interpretations of existing regulations, or the identification
of adverse environmental conditions previously unknown to us.
Changes in insurance markets may impact our financial
results.
Due to the variable condition of the insurance market, we have
experienced, and may continue to experience in the future,
increased self-insurance retention levels and increased
premiums. As we assume more risk for self-insurance through
higher retention levels, we may experience more variability in
our self-insurance reserves and expense.
We depend on key personnel.
Our future success depends on the continued contributions of
several key employees and officers. We do not maintain key man
life insurance policies on any of our officers. The loss of the
services of key employees and officers, whether such loss is
through resignation or other causes, or the inability to attract
additional qualified personnel, could have a material adverse
effect on our financial condition, results of operations and
growth prospects.
Compliance with environmental and other laws and regulations
may impede our growth.
We may need to spend considerable time, effort and capital to
keep our facilities in compliance with federal, state and local
requirements regulating health, safety, environment, zoning,
land use and transportation. In addition, some of our waste
operations that cross state boundaries could be adversely
affected if the federal government, or the state or locality in
which these waste operations are located, imposes fees on, or
otherwise limits or prohibits, the transportation or disposal of
solid waste. If environmental laws become more stringent, our
environmental capital expenditures and costs for environmental
compliance may increase in the future. In addition, due to the
possibility of unanticipated events or regulatory developments,
the amounts and timing of future environmental expenditures
could vary substantially from those we currently anticipate.
Because of the nature of our operations, we have in the past,
currently are, and may in the future be named as a potentially
responsible party in connection with the investigation or
remediation of environmental conditions. We cannot assure you
that the resolution of any such investigations will not have a
material adverse effect on our financial condition, results of
operations or cash flows. A significant judgment or fine against
our company, or our loss of significant permits or licenses,
could have a material adverse effect on our financial condition,
results of operations, cash flows or prospects.
Regulatory approval to develop or expand our landfills and
transfer stations may be delayed or denied.
Our plans include developing new landfills and transfer
stations, as well as expanding the disposal and transfer
capacities of certain of our landfills and transfer stations,
respectively. Various parties, including citizens’ groups
and local politicians, sometimes challenge these projects.
Responding to these challenges has, at times, increased our
costs and extended the time associated with establishing new
facilities and expanding existing facilities. In addition,
failure to receive regulatory and zoning approval may prohibit
us from establishing new facilities and expanding existing
facilities.
16
Seasonal changes may adversely affect our business and
operations.
Our operations may be adversely affected by periods of inclement
weather which could increase the volume of waste collected under
our existing contracts (without corresponding compensation),
delay the collection and disposal of waste, reduce the volume of
waste delivered to our disposal sites, or delay the construction
or expansion of our landfill sites and other facilities.
We may be unable to extend the maturity of our revolving
short-term credit facility.
We have a revolving short-term credit facility in the principal
amount of $300 million which expires in June 2005. We
anticipate extending the maturity of this credit facility until
at least June 2006. However, we cannot assure you that we will
receive such extension and, if so, whether such extension will
be on terms as favorable to us as those currently contained in
the credit facility.
The outcome of audits by the Internal Revenue Service may
adversely affect our company.
Through the date of our initial public offering in July 1998, we
filed consolidated federal income tax returns with AutoNation.
In accordance with the tax sharing agreement we have with
AutoNation, we may be liable for certain assessments imposed by
the Internal Revenue Service for the periods through
June 1998. The Internal Revenue Service is auditing our
consolidated tax returns for fiscal years 1998 through 2003. No
assurance can be given with respect to the outcome of the audits
for these periods or the effect they may have on us, or that our
reserves with respect thereto are adequate. A significant
assessment against us could have a material adverse effect on
our financial position, results of operations or cash flows.
17
Our corporate headquarters is located in Ft. Lauderdale,
Florida in leased premises. As of December 31, 2004, we
operated approximately 6,100 collection vehicles. Certain of our
property and equipment are subject to operating leases or liens
securing payment of portions of our indebtedness. We also lease
certain of our offices and equipment. We believe that our
facilities are sufficient for our current needs.
The following table provides certain information regarding the
58 landfills owned or operated by us as of
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Unused |
| |
|
|
|
|
|
Total |
|
Permitted |
|
Permitted |
| Landfill Name |
|
Location |
|
Region |
|
Acreage(2) |
|
Acreage(3) |
|
Acreage(4) |
| |
|
|
|
|
|
|
|
|
|
|
|
545 Landfill
|
|
|
Winter Garden, Florida |
|
|
Southern |
|
|
80 |
|
|
|
58 |
|
|
|
3 |
|
|
623 Landfill
|
|
|
Richmond, Virginia |
|
|
Eastern |
|
|
184 |
|
|
|
138 |
|
|
|
84 |
|
|
Apex
|
|
|
Clark County, Nevada |
|
|
Western |
|
|
2,285 |
|
|
|
1,233 |
|
|
|
1,018 |
|
|
Brent Run
|
|
|
Montrose, Michigan |
|
|
Central |
|
|
544 |
|
|
|
106 |
|
|
|
43 |
|
|
Broadhurst Landfill
|
|
|
Jesup, Georgia |
|
|
Southern |
|
|
1,400 |
|
|
|
105 |
|
|
|
49 |
|
|
Carleton Farms
|
|
|
Detroit, Michigan |
|
|
Central |
|
|
640 |
|
|
|
388 |
|
|
|
192 |
|
|
Cedar Trail
|
|
|
Bartow, Florida |
|
|
Southern |
|
|
392 |
|
|
|
68 |
|
|
|
68 |
|
|
Charter Waste
|
|
|
Abilene, Texas |
|
|
Southwestern |
|
|
396 |
|
|
|
300 |
|
|
|
264 |
|
|
Chiquita Canyon
|
|
|
Valencia, California |
|
|
Western |
|
|
592 |
|
|
|
257 |
|
|
|
45 |
|
|
Countywide
|
|
|
East Sparta, Ohio |
|
|
Eastern |
|
|
815 |
|
|
|
258 |
|
|
|
170 |
|
|
Dozit Landfill
|
|
|
Morganfield, Kentucky |
|
|
Central |
|
|
231 |
|
|
|
47 |
|
|
|
23 |
|
|
East Carolina Landfill
|
|
|
Aulander, North Carolina |
|
|
Southern |
|
|
740 |
|
|
|
113 |
|
|
|
42 |
|
|
Elk Run
|
|
|
Onaway, Michigan |
|
|
Central |
|
|
99 |
|
|
|
40 |
|
|
|
25 |
|
|
Epperson Landfill
|
|
|
Williamstown, Kentucky |
|
|
Central |
|
|
899 |
|
|
|
100 |
|
|
|
31 |
|
|
Foothills Landfill(1)
|
|
|
Lenior, North Carolina |
|
|
Southern |
|
|
258 |
|
|
|
78 |
|
|
|
50 |
|
|
Forest Lawn
|
|
|
Three Oaks, Michigan |
|
|
Central |
|
|
281 |
|
|
|
165 |
|
|
|
9 |
|
|
Front Range
|
|
|
Denver, Colorado |
|
|
Southwestern |
|
|
602 |
|
|
|
195 |
|
|
|
133 |
|
|
Greenville
|
|
|
Greenville, South Carolina |
|
|
Southern |
|
|
21 |
|
|
|
7 |
|
|
|
4 |
|
|
Highway 78
|
|
|
Oconee, Georgia |
|
|
Southern |
|
|
379 |
|
|
|
118 |
|
|
|
108 |
|
|
Honeygo Run
|
|
|
Perry Hall, Maryland |
|
|
Eastern |
|
|
68 |
|
|
|
39 |
|
|
|
5 |
|
|
Kestrel Hawk
|
|
|
Racine, Wisconsin |
|
|
Central |
|
|
218 |
|
|
|
138 |
|
|
|
20 |
|
|
Laughlin(1)
|
|
|
Laughlin, Nevada |
|
|
Western |
|
|
40 |
|
|
|
40 |
|
|
|
— |
|
|
Mallard Ridge
|
|
|
Delavan, Wisconsin |
|
|
Central |
|
|
746 |
|
|
|
42 |
|
|
|
2 |
|
|
Modern
|
|
|
York, Pennsylvania |
|
|
Eastern |
|
|
739 |
|
|
|
230 |
|
|
|
22 |
|
|
National Serv-All
|
|
|
Fort Wayne, Indiana |
|
|
Central |
|
|
587 |
|
|
|
204 |
|
|
|
— |
|
|
Nine Mile Road
|
|
|
St. Augustine, Florida |
|
|
Southern |
|
|
354 |
|
|
|
57 |
|
|
|
25 |
|
|
North County
|
|
|
Houston, Texas |
|
|
Southwestern |
|
|
100 |
|
|
|
31 |
|
|
|
2 |
|
|
Northwest Tennessee
|
|
|
Union City, Tennessee |
|
|
Central |
|
|
600 |
|
|
|
120 |
|
|
|
72 |
|
|
Oak Grove
|
|
|
Winder, Georgia |
|
|
Southern |
|
|
329 |
|
|
|
72 |
|
|
|
— |
|
|
Ohio County Balefill(1)
|
|
|
Beaver Dam, Kentucky |
|
|
Central |
|
|
908 |
|
|
|
178 |
|
|
|
121 |
|
|
Pepperhill
|
|
|
North Charleston, South Carolina |
|
|
Southern |
|
|
37 |
|
|
|
26 |
|
|
|
— |
|
|
Pine Grove
|
|
|
Amanda, Ohio |
|
|
Eastern |
|
|
734 |
|
|
|
112 |
|
|
|
65 |
|
|
Pine Ridge
|
|
|
Griffin, Georgia |
|
|
Southern |
|
|
515 |
|
|
|
196 |
|
|
|
130 |
|
|
Potrero
|
|
|
Suisan, California |
|
|
Western |
|
|
1,423 |
|
|
|
190 |
|
|
|
68 |
|
|
Presidio(1)
|
|
|
Presidio, Texas |
|
|
Southwestern |
|
|
10 |
|
|
|
10 |
|
|
|
6 |
|
|
Republic/ Alpine(1)
|
|
|
Alpine, Texas |
|
|
Southwestern |
|
|
80 |
|
|
|
74 |
|
|
|
67 |
|
|
Republic/ CSC
|
|
|
Avalon, Texas |
|
|
Southwestern |
|
|
517 |
|
|
|
190 |
|
|
|
116 |
|
|
Republic/ Maloy
|
|
|
Campbell, Texas |
|
|
Southwestern |
|
|
455 |
|
|
|
195 |
|
|
|
110 |
|
|
San Angelo(1)
|
|
|
San Angelo, Texas |
|
|
Southwestern |
|
|
257 |
|
|
|
236 |
|
|
|
138 |
|
|
Savannah Regional
|
|
|
Savannah, Georgia |
|
|
Southern |
|
|
129 |
|
|
|
56 |
|
|
|
34 |
|
|
Seabreeze Landfill
|
|
|
Clute, Texas |
|
|
Southwestern |
|
|
896 |
|
|
|
386 |
|
|
|
240 |
|
|
Seagull
|
|
|
Avalon, California |
|
|
Western |
|
|
6 |
|
|
|
3 |
|
|
|
— |
|
|
Southern Illinois Regional
|
|
|
DeSoto, Illinois |
|
|
Central |
|
|
351 |
|
|
|
238 |
|
|
|
143 |
|
|
Spring Grove
|
|
|
Charleston, South Carolina |
|
|
Southern |
|
|
246 |
|
|
|
174 |
|
|
|
139 |
|
|
Swiftcreek Landfill
|
|
|
Macon, Georgia |
|
|
Southern |
|
|
836 |
|
|
|
85 |
|
|
|
12 |
|
|
Tay-Ban
|
|
|
Birch Run, Michigan |
|
|
Central |
|
|
87 |
|
|
|
43 |
|
|
|
9 |
|
|
Tri-K Landfill
|
|
|
Stanford, Kentucky |
|
|
Central |
|
|
612 |
|
|
|
190 |
|
|
|
150 |
|
|
Union County
|
|
|
Cross Anchor, South Carolina |
|
|
Southern |
|
|
600 |
|
|
|
83 |
|
|
|
67 |
|
|
United Refuse
|
|
|
Fort Wayne, Indiana |
|
|
Central |
|
|
305 |
|
|
|
77 |
|
|
|
15 |
|
|
Upper Piedmont Environmental
|
|
|
Roxboro, North Carolina |
|
|
Southern |
|
|
860 |
|
|
|
70 |
|
|
|
29 |
|
|
Uwharrie Landfill(1)
|
|
|
Mt. Gilead, North Carolina |
|
|
Southern |
|
|
466 |
|
|
|
118 |
|
|
|
45 |
|
|
Valley View Landfill
|
|
|
Sulphur, Kentucky |
|
|
Central |
|
|
894 |
|
|
|
199 |
|
|
|
93 |
|
|
Vasco Road
|
|
|
Livermore, California |
|
|
Western |
|
|
548 |
|
|
|
246 |
|
|
|
68 |
|
|
Victory Environmental
|
|
|
Terre Haute, Indiana |
|
|
Central |
|
|
1,013 |
|
|
|
303 |
|
|
|
133 |
|
|
Wabash Valley
|
|
|
Wabash, Indiana |
|
|
Central |
|
|
390 |
|
|
|
137 |
|
|
|
60 |
|
|
West Contra Costa County
|
|
|
Contra Costa, California |
|
|
Western |
|
|
350 |
|
|
|
188 |
|
|
|
— |
|
|
Whitefeather
|
|
|
Pinconning, Michigan |
|
|
Central |
|
|
639 |
|
|
|
57 |
|
|
|
26 |
|
|
Worthington
|
|
|
Worthington, Indiana |
|
|
Central |
|
|
420 |
|
|
|
97 |
|
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
|
|
|
|
|
|
29,203 |
|
|
|
8,904 |
|
|
|
4,621 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Operated but not owned by us. |
| (2) |
Total acreage includes permitted acreage, probable expansion
acreage, other acreage available for future disposal that has
not been permitted, buffer land and other contiguous land owned
by our company. |
| (3) |
Permitted acreage consists of all acreage at the landfill
encompassed by an active permit to dispose of waste. |
| (4) |
Unused permitted acreage consists of all acreage at the landfill
encompassed by an active permit on which disposal operations
have not commenced. |
18
|
|
| ITEM 3. |
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, cash flows or prospects.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to our stockholders during the fourth
quarter of 2004.
19
PART II
|
|
| ITEM 5. |
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information, Holders and Dividends
Our common stock began trading on the New York Stock Exchange on
July 1, 1998.
The following table sets forth the range of the high and low
sales prices of our common stock and the cash dividends declared
per share of common stock for the periods indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Dividends |
| |
|
High |
|
Low |
|
Declared |
| |
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
27.43 |
|
|
$ |
24.50 |
|
|
$ |
.06 |
|
|
Second Quarter
|
|
|
30.27 |
|
|
|
27.05 |
|
|
|
.06 |
|
|
Third Quarter
|
|
|
30.10 |
|
|
|
26.50 |
|
|
|
.12 |
|
|
Fourth Quarter
|
|
|
33.98 |
|
|
|
28.95 |
|
|
|
.12 |
|
| |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
21.29 |
|
|
$ |
18.25 |
|
|
$ |
— |
|
|
Second Quarter
|
|
|
24.41 |
|
|
|
19.50 |
|
|
|
— |
|
|
Third Quarter
|
|
|
24.75 |
|
|
|
21.77 |
|
|
|
.06 |
|
|
Fourth Quarter
|
|
|
26.09 |
|
|
|
22.15 |
|
|
|
.06 |
|
On February 17, 2005 the last reported sales price of our
common stock was $31.02.
There were approximately 87 record holders of our common stock
at February 16, 2005, which does not include beneficial
owners for whom Cede & Co. or others act as nominees.
In January 2005, our board of directors declared a regular
quarterly dividend of $.12 per share for stockholders of
record on April 1, 2005. We expect to continue to pay
quarterly cash dividends, and our board of directors may
consider increasing our quarterly cash dividends if we believe
it will enhance stockholder value.
From 2000 through 2004, our board of directors authorized the
repurchase of up to $1,025.0 million of our common stock.
As of December 31, 2004, we paid $750.4 million to
repurchase approximately 35.2 million shares of our common
stock, of which approximately 9.6 million shares were
acquired during 2004 for $266.1 million. As of
December 31, 2004, we had $274.6 million remaining
under our share repurchase authorization.
We have the ability under our loan covenants to pay dividends
and repurchase our common stock under the condition that we are
in compliance with the covenants. As of December 31, 2004,
we were in compliance with the financial covenants of our loan
agreements.
The information required by Item 201(d) of
Regulation S-K is included in Item 12 of Part III
of this Form 10-K.
20
Issuer Purchases of Equity Securities
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
(d) |
| |
|
|
|
|
|
|
|
Maximum Number |
| |
|
|
|
|
|
(c) |
|
(or Approximate |
| |
|
|
|
|
|
Total Number of |
|
Dollar Value) of |
| |
|
(a) |
|
|
|
Shares (or Units) |
|
Shares (or Units) |
| |
|
Total Number |
|
(b) |
|
Purchased as Part |
|
that May Yet Be |
| |
|
of Shares |
|
Average Price |
|
of Publicly |
|
Purchased Under the |
| |
|
(or Units) |
|
Paid per Share |
|
Announced Plans |
|
Plans or Programs |
| Period |
|
Purchased* |
|
(or Unit) |
|
or Programs |
|
(in millions) |
| |
|
|
|
|
|
|
|
|
|
Month #1 (October 1, —
October 31, 2004)
|
|
|
95,105 |
|
|
$ |
29.34 |
|
|
|
65,300 |
|
|
$ |
296.0 |
|
|
Month #2 (November 1, — November 30,
2004)
|
|
|
504,900 |
|
|
|
31.23 |
|
|
|
504,900 |
|
|
|
280.2 |
|
|
Month #3 (December 1, — December 31,
2004)
|
|
|
170,200 |
|
|
|
33.27 |
|
|
|
170,200 |
|
|
|
274.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
770,205 |
|
|
$ |
31.45 |
|
|
|
740,400 |
|
|
$ |
274.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
Includes 29,805 shares purchased in the open market in
connection with our 401(k) and deferred compensation programs. |
The share purchases reflected in the table above, except those
purchased in connection with employee benefit plans, were made
pursuant to our $200.0 million, $75.0 million and
$275.0 million repurchase programs approved by our board of
directors in October 2003, April 2004 and October 2004,
respectively. These share repurchase programs do not have
expiration dates. No share repurchase program approved by our
board of directors has ever expired nor do we expect to
terminate any program prior to completion. We intend to make
additional share purchases under our existing repurchase program
up to an aggregate of $274.6 million.
21
|
|
| ITEM 6. |
SELECTED FINANCIAL DATA (in millions, except per share
data) |
The following Selected Financial Data should be read in
conjunction with our Consolidated Financial Statements and notes
thereto as of December 31, 2004 and 2003 and for each of
the three years in the period ended December 31, 2004 and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in
this Annual Report on Form 10-K. The selected statement of
income data and the other operating data for 2001 and 2000 and
the selected balance sheet data at December 31, 2001 and
2000 were derived from our Consolidated Financial Statements,
which have been audited by Arthur Andersen LLP, independent
certified public accountants. Certain amounts in the historical
Consolidated Financial Statements have been reclassified to
conform to the 2004 presentation. See Notes 1, 4 and 7 of
the Notes to our Consolidated Financial Statements for a
discussion of basis of presentation, business combinations and
stockholders’ equity and their effect on comparability of
year-to-year data.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
| |
|
|
|
|
|
|
|
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
2,708.1 |
|
|
$ |
2,517.8 |
|
|
$ |
2,365.1 |
|
|
$ |
2,257.5 |
|
|
$ |
2,103.3 |
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of operations
|
|
|
1,714.4 |
|
|
|
1,605.4 |
|
|
|
1,472.9 |
|
|
|
1,422.5 |
|
|
|
1,271.3 |
|
| |
Depreciation, amortization and depletion
|
|
|
259.4 |
|
|
|
239.1 |
|
|
|
199.6 |
|
|
|
215.4 |
|
|
|
197.4 |
|
| |
Accretion
|
|
|
13.7 |
|
|
|
12.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Selling, general and administrative
|
|
|
268.3 |
|
|
|
247.9 |
|
|
|
238.7 |
|
|
|
236.5 |
|
|
|
193.9 |
|
| |
Other charges (income)
|
|
|
— |
|
|
|
— |
|
|
|
(5.6 |
) |
|
|
99.6 |
|
|
|
6.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
452.3 |
|
|
|
412.7 |
|
|
|
459.5 |
|
|
|
283.5 |
|
|
|
434.0 |
|
|
Interest expense
|
|
|
(76.7 |
) |
|
|
(78.0 |
) |
|
|
(77.0 |
) |
|
|
(80.1 |
) |
|
|
(81.6 |
) |
|
Interest income
|
|
|
6.9 |
|
|
|
9.5 |
|
|
|
4.3 |
|
|
|
4.4 |
|
|
|
1.7 |
|
|
Other income (expense), net
|
|
|
1.2 |
|
|
|
3.2 |
|
|
|
(.3 |
) |
|
|
1.5 |
|
|
|
2.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
383.7 |
|
|
|
347.4 |
|
|
|
386.5 |
|
|
|
209.3 |
|
|
|
356.4 |
|
|
Provision for income taxes
|
|
|
145.8 |
|
|
|
132.0 |
|
|
|
146.9 |
|
|
|
83.8 |
|
|
|
135.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of changes in accounting
principles
|
|
|
237.9 |
|
|
|
215.4 |
|
|
|
239.6 |
|
|
|
125.5 |
|
|
|
221.0 |
|
|
Cumulative effect of changes in accounting principles
|
|
|
— |
|
|
|
(37.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
237.9 |
|
|
$ |
177.6 |
|
|
$ |
239.6 |
|
|
$ |
125.5 |
|
|
$ |
221.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before cumulative effect of changes in accounting principles
|
|
$ |
1.56 |
|
|
$ |
1.34 |
|
|
$ |
1.45 |
|
|
$ |
.74 |
|
|
$ |
1.26 |
|
| |
Cumulative effect of changes in accounting principles
|
|
|
— |
|
|
|
(.23 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
$ |
1.56 |
|
|
$ |
1.11 |
|
|
$ |
1.45 |
|
|
$ |
.74 |
|
|
$ |
1.26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average common shares outstanding
|
|
|
152.8 |
|
|
|
160.3 |
|
|
|
165.4 |
|
|
|
170.1 |
|
|
|
175.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before cumulative effect of changes in accounting principles
|
|
$ |
1.53 |
|
|
$ |
1.33 |
|
|
$ |
1.44 |
|
|
$ |
.73 |
|
|
$ |
1.26 |
|
| |
Cumulative effect of changes in accounting principles
|
|
|
— |
|
|
|
(.23 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per share
|
|
$ |
1.53 |
|
|
$ |
1.10 |
|
|
$ |
1.44 |
|
|
$ |
.73 |
|
|
$ |
1.26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average common and common equivalent shares outstanding
|
|
|
155.3 |
|
|
|
162.1 |
|
|
|
166.7 |
|
|
|
171.1 |
|
|
|
175.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$ |
.36 |
|
|
$ |
.12 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
| |
|
|
|
|
|
|
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$ |
666.3 |
|
|
$ |
600.5 |
|
|
$ |
569.7 |
|
|
$ |
459.2 |
|
|
$ |
461.8 |
|
|
Capital expenditures(a)
|
|
|
283.8 |
|
|
|
273.2 |
|
|
|
258.6 |
|
|
|
249.3 |
|
|
|
208.0 |
|
|
Proceeds from the sale of property and equipment
|
|
|
5.7 |
|
|
|
9.1 |
|
|
|
14.6 |
|
|
|
8.7 |
|
|
|
12.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
| |
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
141.5 |
|
|
$ |
119.2 |
|
|
$ |
141.5 |
|
|
$ |
16.1 |
|
|
$ |
2.0 |
|
|
Restricted cash and marketable securities
|
|
|
275.7 |
|
|
|
397.4 |
|
|
|
175.0 |
|
|
|
142.3 |
|
|
|
84.3 |
|
|
Total assets
|
|
|
4,464.6 |
|
|
|
4,554.1 |
|
|
|
4,209.1 |
|
|
|
3,856.3 |
|
|
|
3,561.5 |
|
|
Total debt
|
|
|
1,354.3 |
|
|
|
1,520.3 |
|
|
|
1,442.1 |
|
|
|
1,367.7 |
|
|
|
1,256.7 |
|
|
Total stockholders’ equity
|
|
|
1,872.5 |
|
|
|
1,904.5 |
|
|
|
1,881.1 |
|
|
|
1,755.9 |
|
|
|
1,674.9 |
|
|
|
| (a) |
During 2002, we also paid $72.6 million to purchase
equipment originally placed into service pursuant to an
operating lease. |
22
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion in conjunction with our
Consolidated Financial Statements and their Notes contained in
this Annual Report on Form 10-K.
Overview of 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 140
collection companies in 22 states. We also own or operate
96 transfer stations, 58 solid waste landfills and 35 recycling
facilities.
We generate revenue primarily from our solid waste collection
operations. Our remaining revenue is from other services
including landfill disposal, recycling, compost, mulch and soil
operations.
The following table reflects our revenue by source for the years
ended December 31, 2004, 2003 and 2002 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Collection:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential
|
|
$ |
655.2 |
|
|
|
24.2 |
% |
|
$ |
601.2 |
|
|
|
23.9 |
% |
|
$ |
530.7 |
|
|
|
22.4 |
% |
| |
Commercial
|
|
|
737.9 |
|
|
|
27.2 |
|
|
|
706.0 |
|
|
|
28.0 |
|
|
|
696.7 |
|
|
|
29.5 |
|
| |
Industrial
|
|
|
558.1 |
|
|
|
20.6 |
|
|
|
523.0 |
|
|
|
20.8 |
|
|
|
501.6 |
|
|
|
21.2 |
|
| |
Other
|
|
|
62.2 |
|
|
|
2.3 |
|
|
|
50.9 |
|
|
|
2.0 |
|
|
|
50.8 |
|
|
|
2.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total collection
|
|
|
2,013.4 |
|
|
|
74.3 |
|
|
|
1,881.1 |
|
|
|
74.7 |
|
|
|
1,779.8 |
|
|
|
75.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer and disposal
|
|
|
1,031.0 |
|
|
|
|
|
|
|
967.5 |
|
|
|
|
|
|
|
854.1 |
|
|
|
|
|
|
Less: Intercompany
|
|
|
(519.8 |
) |
|
|
|
|
|
|
(493.7 |
) |
|
|
|
|
|
|
(428.5 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer and disposal, net
|
|
|
511.2 |
|
|
|
18.9 |
|
|
|
473.8 |
|
|
|
18.8 |
|
|
|
425.6 |
|
|
|
18.0 |
|
|
Other
|
|
|
183.5 |
|
|
|
6.8 |
|
|
|
162.9 |
|
|
|
6.5 |
|
|
|
159.7 |
|
|
|
6.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Revenue
|
|
$ |
2,708.1 |
|
|
|
100.0 |
% |
|
$ |
2,517.8 |
|
|
|
100.0 |
% |
|
$ |
2,365.1 |
|
|
|
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 derive revenue from long-term contracts with
municipalities. We generally provide industrial and commercial
collection services to individual customers under contracts with
terms up to three years. Our revenue from landfill services 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 or of our
reportable segment revenue in any of the last three years.
The cost of our collection operations is primarily variable and
includes transfer, disposal, labor, self-insurance, 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
December 31, 2004, approximately 54% of the total volume of
waste we collected was disposed of at landfills we own or
operate.
Our landfill costs include daily operating expenses, costs of
capital for cell development, costs for final capping, closure
and post-closure, and the legal and administrative costs of
ongoing environmental compliance. Daily operating expenses
include leachate treatment and disposal, methane gas and
groundwater monitoring and system maintenance, interim cap
maintenance and costs associated with the application of daily
cover materials. 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 related to cell development. In life cycle accounting,
certain direct costs are capitalized, and charged to expense
based upon
23
the consumption of cubic yards of available airspace. These
costs include all costs to acquire and construct a site
including excavation, natural and synthetic liners, construction
of leachate collection systems, installation of methane gas
collection and monitoring systems, installation of groundwater
monitoring wells, and other costs associated with the
acquisition and development of the site. Obligations associated
with final capping, closure and post-closure are capitalized,
and amortized on a units-of-consumption basis as airspace is
consumed.
Cost and airspace estimates are developed annually by engineers.
These estimates are used by our operating and accounting
personnel to annually adjust our rates used to expense
capitalized costs. Changes in these estimates primarily relate
to changes in available airspace, inflation and applicable
regulations. Changes in available airspace include changes in
design and changes due to the addition of airspace lying in
expansion areas that we believe have a probable likelihood of
being permitted.
Our operations are managed and reviewed through five regions
which we designate as our reportable segments. From 2003 to
2004, operating income increased in our Eastern, Southern and
Western regions due to an overall increase in revenue resulting
from the successful execution of our growth strategy. In the
Central region, increased revenue was offset by weak economic
conditions and an increase in costs related to the long-haul
transport of waste by third-party vendors. In the Southwestern
region, revenue growth was impeded by the closure of a landfill
and the completion of a special waste contract during 2003. The
decrease in costs for Corporate Entities from 2003 to 2004 is
primarily due to a decrease in self-insurance expense.
2004 Financial Objectives
In January 2004, we publicly announced our objectives for the
year. These objectives included the following:
|
|
|
| |
• |
Generating free cash flow of approximately $340 million. |
| |
| |
• |
Using our free cash flow to repurchase shares of our common
stock under our $200.0 million share repurchase program
approved by our board of directors in October 2003 and
continuing to pay quarterly cash dividends. |
| |
| |
• |
Generating diluted earnings per share of $1.50 to $1.55. |
| |
| |
• |
Growing revenue from core operations by 3%, with approximately
2% attributable to price increases and 1% attributable to volume
growth. |
| |
| |
• |
Purchasing approximately $275 million of property and
equipment. |
2004 Business Performance
During 2004, we achieved our earnings per share objective and
exceeded our internal growth, free cash flow and share
repurchase objectives.
Our internal growth from core operations for 2004 was 5.9%, with
2.3% from price increases and 3.6% from volume growth. During
2004, our revenue growth from core pricing benefited from a
broad-based pricing initiative which we started during the
fourth quarter of 2003. We experienced core volume growth in all
lines of our business, including our residential collection
business resulting from the addition of several new municipal
contracts, and our landfill and transfer station businesses
resulting from newly opened sites and new contracts. Our core
volume growth was also positively impacted by the hurricanes. In
addition, our geographic mix of business, which is concentrated
in high growth markets, positively impacted our operating
results. As a result, during 2004 we were able to exceed the
internal growth objectives we established at the beginning of
the year.
During 2004, our operating margins improved, primarily due to
lower self-insurance expense. This benefit was partially offset
by increased costs for fuel, labor and subcontracting costs
associated with the long-haul transport of waste by third party
vendors. The net expansion in our operating margin allowed us to
achieve diluted earnings per share of $1.53 during the year
ended December 31, 2004.
24
During 2004, we generated free cash flow of $388.2 million
(consisting of cash provided by operating activities of
$666.3 million, less purchases of property and equipment of
$283.8 million, plus proceeds from the sale of property and
equipment of $5.7 million), which substantially exceeded
our objective. Our free cash flow was positively impacted by
lower than expected cash taxes due to bonus depreciation and our
change in tax method related to certain landfill costs.
In April 2004, our board of directors increased our share
repurchase authorization from $200.0 million to
$275.0 million. During 2004, we used our free cash flow to
repurchase approximately 9.6 million shares of our common
stock for $266.1 million. Also, during the third quarter of
2004, our board of directors increased our quarterly dividend to
$.12 per share.
2005 Financial Objectives
Our financial objectives for 2005 assume no deterioration or
improvement in the overall economy from that experienced during
the fourth quarter 2004. Specific guidance is as follows:
|
|
|
| |
• |
We expect to generate free cash flow in excess of
$260 million. |
| |
| |
• |
We anticipate using our free cash flow to continue to repurchase
shares of our common stock under our $275.0 million share
repurchase program approved by our board of directors in October
2004 and to continue to pay quarterly cash dividends. |
| |
| |
• |
We anticipate diluted earnings per share of $1.65 to $1.70. |
| |
| |
• |
We are targeting internal growth from core operations to be in
the range of 4.0% to 4.5%, with 2.5% attributable to price
increases and 1.5% to 2.0% attributable to volume growth. |
| |
| |
• |
We anticipate purchasing approximately $300 million of
property and equipment. |
We expect our free cash flow during 2005 to be lower than 2004
and 2003 because of higher tax payments due to the reversal of
bonus depreciation, higher purchases of property and equipment
and several one-time items that benefited previous periods,
including utilization of a tax receivable and the collection of
a note receivable during 2004, and an increase in self-insurance
reserves during 2003.
2005 Business Initiatives
Our business initiatives for 2005 are generally a continuation
of those initiated in the prior three years and are dependent on
further standardizing our business processes and improving our
systems. Ensuring that our people understand our initiatives and
processes and are trained on our new systems is essential to the
overall success of our initiatives. Our business initiatives for
2005 are as follows:
|
|
|
| |
• |
Pricing initiatives. During the fourth quarter of 2003,
we implemented a broad-based pricing initiative across all lines
of our business. The purpose of this initiative is to recover
increasing costs and improve operating margins. We realized the
benefit of this initiative during 2004 and expect a similar
benefit during 2005. |
| |
| |
• |
Improve the quality of our revenue. The first step in
this process was completed in 2001 and included installing a
standardized billing and operating system. This system enables
us to, among other things, stratify our customers to determine
how our rates compare to current market pricing. During 2002, we
implemented the second generation of this software which we call
RSI 1.0. RSI 1.0, our company’s core business system,
provides a variety of functionalities including customer
service, dispatch, billing, sales analysis, account retention
and route productivity analysis. During 2005, we will begin to
develop the next generation of our billing and operating system.
This system will provide additional functionality to our
operating locations and further standardize our billing and
operating processes. |
|
|
| |
We currently monitor our return on investment by market place
and have instituted a return on investment pricing model. This
model will eventually allow us to track our return on investment
by customer. |
25
|
|
| |
During 2001, we also implemented a customer relationship
management system. This system improves the productivity of our
sales force by helping to establish marketing priorities and
track sales leads. It also tracks renewal periods for potential
commercial, industrial and franchise contracts. During 2005, we
will continue to ensure our sales force is properly trained on
this system and is using it as intended. |
|
|
|
| |
• |
Improve the productivity of our operations. We use a grid
productivity program that enables us to benchmark the
performance of our drivers. In addition, in our larger markets,
we use a route optimization program to minimize drive times and
improve operational density. During 2005, we will continue to
update our disposal optimization metrics. These metrics identify
which local disposal option maximizes our return on invested
capital and cash flow. |
| |
| |
• |
Improve fleet management and procurement. In February
2002, we selected Dossier as our fleet management and parts
procurement system. During 2003, we implemented Dossier at all
of our significant hauling and landfill operations. Among other
features, this system tracks parts inventories, generates
automatic quantity order points and logs all maintenance work.
It allows us to capture and review information to ensure our
preventive maintenance programs comply with manufacturers’
warranties and governmental regulations. In addition, the
purchase order module within this system allows us to
cross-reference purchasing information with our inventory.
During 2005, we intend to further utilize this purchase order
module to take advantage of volume discounts. |
| |
| |
• |
Enhance operational and financial reporting systems. We
have several initiatives aimed at improving our operational and
financial reporting systems. The overall goal of these
initiatives is to provide us with detailed information, prepared
in a consistent manner, that will allow us to quickly analyze
and act upon trends in our business. |
|
|
| |
One of our most significant systems is our enterprise-wide
general ledger package. We successfully converted all of our
locations to Lawson general ledger software in 2002 and in 2003
successfully converted all of our locations to Lawson fixed
asset software. |
| |
| |
All of the system initiatives mentioned above will provide us
with more consistent and detailed information, thus allowing us
to make quicker and more informed business decisions. In
addition, during 2001, all of our significant software
applications were standardized and centralized at our data
center in Fort Lauderdale, Florida. This standardization
and centralization provides us with consolidated information
concerning our operations across a variety of operational and
financial disciplines. It also significantly enhances our
ability to execute our disaster recovery plan, if necessary. |
|
|
|
| |
• |
Expand our safety training programs. As part of our
ongoing emphasis on safe work practices and in light of
increasing insurance costs, we expanded our safety training
programs in 2002. During 2004, we distributed to all of our
locations a comprehensive training and safety manual. Safety
will continue to be a key area of focus during 2005. |
| |
| |
• |
Develop and implement performance strategies. Develop and
implement strategies to improve the performance of locations and
lines of business that are performing below the company’s
average. |
26
Critical Accounting Policies and Disclosures
Our Consolidated Financial Statements have been prepared using
accounting principles generally accepted in the United States
and necessarily include certain estimates and judgments made by
management. The following is a list of accounting policies that
we believe are the most critical in understanding our
company’s financial position, results of operations and
cash flows, and may require management to make subjective or
complex judgments about matters that are inherently uncertain.
| |
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Subjective or |
|
Disclosure |
| Policy |
|
Description |
|
Complex Judgments |
|
Reference |
|
Landfill Accounting:
|
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|
|
|
|
Life Cycle Accounting |
|
We use life cycle accounting and the units-of-consumption method
to recognize certain landfill costs over the life of the site.
In life cycle accounting, all costs to acquire and construct a
site are capitalized, and charged to expense based upon the
consumption of cubic yards of available airspace. Obligations
associated with final capping, closure and post-closure are
capitalized, and amortized on a units- of-consumption basis as
airspace is consumed. |
|
Cost and airspace estimates are developed annually by engineers.
Changes in these estimates could significantly affect our
amortization, depletion, and accretion expense. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Landfill and Environmental
Matters.
Note 3, Accrued Landfill and Environmental Costs in the
Consolidated Financial Statements. |
| |
|
Probable Expansion Airspace |
|
We include in our calculation of total available airspace
expansion areas that we believe have a probable likelihood that
the expansion area will ultimately be permitted. |
|
We have developed six criteria that must be met before an
expansion area is designated as probable expansion airspace. We
believe that satisfying each of these criteria demonstrates a
high likelihood that expansion airspace that is incorporated in
our landfill costing will be permitted. However, because some of
these criteria are judgmental, they may exclude expansion
airspace that will eventually be permitted or include expansion
airspace that will not be permitted. In either of these
scenarios, our amortization, depletion, and accretion expense
could change significantly. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Landfill and Environmental
Matters.
Note 3, Accrued Landfill and Environmental Costs in the
Consolidated Financial Statements. |
27
| |
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| |
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|
|
Subjective or |
|
Disclosure |
| Policy |
|
Description |
|
Complex Judgments |
|
Reference |
|
Final Capping, Closure and Post-Closure |
|
Prior to January 1, 2003, costs for final closure of our
landfills and costs for providing required post-closure
monitoring and maintenance were charged to cost of operations
based upon consumed airspace using the units-of- consumption
method. These costs were not inflated or discounted to the
present value of total estimated costs. On January 1, 2003,
we adopted Statement of Financial Accounting Standards
No. 143, “Accounting for Asset Retirement
Obligations.” Under SFAS 143, obligations associated
with final capping activities that occur during the operating
life of the landfill are recognized on a units-of- consumption
basis as airspace is consumed within each discrete capping
event. Obligations related to closure and post- closure
activities that occur after the landfill has ceased operations
are recognized on a units-of-consumption basis as airspace is
consumed throughout the entire landfill life. Landfill
retirement obligations are capitalized as the related
liabilities are recognized and amortized using the
units-of-consumption method over the airspace consumed within
the capping event or the airspace consumed throughout the entire
landfill, depending upon the nature of the obligation. All
obligations are initially measured at estimated fair value. Fair
value is calculated on a present value basis using an inflation
rate and the company’s credit-adjusted, risk-free rate. |
|
Total future costs for capping, closure and post- closure are
developed annually by engineers. Changes in these estimates
could affect our amortization of final capping, closure and
post- closure costs and our accretion expense. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Landfill and Environmental
Matters and — Selected Balance Sheet Accounts.
Note 3, Accrued Landfill and Environmental Costs in the
Consolidated Financial Statements. |
28
| |
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| |
|
|
|
Subjective or |
|
Disclosure |
| Policy |
|
Description |
|
Complex Judgments |
|
Reference |
|
Self-Insurance: |
|
|
|
|
|
|
| |
|
Our insurance programs for worker’s compensation, general
liability, vehicle liability and employee-related health care
benefits are effectively self-insured. Self-insurance accruals
are based on claims reported and actuarial estimates of claims
development and claims incurred but not reported. |
|
Estimates of claims development and claims incurred but not
reported are developed actuarially. If actual claims experience
or development is significantly different than our estimates,
our self- insurance expense would change. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Selected Balance Sheet
Accounts.
Note 12, Commitments and Contingencies in the Consolidated
Financial Statements. |
| |
|
Property and Equipment: |
|
|
|
|
|
|
|
Expenditures for Improvements, Repairs and Maintenance |
|
Expenditures for major additions and improvements to facilities
are capitalized. All expenditures for maintenance and repairs
are expensed when incurred. |
|
Whether certain expenditures improve an asset or lengthen its
useful life is subject to our judgment. Accordingly, the actual
useful lives of our assets could differ from our estimates. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Property and Equipment.
Note 2, Summary of Significant Accounting Policies in the
Consolidated Financial Statements. |
| |
|
Useful Lives |
|
Property and equipment are recorded at cost. Depreciation and
amortization expense are provided over the estimated useful
lives of the applicable assets using the straight-line method.
The estimated useful lives are seven to forty years for
buildings and improvements, five to twelve years for vehicles,
seven to ten years for most landfill equipment, three to fifteen
years for all other equipment, and five to twelve years for
furniture and fixtures. |
|
Our estimates regarding the useful lives of our depreciable
assets are based on our judgment. Accordingly, actual useful
lives could differ from our estimates. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Property and Equipment.
Note 2, Summary of Significant Accounting Policies in the
Consolidated Financial Statements. |
29
| |
|
|
|
|
|
|
| |
|
|
|
Subjective or |
|
Disclosure |
| Policy |
|
Description |
|
Complex Judgments |
|
Reference |
|
Capitalized Interest |
|
We capitalize interest on landfill cell construction and other
construction projects in accordance with Statement of Financial
Accounting Standards No. 34, “Capitalization of
Interest Cost.” |
|
Capitalizing too little or too much interest expense could lead
to a misstatement of interest expense in the statement of
income. In order to minimize this risk, construction projects
must meet the following criteria before interest is
capitalized:
1. Total construction costs are $50,000 or greater,
2. the construction phase is one month or longer, and
3. the assets have a useful life of one year or longer. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Property and Equipment.
Note 2, Summary of Significant Accounting Policies in the
Consolidated Financial Statements. |
| |
|
Revenue and Accounts Receivable: |
|
|
|
|
|
|
| |
|
Revenue consists primarily of collection fees from various
customer types and transfer and landfill disposal fees charged
to third parties. Advance billings are recorded as deferred
revenue. Revenue is recognized over the period in which services
are provided. No one customer has individually accounted for
more than 10% of our consolidated revenue or of our reportable
segment revenue in any of the past three years. Reserves for
accounts receivable are provided when a receivable is believed
to be uncollectible or generally when a receivable is in excess
of 90 days old. |
|
Establishing reserves against specific accounts receivable and
the overall adequacy of our accounts receivable reserve is a
matter of judgment. If our judgment and estimates concerning the
adequacy of our reserve for accounts receivable is incorrect,
bad debt expense would change. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Selected Balance Sheet
Accounts.
Note 2, Summary of Significant Accounting Policies in the
Consolidated Financial Statements. |
30
| |
|
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|
|
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|
| |
|
|
|
Subjective or |
|
Disclosure |
| Policy |
|
Description |
|
Complex Judgments |
|
Reference |
|
Derivatives: |
|
|
|
|
|
|
| |
|
From time to time, we use derivatives to limit our exposure to
fluctuations in interest rates and diesel fuel prices. These
derivatives have been accounted for in accordance with Statement
of Financial Accounting Standards No. 133, “Accounting
for Derivative Instruments and Hedging Activities.” |
|
The hedging relationships we have entered into are expected to
be either 100% effective or highly effective and have been
determined to meet the criteria for hedge accounting. If, in the
future, these relationships are no longer expected to be 100% or
highly effective, or if they no longer meet the criteria for
hedge accounting, our results of operations could change. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Financial Condition
and — Fuel Hedge.
Note 5, Debt, and Note 11, Fuel Hedge in the
Consolidated Financial Statements. |
31
| |
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| |
|
|
|
Subjective or |
|
Disclosure |
| Policy |
|
Description |
|
Complex Judgments |
|
Reference |
|
Long-Lived Asset Impairments: |
|
|
|
|
|
|
| |
|
Long-lived assets consist primarily of property, equipment,
goodwill and other intangible assets. We periodically evaluate
whether events and circumstances have occurred (as further
described in Note 2 of the Consolidated Financial
Statements) that may warrant revision of the estimated useful
life of long-lived assets or whether the remaining balance of
these assets should be evaluated for possible impairment. We use
an estimate of the undiscounted cash flows over the remaining
life of the assets in assessing their recoverability. In
addition, goodwill is tested for impairment on an annual basis
or more frequently if indicators of impairment arise. In testing
for impairment, we estimate the fair value of each operating
segment of our business and compare the fair values with the
carrying values. If the fair value of an operating segment is
greater than its carrying value, no impairment results. We
measure impairment loss as the amount by which the carrying
amount of the asset or operating segment exceeds its fair value. |
|
Our estimates of future cash flows and fair values are based on
our judgment. Accordingly, we could designate certain assets as
impaired that are not and fail to identify certain impaired
assets. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Property and Equipment.
Note 2, Summary of Significant Accounting Policies, and
Note 4, Business Combinations in the Consolidated Financial
Statements. |
32
| |
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| |
|
|
|
Subjective or |
|
Disclosure |
| Policy |
|
Description |
|
Complex Judgments |
|
Reference |
|
Income Taxes: |
|
|
|
|
|
|
| |
|
We account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, “Accounting
for Income Taxes.” Accordingly, deferred taxes have been
provided to show the effect of temporary differences between the
recognition of revenue and expenses for financial and income tax
reporting purposes and between the tax basis of assets and
liabilities and their reported amounts in the financial
statements. After the initial recognition of a deferred tax
asset, a valuation allowance is provided if it is determined
that it is more likely than not that the asset will not be
realized. |
|
Valuation allowances for deferred tax assets and the
realizability of net operating losses for tax purposes are based
upon our judgment. If our judgment and estimates concerning
valuation allowances and the realizability of net operating
losses are incorrect, our provision for income taxes would
change. |
|
Note 2, Summary of Significant Accounting Policies, and
Note 6, Income Taxes in the Consolidated Financial
Statements. |
Business Combinations
We make decisions to acquire or invest in businesses based on
financial and strategic considerations. Businesses acquired are
accounted for under the purchase method of accounting and are
included in our Consolidated Financial Statements from the date
of acquisition.
We acquired various solid waste businesses during the years
ended December 31, 2004, 2003 and 2002. The aggregate
purchase prices we paid for these transactions was
$47.4 million, $51.5 million and $55.8 million,
respectively.
Cost in excess of fair value of net assets acquired
(goodwill) for 2004 acquisitions totaled approximately
$13.2 million. As of December 31, 2004 we had
goodwill, net of accumulated amortization, of
$1,562.7 million.
During 2004, $28.2 million of the total purchase price paid
for acquisitions and contingent payments to former owners was
allocated to landfill airspace. As of December 31, 2004, we
had $743.6 million of landfill development costs, net of
accumulated depletion and amortization, which includes purchase
price allocated to landfill airspace as well as other
capitalized landfill costs. When a landfill is acquired as part
of a group of assets, purchase price is allocated to airspace
based upon the discounted expected future cash flows of the
landfill relative to the other assets within the acquired group
and is adjusted for other non-depletable landfill assets and
liabilities acquired (primarily final capping, closure and
post-closure liabilities). Landfill purchase price is amortized
using the units-of-consumption method over total available
airspace, which includes probable expansion airspace where
appropriate.
33
Goodwill for 2003 acquisitions totaled approximately
$21.2 million. As of December 31, 2003, we had
goodwill, net of accumulated amortization, of
$1,558.1 million. $27.7 million of the total purchase
price paid for acquisitions and contingent payments to former
owners was allocated to landfill airspace.
Goodwill for 2002 acquisitions totaled approximately
$40.1 million. As of December 31, 2002, we had
goodwill, net of accumulated amortization, of
$1,544.2 million.
Consolidated Results of Operations
|
|
|
Years Ended December 31, 2004, 2003 and 2002 |
Our income before cumulative effect of changes in accounting
principles was $237.9 million for the year ended
December 31, 2004, as compared to $215.4 million in
2003 and $239.6 million in 2002. Net income was
$237.9 million for year ended December 31, 2004, or
$1.53 per diluted share, as compared to $177.6 million, or
$1.10 per diluted share, in 2003 and $239.6 million, or
$1.44 per diluted share, in 2002. Net income for the year ended
December 31, 2003 includes an after-tax expense of
$37.8 million (net of an income tax benefit of
$23.1 million), or $.23 per share, as a cumulative effect
of a change in accounting principle resulting from the adoption
of Statement of Financial Accounting Standards No. 143,
“Accounting for Asset Retirement Obligations,” and a
change in accounting principle for our methane gas collection
systems. See Note 1, Basis of Presentation, of the Notes to
our Consolidated Financial Statements for further discussion of
these changes in accounting principles. Our operating results
for the year ended December 31, 2002 include other charges
(income) described below.
The following table summarizes our costs and expenses in
millions of dollars and as a percentage of our revenue for 2002
through 2004:
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|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
$ |
|
% |
|
$ |
|
% |
|
$ |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
2,708.1 |
|
|
|
100.0 |
% |
|
$ |
2,517.8 |
|
|
|
100.0 |
% |
|
$ |
2,365.1 |
|
|
|
100.0 |
% |
|
Cost of operations
|
|
|
1,714.4 |
|
|
|
63.3 |
|
|
|
1,605.4 |
|
|
|
63.8 |
|
|
|
1,472.9 |
|
|
|
62.3 |
|
|
Depreciation, amortization and depletion of property and
equipment
|
|
|
252.4 |
|
|
|
9.3 |
|
|
|
233.8 |
|
|
|
9.3 |
|
|
|
193.5 |
|
|
|
8.2 |
|
|
Amortization of intangible assets
|
|
|
7.0 |
|
|
|
.3 |
|
|
|
5.3 |
|
|
|
.2 |
|
|
|
6.1 |
|
|
|
.2 |
|
|
Accretion
|
|
|
13.7 |
|
|
|
.5 |
|
|
|
12.7 |
|
|
|
.5 |
|
|
|
— |
|
|
|
— |
|
|
Selling, general and administrative expenses
|
|
|
268.3 |
|
|
|
9.9 |
|
|
|
247.9 |
|
|
|
9.8 |
|
|
|
238.7 |
|
|
|
10.1 |
|
|
Other charges (income)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.6 |
) |
|
|
(.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating income
|
|
$ |
452.3 |
|
|
|
16.7 |
% |
|
$ |
412.7 |
|
|
|
16.4 |
% |
|
$ |
459.5 |
|
|
|
19.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Revenue was $2,708.1 million,
$2,517.8 million and $2,365.1 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
Revenue increased by $190.3 million, or 7.6%, from 2003 to
34
2004. Revenue increased by $152.7 million, or 6.5%, from
2002 to 2003. The following table reflects the components of our
revenue growth for the years ended December 31, 2004, 2003
and 2002:
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|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Core price
|
|
|
2.3 |
% |
|
|
1.8 |
% |
|
|
1.4 |
% |
|
Fuel surcharges
|
|
|
.2 |
|
|
|
.2 |
|
|
|
— |
|
|
Recycling commodities
|
|
|
.5 |
|
|
|
.1 |
|
|
|
.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total price
|
|
|
3.0 |
|
|
|
2.1 |
|
|
|
1.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core volume
|
|
|
3.6 |
|
|
|
2.1 |
|
|
|
1.6 |
|
|
Non-core volume
|
|
|
.1 |
|
|
|
— |
|
|
|
.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total volume
|
|
|
3.7 |
|
|
|
2.1 |
|
|
|
2.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total internal growth
|
|
|
6.7 |
|
|
|
4.2 |
|
|
|
3.8 |
|
|
Acquisitions
|
|
|
.9 |
|
|
|
1.8 |
|
|
|
.8 |
|
|
Taxes(a)
|
|
|
— |
|
|
|
.5 |
|
|
|
.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenue growth
|
|
|
7.6 |
% |
|
|
6.5 |
% |
|
|
4.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
Represents new taxes levied on landfill volumes in certain
states that are passed on to customers. |
|
|
|
| |
• |
2004: During the year ended December 31, 2004, our
revenue growth from core pricing benefited from a broad-based
pricing initiative which we started during the fourth quarter of
2003. During the year ended December 31, 2004, we
experienced core volume growth in all lines of our business,
including our residential collection business resulting from the
addition of several new municipal contracts, and our landfill
and transfer station businesses resulting from newly opened
sites and new contracts. Our internal growth from our core
operations was 5.9% in 2004. |
|
|
|
| |
• |
2003: During the first three quarters of 2003, we
experienced moderate growth in revenue due to an increase in
core pricing. During the fourth quarter of 2003, our revenue
growth from core pricing increased at a more rapid pace due to
our broad-based pricing initiative. |
|
|
| |
During 2003, the economic slowdown which began during 2001
continued to negatively impact our business. However, during
2003, our revenue growth from core volume continued to be
positively impacted by long-term franchise and municipal
contracts that were secured during 2002. Our internal growth
from core operations was 3.9% in 2003. |
|
|
|
| |
• |
2002: The economic slowdown which began in 2001 continued
to negatively impact the portion of our business servicing the
manufacturing sector and non-residential construction industry
during 2002. Volumes attributable to manufacturing and
construction activity continued to weaken during 2002. |
|
|
| |
The weakness in our business attributable to the economic
slowdown was partially offset by an increase in recycling
commodity prices in the early part of 2002. |
| |
| |
Despite the weakness we experienced in the aspects of our
business noted above, our internal growth from core operations
for 2002 was 3.0%. During 2002, we secured several long-term
franchise and municipal contracts. We also benefited from the
geographic mix of our business which favors high- growth markets. |
|
|
|
| |
• |
2005 Outlook: We anticipate internal growth from core
operations to be in the range of 4.0% to 4.5% during 2005
assuming no deterioration or improvement in the overall economy
from that experienced during the fourth quarter of 2004.
However, our price and volume growth may remain flat or may
decline in 2005 depending upon economic conditions and our
success in implementing pricing initiatives. |
Cost of Operations. Cost of operations was
$1,714.4 million, $1,605.4 million and
$1,472.9 million, or, as a percentage of revenue, 63.3%,
63.8% and 62.3%, for the years ended December 31, 2004,
2003 and 2002, respectively.
35
The increase in aggregate dollars in all periods presented is
primarily a result of the expansion of our operations through
internal growth and acquisitions.
The increase in cost of operations as a percentage of revenue
from 2002 to 2003 and the decrease in cost of operations as a
percentage of revenue from 2003 to 2004 is primarily
attributable to higher self-insurance expense in 2003.
Self-insurance expense was $165.3 million,
$189.5 million and $138.1 million for the years ended
December 31, 2004, 2003 and 2002, respectively. The
increase in self-insurance expense in 2003 related to existing
claims and was attributable to the expansion of our operations
and various changes in estimates as a result of continued
negative trends through the 2003 policy year.
Excluding self-insurance expense, cost of operations as a
percentage of revenue increased during the year ended
December 31, 2004 versus the comparable 2003 period. This
increase is primarily attributable to increased fuel prices,
labor costs and subcontracting costs associated with the
long-haul transport of waste by third-party vendors. Excluding
self-insurance expense, cost of operations as a percentage of
revenue decreased in 2003 versus the comparable 2002 period due
to the elimination of closure and post-closure expense as a
component of cost of operations in accordance with SFAS 143
in 2003 and the termination of our operating lease facility in
July 2002. This decrease was partially offset by increased fuel
prices, an increase in waste taxes levied on landfill volumes in
certain states, an increase in revenue generated by lines of
business that produce lower operating margins and an increase in
the long-haul transport of waste by third-party vendors.
To date in 2005, we have experienced a significant increase in
fuel prices. We believe that cost of operations as a percentage
of revenue may continue to remain high depending upon the cost
of fuel, health insurance, risk insurance and other key
components of our cost structure and general economic conditions.
Depreciation, Amortization and Depletion of Property and
Equipment. Depreciation, amortization and depletion expenses
for property and equipment were $252.4 million,
$233.8 million and $193.5 million, or, as a percentage
of revenue, 9.3%, 9.3% and 8.2%, for the years ended
December 31, 2004, 2003 and 2002, respectively. The
increase in aggregate dollars from 2003 to 2004 is primarily due
to the expansion of our operations through internal growth and
acquisitions. The increase in aggregate dollars and as a
percentage of revenue from 2002 to 2003 is primarily due to an
increase in landfill amortization associated with the adoption
of SFAS 143. The remaining increase from 2002 to 2003 is
due to increased depreciation expense resulting from capital
expenditures, acquisitions and the purchase of equipment
originally placed into service pursuant to an operating lease.
Amortization of Intangible Assets. Intangible assets
consist primarily of cost in excess of fair value of net assets
acquired, but also includes values assigned to long-term
contracts, covenants not to compete and customer relationships.
Expenses for amortization of intangible assets were
$7.0 million, $5.3 million and $6.1 million, or,
as a percentage of revenue, .3%, .2% and .2%, for the years
ended December 31, 2004, 2003 and 2002, respectively. The
increase in such expenses in aggregate dollars and as a
percentage of revenue from 2003 to 2004 is primarily due to
amortization expense on amounts that were recorded in other
intangible assets during the three months ended
September 30, 2004 resulting from an extensive internal
review of all recent acquisitions. The increase in amortization
of intangible assets in aggregate dollars is also due to the
amortization of intangible assets associated with businesses
acquired during 2004.
Accretion expense. Accretion expense was
$13.7 million and $12.7 million or, as a percentage of
revenue, .5% and .5%, for the years ended December 31, 2004
and 2003, respectively, versus $0 for 2002. Accretion expense
resulted from the adoption of SFAS 143 as of
January 1, 2003. The increase in such expenses in aggregate
dollars in 2004 is primarily due to expansion of our landfill
operations.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses were $268.3 million,
$247.9 million and $238.7 million, or, as a percentage
of revenue, 9.9%, 9.8% and 10.1%, for the years ended
December 31, 2004, 2003 and 2002, respectively. The
increases in aggregate dollars are primarily a result of the
expansion of our operations through internal growth and
acquisitions. The increase in such expenses as a percentage of
revenue from 2003 to 2004 is primarily due to higher
compensation costs. The decrease in such expenses as a
percentage of revenue from 2002 to 2003 is primarily due to
leveraging our existing overhead structure over an expanding
revenue base.
36
We believe that selling, general and administrative expenses in
the range of 10% of revenue are appropriate for 2005 given our
business platform.
Other Charges (Income). During the fourth quarter of
2002, we recorded a $5.6 million gain on the sale of
certain assets for amounts exceeding estimates originally made
and recorded as other charges during the fourth quarter
of 2001.
Operating Income. Operating income was
$452.3 million, $412.7 million and
$459.5 million, or, as a percentage of revenue, 16.7%,
16.4% and 19.4%, for the years ended December 31, 2004,
2003 and 2002, respectively.
Interest Expense. We incurred interest expense on our
unsecured notes and tax-exempt bonds. Interest expense was
$76.7 million, $78.0 million and $77.0 million
for the years ended December 31, 2004, 2003 and 2002,
respectively. In May 2004, $225.0 million of our public
notes matured and were repaid resulting in a reduction in
interest expense, which was partially offset by increases in
interest expense resulting from additional tax-exempt financing
obtained during 2004. The increase in interest expense from 2002
to 2003 is due to higher debt balances resulting from additional
tax-exempt financings partially offset by lower interest rates.
Capitalized interest was $2.1 million, $3.3 million
and $2.5 million for the years ended December 31,
2004, 2003 and 2002, respectively.
Interest Income and Other Income (Expense), Net. Interest
income and other income, net of other expense, was
$8.1 million, $12.7 million and $4.0 million for
the years ended December 31, 2004, 2003 and 2002,
respectively. The variances during the periods are primarily due
to fluctuations in cash, restricted cash and marketable
securities balances and net gains on the disposition of assets
during 2003. In May 2004, we used a portion of our outstanding
cash and restricted cash and marketable securities balances to
repay $225.0 million of public notes.
Income Taxes. Our provision for income taxes was
$145.8 million, $132.0 million and $146.9 million
for the years ended December 31, 2004, 2003 and 2002,
respectively. Our effective income tax rate was 38.0% for the
years ended December 31, 2004, 2003 and 2002.
Cumulative Effect of Changes in Accounting Principles.
During the first quarter of 2003, we adopted SFAS 143.
SFAS 143 required us to change the methodology we used to
record final capping, closure and post-closure costs related to
our landfills. As of January 1, 2003, we recorded an
after-tax expense of $20.8 million, or $33.6 million
on a pre-tax basis, as a cumulative effect of a change in
accounting principle resulting from the adoption of
SFAS 143. In addition, we also recorded an after-tax
expense of $17.0 million, or $27.4 million on a
pre-tax basis, as a cumulative effect of a change in accounting
principle for our methane gas collection systems. This change in
accounting principle for methane gas collection systems was
prompted by a thorough evaluation of our landfill accounting
policy in connection with the adoption of SFAS 143 and is
consistent with the methodology used by other participants in
the waste industry.
37
Landfill and Environmental Matters
The following tables reflect landfill airspace activity for
landfills owned or operated by us for the years ended
December 31, 2004, 2003 and 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance as of |
|
New |
|
Landfills |
|
Permits |
|
|
|
Changes in |
|
Changes |
|
Balance as of |
| |
|
December 31, |
|
Expansions |
|
Acquired, Net |
|
Granted, Net |
|
Airspace |
|
Engineering |
|
in |
|
December 31, |
| |
|
2001 |
|
Undertaken |
|
of Divestitures |
|
of Closures |
|
Consumed |
|
Estimates |
|
Design |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permitted airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
1,329.0 |
|
|
|
— |
|
|
|
4.9 |
|
|
|
45.1 |
|
|
|
(34.6 |
) |
|
|
13.1 |
|
|
|
.4 |
|
|
|
1,357.9 |
|
| |
Number of sites
|
|
|
54 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
Expansion airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
359.6 |
|
|
|
4.3 |
|
|
|
— |
|
|
|
(35.7 |
) |
|
|
— |
|
|
|
(2.1 |
) |
|
|
27.2 |
|
|
|
353.3 |
|
| |
Number of sites
|
|
|
20 |
|
|
|
2 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
1,688.6 |
|
|
|
4.3 |
|
|
|
4.9 |
|
|
|
9.4 |
|
|
|
(34.6 |
) |
|
|
11.0 |
|
|
|
27.6 |
|
|
|
1,711.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of sites
|
|
|
54 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance as of |
|
New |
|
Landfills |
|
Permits |
|
|
|
Changes in |
|
Changes |
|
Balance as of |
| |
|
December 31, |
|
Expansions |
|
Acquired, Net |
|
Granted, Net |
|
Airspace |
|
Engineering |
|
In |
|
December 31, |
| |
|
2002 |
|
Undertaken |
|
of Divestitures |
|
of Closures |
|
Consumed |
|
Estimates |
|
Design |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permitted airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
1,357.9 |
|
|
|
— |
|
|
|
26.3 |
|
|
|
154.6 |
|
|
|
(39.3 |
) |
|
|
(.9 |
) |
|
|
— |
|
|
|
1,498.6 |
|
| |
Number of sites
|
|
|
56 |
|
|
|
|
|
|
|
2 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
Expansion airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
353.3 |
|
|
|
61.6 |
|
|
|
— |
|
|
|
(154.1 |
) |
|
|
— |
|
|
|
(3.5 |
) |
|
|
11.4 |
|
|
|
268.7 |
|
| |
Number of sites
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
1,711.2 |
|
|
|
61.6 |
|
|
|
26.3 |
|
|
|
.5 |
|
|
|
(39.3 |
) |
|
|
(4.4 |
) |
|
|
11.4 |
|
|
|
1,767.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of sites
|
|
|
56 |
|
|
|
|
|
|
|
2 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance as of |
|
Landfills |
|
Permits |
|
|
|
Changes in |
|
Changes |
|
Balance as of |
| |
|
December 31, |
|
Acquired, Net |
|
Granted, Net |
|
Airspace |
|
Engineering |
|
In |
|
December 31, |
| |
|
2003 |
|
of Divestitures |
|
of Closures |
|
Consumed |
|
Estimates |
|
Design |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permitted airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
1,498.6 |
|
|
|
24.4 |
|
|
|
48.6 |
|
|
|
(42.1 |
) |
|
|
.1 |
|
|
|
— |
|
|
|
1,529.6 |
|
| |
Number of sites
|
|
|
58 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
Expansion airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
268.7 |
|
|
|
— |
|
|
|
(48.6 |
) |
|
|
— |
|
|
|
.1 |
|
|
|
2.0 |
|
|
|
222.2 |
|
| |
Number of sites
|
|
|
15 |
|
|
|
— |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cubic yards (in millions)
|
|
|
1,767.3 |
|
|
|
24.4 |
|
|
|
— |
|
|
|
(42.1 |
) |
|
|
.2 |
|
|
|
2.0 |
|
|
|
1,751.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of sites
|
|
|
58 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in engineering estimates typically include minor
modifications to the available disposal capacity of a landfill
based on a refinement of the capacity calculations resulting
from updated information. Changes in design typically include
significant modifications to a landfill’s footprint or
vertical slopes.
During 2002, total available airspace increased by
22.6 million cubic yards primarily due to the opening of a
greenfield site in South Carolina, changes in engineering
estimates and changes in design partially offset by consumption.
During 2003, total available airspace increased by
56.1 million cubic yards due to new expansions undertaken,
two landfills that were acquired during the year and changes in
design partially offset by airspace consumption and changes in
engineering estimates. During 2004, total available airspace
decreased by 15.5 million cubic yards primarily due to
airspace consumption partially offset by the acquisition of a
landfill.
As of December 31, 2004, we owned or operated 58 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
38
of estimated permitted airspace plus an estimate of probable
expansion airspace. These estimates are developed annually by
engineers utilizing information provided by annual aerial
surveys. As of December 31, 2004, total available disposal
capacity is estimated to be 1.5 billion in-place cubic
yards of permitted airspace plus .2 billion in-place cubic
yards of probable expansion airspace. Before airspace included
in an expansion area is determined to be probable expansion
airspace and, therefore, included in our calculation of total
available disposal capacity, it must meet our expansion
criteria. See Note 3, Accrued Landfill and Environmental
Costs of the Notes to our Consolidated Financial Statements for
further information.
As of December 31, 2004, twelve of our landfills meet the
criteria for including probable expansion airspace in their
total available disposal capacity. At projected annual volumes,
these twelve landfills have an estimated remaining average site
life of 30 years, including probable expansion airspace.
The average estimated remaining life of all of our landfills is
30 years.
The following table reflects the estimated operating lives of
our active landfill sites based on available disposal capacity
using current annual volumes as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of Sites without |
|
Number of Sites with |
|
Total |
|
Percent |
| |
|
Expansion Airspace |
|
Expansion Airspace |
|
Sites |
|
of Total |
| |
|
|
|
|
|
|
|
|
|
0 to 5 years
|
|
|
6 |
|
|
|
1 |
|
|
|
7 |
|
|
|
12 |
% |
|
5+ to 10 years
|
|
|
6 |
|
|
|
0 |
|
|
|
6 |
|
|
|
11 |
|
|
10+ to 20 years
|
|
|
11 |
|
|
|
2 |
|
|
|
13 |
|
|
|
22 |
|
|
20+ to 40 years
|
|
|
12 |
|
|
|
7 |
|
|
|
19 |
|
|
|
33 |
|
|
40+ years
|
|
|
11 |
|
|
|
2 |
|
|
|
13 |
|
|
|
22 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
46 |
|
|
|
12 |
|
|
|
58 |
|
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sites with expansion airspace include four landfills with less
than five years of remaining permitted airspace.
|
|
|
Final Capping, Closure and Post-Closure Costs |
As of January 1, 2003, we adopted Statement of Financial
Accounting Standards No. 143, “Accounting for Asset
Retirement Obligations.” This statement required us to
change the methodology we used to record final capping, closure
and post-closure costs. See Note 3, Accrued Landfill and
Environmental Costs, of the Notes to our Consolidated Financial
Statements for further information.
As of December 31, 2004, accrued final capping, closure and
post-closure costs were $216.8 million. The current portion
of these costs of $14.6 million is reflected in our
Consolidated Balance Sheets in other current liabilities. The
long-term portion of these costs of $202.2 million is
reflected in our Consolidated Balance Sheets in accrued landfill
and environmental costs.
39
Investment in Landfills
The following tables reflect changes in our investment in
landfills for the years ended December 31, 2002, 2003 and
2004 and the future expected investment as of December 31,
2004 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance as of |
|
|
|
|
|
Transfers |
|
Additions |
|
Balance as of |
| |
|
December 31, |
|
Capital |
|
Landfill |
|
and |
|
Charged to |
|
December 31, |
| |
|
2001 |
|
Additions |
|
Acquisitions |
|
Adjustments |
|
Expense |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-depletable landfill land
|
|
$ |
50.5 |
|
|
$ |
3.3 |
|
|
$ |
— |
|
|
$ |
.2 |
|
|
$ |
— |
|
|
$ |
54.0 |
|
|
Landfill development costs
|
|
|
958.8 |
|
|
|
18.1 |
|
|
|
5.1 |
|
|
|
44.3 |
|
|
|
— |
|
|
|
1,026.3 |
|
|
Construction in progress — landfill
|
|
|
17.6 |
|
|
|
56.0 |
|
|
|
— |
|
|
|
(41.3 |
) |
|
|
— |
|
|
|
32.3 |
|
|
Accumulated depletion and amortization
|
|
|
(237.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
.3 |
|
|
|
(67.4 |
) |
|
|
(304.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$ |
789.9 |
|
|
$ |
77.4 |
|
|
$ |
5.1 |
|
|
$ |
3.5 |
|
|
$ |
(67.4 |
) |
|
$ |
808.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Cumulative |
|
|
|
|
|
|
|
Non-Cash |
|
|
|
|
| |
|
|
|
Effect of |
|
|
|
|
|
|
|
Additions |
|
|
|
|
| |
|
Balance as of |
|
Changes in |
|
|
|
|
|
Transfers |
|
for Asset |
|
Additions |
|
Balance as of |
| |
|
December 31, |
|
Accounting |
|
Capital |
|
Landfill |
|
and |
|
Retirement |
|
Charged to |
|
December 31, |
| |
|
2002 |
|
Principles |
|
Additions |
|
Acquisitions |
|
Adjustments |
|
Obligations |
|
Expense |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-depletable landfill land
|
|
$ |
54.0 |
|
|
$ |
— |
|
|
$ |
.1 |
|
|
$ |
.5 |
|
|
$ |
(5.1 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
49.5 |
|
|
Landfill development costs
|
|
|
1,026.3 |
|
|
|
188.6 |
|
|
|
3.7 |
|
|
|
28.9 |
|
|
|
69.8 |
|
|
|
17.9 |
|
|
|
— |
|
|
|
1,335.2 |
|
|
Construction in progress — landfill
|
|
|
32.3 |
|
|
|
— |
|
|
|
78.7 |
|
|
|
— |
|
|
|
(50.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
60.8 |
|
|
Accumulated depletion and amortization
|
|
|
(304.1 |
) |
|
|
(248.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
.7 |
|
|
|
— |
|
|
|
(92.8 |
) |
|
|
(644.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$ |
808.5 |
|
|
$ |
(59.8 |
) |
|
$ |
82.5 |
|
|
$ |
29.4 |
|
|
$ |
15.2 |
|
|
$ |
17.9 |
|
|
$ |
(92.8 |
) |
|
$ |
800.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Non-Cash |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
| |
|
Balance as of |
|
|
|
|
|
|
|
Transfers |
|
for Asset |
|
Additions |
|
Balance as of |
| |
|
December 31, |
|
Capital |
|
|
|
Landfill |
|
and |
|
Retirement |
|
Charged to |
|
December 31, |
| |
|
2003 |
|
Additions |
|
Retirements |
|
Acquisitions |
|
Adjustments |
|
Obligations |
|
Expense |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-depletable landfill land
|
|
$ |
49.5 |
|
|
$ |
1.0 |
|
|
$ |
— |
|
|
$ |
1.5 |
|
|
$ |
1.4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
53.4 |
|
|
Landfill development costs
|
|
|
1,335.2 |
|
|
|
6.6 |
|
|
|
(1.9 |
) |
|
|
28.9 |
|
|
|
102.4 |
|
|
|
15.3 |
|
|
|
— |
|
|
|
1,486.5 |
|
|
Construction in progress — landfill
|
|
|
60.8 |
|
|
|
78.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(100.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
39.1 |
|
|
Accumulated depletion and amortization
|
|
|
(644.6 |
) |
|
|
— |
|
|
|
1.9 |
|
|
|
(1.0 |
) |
|
|
(.8 |
) |
|
|
— |
|
|
|
(98.4 |
) |
|
|
(742.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$ |
800.9 |
|
|
$ |
86.5 |
|
|
$ |
— |
|
|
$ |
29.4 |
|
|
$ |
2.4 |
|
|
$ |
15.3 |
|
|
$ |
(98.4 |
) |
|
$ |
836.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance as of |
|
Expected |
|
Total |
| |
|
December 31, |
|
Future |
|
Expected |
| |
|
2004 |
|
Investment |
|
Investment |
| |
|
|
|
|
|
|
|
Non-depletable landfill land
|
|
$ |
53.4 |
|
|
$ |
— |
|
|
$ |
53.4 |
|
|
Landfill development costs
|
|
|
1,486.5 |
|
|
|
1,524.1 |
|
|
|
3,010.6 |
|
|
Construction in progress — landfill
|
|
|
39.1 |
|
|
|
— |
|
|
|
39.1 |
|
|
Accumulated depletion and amortization
|
|
|
(742.9 |
) |
|
|
— |
|
|
|
(742.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$ |
836.1 |
|
|
$ |
1,524.1 |
|
|
$ |
2,360.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
40
The following table reflects our net investment in our
landfills, excluding non-depletable land, and our depletion,
amortization and accretion expense for the years ended
December 31, 2004, 2003 and 2002. It also shows on a pro
forma basis what our depletion, amortization and accretion
expense would have been if SFAS 143 and the changes in
accounting principles relating to our methane gas collection
systems were effective on January 1, 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
|
|
Pro Forma |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
Number of landfills owned or operated
|
|
|
58 |
|
|
|
58 |
|
|
|
56 |
|
|
|
56 |
|
|
Net investment, excluding non-depletable land (in millions)
|
|
$ |
782.7 |
|
|
$ |
751.4 |
|
|
$ |
694.7 |
|
|
$ |
754.5 |
|
|
Total estimated available disposal capacity (in millions of
cubic yards)
|
|
|
1,751.8 |
|
|
|
1,767.3 |
|
|
|
1,711.2 |
|
|
|
1,711.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment per cubic yard
|
|
$ |
.45 |
|
|
$ |
.43 |
|
|
$ |
.41 |
|
|
$ |
.44 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfill depletion and amortization expense (in millions)
|
|
$ |
98.4 |
|
|
$ |
92.8 |
|
|
$ |
86.9 |
|
|
$ |
67.4 |
|
|
Accretion expense (in millions)
|
|
|
13.7 |
|
|
|
12.7 |
|
|
|
10.5 |
|
|
|
— |
|
|
Closure and post-closure expense (in millions)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
112.1 |
|
|
|
105.5 |
|
|
|
97.4 |
|
|
|
93.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airspace consumed (in millions of cubic yards)
|
|
|
42.1 |
|
|
|
39.3 |
|
|
|
34.6 |
|
|
|
34.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion, amortization, accretion, closure and post-closure
expense per cubic yard of airspace consumed
|
|
$ |
2.66 |
|
|
$ |
2.68 |
|
|
$ |
2.82 |
|
|
$ |
2.70 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the twelve months ended December 31, 2004 and 2003,
our weighted average compaction rate was approximately
1,500 pounds per cubic yard.
As of December 31, 2004, we expect to spend an estimated
additional $1,524.1 million 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 $2.3 billion, or $1.32 per cubic yard,
is used in determining our depletion and amortization expense
based upon airspace consumed using the units-of-consumption
method.
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. We also accrue costs
related to environmental remediation activities associated with
properties acquired through business combinations as a charge to
cost in excess of fair value of net assets acquired or landfill
purchase price allocated to airspace, as appropriate. No
significant amounts were charged to expense during the years
ended December 31, 2004, 2003 and 2002.
Financial Condition
At December 31, 2004, we had $237.0 million of
restricted cash deposits and $38.7 million of restricted
marketable securities held as financial guarantees, including
$119.0 million of restricted cash held for capital
expenditures under certain debt facilities, and
$34.3 million and $38.7 million of restricted cash and
restricted marketable securities, respectively, pledged to
various regulatory agencies and governmental entities as
financial guarantees of our performance related to final
capping, closure and post-closure obligations at our landfills.
Restricted marketable securities consist of mutual funds
invested in short-term investment grade securities, including
mortgage-backed securities and U.S. Government obligations.
These securities are available for sale and, as a result, are
stated at fair value based upon quoted market prices. Unrealized
gains and losses, net of tax, are recorded as a component of
accumulated other comprehensive income (loss). We liquidated a
portion of these marketable securities and used the proceeds to
repay the $225.0 million of public notes, which matured in
May 2004.
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 was scheduled to
expire in July 2002 and the remaining $500.0 million was
scheduled to expire in July 2003. As a result of our strong
financial position and liquidity, in February 2002 we
41
reduced the short- and long-term portions of our credit facility
to $300.0 million and $450.0 million, respectively. In
July 2002, we renewed the long-and short-term portions of our
credit facility respectively, on substantially the same terms
and conditions with the long-term portion expiring in 2007 and
the short-term portion expiring in 2003. The short-term portion
of the facility was renewed again in July 2003 and 2004 and
expires in June 2005. Borrowings under the credit facility bear
interest at LIBOR-based rates. We use our operating cash flow
and proceeds from our tax-exempt debt financings to finance our
working capital, capital expenditures, acquisitions, share
repurchases, dividends and other requirements. As of
December 31, 2004, we had $373.4 million available
under our credit facility.
In May 1999, we sold $600.0 million of unsecured notes in
the public market. $225.0 million of these notes bore
interest at
65/8% per
annum and matured in May 2004. The remaining $375.0 million
bear interest at
71/8% per
annum and mature in 2009. Interest on the outstanding notes is
payable semi-annually in May and November. The
$225.0 million and $375.0 million in notes were
offered at a discount of $1.0 million and $.5 million,
respectively.
In December 1999, we entered into an operating lease facility
established to finance the acquisition of operating equipment
consisting primarily of revenue-producing vehicles. In July
2002, we exercised our right to purchase the equipment
underlying this facility by paying $72.6 million using our
excess cash, which was the balance outstanding under the
facility at that time.
In August 2001, we sold $450.0 million of unsecured notes
in the public market. The notes bear interest at
63/4%
and mature in 2011. Interest on these notes is payable
semi-annually in February and August. The notes were offered at
a discount of $2.6 million. Proceeds from the notes were
used to repay our revolving credit facility.
In order to manage risk associated with fluctuations in interest
rates and to take advantage of favorable floating interest
rates, we have entered into interest rate swap agreements with
investment grade-rated financial institutions. The swap
agreements have total notional values of $225.0 million and
$210.0 million, respectively, and require our company to
pay interest at floating rates based upon changes in LIBOR and
receive interest at fixed rates of
65/8%
and
63/4%,
respectively. Swap agreements with a notional value of
$225.0 million matured in May 2004, and agreements with a
notional value of $210.0 million mature in August 2011.
At December 31, 2004, we had $527.3 million of
tax-exempt bonds and other tax-exempt financings outstanding of
which approximately $65.5 million were obtained during
fiscal 2004. Borrowings under these bonds and other financings
bear interest based on fixed or floating interest rates at the
prevailing market ranging from 2% to
51/4%
at December 31, 2004 and have maturities ranging from 2005
to 2037. As of December 31, 2004, we had
$119.0 million of restricted cash related to proceeds from
tax-exempt bonds and other tax-exempt financings. This
restricted cash will be used to fund capital expenditures under
the terms of the agreements.
On February 16, 2005, we commenced an offer to the holders
of our
71/8%
unsecured notes due 2009 to exchange up to $275.0 million
aggregate principal amount of such notes for a like principal
amount of new notes due 2035. This offering is conditioned upon
receiving valid tenders of at least $175.0 million of the
aggregate principal of existing notes. These new notes will bear
interest at a rate equal to the sum of: (a) the bid side
yield on the 5.375% U.S. Treasury Note due
February 15, 2031, calculated on the second business day
prior to the expiration date of our exchange offering, and
(b) 130 basis points. The total exchange price for the
old notes is intended to result in a yield to maturity on the
settlement date equal to the sum of: (a) the bid-side yield
on the 3.875% U.S. Treasury Note due May 15, 2009,
calculated on the second business day prior to the expiration
date, and (b) 35 basis points. The exchange offering
is expected to close March 16, 2005, unless further
extended by us. However, we cannot assure you that the
conditions to the exchange offering will be met and the
transaction will be consummated.
We plan to extend the maturity of our revolving short-term
credit facility prior to its expiration in June 2005 to June
2006 or later. We believe that these actions would provide us
with sufficient financial resources to meet our anticipated
capital requirements and obligations as they come due. We
believe that we would be able
42
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 favorable terms or to extend the
existing short-term credit facility on the same terms.
Selected Balance Sheet Accounts
The following tables reflect the activity in our allowance for
doubtful accounts, final capping, closure, post-closure and
remediation liabilities and accrued self-insurance during the
years ended December 31, 2002, 2003 and 2004 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Closure, |
|
|
| |
|
|
|
Post-Closure |
|
|
| |
|
Allowance for |
|
and |
|
|
| |
|
Doubtful Accounts |
|
Remediation |
|
Self-Insurance |
| |
|
|
|
|
|
|
|
Balance, December 31, 2001
|
|
$ |
19.0 |
|
|
$ |
239.5 |
|
|
$ |
57.6 |
|
|
Additions charged to expense
|
|
|
11.2 |
|
|
|
26.1 |
|
|
|
138.1 |
|
|
Additions due to acquisitions, net of divestitures
|
|
|
.2 |
|
|
|
5.0 |
|
|
|
— |
|
|
Payments or usage
|
|
|
(11.4 |
) |
|
|
(14.8 |
) |
|
|
(120.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
19.0 |
|
|
|
255.8 |
|
|
|
75.0 |
|
|
Current portion
|
|
|
19.0 |
|
|
|
22.1 |
|
|
|
33.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$ |
— |
|
|
$ |
233.7 |
|
|
$ |
41.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Final Capping, |
|
|
|
|
| |
|
Allowance for |
|
Closure and |
|
|
|
|
| |
|
Doubtful Accounts |
|
Post-Closure |
|
Remediation |
|
Self-Insurance |
| |
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
$ |
19.0 |
|
|
$ |
196.9 |
|
|
$ |
58.9 |
|
|
$ |
75.0 |
|
|
Cumulative effect of change in accounting principle
|
|
|
— |
|
|
|
(14.5 |
) |
|
|
— |
|
|
|
— |
|
|
Non-cash asset additions
|
|
|
— |
|
|
|
17.9 |
|
|
|
— |
|
|
|
— |
|
|
Accretion expense
|
|
|
— |
|
|
|
12.7 |
|
|
|
— |
|
|
|
— |
|
|
Other additions charged to expense
|
|
|
10.4 |
|
|
|
— |
|
|
|
— |
|
|
|
189.5 |
|
|
Payments or usage
|
|
|
(10.4 |
) |
|
|
(8.3 |
) |
|
|
(4.2 |
) |
|
|
(142.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
19.0 |
|
|
|
204.7 |
|
|
|
54.7 |
|
|
|
122.2 |
|
| |
Current portion
|
|
|
19.0 |
|
|
|
29.5 |
|
|
|
4.4 |
|
|
|
47.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Long-term portion
|
|
$ |
— |
|
|
$ |
175.2 |
|
|
$ |
50.3 |
|
|
$ |
74.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Final Capping, |
|
|
|
|
| |
|
Allowance for |
|
Closure and |
|
|
|
|
| |
|
Doubtful Accounts |
|
Post-Closure |
|
Remediation |
|
Self-Insurance |
| |
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
$ |
19.0 |
|
|
$ |
204.7 |
|
|
$ |
54.7 |
|
|
$ |
122.2 |
|
|
Non-cash asset additions
|
|
|
— |
|
|
|
19.6 |
|
|
|
— |
|
|
|
— |
|
|
Revisions in estimates of future cash flows recorded as non-cash
asset additions
|
|
|
— |
|
|
|
(4.3 |
) |
|
|
— |
|
|
|
— |
|
|
Accretion expense
|
|
|
— |
|
|
|
13.7 |
|
|
|
— |
|
|
|
— |
|
|
Other additions charged to expense
|
|
|
8.0 |
|
|
|
— |
|
|
|
1.7 |
|
|
|
165.3 |
|
|
Additions due to acquisitions
|
|
|
— |
|
|
|
.6 |
|
|
|
— |
|
|
|
— |
|
|
Payments or usage
|
|
|
(9.0 |
) |
|
|
(17.5 |
) |
|
|
(2.4 |
) |
|
|
(143.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
18.0 |
|
|
|
216.8 |
|
|
|
54.0 |
|
|
|
143.8 |
|
| |
Current portion
|
|
|
18.0 |
|
|
|
14.6 |
|
|
|
2.7 |
|
|
|
47.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Long-term portion
|
|
$ |
— |
|
|
$ |
202.2 |
|
|
$ |
51.3 |
|
|
$ |
96.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Our expense related to doubtful accounts as a percentage of
revenue for 2002, 2003 and 2004 was .5%, .4% and .3%,
respectively.
As of December 31, 2004, accounts receivable were
$268.7 million, net of allowance for doubtful accounts of
$18.0 million, resulting in days sales outstanding of
35 days, or 22 days net of deferred revenue. In
addition, at December 31, 2004, our trade receivables in
excess of 90 days old totaled $16.4 million, or 5.7%
of gross receivables outstanding.
Our expense for self-insurance as a percentage of revenue for
2002, 2003 and 2004 was 5.8%, 7.5% and 6.1%, respectively. The
increase in self-insurance expense from 2002 to 2003 related to
existing claims and was attributable to the expansion of our
operations and various changes in estimates as a result of
continued negative trends through our 2003 policy year, based on
recent actuarial claims experience, expected claims development
and medical cost inflation.
Property and Equipment
The following tables reflect the activity in our property and
equipment accounts for the years ended December 31, 2002,
2003 and 2004 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross Property and Equipment |
| |
|
|
| |
|
Balance as of |
|
|
|
Acquisitions, |
|
|
|
Balance as of |
| |
|
December 31, |
|
Capital |
|
|
|
Net of |
|
Transfers and |
|
December 31, |
| |
|
2001 |
|
Additions |
|
Retirements |
|
Divestitures |
|
Adjustments |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other land
|
|
$ |
94.3 |
|
|
$ |
5.1 |
|
|
$ |
(2.5 |
) |
|
$ |
(7.0 |
) |
|
$ |
(.2 |
) |
|
$ |
89.7 |
|
|
Non-depletable landfill land
|
|
|
50.5 |
|
|
|
3.3 |
|
|
|
— |
|
|
|
— |
|
|
|
.2 |
|
|
|
54.0 |
|
|
Landfill development costs
|
|
|
958.8 |
|
|
|
18.1 |
|
|
|
— |
|
|
|
5.1 |
|
|
|
44.3 |
|
|
|
1,026.3 |
|
|
Vehicles and equipment
|
|
|
1,153.2 |
|
|
|
220.8 |
|
|
|
(47.8 |
) |
|
|
15.1 |
|
|
|
15.5 |
|
|
|
1,356.8 |
|
|
Buildings and improvements
|
|
|
256.4 |
|
|
|
12.6 |
|
|
|
(2.3 |
) |
|
|
(3.4 |
) |
|
|
7.6 |
|
|
|
270.9 |
|
|
Construction in progress — landfill
|
|
|
17.6 |
|
|
|
56.0 |
|
|
|
— |
|
|
|
— |
|
|
|
(41.3 |
) |
|
|
32.3 |
|
|
Construction in progress — other
|
|
|
23.5 |
|
|
|
15.3 |
|
|
|
— |
|
|
|
— |
|
|
|
(29.7 |
) |
|
|
9.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
2,554.3 |
|
|
$ |
331.2 |
|
|
$ |
(52.6 |
) |
|
$ |
9.8 |
|
|
$ |
(3.6 |
) |
|
$ |
2,839.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accumulated Depreciation, Amortization and Depletion |
| |
|
|
| |
|
Balance as of |
|
Additions |
|
|
|
Acquisitions, |
|
|
|
Balance as of |
| |
|
December 31, |
|
Charged to |
|
|
|
Net of |
|
Transfers and |
|
December 31, |
| |
|
2001 |
|
Expense |
|
Retirements |
|
Divestitures |
|
Adjustments |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfill development costs
|
|
$ |
(237.0 |
) |
|
$ |
(67.4 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
.3 |
|
|
$ |
(304.1 |
) |
|
Vehicles and equipment
|
|
|
(495.7 |
) |
|
|
(116.5 |
) |
|
|
36.9 |
|
|
|
1.8 |
|
|
|
3.4 |
|
|
|
(570.1 |
) |
|
Buildings and improvements
|
|
|
(46.7 |
) |
|
|
(9.6 |
) |
|
|
1.2 |
|
|
|
.3 |
|
|
|
(.1 |
) |
|
|
(54.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(779.4 |
) |
|
$ |
(193.5 |
) |
|
$ |
38.1 |
|
|
$ |
2.1 |
|
|
$ |
3.6 |
|
|
$ |
(929.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross Property and Equipment |
| |
|
|
| |
|
|
|
Cumulative |
|
|
|
Non-Cash |
|
|
| |
|
|
|
Effect |
|
|
|
Additions for |
|
|
| |
|
Balance as of |
|
of Changes in |
|
|
|
Acquisitions, |
|
Asset |
|
|
|
Balance as of |
| |
|
December 31, |
|
Accounting |
|
Capital |
|
|
|
Net of |
|
Retirement |
|
Transfers and |
|
December 31, |
| |
|
2002 |
|
Principles |
|
Additions |
|
Retirements |
|
Divestitures |
|
Obligations |
|
Adjustments |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other land
|
|
$ |
89.7 |
|
|
$ |
— |
|
|
$ |
6.4 |
|
|
$ |
(1.7 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
94.4 |
|
|
Non-depletable landfill land
|
|
|
54.0 |
|
|
|
— |
|
|
|
.1 |
|
|
|
— |
|
|
|
.5 |
|
|
|
— |
|
|
|
(5.1 |
) |
|
|
49.5 |
|
|
Landfill development costs
|
|
|
1,026.3 |
|
|
|
188.6 |
|
|
|
3.7 |
|
|
|
— |
|
|
|
28.9 |
|
|
|
17.9 |
|
|
|
69.8 |
|
|
|
1,335.2 |
|
|
Vehicles and equipment
|
|
|
1,356.8 |
|
|
|
— |
|
|
|
163.4 |
|
|
|
(39.3 |
) |
|
|
10.7 |
|
|
|
— |
|
|
|
(1.0 |
) |
|
|
1,490.6 |
|
|
Buildings and improvements
|
|
|
270.9 |
|
|
|
(11.7 |
) |
|
|
3.9 |
|
|
|
(2.8 |
) |
|
|
.9 |
|
|
|
— |
|
|
|
6.2 |
|
|
|
267.4 |
|
|
Construction in progress — landfill
|
|
|
32.3 |
|
|
|
— |
|
|
|
78.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(50.2 |
) |
|
|
60.8 |
|
|
Construction in progress — other
|
|
|
9.1 |
|
|
|
— |
|
|
|
17.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19.7 |
) |
|
|
6.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
2,839.1 |
|
|
$ |
176.9 |
|
|
$ |
273.2 |
|
|
$ |
(43.8 |
) |
|
$ |
41.0 |
|
|
$ |
17.9 |
|
|
$ |
— |
|
|
$ |
3,304.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accumulated Depreciation, Amortization and Depletion |
| |
|
|
| |
|
|
|
Cumulative |
|
|
| |
|
|
|
Effect |
|
|
| |
|
Balance as of |
|
of Changes in |
|
Additions |
|
|
|
Acquisitions, |
|
|
|
Balance as of |
| |
|
December 31, |
|
Accounting |
|
Charged to |
|
|
|
Net of |
|
Transfers and |
|
December 31, |
| |
|
2002 |
|
Principles |
|
Expense |
|
Retirements |
|
Divestitures |
|
Adjustments |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfill development costs
|
|
$ |
(304.1 |
) |
|
$ |
(248.4 |
) |
|
$ |
(92.8 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
.7 |
|
|
$ |
(644.6 |
) |
|
Vehicles and equipment
|
|
|
(570.1 |
) |
|
|
— |
|
|
|
(131.6 |
) |
|
|
34.1 |
|
|
|
.4 |
|
|
|
.8 |
|
|
|
(666.4 |
) |
|
Buildings and improvements
|
|
|
(54.9 |
) |
|
|
3.0 |
|
|
|
(9.4 |
) |
|
|
.5 |
|
|
|
— |
|
|
|
(1.5 |
) |
|
|
(62.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(929.1 |
) |
|
$ |
(245.4 |
) |
|
$ |
(233.8 |
) |
|
$ |
34.6 |
|
|
$ |
.4 |
|
|
$ |
— |
|
|
$ |
(1,373.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross Property and Equipment |
| |
|
|
| |
|
|
|
Non-Cash |
|
|
| |
|
|
|
Additions for |
|
|
| |
|
Balance as of |
|
|
|
Acquisitions, |
|
Asset |
|
|
|
Balance as of |
| |
|
December 31, |
|
Capital |
|
|
|
Net of |
|
Retirement |
|
Transfers and |
|
December 31, |
| |
|
2003 |
|
Additions |
|
Retirements |
|
Divestitures |
|
Obligations |
|
Adjustments |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other land
|
|
$ |
94.4 |
|
|
$ |
3.1 |
|
|
$ |
(0.7 |
) |
|
$ |
.9 |
|
|
$ |
— |
|
|
$ |
.2 |
|
|
$ |
97.9 |
|
|
Non-depletable landfill land
|
|
|
49.5 |
|
|
|
1.0 |
|
|
|
— |
|
|
|
1.5 |
|
|
|
— |
|
|
|
1.4 |
|
|
|
53.4 |
|
|
Landfill development costs
|
|
|
1,335.2 |
|
|
|
6.6 |
|
|
|
(1.9 |
) |
|
|
28.9 |
|
|
|
15.3 |
|
|
|
102.4 |
|
|
|
1,486.5 |
|
|
Vehicles and equipment
|
|
|
1,490.6 |
|
|
|
169.1 |
|
|
|
(48.2 |
) |
|
|
5.3 |
|
|
|
— |
|
|
|
.7 |
|
|
|
1,617.5 |
|
|
Buildings and improvements
|
|
|
267.4 |
|
|
|
11.4 |
|
|
|
(1.4 |
) |
|
|
1.0 |
|
|
|
— |
|
|
|
8.6 |
|
|
|
287.0 |
|
|
Construction in progress — landfill
|
|
|
60.8 |
|
|
|
78.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(100.6 |
) |
|
|
39.1 |
|
|
Construction in progress — other
|
|
|
6.4 |
|
|
|
13.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12.7 |
) |
|
|
7.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
3,304.3 |
|
|
$ |
283.8 |
|
|
$ |
(52.2 |
) |
|
$ |
37.6 |
|
|
$ |
15.3 |
|
|
$ |
— |
|
|
$ |
3,588.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accumulated Depreciation, Amortization and Depletion |
| |
|
|
| |
|
Balance as of |
|
Additions |
|
|
|
Acquisitions, |
|
|
|
Balance as of |
| |
|
December 31, |
|
Charged to |
|
|
|
Net of |
|
Transfers and |
|
December 31, |
| |
|
2003 |
|
Expense |
|
Retirements |
|
Divestitures |
|
Adjustments |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfill development costs
|
|
$ |
(644.6 |
) |
|
$ |
(98.4 |
) |
|
$ |
1.9 |
|
|
$ |
(1.0 |
) |
|
$ |
(.8 |
) |
|
$ |
(742.9 |
) |
|
Vehicles and equipment
|
|
|
(666.4 |
) |
|
|
(143.5 |
) |
|
|
43.5 |
|
|
|
— |
|
|
|
.1 |
|
|
|
(766.3 |
) |
|
Buildings and improvements
|
|
|
(62.3 |
) |
|
|
(10.5 |
) |
|
|
1.2 |
|
|
|
— |
|
|
|
.8 |
|
|
|
(70.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(1,373.3 |
) |
|
$ |
(252.4 |
) |
|
$ |
46.6 |
|
|
$ |
(1.0 |
) |
|
$ |
.1 |
|
|
$ |
(1,580.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Capital additions for 2002 include $72.6 million used to
purchase equipment consisting primarily of revenue-producing
vehicles originally placed into service pursuant to an operating
lease.
Liquidity and Capital Resources
The major components of changes in cash flows for the years
ended December 31, 2004, 2003 and 2002 are discussed below.
Cash Flows From Operating Activities. Cash flows provided
by operating activities were $666.3 million,
$600.5 million and $569.7 million for the years ended
December 31, 2004, 2003 and 2002, respectively. The changes
in cash provided by operating activities during the periods are
due to the expansion of our business, the timing of payments
received for accounts receivable, and the timing of payments for
accounts payable and income taxes.
In December 2003, we received written approval from the Internal
Revenue Service to exclude probable expansion airspace from our
calculation of landfill amortization, depletion, and final
capping, closure and post-closure costs for tax purposes. As a
result of this change, we recorded a tax receivable of
approximately $48.0 million which was collected or used to
offset taxes payable during the year ended December 31,
2004. Also during the year ended December 31, 2004, we
collected a $23.0 million note receivable associated with a
divested business.
We expect our cash flow from operating activities during 2005 to
be lower than 2004 and 2003 because of higher tax payments due
to the reversal of bonus depreciation and several one-time items
that benefited previous periods, including utilization of a tax
receivable and the collection of a note receivable during 2004,
and an increase in self-insurance reserves during 2003.
We use cash flow from operations to fund capital expenditures,
acquisitions, share repurchases, dividend payments and debt
repayments.
Cash Flows Used In Investing Activities. Cash used in
investing activities was $206.7 million,
$552.4 million and $316.3 million for the years ended
December 31, 2004, 2003 and 2002, respectively, and
consists primarily of cash used for capital additions and
business acquisitions for all the periods presented and cash
provided by restricted marketable securities in 2004. Capital
additions were $283.8 million, $273.2 million and
$258.6 million during the years ended December 31,
2004, 2003 and 2002, respectively. Cash used to acquire
businesses, net of cash acquired, was $47.3 million,
$51.5 million and $55.8 million during the years ended
December 31, 2004, 2003 and 2002, respectively.
The increase in restricted marketable securities during 2003
consists of amounts transferred from unrestricted cash for
financial guarantees. In 2004, we liquidated a portion of these
marketable securities and used the proceeds to repay the
$225.0 million of public notes. We used letters of credit
to replace financial guarantees secured by marketable securities
that were liquidated.
We intend to finance capital expenditures and acquisitions
through cash on hand, cash flows from operations, our revolving
credit facility, tax-exempt bonds and other financings. We
expect to use primarily cash for future business acquisitions.
Cash Flows Used In Financing Activities. Cash flows used
in financing activities was $437.3 million,
$70.4 million and $128.0 million for the years ended
December 31, 2004, 2003 and 2002, respectively, and
primarily include proceeds from issuances of tax-exempt bonds,
repayments of debt and repurchases of common stock under our
stock repurchase program. Dividends paid were $46.0 million
and $19.0 million during 2004 and 2003, respectively. In
2004, repayments of debt include the liquidation of
$225.0 million of public notes.
From 2000 through 2004, our board of directors authorized the
repurchase of up to $1,025.0 million of our common stock.
As of December 31, 2004, we paid $750.4 million to
repurchase approximately 35.2 million shares of our common
stock, of which $266.1 million was paid during 2004 to
repurchase approximately 9.6 million shares of our common
stock.
46
In December 1999, we entered into an operating lease facility
established to finance the acquisition of operating equipment
consisting primarily of revenue-producing vehicles. In
July 2002, we retired this facility using our excess cash.
We used proceeds from our cash on hand, liquidation of
marketable securities, cash flow from operations, and tax-exempt
bonds to fund capital expenditures and acquisitions and to repay
debt. We intend to finance future stock repurchases and dividend
payments through cash on hand, cash flow from operations, our
revolving credit facility and other financings.
Credit Rating
Our company has received investment grade credit ratings. As of
December 31, 2004, our senior debt was rated BBB+/positive
by Standard & Poor’s, BBB+/positive by Fitch and
Baa2 by Moody’s.
Operating Lease Facility
In December 1999, we entered into a $100.0 million facility
established to finance the acquisition of operating equipment
consisting primarily of revenue-producing vehicles. In
July 2002, we exercised our right to purchase the equipment
underlying this facility by paying $72.6 million using our
excess cash, which was the balance outstanding under the
facility at that time.
Fuel Hedge
During June 2001, we entered into option agreements for
approximately 14.3 million gallons of heating oil. Under
Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging
Activities,” as amended, the options qualified for and were
designated as effective hedges of changes in the prices of
forecasted diesel fuel purchases. These option agreements
settled each month in equal notional amounts expiring in
December 2002. The option agreements were structured as
zero-cost collars indexed to the price of heating oil. In
accordance with SFAS 133, $1.6 million net of tax,
representing the effective portion of the change in fair value
has been recorded in stockholders’ equity as a component of
accumulated other comprehensive income for the year ended
December 31, 2002. The ineffective portion of the change in
fair value of approximately $.1 million for the year ended
December 31, 2002 has been included in other income,
(expense) net in the accompanying Consolidated Statements
of Income. Realized losses of $.8 million for the year
ended December 31, 2002 related to these option agreements
are included in cost of operations in our Consolidated
Statements of Income.
Contractual Obligations
The following table summarizes our contractual obligations as of
December 31, 2004 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Maturities |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
of Notes |
|
Final |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Payable and |
|
Capping, |
|
|
|
Amounts Due |
|
Unconditional |
|
|
| |
|
Operating |
|
Capital |
|
Long-Term |
|
Closure and |
|
|
|
to Former |
|
Purchase |
|
|
| Year Ending December 31, |
|
Leases |
|
Leases |
|
Debt |
|
Post-Closure |
|
Remediation |
|
Owners |
|
Commitments |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
$ |
4.1 |
|
|
$ |
— |
|
|
$ |
2.4 |
|
|
$ |
14.6 |
|
|
$ |
2.7 |
|
|
$ |
4.3 |
|
|
$ |
27.6 |
|
|
$ |
55.7 |
|
|
2006
|
|
|
3.1 |
|
|
|
— |
|
|
|
2.2 |
|
|
|
58.1 |
|
|
|
2.5 |
|
|
|
— |
|
|
|
9.9 |
|
|
|
75.8 |
|
|
2007
|
|
|
2.8 |
|
|
|
— |
|
|
|
1.6 |
|
|
|
49.5 |
|
|
|
2.5 |
|
|
|
— |
|
|
|
2.0 |
|
|
|
58.4 |
|
|
2008
|
|
|
1.6 |
|
|
|
— |
|
|
|
1.2 |
|
|
|
20.1 |
|
|
|
2.5 |
|
|
|
— |
|
|
|
1.4 |
|
|
|
26.8 |
|
|
2009
|
|
|
1.3 |
|
|
|
— |
|
|
|
376.1 |
|
|
|
31.9 |
|
|
|
2.5 |
|
|
|
— |
|
|
|
1.4 |
|
|
|
413.2 |
|
|
Thereafter
|
|
|
5.6 |
|
|
|
25.0 |
|
|
|
947.0 |
|
|
|
457.7 |
|
|
|
41.3 |
|
|
|
— |
|
|
|
11.8 |
|
|
|
1,488.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
18.5 |
|
|
$ |
25.0 |
|
|
$ |
1,330.5 |
|
|
$ |
631.9 |
|
|
$ |
54.0 |
|
|
$ |
4.3 |
|
|
$ |
54.1 |
|
|
$ |
2,118.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated remaining final capping, closure and post-closure
expenditures presented above are undiscounted and include both
payments for liabilities incurred and recorded as of
December 31, 2004 and estimated future liabilities expected
to be incurred as the remaining landfill disposal capacities are
consumed.
47
Unconditional purchase commitments consist primarily of
long-term disposal agreements that require us to dispose of a
minimum number of tons at third party facilities.
We do not have or engage in any off-balance sheet arrangements.
Quantitative and Qualitative Disclosures About Market Risk
The table below provides information about our market sensitive
financial instruments and constitutes a “forward-looking
statement.” Our major market risk exposure is changing
interest rates in the United States and fluctuations in LIBOR.
We intend to manage interest rate risk through the use of a
combination of fixed and floating rate debt. All items described
below are non-trading.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity Date |
| |
|
|
| |
|
|
|
Fair Value |
| |
|
|
|
(Asset)/Liability |
| |
|
|
|
December 31, |
| |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
Thereafter |
|
Total |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VARIABLE RATE DEBT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount outstanding (in millions)
|
|
$ |
.6 |
|
|
$ |
.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
228.2 |
|
|
$ |
229.1 |
|
|
$ |
229.1 |
|
|
Average interest rates
|
|
|
2.2 |
% |
|
|
2.2 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.2 |
% |
|
|
2.2 |
% |
|
|
|
|
|
INTEREST RATE SWAPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount outstanding (in millions)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
210.0 |
|
|
$ |
210.0 |
|
|
$ |
(.5 |
) |
|
Average interest rates
|
|
|
— |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
|
|
The fair value of variable rate debt approximates the carrying
value since interest rates are variable and, thus, approximate
current market rates.
Free Cash Flow
We define free cash flow, which is not a measure determined in
accordance with Generally Accepted Accounting Standards (GAAP),
as cash provided by operating activities less purchases of
property and equipment plus proceeds from the sale of property
and equipment as presented in our consolidated statement of cash
flows. Our free cash flow for the years ended December 31,
2004, 2003 and 2002 is calculated as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$ |
666.3 |
|
|
$ |
600.5 |
|
|
$ |
569.7 |
|
|
Purchases of property and equipment
|
|
|
(283.8 |
) |
|
|
(273.2 |
) |
|
|
(258.6 |
) |
|
Proceeds from the sale of property and equipment
|
|
|
5.7 |
|
|
|
9.1 |
|
|
|
14.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$ |
388.2 |
|
|
$ |
336.4 |
|
|
$ |
325.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
We expect our free cash flow during 2005 to be lower than 2004
and 2003 because of higher tax payments due to the reversal of
bonus depreciation, higher purchases of property and equipment
and several one-time items that benefited previous periods,
including utilization of a tax receivable and the collection of
a note receivable during 2004, and an increase in self-insurance
reserves during 2003.
We believe that the presentation of free cash flow provides
useful information regarding our recurring cash provided by
operating activities after expenditures for property and
equipment, net of proceeds from the sale of property and
equipment. It also demonstrates our ability to execute our
financial strategy which includes reinvesting in existing
capital assets to ensure a high level of customer service,
investing in capital assets to facilitate growth in our customer
base and services provided, pursuing strategic acquisitions that
augment our existing business platform, repurchasing shares of
common stock at prices that provide value to our shareholders,
paying cash dividends, maintaining our investment grade rating
and minimizing debt. In addition, free cash flow is a key metric
used to determine compensation. Free cash flow does not
represent our cash flow available for discretionary expenditures
because it excludes certain expenditures that are required or
48
that we have committed to such as debt service requirements and
dividend payments. Our definition of free cash flow may not be
comparable to similarly titled measures presented by other
companies.
Seasonality
Our operations can be adversely affected by periods of inclement
weather which could increase the volume of waste collected under
our existing contracts (without corresponding compensation),
delay the collection and disposal of waste, reduce the volume of
waste delivered to our disposal sites, or delay the construction
or expansion of our landfill sites and other facilities.
New Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment,”
which is a revision of SFAS 123, “Accounting for
Stock-Based Compensation.” SFAS 123(R) supersedes APB
Opinion No. 25, “Accounting for Stock Issued to
Employees,” and amends SFAS 95, “Statement of
Cash Flows.” Generally, the approach in SFAS 123(R) is
similar to the approach described in SFAS 123. However,
SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.
SFAS 123(R) must be adopted by public companies no later
than July 1, 2005. Early adoption will be permitted in
periods in which financial statements have not been issued. We
expect to adopt SFAS 123(R) on July 1, 2005.
SFAS 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
| |
1. A “modified-prospective” method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of SFAS 123(R) for
all share-based payments granted after the effective date and
(b) based on the requirements of SFAS 123 for all
awards granted to employees prior to the effective date of
SFAS 123(R) that remain unvested on the effective date. |
| |
| |
2. A “modified-retrospective” method which
includes the requirements of the modified-prospective method
described above, but also permits entities to restate based on
the amounts previously reflected in their SFAS 123 pro
forma disclosures either (a) all prior periods presented or
(b) prior interim periods of the year of adoption. |
The Company plans to adopt SFAS 123(R) using the
modified-prospective method.
As permitted by SFAS 123, the company currently accounts
for share-based payments to employees using APB 25’s
intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the
adoption of SFAS 123(R)’s fair value method may have a
significant impact on our result of operations, although it will
have no impact on our overall financial position. The impact of
adoption of SFAS 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted
in the future. SFAS 123(R) requires the benefits of tax
deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating
cash flow as required under current literature. This requirement
will reduce net operating cash flows and increase net financing
cash flows in periods after adoption. While the Company cannot
estimate what those amounts will be in the future (because they
depend on, among other things, when employees exercise stock
options), the amount of operating cash flows recognized in prior
periods for such excess tax deductions were $10.6 million,
$6.7 million, and $4.0 million in 2004, 2003 and 2002,
respectively.
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page |
|
Report of Independent Registered Public Accounting Firm on the
Financial Statements
|
|
|
51 |
|
| |
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
|
|
|
52 |
|
| |
|
Consolidated Balance Sheets as of December 31, 2004 and 2003
|
|
|
53 |
|
| |
|
Consolidated Statements of Income for each of the Three Years
Ended December 31, 2004
|
|
|
54 |
|
| |
|
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income for each of the Three Years Ended
December 31, 2004
|
|
|
55 |
|
| |
|
Consolidated Statements of Cash Flows for each of the Three
Years Ended December 31, 2004
|
|
|
56 |
|
| |
|
Notes to Consolidated Financial Statements
|
|
|
57 |
|
| |
|
Financial Statement Schedule II, Valuation and Qualifying
Accounts and Reserves, for each of the Three Years Ended
December 31, 2004
|
|
|
94 |
|
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE FINANCIAL STATEMENTS
The Board of Directors and Stockholders of Republic Services,
Inc.:
We have audited the accompanying consolidated balance sheets of
Republic Services, Inc. and subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of
income, stockholders’ equity, and cash flows for the three
years in the period ended December 31, 2004. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Republic Services, Inc. and subsidiaries
at December 31, 2004 and 2003, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2004 in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the financial statements, in 2003
Republic Services, Inc. changed its method of accounting for
final capping, closure and post-closure costs relating to its
landfills and for methane gas collection systems.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Republic Services, Inc.’s internal control
over financial reporting as of December 31, 2004, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 24,
2005, expressed an unqualified opinion thereon.
|
|
| |
/s/ Ernst & Young
LLP
|
| |
Certified Public Accountants |
Fort Lauderdale, Florida
February 24, 2005
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of Republic Services,
Inc.:
We have audited management’s assessment, included in the
accompanying Report of Management on Republic Services,
Inc.’s Internal Control Over Financial Reporting, that
Republic Services, Inc. and subsidiaries maintained effective
internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Republic Services, Inc.’s management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an
opinion on the effectiveness of the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies and procedures may deteriorate.
In our opinion, management’s assessment that Republic
Services, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of Republic Services, Inc. as of
December 31, 2004 and 2003, and the related consolidated
statements of income, stockholders’ equity, and cash flows
for each of the three years in the period ended
December 31, 2004 of the Company and our report dated
February 24, 2005, expressed an unqualified opinion thereon.
|
|
| |
/s/ Ernst & Young
LLP
|
| |
Certified Public Accountants |
Fort Lauderdale, Florida
February 24, 2005
52
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
ASSETS |
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
141.5 |
|
|
$ |
119.2 |
|
| |
Accounts receivable, less allowance for doubtful accounts of
$18.0 and $19.0 at December 31, 2004 and 2003, respectively
|
|
|
268.7 |
|
|
|
248.9 |
|
| |
Prepaid expenses and other current assets
|
|
|
76.4 |
|
|
|
182.1 |
|
| |
Deferred tax assets
|
|
|
9.9 |
|
|
|
5.8 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total Current Assets
|
|
|
496.5 |
|
|
|
556.0 |
|
| |
RESTRICTED CASH
|
|
|
237.0 |
|
|
|
215.0 |
|
| |
RESTRICTED MARKETABLE SECURITIES
|
|
|
38.7 |
|
|
|
182.4 |
|
| |
PROPERTY AND EQUIPMENT, NET
|
|
|
2,008.8 |
|
|
|
1,931.0 |
|
| |
GOODWILL, NET
|
|
|
1,562.7 |
|
|
|
1,558.1 |
|
| |
INTANGIBLE ASSETS, NET
|
|
|
30.2 |
|
|
|
25.0 |
|
| |
OTHER ASSETS
|
|
|
90.7 |
|
|
|
86.6 |
|
| |
|
|
|
|
|
|
|
|
| |
|
$ |
4,464.6 |
|
|
$ |
4,554.1 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
119.6 |
|
|
$ |
129.1 |
|
| |
Accrued liabilities
|
|
|
135.3 |
|
|
|
118.6 |
|
| |
Deferred revenue
|
|
|
99.7 |
|
|
|
88.5 |
|
| |
Notes payable and current maturities of long-term debt
|
|
|
2.4 |
|
|
|
231.1 |
|
| |
Other current liabilities
|
|
|
89.6 |
|
|
|
104.7 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total Current Liabilities
|
|
|
446.6 |
|
|
|
672.0 |
|
|
LONG-TERM DEBT, NET OF CURRENT MATURITIES
|
|
|
1,351.9 |
|
|
|
1,289.2 |
|
|
ACCRUED LANDFILL AND ENVIRONMENTAL COSTS
|
|
|
253.5 |
|
|
|
225.5 |
|
|
DEFERRED INCOME TAXES
|
|
|
406.5 |
|
|
|
353.5 |
|
|
OTHER LIABILITIES
|
|
|
133.6 |
|
|
|
109.4 |
|
|
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, 185,750,304 and 183,431,611
issued, including shares held in treasury, respectively
|
|
|
1.9 |
|
|
|
1.8 |
|
| |
Additional paid-in capital
|
|
|
1,399.4 |
|
|
|
1,347.8 |
|
| |
Deferred compensation
|
|
|
(1.0 |
) |
|
|
— |
|
| |
Retained earnings
|
|
|
1,222.6 |
|
|
|
1,039.3 |
|
| |
Treasury stock, at cost (35,168,400 and 25,604,100 shares,
respectively)
|
|
|
(750.4 |
) |
|
|
(484.3 |
) |
| |
Accumulated other comprehensive loss, net of tax
|
|
|
— |
|
|
|
(.1 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
Total Stockholders’ Equity
|
|
|
1,872.5 |
|
|
|
1,904.5 |
|
| |
|
|
|
|
|
|
|
|
| |
|
$ |
4,464.6 |
|
|
$ |
4,554.1 |
|
| |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
53
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except earnings per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
REVENUE
|
|
$ |
2,708.1 |
|
|
$ |
2,517.8 |
|
|
$ |
2,365.1 |
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of operations
|
|
|
1,714.4 |
|
|
|
1,605.4 |
|
|
|
1,472.9 |
|
| |
Depreciation, amortization and depletion
|
|
|
259.4 |
|
|
|
239.1 |
|
|
|
199.6 |
|
| |
Accretion
|
|
|
13.7 |
|
|
|
12.7 |
|
|
|
— |
|
| |
Selling, general and administrative
|
|
|
268.3 |
|
|
|
247.9 |
|
|
|
238.7 |
|
| |
Other charges (income)
|
|
|
— |
|
|
|
— |
|
|
|
(5.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
452.3 |
|
|
|
412.7 |
|
|
|
459.5 |
|
|
INTEREST EXPENSE
|
|
|
(76.7 |
) |
|
|
(78.0 |
) |
|
|
(77.0 |
) |
|
INTEREST INCOME
|
|
|
6.9 |
|
|
|
9.5 |
|
|
|
4.3 |
|
|
OTHER INCOME (EXPENSE), NET
|
|
|
1.2 |
|
|
|
3.2 |
|
|
|
(.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
383.7 |
|
|
|
347.4 |
|
|
|
386.5 |
|
|
PROVISION FOR INCOME TAXES
|
|
|
145.8 |
|
|
|
132.0 |
|
|
|
146.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES
|
|
|
237.9 |
|
|
|
215.4 |
|
|
|
239.6 |
|
|
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX
|
|
|
— |
|
|
|
(37.8 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
237.9 |
|
|
$ |
177.6 |
|
|
$ |
239.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before cumulative effect of changes in accounting principles
|
|
$ |
1.56 |
|
|
$ |
1.34 |
|
|
$ |
1.45 |
|
| |
Cumulative effect of changes in accounting principles, net of tax
|
|
|
— |
|
|
|
(.23 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
$ |
1.56 |
|
|
$ |
1.11 |
|
|
$ |
1.45 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average common shares outstanding
|
|
|
152.8 |
|
|
|
160.3 |
|
|
|
165.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before cumulative effect of changes in accounting principles
|
|
$ |
1.53 |
|
|
$ |
1.33 |
|
|
$ |
1.44 |
|
| |
Cumulative effect of changes in accounting principles, net of tax
|
|
|
— |
|
|
|
(.23 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per share
|
|
$ |
1.53 |
|
|
$ |
1.10 |
|
|
$ |
1.44 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average common and common equivalent shares outstanding
|
|
|
155.3 |
|
|
|
162.1 |
|
|
|
166.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS PER COMMON SHARE
|
|
$ |
.36 |
|
|
$ |
.12 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA AMOUNTS ASSUMING THE CHANGES IN ACCOUNTING PRINCIPLES
ARE APPLIED RETROACTIVELY:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
237.9 |
|
|
$ |
215.4 |
|
|
$ |
237.2 |
|
| |
Basic earnings per share
|
|
$ |
1.56 |
|
|
$ |
1.34 |
|
|
$ |
1.43 |
|
| |
Diluted earnings per share
|
|
$ |
1.53 |
|
|
$ |
1.33 |
|
|
$ |
1.42 |
|
The accompanying notes are an integral part of these statements.
54
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| |
|
|
|
Additional |
|
|
|
|
|
|
|
Other |
|
|
| |
|
Shares, |
|
Par |
|
Paid-In |
|
Deferred |
|
Retained |
|
Treasury |
|
Comprehensive |
|
Comprehensive |
| |
|
Net |
|
Value |
|
Capital |
|
Compensation |
|
Earnings |
|
Stock |
|
Income (Loss) |
|
Income |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2001
|
|
|
169.6 |
|
|
$ |
1.8 |
|
|
$ |
1,264.7 |
|
|
$ |
— |
|
|
$ |
641.1 |
|
|
$ |
(150.1 |
) |
|
$ |
(1.6 |
) |
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
239.6 |
|
|
|
— |
|
|
|
— |
|
|
$ |
239.6 |
|
| |
Issuances of common stock
|
|
|
2.0 |
|
|
|
— |
|
|
|
34.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Purchases of common stock for treasury
|
|
|
(8.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(150.0 |
) |
|
|
— |
|
|
|
— |
|
| |
Change in value of derivative instruments, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.6 |
|
|
|
1.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
241.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2002
|
|
|
163.6 |
|
|
|
1.8 |
|
|
|
1,298.7 |
|
|
|
— |
|
|
|
880.7 |
|
|
|
(300.1 |
) |
|
|
— |
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
177.6 |
|
|
|
— |
|
|
|
— |
|
|
$ |
177.6 |
|
| |
Cash dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Issuances of common stock
|
|
|
2.6 |
|
|
|
— |
|
|
|
49.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
Purchases of common stock for treasury
|
|
|
(8.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(184.2 |
) |
|
|
— |
|
|
|
|
|
| |
Change in value of investments, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(.1 |
) |
|
|
(.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
177.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2003
|
|
|
157.8 |
|
|
|
1.8 |
|
|
|
1,347.8 |
|
|
|
— |
|
|
|
1,039.3 |
|
|
|
(484.3 |
) |
|
|
(.1 |
) |
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
237.9 |
|
|
|
— |
|
|
|
— |
|
|
$ |
237.9 |
|
| |
Cash dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(54.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Issuances of common stock
|
|
|
2.3 |
|
|
|
.1 |
|
|
|
48.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Issuances of restricted stock and deferred stock units
|
|
|
.1 |
|
|
|
— |
|
|
|
2.8 |
|
|
|
(2.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization of deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Purchases of common stock for treasury
|
|
|
(9.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(266.1 |
) |
|
|
— |
|
|
|
— |
|
| |
Change in value of investments, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.1 |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
238.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2004
|
|
|
150.6 |
|
|
$ |
1.9 |
|
|
$ |
1,399.4 |
|
|
$ |
(1.0 |
) |
|
$ |
1,222.6 |
|
|
$ |
(750.4 |
) |
|
$ |
— |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
55
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
CASH PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
237.9 |
|
|
$ |
177.6 |
|
|
$ |
239.6 |
|
| |
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization of property and equipment
|
|
|
154.0 |
|
|
|
141.0 |
|
|
|
126.1 |
|
| |
|
Landfill depletion and amortization
|
|
|
98.4 |
|
|
|
92.8 |
|
|
|
67.4 |
|
| |
|
Amortization of intangible and other assets
|
|
|
7.0 |
|
|
|
5.3 |
|
|
|
6.1 |
|
| |
|
Accretion
|
|
|
13.7 |
|
|
|
12.7 |
|
|
|
— |
|
| |
|
Deferred tax provision
|
|
|
57.6 |
|
|
|
178.9 |
|
|
|
73.1 |
|
| |
|
Provision for doubtful accounts
|
|
|
8.0 |
|
|
|
10.4 |
|
|
|
11.2 |
|
| |
|
Income tax benefit from stock option exercises
|
|
|
10.6 |
|
|
|
6.7 |
|
|
|
4.0 |
|
| |
|
Other non-cash items
|
|
|
2.1 |
|
|
|
(1.8 |
) |
|
|
(4.8 |
) |
| |
|
Cumulative effect of changes in accounting principles, net of tax
|
|
|
— |
|
|
|
37.8 |
|
|
|
— |
|
| |
|
Changes in assets and liabilities, net of effects from business
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(27.5 |
) |
|
|
(21.8 |
) |
|
|
(13.6 |
) |
| |
|
|
Prepaid expenses and other assets
|
|
|
91.8 |
|
|
|
(109.4 |
) |
|
|
(5.9 |
) |
| |
|
|
Accounts payable and accrued liabilities
|
|
|
15.3 |
|
|
|
9.0 |
|
|
|
37.1 |
|
| |
|
|
Other liabilities
|
|
|
(2.6 |
) |
|
|
61.3 |
|
|
|
29.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
666.3 |
|
|
|
600.5 |
|
|
|
569.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of property and equipment
|
|
|
(283.8 |
) |
|
|
(273.2 |
) |
|
|
(258.6 |
) |
| |
Proceeds from sale of property and equipment
|
|
|
5.7 |
|
|
|
9.1 |
|
|
|
14.6 |
|
| |
Cash used in business acquisitions, net of cash acquired
|
|
|
(47.3 |
) |
|
|
(51.5 |
) |
|
|
(55.8 |
) |
| |
Cash proceeds from business dispositions
|
|
|
— |
|
|
|
3.2 |
|
|
|
18.9 |
|
| |
Amounts due and contingent payments to former owners
|
|
|
(3.7 |
) |
|
|
(17.6 |
) |
|
|
(2.7 |
) |
| |
Change in restricted cash
|
|
|
(21.4 |
) |
|
|
(40.0 |
) |
|
|
(32.7 |
) |
| |
Change in restricted marketable securities
|
|
|
143.8 |
|
|
|
(182.4 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(206.7 |
) |
|
|
(552.4 |
) |
|
|
(316.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net payments on revolving credit facility
|
|
|
— |
|
|
|
— |
|
|
|
(30.0 |
) |
| |
Proceeds from notes payable and long-term debt
|
|
|
88.8 |
|
|
|
86.3 |
|
|
|
96.9 |
|
| |
Payments of notes payable and long-term debt
|
|
|
(252.2 |
) |
|
|
(2.6 |
) |
|
|
(2.2 |
) |
| |
Issuances of common stock
|
|
|
38.2 |
|
|
|
49.1 |
|
|
|
29.9 |
|
| |
Purchases of common stock for treasury
|
|
|
(266.1 |
) |
|
|
(184.2 |
) |
|
|
(150.0 |
) |
| |
Cash dividends
|
|
|
(46.0 |
) |
|
|
(19.0 |
) |
|
|
— |
|
| |
Purchase of equipment under operating lease
|
|
|
— |
|
|
|
— |
|
|
|
(72.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(437.3 |
) |
|
|
(70.4 |
) |
|
|
(128.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
22.3 |
|
|
|
(22.3 |
) |
|
|
125.4 |
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
119.2 |
|
|
|
141.5 |
|
|
|
16.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
141.5 |
|
|
$ |
119.2 |
|
|
$ |
141.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
56
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data)
The accompanying Consolidated Financial Statements include the
accounts of Republic Services, Inc. (a Delaware corporation) and
its subsidiaries (the “Company”). The Company provides
non-hazardous solid waste collection and disposal services in
the United States. All intercompany transactions have been
eliminated in consolidation.
As of January 1, 2003, the Company adopted Statement of
Financial Accounting Standards No. 143, “Accounting
for Asset Retirement Obligations”
(“SFAS 143”). SFAS 143 required the Company
to change the methodology it used to record final capping,
closure and post-closure costs relating to its landfills. As of
January 1, 2003, the Company recorded an after-tax expense
of $20.8 million, or $33.6 million on a pre-tax basis,
as a cumulative effect of a change in accounting principle
resulting from the adoption of SFAS 143. In addition, the
Company also recorded an after-tax expense of
$17.0 million, or $27.4 million on a pre-tax basis, as
a cumulative effect of a change in accounting principle for its
methane gas collection systems. This change in accounting for
methane gas collection systems was prompted by a thorough
evaluation of the Company’s landfill accounting policies in
connection with the adoption of SFAS 143 and is consistent
with the methodology used by other participants in the waste
industry.
The following table summarizes the adjustments to net income and
earnings per share for the year ended December 31, 2002 as
if SFAS 143 and the Company’s change in accounting
principle relating to its methane gas collection systems were
effective January 1, 2002:
| |
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
| |
|
December 31, 2002 |
| |
|
|
| |
|
Net |
|
Diluted Earnings |
| |
|
Income |
|
Per Share |
| |
|
|
|
|
|
Reported
|
|
$ |
239.6 |
|
|
$ |
1.44 |
|
|
SFAS 143:
|
|
|
|
|
|
|
|
|
| |
Reversal of closure and post-closure expense previously reported
|
|
|
16.2 |
|
|
|
.10 |
|
| |
Reversal of landfill purchase price amortization previously
reported
|
|
|
.8 |
|
|
|
— |
|
| |
Accretion expense
|
|
|
(6.5 |
) |
|
|
(.04 |
) |
| |
Landfill amortization
|
|
|
(10.9 |
) |
|
|
(.07 |
) |
| |
|
|
|
|
|
|
|
|
|
Total adjustments for SFAS 143
|
|
|
(.4 |
) |
|
|
(.01 |
) |
| |
|
|
|
|
|
|
|
|
|
Methane Gas Collection Systems:
|
|
|
|
|
|
|
|
|
| |
Reversal of depreciation previously reported
|
|
|
.3 |
|
|
|
— |
|
| |
Depletion expense
|
|
|
(2.3 |
) |
|
|
(.01 |
) |
| |
|
|
|
|
|
|
|
|
|
Total adjustment for methane gas collection systems
|
|
|
(2.0 |
) |
|
|
(.01 |
) |
| |
|
|
|
|
|
|
|
|
|
Adjusted
|
|
$ |
237.2 |
|
|
$ |
1.42 |
|
| |
|
|
|
|
|
|
|
|
57
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
The following table summarizes the balance sheet impact of
adopting SFAS 143 and the Company’s change in
accounting relating to methane gas collection systems:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
|
January 1, |
| |
|
2002 |
|
Change |
|
2003 |
| |
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Landfill development costs
|
|
$ |
1,026.3 |
|
|
$ |
188.6 |
|
|
$ |
1,214.9 |
|
| |
Buildings and improvements
|
|
|
270.9 |
|
|
|
(11.7 |
) |
|
|
259.2 |
|
| |
Accumulated depletion and amortization
|
|
|
(304.1 |
) |
|
|
(245.4 |
) |
|
|
(549.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
993.1 |
|
|
$ |
(68.5 |
) |
|
$ |
924.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Goodwill
|
|
$ |
1,687.7 |
|
|
$ |
(6.9 |
) |
|
$ |
1,680.8 |
|
| |
Accumulated amortization
|
|
|
(143.5 |
) |
|
|
(.1 |
) |
|
|
(143.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,544.2 |
|
|
$ |
(7.0 |
) |
|
$ |
1,537.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Final capping, closure and post-closure liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current landfill liabilities
|
|
$ |
17.9 |
|
|
$ |
— |
|
|
$ |
17.9 |
|
| |
Long-term landfill liabilities
|
|
|
179.0 |
|
|
|
(14.5 |
) |
|
|
164.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
196.9 |
|
|
$ |
(14.5 |
) |
|
$ |
182.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
In January 2003, the Financial Accounting Standards Board issued
Interpretation 46, “Consolidation of Variable Interest
Entities” (“FIN 46”). FIN 46 introduced
a new consolidation model which determines control and
consolidation based upon the primary beneficiary of the
potential variability in gains and losses of the entity being
evaluated. This interpretation was effective for all variable
interest entities beginning March 31, 2004. The Company
evaluated its organizational structure and concluded that
FIN 46 has no impact on its consolidated financial
position, results of operations or cash flows.
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of Estimates
The consolidated financial statements have been prepared in
accordance with U.S. 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, liabilities for final capping, 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.
Accounts Receivable
Accounts receivable represent receivables from customers for
collection, transfer, disposal and other services. Receivables
are recorded when billed. Accounts receivable, net of the
allowance for doubtful accounts, represents their estimated net
realizable value. Provisions for doubtful accounts are recorded
based on historical collection experience, the age of the
receivables, specific customer information and economic
conditions. In general, reserves are provided for accounts
receivable in excess of ninety days old. Accounts receivable are
written off when they are deemed uncollectible.
58
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
Prepaid Expenses and Other Current Assets
A summary of prepaid expenses and other current assets is as
follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Inventory
|
|
$ |
19.1 |
|
|
$ |
17.7 |
|
|
Prepaid expenses
|
|
|
17.8 |
|
|
|
20.5 |
|
|
Other non-trade receivables
|
|
|
17.4 |
|
|
|
27.9 |
|
|
Income taxes receivable
|
|
|
19.7 |
|
|
|
87.6 |
|
|
Note receivable
|
|
|
— |
|
|
|
23.0 |
|
|
Other assets
|
|
|
2.4 |
|
|
|
5.4 |
|
| |
|
|
|
|
|
|
|
|
| |
|
$ |
76.4 |
|
|
$ |
182.1 |
|
| |
|
|
|
|
|
|
|
|
Inventories consist primarily of compost, mulch, and soil
materials, equipment parts and fuel that are valued under a
method that approximates the lower of cost (first-in, first-out)
or market.
The Company expenses substantially all advertising expenditures
as incurred.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for
major additions and improvements to facilities 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
Consolidated Statements of Income.
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
seven to forty years for buildings and improvements, five to
twelve years for vehicles, seven to ten years for most landfill
equipment, three to fifteen years for all other equipment, and
five to twelve years for furniture and fixtures.
Landfills and landfill improvements are stated at cost and are
amortized or depleted based on consumed airspace. Landfill
improvements include direct costs incurred to obtain landfill
permits and direct costs incurred to acquire, construct and
develop sites. These costs are amortized or depleted based on
consumed airspace. All indirect landfill development costs are
expensed as incurred. (For further information, see Note 3,
Accrued Landfill and 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 $50,000 or greater, |
| |
| |
2. The construction phase is one month or longer, and |
| |
| |
3. The assets have a useful life of one year 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
59
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
average cost of indebtedness. Interest capitalized was
$2.1 million, $3.3 million and $2.5 million for
the years ended December 31, 2004, 2003 and 2002,
respectively.
A summary of property and equipment is as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Other land
|
|
$ |
97.9 |
|
|
$ |
94.4 |
|
|
Non-depletable landfill land
|
|
|
53.4 |
|
|
|
49.5 |
|
|
Landfill development costs
|
|
|
1,486.5 |
|
|
|
1,335.2 |
|
|
Vehicles and equipment
|
|
|
1,617.5 |
|
|
|
1,490.6 |
|
|
Buildings and improvements
|
|
|
287.0 |
|
|
|
267.4 |
|
|
Construction-in-progress — landfill
|
|
|
39.1 |
|
|
|
60.8 |
|
|
Construction-in-progress — other
|
|
|
7.4 |
|
|
|
6.4 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
3,588.8 |
|
|
|
3,304.3 |
|
| |
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation, depletion and
amortization —
Landfill development costs
|
|
|
(742.9 |
) |
|
|
(644.6 |
) |
| |
Vehicles and equipment
|
|
|
(766.3 |
) |
|
|
(666.4 |
) |
| |
Building and improvements
|
|
|
(70.8 |
) |
|
|
(62.3 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
|
(1,580.0 |
) |
|
|
(1,373.3 |
) |
| |
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
2,008.8 |
|
|
$ |
1,931.0 |
|
| |
|
|
|
|
|
|
|
|
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 following are examples of such
events or changes in circumstances:
|
|
|
| |
• |
A significant decrease in the market price of a long-lived asset
or asset group, |
| |
| |
• |
A significant adverse change in the extent or manner in which a
long-lived asset or asset group is being used or in its physical
condition, |
| |
| |
• |
A significant adverse change in legal factors or in the business
climate that could affect the value of a long-lived asset or
asset group, including an adverse action or assessment by a
regulator, |
| |
| |
• |
An accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a
long-lived asset or asset group, |
| |
| |
• |
A current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset or asset group, or |
| |
| |
• |
A current expectation that, more likely than not, a long-lived
asset or asset group will be sold or otherwise disposed of
significantly before the end of its previously estimated useful
life. |
There are certain indicators listed above that require
significant judgment and understanding of the waste industry
when applied to landfill development or expansion. For example,
a regulator may initially deny a landfill expansion permit
application though the expansion permit is ultimately granted.
In addition, management may periodically divert waste from one
landfill to another to conserve remaining permitted
60
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
landfill airspace. Therefore, certain events could occur in the
ordinary course of business and not necessarily be considered
indicators of impairment due to the unique nature of the waste
industry.
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 asset
exceeds the fair value of the asset.
Intangible Assets
Intangible assets consist of the cost of acquired businesses in
excess of the fair value of net assets acquired and other
intangible assets. Other intangible assets include values
assigned to customer relationships, long-term contracts and
covenants not to compete and are amortized generally over
periods ranging from 3 to 25 years.
The following table summarizes the activity in the intangible
asset and related accumulated amortization accounts for the
years ended December 31, 2003 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross Intangible Assets |
| |
|
|
| |
|
Goodwill |
|
Other |
|
Total |
| |
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
$ |
1,687.7 |
|
|
$ |
40.0 |
|
|
$ |
1,727.7 |
|
| |
Cumulative effect of change in accounting principle
|
|
|
(6.9 |
) |
|
|
— |
|
|
|
(6.9 |
) |
| |
Acquisitions
|
|
|
21.2 |
|
|
|
3.1 |
|
|
|
24.3 |
|
| |
Other additions
|
|
|
— |
|
|
|
.1 |
|
|
|
.1 |
|
| |
Divestitures
|
|
|
(.5 |
) |
|
|
— |
|
|
|
(.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
$ |
1,701.5 |
|
|
$ |
43.2 |
|
|
$ |
1,744.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accumulated Amortization |
| |
|
|
| |
|
Goodwill |
|
Other |
|
Total |
| |
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
$ |
(143.5 |
) |
|
$ |
(14.3 |
) |
|
$ |
(157.8 |
) |
| |
Cumulative effect of change in accounting principle
|
|
|
(.1 |
) |
|
|
— |
|
|
|
(.1 |
) |
| |
Amortization expense
|
|
|
— |
|
|
|
(3.9 |
) |
|
|
(3.9 |
) |
| |
Divestitures
|
|
|
.2 |
|
|
|
— |
|
|
|
.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
$ |
(143.4 |
) |
|
$ |
(18.2 |
) |
|
$ |
(161.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross Intangible Assets |
| |
|
|
| |
|
Goodwill |
|
Other |
|
Total |
| |
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
$ |
1,701.5 |
|
|
$ |
43.2 |
|
|
$ |
1,744.7 |
|
| |
Acquisitions
|
|
|
13.2 |
|
|
|
.9 |
|
|
|
14.1 |
|
| |
Other additions
|
|
|
— |
|
|
|
1.5 |
|
|
|
1.5 |
|
| |
Transfers
|
|
|
(8.6 |
) |
|
|
8.6 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$ |
1,706.1 |
|
|
$ |
54.2 |
|
|
$ |
1,760.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
61
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accumulated Amortization |
| |
|
|
| |
|
Goodwill |
|
Other |
|
Total |
| |
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
$ |
(143.4 |
) |
|
$ |
(18.2 |
) |
|
$ |
(161.6 |
) |
| |
Amortization expense
|
|
|
— |
|
|
|
(5.8 |
) |
|
|
(5.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$ |
(143.4 |
) |
|
$ |
(24.0 |
) |
|
$ |
(167.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
In general, goodwill is tested for impairment on an annual
basis. In testing for impairment, the Company estimates the fair
value of each operating segment and compares the fair values
with the carrying values. If the fair value of an operating
segment is greater than its carrying value, then no impairment
results. If the fair value is less than its carrying value, then
the Company would determine the fair value of the goodwill. The
fair value of goodwill is determined by deducting the fair value
of an operating segment’s identifiable assets and
liabilities from the fair value of the operating segment as a
whole, as if that operating segment had just been acquired and
the purchase price were being initially allocated. If the fair
value of the goodwill were less than its carrying value for a
segment, an impairment charge would be recorded to earnings in
the Company’s Consolidated Statement of Income.
In addition, the Company would evaluate an operating segment for
impairment if events or circumstances change between annual
tests indicating a possible impairment. Examples of such events
or circumstances include:
|
|
|
| |
• |
A significant adverse change in legal factors or in the business
climate, |
| |
| |
• |
An adverse action or assessment by a regulator, |
| |
| |
• |
A more likely than not expectation that a segment or a
significant portion thereof will be sold, or |
| |
| |
• |
The testing for recoverability under Statement of Financial
Accounting Standards No. 144, “Accounting for the
Impairment of Long-Lived Assets,” of a significant asset
group within the segment. |
The Company incurred no impairment of goodwill as a result of
its goodwill impairment test in 2004. However, there can be no
assurance that goodwill will not be impaired at any time in the
future.
Accrued Liabilities
A summary of accrued liabilities is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Accrued payroll and benefits
|
|
$ |
51.3 |
|
|
$ |
43.2 |
|
|
Accrued fees and taxes
|
|
|
31.4 |
|
|
|
29.6 |
|
|
Accrued interest
|
|
|
18.4 |
|
|
|
18.7 |
|
|
Accrued dividends
|
|
|
18.1 |
|
|
|
9.5 |
|
|
Other
|
|
|
16.1 |
|
|
|
17.6 |
|
| |
|
|
|
|
|
|
|
|
| |
|
$ |
135.3 |
|
|
$ |
118.6 |
|
| |
|
|
|
|
|
|
|
|
62
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
Other Current Liabilities
A summary of other current liabilities is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Accrued landfill and environmental costs, current portion
|
|
$ |
21.0 |
|
|
$ |
37.6 |
|
|
Self-insurance reserves, current
|
|
|
47.4 |
|
|
|
47.6 |
|
|
Amounts due to former owners
|
|
|
4.3 |
|
|
|
6.1 |
|
|
Other
|
|
|
16.9 |
|
|
|
13.4 |
|
| |
|
|
|
|
|
|
|
|
| |
|
$ |
89.6 |
|
|
$ |
104.7 |
|
| |
|
|
|
|
|
|
|
|
Stock Options
The Company accounts for its stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”), and related
interpretations. No stock-based employee compensation cost is
reflected in net income for stock option grants, as all options
granted under the 1998 Stock Incentive Plan for the periods
presented had an exercise price equal to the market value of the
underlying common stock at the date of grant. Compensation
expense resulting from grants of restricted stock or stock units
is calculated in accordance with APB 25 based on the market
value of the underlying shares as of the grant date and is
amortized ratably over the vesting period. Had compensation cost
for stock option, restricted stock and stock unit grants under
the Company’s 1998 Stock Incentive Plan been determined
pursuant to Statement of Financial Accounting Standards
No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”), the
Company’s net income would have decreased accordingly.
Using the Black-Scholes option pricing model, the Company’s
pro forma net income, earnings per share and weighted-average
fair value of options, restricted stock and stock units granted
during the period, with related assumptions, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Net income, as reported
|
|
$ |
237.9 |
|
|
$ |
177.6 |
|
|
$ |
239.6 |
|
| |
Adjustment to net earnings for:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock-based compensation expense included in net income, net of
tax
|
|
|
1.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
Pro-forma stock-based employee compensation expense pursuant to
SFAS No. 123, net of tax
|
|
|
(9.7 |
) |
|
|
(9.4 |
) |
|
|
(10.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, pro forma
|
|
$ |
229.3 |
|
|
$ |
168.2 |
|
|
$ |
228.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
1.56 |
|
|
$ |
1.11 |
|
|
$ |
1.45 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
1.50 |
|
|
$ |
1.05 |
|
|
$ |
1.38 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
1.53 |
|
|
$ |
1.10 |
|
|
$ |
1.44 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
1.48 |
|
|
$ |
1.04 |
|
|
$ |
1.37 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
63
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Weighted-average fair value of the Company’s stock options,
restricted stock and stock units granted during the period
|
|
$ |
9.33 |
|
|
$ |
7.64 |
|
|
$ |
7.47 |
|
|
Assumptions —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Risk-free interest rates
|
|
|
3.6 |
% |
|
|
3.2 |
% |
|
|
2.7 |
% |
| |
Expected lives
|
|
|
5 years |
|
|
|
5 years |
|
|
|
5 years |
|
| |
Expected volatility
|
|
|
30.0 |
% |
|
|
40.0 |
% |
|
|
40.0 |
% |
| |
Dividend yield
|
|
|
.9 |
% |
|
|
— |
|
|
|
— |
|
Revenue Recognition and Deferred Revenue
The Company generally provides services under contracts with
municipalities or individual customers. Revenue consists
primarily of collection fees from commercial, industrial,
residential and municipal customers and transfer and landfill
disposal fees charged to third parties. Advance billings are
recorded as deferred revenue, and the revenue is then recognized
over the period services are provided. Collection, transfer and
disposal, and other services accounted for approximately 74.3%,
18.9% and 6.8%, respectively, of consolidated revenue for the
year ended December 31, 2004. No one customer has
individually accounted for more than 10% of the Company’s
consolidated revenues or of the Company’s reportable
segment revenue in any of the past three years.
The Company recognizes revenue when all four of the following
criteria are met:
|
|
|
| |
• |
Persuasive evidence of an arrangement exists such as a service
agreement with a municipality, a hauling customer or a disposal
customer, |
| |
| |
• |
Services have been performed such as the collection and hauling
of waste or the disposal of waste at a Company-owned disposal
facility, |
| |
| |
• |
The price of the services provided to the customer are fixed or
determinable, and |
| |
| |
• |
Collectability is reasonably assured. |
Other Charges
During the fourth quarter of 2002, the Company recorded a
$5.6 million gain on the sale of certain assets for amounts
exceeding estimates originally made and recorded as other
charges during the fourth quarter of 2001.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
“Accounting for Income Taxes.” Accordingly, deferred
income taxes have been provided to show the effect of temporary
differences between the recognition of revenue and expenses for
financial and income tax reporting purposes and between the tax
basis of assets and liabilities and their reported amounts in
the financial statements.
Comprehensive Income
During the year ended December 31, 2002, the Company
recorded an unrealized gain of $2.8 million
($1.7 million, net of tax) relating to the change in fair
value of its fuel hedge option agreements in accordance with
Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and
64
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
Hedging Activities” (“SFAS 133”), as
amended. (For further information, see Note 11, Fuel
Hedge.) Of this amount, $1.6 million, net of tax,
representing the effective portion of the change in fair value
was recorded to other comprehensive income for the year ended
December 31, 2002.
At December 31, 2004, the Company had $38.7 million of
restricted marketable securities held as financial guarantees.
These securities consist of mutual funds invested in short-term
investment grade securities, including mortgage-backed
securities and U.S. Government obligations. These
securities are available for sale and, as a result, are stated
at fair value based on quoted market prices. During the years
ended December 31, 2004 and 2003, the Company recorded a
$.1 million and ($.1) million unrealized gain/(loss),
net of tax, respectively, to other comprehensive income related
to the change in fair value of these securities.
The Company had no other components of other comprehensive
income for the periods presented.
Statements of Cash Flows
The Company considers all unrestricted highly liquid investments
with purchased maturities of three months or less to be cash
equivalents. The effect of non-cash transactions related to
business combinations, as discussed in Note 4, Business
Combinations, and other non-cash transactions are excluded from
the accompanying Consolidated Statements of Cash Flows.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, restricted
cash and marketable securities, receivables, accounts payable
and accrued liabilities approximate fair value due to the short
maturity of these instruments. The fair value of the
Company’s fixed rate unsecured notes and tax-exempt
financing using quoted market rates is $1,227.4 million at
December 31, 2004. The carrying value of the unsecured
notes and tax exempt financing is $1,123.3 million at
December 31, 2004. The carrying amounts of the
Company’s remaining notes payable and tax-exempt financing
approximate fair value because interest rates are variable and,
accordingly, approximate current market rates.
Concentration of Credit Risk
The Company provides services to commercial, industrial,
municipal and residential customers in the United States.
Concentrations of credit risk with respect to trade receivables
are limited due to the wide variety of customers and markets in
which services are provided as well as their dispersion across
many geographic areas in the United States. The Company performs
ongoing credit evaluations of its customers, but does not
require collateral to support customer receivables. The Company
establishes an allowance for doubtful accounts based on various
factors including the credit risk of specific customers, age of
receivables outstanding, historical trends, economic conditions
and other information.
New Accounting Pronouncement
On December 16, 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123(R)”), which is a revision of Statement
of Financial Accounting Standards No. 123, “Accounting
for Stock-Based Compensation” (“SFAS 123”).
SFAS 123(R) supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and amends
SFAS 95, “Statement of Cash Flows.” Generally,
the approach in SFAS 123(R) is similar to the approach
described in SFAS 123. However, SFAS 123(R) requires
all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement
based on their fair values. Pro forma disclosure is no longer an
alternative.
65
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
SFAS 123(R) must be adopted no later than July 1,
2005. Early adoption will be permitted in periods in which
financial statements have not been issued. The Company expects
to adopt SFAS 123(R) on July 1, 2005.
SFAS 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
|
| |
1. |
A “modified-prospective” method in which compensation
cost is recognized beginning with the effective date
(a) based on the requirements of SFAS 123(R) for all
share-based payments granted after the effective date and
(b) based on the requirements of SFAS 123 for all
awards granted to employees prior to the effective date of
SFAS 123(R) that remain unvested on the effective date. |
| |
| |
2. |
A “modified-retrospective” method which includes the
requirements of the modified-prospective method described above,
but also permits entities to restate based on the amounts
previously reflected in their SFAS 123 pro forma
disclosures either (a) all prior periods presented or
(b) prior interim periods of the year of adoption. |
The Company plans to adopt SFAS 123(R) using the
modified-prospective method.
As permitted by SFAS 123, the Company currently accounts
for share-based payments to employees using APB 25’s
intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the
adoption of SFAS 123(R)’s fair value method may have a
significant impact on its result of operations, although it will
have no impact on its overall financial position. The impact of
adoption of SFAS 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted
in the future. SFAS 123(R) also requires the benefits of
tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating
cash flow as required under current literature. This requirement
will reduce net operating cash flows and increase net financing
cash flows in periods after adoption. While the Company cannot
estimate what those amounts will be in the future (because they
depend on, among other things, when employees exercise stock
options), the amount of operating cash flows recognized in prior
periods for such excess tax deductions were $10.6 million,
$6.7 million, and $4.0 million in 2004, 2003 and 2002,
respectively.
|
|
| 3. |
ACCRUED LANDFILL AND ENVIRONMENTAL COSTS |
Landfill and Environmental Costs
A summary of landfill and environmental liabilities is as
follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Landfill final capping, closure and post-closure liabilities
|
|
$ |
216.8 |
|
|
$ |
204.7 |
|
|
Remediation
|
|
|
54.0 |
|
|
|
54.7 |
|
|
Environmental and legal costs
|
|
|
3.7 |
|
|
|
3.7 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
274.5 |
|
|
|
263.1 |
|
|
Less: Current portion (included in other current liabilities)
|
|
|
(21.0 |
) |
|
|
(37.6 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
$ |
253.5 |
|
|
$ |
225.5 |
|
| |
|
|
|
|
|
|
|
|
Life Cycle Accounting
The Company uses life cycle accounting and the
units-of-consumption method to recognize certain landfill costs
over the life of the site. In life cycle accounting, all costs
to acquire and construct a site are capitalized and charged to
expense based upon the consumption of cubic yards of available
airspace. Costs and airspace estimates are developed annually by
engineers. These estimates are used by the Company’s
operating
66
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
and accounting personnel to annually adjust the Company’s
rates used to expense capitalized costs. Changes in these
estimates primarily relate to changes in available airspace,
inflation and applicable regulations. Changes in available
airspace include changes due to the addition of airspace lying
in probable expansion areas.
Total Available Disposal Capacity
As of December 31, 2004, the Company owned or operated 58
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 expansion airspace that
the Company believes has a probable likelihood of being
permitted.
Probable Expansion Airspace
Before airspace included in an expansion area is determined as
probable expansion airspace and, therefore, included in the
Company’s calculation of total available disposal capacity,
the following criteria must be met:
|
|
|
| |
1. |
The land associated with the expansion airspace is either owned
by the Company or is controlled by the Company pursuant to an
option agreement; |
| |
| |
2. |
The Company is committed to supporting the expansion project
financially and with appropriate resources; |
| |
| |
3. |
There are no identified fatal flaws or impediments associated
with the project, including political impediments; |
| |
| |
4. |
Progress is being made on the project; |
| |
| |
5. |
The expansion is attainable within a reasonable time
frame; and |
| |
| |
6. |
The Company believes it is likely the expansion permit will be
received. |
Upon meeting the Company’s expansion criteria, the rates
used at each applicable landfill to expense costs to acquire,
construct, close and maintain a site during the post-closure
period are adjusted to include probable expansion 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 to 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 probable expansion airspace is removed from the
landfill’s total available capacity and the rates used at
the landfill to expense costs to acquire, construct, cap, close
and maintain a site during the post-closure period are adjusted
accordingly.
67
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
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 costs associated
with excavation, natural and synthetic liners, construction of
leachate collection systems, installation of methane gas
collection and monitoring systems, installation of groundwater
monitoring wells, and other costs associated with the
development of the site. Interest is capitalized on landfill
construction projects while the assets are undergoing activities
to ready them for their intended use. Capitalized landfill costs
also include final capping, closure and post-closure assets
accrued in accordance with SFAS 143 as discussed below.
Costs related to acquiring land, excluding the estimated
residual value of unpermitted, non-buffer land, and costs
related to permitting and cell construction are depleted as
airspace is consumed using the units-of-consumption method.
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 expected
future cash flows of the landfill relative to the other assets
within the acquired 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 probable expansion
airspace to total available airspace. Landfill purchase price is
amortized using the units-of-consumption method over the total
available airspace including probable expansion airspace where
appropriate.
Final Capping, Closure and Post-Closure Costs
On January 1, 2003, the Company changed the methodology it
used to record final capping, closure and post-closure expense
in accordance with SFAS 143. SFAS 143 does not change
the basic landfill accounting policies followed by the Company
and others in the waste industry. Through December 31,
2002, the industry has generally amortized capitalized costs and
accrued future final capping, closure and post-closure
obligations using the units-of-consumption method as cubic yards
of available airspace are consumed over the life of the related
landfill. This practice is referred to as life cycle accounting
and will continue to be followed except as modified by
SFAS 143 as discussed below.
The table below reflects significant changes between the
Company’s historical methodology and the methodology the
Company currently uses to account for final capping, closure and
post-closure activities and for methane gas collection systems:
| |
|
|
|
|
| |
|
Current Practice |
| Description |
|
Historical Practice |
|
(Effective January 1, 2003) |
|
DEFINITIONS: |
|
|
|
|
|
Final Capping |
|
Costs related to installation of the components that comprise
the permanent final cover over areas of a landfill where
airspace capacity has been consumed. |
|
No change. |
| |
|
Closure |
|
Includes routine maintenance costs incurred after a site ceases
to accept waste, but prior to being certified closed. |
|
No change, except that it includes the final portion of the
methane gas collection system to be constructed. |
68
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
| |
|
|
|
|
| |
|
Current Practice |
| Description |
|
Historical Practice |
|
(Effective January 1, 2003) |
| |
|
Post-Closure |
|
Includes routine monitoring and maintenance of a landfill after
it has been certified as closed by the applicable state
regulatory agency. |
|
No change, except it includes methane gas collection systems in
all cases where the need for such systems are considered
probable. |
| |
|
DISCOUNT RATE: |
|
Not applicable. |
|
Credit-adjusted, risk-free rate of 6.5% and 6.75% for the years
ending December 31, 2004 and 2003, respectively. |
| |
|
INFLATION: |
|
Not applicable. |
|
Inflation rate of 2.5%. |
| |
|
COST ESTIMATES: |
|
Cost estimates generally assume work will be performed by third
parties. |
|
No change, except that the cost of any activities performed
internally is increased to represent an estimate of the amount a
third party would charge to perform such activity. This third
party profit is taken in to income in the period the work is
performed internally. |
| |
|
METHANE GAS COLLECTION SYSTEMS: |
|
Capitalized when constructed and charged to expense through
depreciation over the shorter of their useful life or the life
of the landfill. |
|
During the active life of a landfill, included in cell
development costs when the need for such systems is considered
probable; charged to expense through depletion as airspace is
consumed using the units-of-consumption method. Systems
associated with the last final capping event at a landfill are
included in closure costs. |
| |
|
RECOGNITION OF LIABILITY: |
|
|
|
|
|
Final Capping |
|
Accrued over the life of the landfill. Costs are charged to cost
of operations and accrued liabilities as airspace is consumed
using the units-of-consumption method. Costs are not discounted. |
|
All final capping costs are recorded as a liability and asset at
fair value as the obligation is incurred. The discounted cash
flow associated with each final capping event is recorded to an
accrued liability, with a corresponding increase to landfill
assets as airspace is consumed related to the specific final
capping event. Interest is accreted on the liability using the
effective interest method until the liability is paid. |
| |
|
STATEMENT OF INCOME: |
|
|
|
|
|
Cost of Operations |
|
Expense charged to cost of operations equal to amount of
liability accrued. |
|
Not applicable. |
69
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
| |
|
|
|
|
| |
|
Current Practice |
| Description |
|
Historical Practice |
|
(Effective January 1, 2003) |
| |
|
Landfill Asset Amortization |
|
Not applicable. |
|
The landfill asset is amortized as airspace is consumed over the
life of a specific capping event for final capping or the life
of a landfill for closure and post-closure. |
| |
|
Accretion |
|
Not applicable. |
|
Expense recognized as a component of operating expenses at
credit-adjusted, risk-free rate using the effective interest
method. |
The Company has future obligations for final capping, closure
and post-closure costs with respect to the landfills it owns or
operates as set forth in applicable landfill permits. Final
capping, closure and post-closure costs include estimated costs
to be incurred for final capping and closure of landfills and
estimated costs for providing required post-closure monitoring
and maintenance of landfills. The permit requirements are based
on the Subtitle C and Subtitle D regulations of the
Resource Conservation and Recovery Act (RCRA), as implemented
and applied on a state-by-state basis. Obligations associated
with monitoring and controlling methane gas migration and
emissions are set forth in applicable landfill permits and these
requirements are based upon the provisions of the Clean Air Act
of 1970, as amended. Final capping typically includes installing
flexible membrane and geosynthetic clay liners, drainage and
compact soil layers, and topsoil, and is constructed over an
area of the landfill where total airspace capacity has been
consumed and waste disposal operations have ceased. These final
capping activities occur throughout the operating life of a
landfill. Other closure activities and post-closure activities
occur after the entire landfill ceases to accept waste and
closes. These activities involve methane gas control, leachate
management and groundwater monitoring, surface water monitoring
and control, and other operational and maintenance activities
that occur after the site ceases to accept waste. The
post-closure period generally runs for up to 30 years after
final site closure for municipal solid waste landfills and a
shorter period for construction and demolition landfills and
inert landfills.
Estimates of future expenditures for final capping, closure and
post-closure are developed annually by engineers. These
estimates are reviewed by management at least annually and are
used by the Company’s operating and accounting personnel to
adjust the rates used to capitalize and amortize these costs.
These estimates involve projections of costs that will be
incurred during the remaining life of the landfill for final
capping activities, after the landfill ceases operations and
during the legally required post-closure monitoring period.
Additionally, the Company currently retains post-closure
responsibility for several closed landfills.
Under SFAS 143, a liability for an asset retirement
obligation must be recognized in the period in which it is
incurred and should be initially measured at fair value. Absent
quoted market prices, the estimate of fair value should be based
on the best available information, including the results of
present value techniques in accordance with Statement of
Financial Accounting Concepts No. 7, “Using Cash Flow
and Present Value in Accounting Measurements”
(“SFAC 7”). The offset to the liability must be
capitalized as part of the carrying amount of the related
long-lived asset. Changes in the liability due to the passage of
time are recognized as operating items in the income statement
and are referred to as accretion expense. Changes in the
liability due to revisions to estimated future cash flows are
recognized by increasing or decreasing the liability with the
offset adjusting the carrying amount of the related long-lived
asset.
In applying the provisions of SFAS 143, the Company has
concluded that a landfill’s asset retirement obligation
includes estimates of all costs related to final capping,
closure and post-closure. Costs associated with a
landfill’s daily maintenance activities during the
operating life of the landfill, such as leachate disposal,
groundwater and gas monitoring, and other pollution control
activities, continue to be charged to expense as
70
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
incurred. In addition, costs historically accounted for as
capital expenditures during the operating life of a landfill,
such as cell development costs, are capitalized when incurred,
and charged to expense using life cycle accounting and the
units-of-consumption method based on the consumption of cubic
yards of available airspace.
The Company defines final capping as activities required to
permanently cover a portion of a landfill that has been
completely filled with waste. Final capping occurs in phases
throughout the life of a landfill as specific areas are filled
to capacity and the final elevation for that specific area is
reached in accordance with the provisions of the operating
permit. The Company considers final capping events to be
discrete activities that are recognized as asset retirement
obligations separately from other closure and post-closure
obligations. These capping events occur generally during the
operating life of a landfill and can be associated with waste
actually placed under an area to be capped. As a result, the
Company uses a separate rate per ton for recognizing the
principal amount of the liability and related asset associated
with each capping event. The Company amortizes the asset
recorded pursuant to this approach as waste volume equivalent to
the capacity covered by the capping event is placed into the
landfill based upon the consumption of cubic yards of available
airspace covered by the capping event.
The Company recognizes asset retirement obligations and the
related amortization expense for closure and post-closure
(excluding obligations for final capping) using the
units-of-consumption method over the total remaining capacity of
the landfill. The total remaining capacity includes probable
expansion airspace.
In general, the Company engages third parties to perform most of
its final capping, closure and post-closure activities.
Accordingly, the fair market value of these obligations is based
upon quoted and actual prices paid for similar work. The Company
does intend to perform some of its final capping, closure and
post-closure obligations using internal resources. Where
internal resources are expected to be used to fulfill an asset
retirement obligation, the Company has added a profit margin
onto the estimated cost of such services to better reflect their
fair market value as required by SFAS 143. These services
primarily relate to managing construction activities during
final capping, and maintenance activities during closure and
post-closure. If the Company does perform these services
internally, the added profit margin would be recognized as a
component of operating income in the period the obligation is
settled.
SFAC 7 states that an estimate of fair value should
include the price that marketplace participants are able to
receive for bearing the uncertainties in cash flows. However,
when utilizing discounted cash flow techniques, reliable
estimates of market premiums may not be obtainable. In this
situation, SFAC 7 indicates that it is not necessary to
consider a market risk premium in the determination of expected
cash flows. While the cost of asset retirement obligations
associated with final capping, closure and post-closure can be
quantified and estimated, there is not an active market that can
be utilized to determine the fair value of these activities. In
the case of the waste industry, no market exists for selling the
responsibility for final capping, closure and post-closure
independent of selling the landfill in its entirety.
Accordingly, the Company believes that it is not possible to
develop a methodology to reliably estimate a market risk premium
and has excluded a market risk premium from its determination of
expected cash flow for landfill asset retirement obligations in
accordance with SFAC 7.
Under SFAS 143, the primary modification to the
Company’s historical methodology is to require that final
capping, closure and post-closure costs be inflated and
discounted to present value. The Company’s estimates of
future final capping, closure and post-closure costs
historically have not taken into account discounts for the
present value of costs to be paid in the future. Consequently,
the amount of expense (accretion expense plus amortization
expense) will be higher in the later years of a landfill’s
life than in earlier years.
71
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
The Company’s estimates of costs to discharge asset
retirement obligations for landfills are developed in
today’s dollars. These costs are inflated each year to
reflect a normal escalation of prices up to the year they are
expected to be paid. The Company uses a 2.5% inflation rate,
which is based upon the ten year average increase in the
consumer price index and is the rate used by most waste industry
participants.
These estimated costs are then discounted to their present value
using a credit-adjusted, risk-free rate. The Company’s
credit-adjusted, risk-free rate was determined to be 6.50% and
6.75% for years ended December 31, 2004 and 2003,
respectively, based upon the estimated all-in yield the Company
believes it would need to offer to sell thirty-year debt in the
public market. Changes in asset retirement obligations due to
the passage of time are measured by recognizing accretion
expense in a manner that results in a constant effective
interest rate being applied to the average carrying amount of
the liability. The effective interest rate used to calculate
accretion expense is the Company’s credit-adjusted,
risk-free rate.
In accordance with SFAS 143, changes due to revision of the
estimates of the amount or timing of the original undiscounted
cash flows used to record a liability are recognized by
increasing or decreasing the carrying amount of the asset
retirement obligation liability and the carrying amount of the
related asset. Upward revisions in the amount of undiscounted
estimated cash flows used to record a liability must be
discounted using the credit-adjusted, risk-free rate in effect
at the time of the change. Downward revisions in the amount of
undiscounted estimated cash flows used to record a liability
must be discounted using the credit-adjusted, risk-free rate
that existed when the original liability was recognized.
The Company reviews its calculations with respect to landfill
asset retirement obligations at least annually. If there is a
significant change in the facts and circumstances related to a
landfill during the year, the Company will review its
calculations for the landfill as soon as practical after the
significant change has occurred.
The following table summarizes the actual activity in the
Company’s asset retirement obligation liabilities for the
years ended December 31, 2004 and 2003 and the pro forma
activity for the years ended December 31, 2003 and 2002
assuming SFAS 143 were effective as of January 1, 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2003 |
|
2002 |
| |
|
Actual |
|
Actual |
|
Pro Forma |
|
Pro Forma |
| |
|
|
|
|
|
|
|
|
|
Asset retirement obligation liability, beginning of year
|
|
$ |
204.7 |
|
|
$ |
196.9 |
|
|
$ |
182.4 |
|
|
$ |
167.8 |
|
|
Cumulative effect of change in accounting principle
|
|
|
— |
|
|
|
(14.5 |
) |
|
|
— |
|
|
|
— |
|
|
Non-cash asset additions
|
|
|
19.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Revisions in estimate of future cash flows
|
|
|
(4.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Acquisitions
|
|
|
.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Additions incurred during the period
|
|
|
— |
|
|
|
17.9 |
|
|
|
17.9 |
|
|
|
18.9 |
|
|
Amounts settled during the period
|
|
|
(17.5 |
) |
|
|
(8.3 |
) |
|
|
(8.3 |
) |
|
|
(14.8 |
) |
|
Accretion expense
|
|
|
13.7 |
|
|
|
12.7 |
|
|
|
12.7 |
|
|
|
10.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation liability, end of year
|
|
|
216.8 |
|
|
|
204.7 |
|
|
|
204.7 |
|
|
|
182.4 |
|
| |
Less: Current portion
|
|
|
(14.6 |
) |
|
|
(29.5 |
) |
|
|
(29.5 |
) |
|
|
(22.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Long-term portion
|
|
$ |
202.2 |
|
|
$ |
175.2 |
|
|
$ |
175.2 |
|
|
$ |
160.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of assets that are legally restricted for
purposes of settling final capping, closure and post-closure
obligations was approximately $7.5 million at
December 31, 2004 and are included as restricted cash in
the Company’s Consolidated Balance Sheets.
72
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
The expected future payments for final capping, closure and
post-closure as of December 31, 2004 are as follows:
| |
|
|
|
|
| Years Ending |
|
|
| December 31, |
|
|
| |
|
|
|
2005
|
|
$ |
14.6 |
|
|
2006
|
|
|
58.1 |
|
|
2007
|
|
|
49.5 |
|
|
2008
|
|
|
20.1 |
|
|
2009
|
|
|
31.9 |
|
|
Thereafter
|
|
|
457.7 |
|
| |
|
|
|
|
| |
|
$ |
631.9 |
|
| |
|
|
|
|
The estimated remaining final capping, closure and post-closure
expenditures presented above are undiscounted and include both
payments for liabilities incurred and recorded as of
December 31, 2004 and estimated future liabilities expected
to be incurred as the remaining landfill disposal capacities are
consumed.
Remediation
The Company accrues for remediation costs when they become
probable and reasonably estimatable. Substantially all of the
Company’s recorded remediation costs are for incremental
landfill post-closure care required under approved remediation
action plans for acquired landfills. Remediation costs are
estimated by engineers. These estimates do not take into account
discounts for the present value of total estimated costs.
Management believes that the amounts accrued for remediation
costs are adequate. However, a significant increase in the
estimated costs for remediation could have a material adverse
effect on the Company’s financial position, results of
operations or cash flows.
The expected future payments for remediation costs as of
December 31, 2004 are as follows:
| |
|
|
|
|
| Years Ending |
|
|
| December 31, |
|
|
| |
|
|
|
2005
|
|
$ |
2.7 |
|
|
2006
|
|
|
2.5 |
|
|
2007
|
|
|
2.5 |
|
|
2008
|
|
|
2.5 |
|
|
2009
|
|
|
2.5 |
|
|
Thereafter
|
|
|
41.3 |
|
| |
|
|
|
|
| |
|
$ |
54.0 |
|
| |
|
|
|
|
Environmental Costs
In the normal course of business, the Company is subject to
ongoing environmental investigations by certain regulatory
agencies, as well as other claims and disputes that could result
in litigation. Environmental costs are accrued by the Company
through a charge to income in the period such liabilities become
probable and can be reasonably estimated. No significant amounts
were charged to expense during the years ended December 31,
2004, 2003, and 2002.
The Company acquires businesses as part of its growth strategy.
Businesses acquired are accounted for under the purchase method
of accounting and are included in the Consolidated Financial
Statements from the
73
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
date of acquisition. The Company allocates the cost of the
acquired business to the assets acquired and the liabilities
assumed based on estimates of fair values thereof. These
estimates are revised during the allocation period as necessary
if, and when, information regarding contingencies becomes
available to further define and quantify assets acquired and
liabilities assumed. To the extent contingencies such as
preacquisition environmental matters, litigation and related
legal fees are resolved or settled during the allocation period,
such items are included in the revised allocation of the
purchase price. After the allocation period, the effect of
changes in such contingencies is included in results of
operations in the periods in which the adjustments are
determined. The Company does not believe potential differences
between its fair value estimates and actual fair values are
material.
The Company acquired various solid waste businesses during the
years ended December 31, 2004, 2003 and 2002. The aggregate
purchase price paid for these transactions was
$47.4 million, $51.5 million and $55.8 million,
respectively.
During 2004, 2003 and 2002, $28.2 million,
$27.7 million and $5.1 million, respectively, of the
total purchase price paid for acquisitions and contingent
payments to former owners was allocated to landfill airspace.
For landfills purchased as part of a group of several assets,
the allocations of purchase price were based on the discounted
expected future cash flow of each landfill relative to other
assets within the acquired group and were adjusted for other
non-depletable landfill assets and liabilities acquired
(primarily final capping, closure and post-closure liabilities).
Landfill purchase price is amortized using the
units-of-consumption method over total available airspace, which
includes probable expansion airspace where appropriate, and is
included in property and equipment, net in the accompanying
Consolidated Balance Sheets.
The following summarizes the preliminary purchase price
allocations for business combinations accounted for under the
purchase method of accounting:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Property and equipment
|
|
$ |
36.6 |
|
|
$ |
41.3 |
|
|
$ |
27.0 |
|
|
Intangible assets
|
|
|
14.1 |
|
|
|
24.3 |
|
|
|
43.0 |
|
|
Restricted cash
|
|
|
.6 |
|
|
|
— |
|
|
|
— |
|
|
Working capital deficit
|
|
|
(3.4 |
) |
|
|
(14.9 |
) |
|
|
(8.9 |
) |
|
Other assets (liabilities), net
|
|
|
(.6 |
) |
|
|
.8 |
|
|
|
(5.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in acquisitions, net of cash acquired
|
|
$ |
47.3 |
|
|
$ |
51.5 |
|
|
$ |
55.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of the intangible assets recorded for these
acquisitions are deductible for tax purposes.
The Company’s unaudited pro forma consolidated results of
operations assuming all significant acquisitions during 2004
accounted for under the purchase method of accounting had
occurred at the beginning of the periods presented are as
follows:
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended |
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Revenue
|
|
$ |
2,715.1 |
|
|
$ |
2,530.0 |
|
|
Net income
|
|
$ |
238.1 |
|
|
$ |
179.7 |
|
|
Diluted earnings per share
|
|
$ |
1.53 |
|
|
$ |
1.11 |
|
|
Weighted-average common and common equivalent shares outstanding
|
|
|
155.3 |
|
|
|
162.1 |
|
74
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
The unaudited pro forma 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 the periods presented.
Notes payable and long-term debt are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
$225.0 million unsecured notes, net of unamortized discount
$.1 million and including a $3.3 million adjustment to
fair market value as of December 31, 2003; interest payable
semi-annually in May and November at
65/8%;
principal due at maturity in May 2004
|
|
$ |
— |
|
|
$ |
228.2 |
|
|
$375.0 million unsecured notes, net of unamortized discount
of $.3 million and $.4 million as of December 31,
2004 and 2003, respectively; interest payable semi-annually in
May and November at
71/8%;
principal due at maturity in 2009
|
|
|
374.7 |
|
|
|
374.6 |
|
|
$450.0 million unsecured notes, net of unamortized discount
of $1.9 million and $2.2 million, and including
$.5 million and $0 million adjustments to fair value
as of December 31, 2004 and 2003, respectively; interest
payable semi-annually in February and August at
63/4%;
principal due at maturity in 2011
|
|
|
448.6 |
|
|
|
447.8 |
|
|
$750.0 million unsecured revolving credit facility;
interest payable using LIBOR based rates (2.4% at
December 31, 2004); $300.0 million matures June 2005
and $450.0 million matures July 2007
|
|
|
— |
|
|
|
— |
|
|
Tax-exempt bonds and other tax-exempt financing; fixed and
floating interest rates (ranging from 2% to
51/4%
at December 31, 2004); maturities ranging from 2005 to 2037
|
|
|
527.3 |
|
|
|
463.2 |
|
|
Other notes including unsecured and secured by real property,
equipment and other assets; fixed and floating interest rates
ranging from 4% to 12%; maturing through 2010
|
|
|
3.7 |
|
|
|
6.5 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
1,354.3 |
|
|
|
1,520.3 |
|
|
Less: Current portion
|
|
|
2.4 |
|
|
|
231.1 |
|
| |
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$ |
1,351.9 |
|
|
$ |
1,289.2 |
|
| |
|
|
|
|
|
|
|
|
Aggregate maturities of notes payable, capital leases and other
long-term debt as of December 31, 2004 (excluding discounts
and adjustments to fair market value from hedging transactions)
are as follows:
| |
|
|
|
|
| Years Ending December 31, |
|
|
| |
|
|
|
2005
|
|
$ |
2.4 |
|
|
2006
|
|
|
2.2 |
|
|
2007
|
|
|
1.6 |
|
|
2008
|
|
|
1.2 |
|
|
2009
|
|
|
376.1 |
|
|
Thereafter
|
|
|
972.0 |
|
| |
|
|
|
|
| |
|
$ |
1,355.5 |
|
| |
|
|
|
|
As of December 31, 2004, the Company had approximately
$373.4 million of availability under its revolving credit
facility.
75
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
As of December 31, 2004, the Company had
$237.0 million of restricted cash of which
$119.0 million were proceeds from the issuance of
tax-exempt bonds and other tax-exempt financing and will be used
to fund capital expenditures. Restricted cash also includes
amounts held in trust as a financial guarantee of the
Company’s performance.
The Company made interest payments on notes payable and
long-term debt of approximately $77.0 million,
$78.4 million and $75.9 million (net of capitalized
interest of $2.1 million, $3.3 million and
$2.5 million) for the years ended December 31, 2004,
2003 and 2002, respectively.
The Company’s ability to obtain financing through the
capital markets is a key component of its financial strategy.
Historically, the Company has managed risk associated with
executing this strategy, particularly as it relates to
fluctuations in interest rates, by using a combination of fixed
and floating rate debt. The Company also entered into interest
rate swap agreements to manage risk associated with fluctuations
in interest rates and to take advantage of favorable floating
interest rates. The swap agreements have total notional values
of $225.0 million and $210.0 million. Swap agreements
with a notional value of $225.0 million matured in May
2004, and agreements with a notional value of
$210.0 million mature in August 2011. These maturities are
identical to the Company’s public notes that were sold in
1999 and 2001, respectively. Under the swap agreements, the
Company pays interest at floating rates based on changes in
LIBOR and receives interest at fixed rates of
65/8%
and
63/4%,
respectively. The Company has designated these agreements as
hedges in changes in the fair value of the Company’s
fixed-rate debt and accounts for them in accordance with
SFAS 133. The Company has determined that these agreements
qualify for the short-cut method under SFAS 133 and,
therefore, changes in the fair value of the agreements are
assumed to be perfectly effective in hedging changes in the fair
value of the Company’s fixed rate debt due to changes in
interest rates.
As of December 31, 2004, interest rate swap agreements are
reflected at fair market value of $.5 million and are
included in other assets and as an adjustment to long-term debt
in the accompanying Consolidated Balance Sheets. During the
years ended December 31, 2004, 2003 and 2002, the Company
recorded net interest income of $7.2 million,
$10.0 million and $5.8 million, respectively, related
to its interest rate swap agreements which is included in
interest expense in the accompanying Consolidated Statements of
Income.
The unsecured revolving credit facility requires the Company to
maintain certain financial ratios and comply with certain
financial covenants. The Company has the ability under its loan
covenants to pay dividends and repurchase its common stock under
the condition that it is in compliance with the covenants. At
December 31, 2004, the Company was in compliance with the
financial covenants under these agreements.
The components of the provision for income taxes are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
81.2 |
|
|
$ |
(51.4 |
) |
|
$ |
62.0 |
|
| |
State
|
|
|
7.0 |
|
|
|
4.5 |
|
|
|
11.8 |
|
|
Federal and state deferred
|
|
|
57.6 |
|
|
|
178.9 |
|
|
|
73.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
145.8 |
|
|
$ |
132.0 |
|
|
$ |
146.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
In December 2003, the Company received written approval from the
Internal Revenue Service to exclude probable expansion airspace
from its calculation of landfill amortization, depletion, and
final capping, closure and post-closure costs for tax purposes.
As a result of this change, the Company’s deferred income
tax provision increased by approximately $82.0 million
during 2003, and the Company recorded a tax receivable of
76
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
approximately $48.0 million which was collected or used to
offset taxes payable during the year ended December 31,
2004.
A reconciliation of the statutory federal income tax rate to the
Company’s effective tax rate is shown below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended |
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
Non-deductible expenses
|
|
|
1.3 |
|
|
|
1.9 |
|
|
|
.7 |
|
|
State income taxes, net of federal benefit
|
|
|
2.4 |
|
|
|
1.7 |
|
|
|
2.1 |
|
|
Other, net
|
|
|
(.7 |
) |
|
|
(.6 |
) |
|
|
.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
38.0 |
% |
|
|
38.0 |
% |
|
|
38.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Components of the net deferred income tax asset and liability in
the accompanying Consolidated Balance Sheets are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
| |
Current portion —
|
|
|
|
|
|
|
|
|
| |
|
Book basis in property over tax basis
|
|
$ |
1.8 |
|
|
$ |
2.5 |
|
| |
|
Accruals not currently deductible
|
|
|
8.1 |
|
|
|
3.3 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
Total
|
|
$ |
9.9 |
|
|
$ |
5.8 |
|
| |
|
|
|
|
|
|
|
|
| |
Long-term portion —
|
|
|
|
|
|
|
|
|
| |
|
Book basis in property over tax basis
|
|
$ |
(434.4 |
) |
|
$ |
(367.3 |
) |
| |
|
Accruals not currently deductible
|
|
|
27.9 |
|
|
|
13.8 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
Total
|
|
$ |
(406.5 |
) |
|
$ |
(353.5 |
) |
| |
|
|
|
|
|
|
|
|
At December 31, 2004, the Company had available domestic
federal and state net operating loss carryforwards of
approximately $25.6 million ($16.6 million after tax),
which begin to expire in 2023. In assessing the realizability of
deferred tax assets, management considers whether it is more
likely than not some portion or all of the deferred tax assets
will not be realized after the initial recognition of the
deferred tax asset. The Company provides valuation allowances to
offset portions of deferred tax assets due to uncertainty
surrounding the future realization of such deferred tax assets.
The Company adjusts the valuation allowance, if any, in the
period management determines it is more likely than not that
deferred tax assets will or will not be realized.
The Company made income tax payments (net of refunds received)
of approximately $12.9 million, $17.7 million and
$69.3 million for the years ended December 31, 2004,
2003 and 2002, respectively.
Through the date of the Company’s initial public offering
of common stock in July 1998, the Company filed consolidated
federal income tax returns with AutoNation Inc.
(“AutoNation”), its former parent company. 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 for the periods through
June 1998. The Internal Revenue Service is auditing the
Company’s consolidated tax returns for fiscal years 1998
through 2003. 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.
77
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
During 2000 through 2004, the Board of Directors authorized the
repurchase of up to $1,025.0 million of the Company’s
Common Stock. As of December 31, 2004, the Company had paid
$750.4 million to repurchase 35.2 million shares
of its common stock, of which 9.6 million shares were
acquired during the year ended December 31, 2004 for
$266.1 million.
In July 2003, the Company announced that its board of directors
initiated a quarterly cash dividend of $.06 per share,
which was increased to $.12 per share in the third quarter
of 2004. Dividends declared were $54.6 million and
$19.0 million during 2004 and 2003, respectively. As of
December 31, 2004, the Company recorded a dividend payable
of approximately $18.1 million to shareholders of record at
the close of business on January 3, 2005.
|
|
| 8. |
EMPLOYEE BENEFIT PLANS |
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, restricted stock and
other equity-based compensation (“Equity-Based Compensation
Units”) to employees and non-employee directors of the
Company who are eligible to participate in the Stock Incentive
Plan. The Company accounts for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees”
(“APB 25”), and related interpretations. Stock
options are granted at prices equal to the fair market value of
the Company’s common stock on the date of grant; therefore,
no compensation expense is recognized. Compensation expense
resulting from grants of restricted stock or stock units is
recognized during the vesting period.
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 beginning on the first anniversary date of the grant.
Options granted to non-employee directors have a term of ten
years and vest immediately at the date of grant. In May 2002,
the Company’s stockholders approved and adopted an
amendment and restatement of the Stock Incentive Plan, which
modified a number of its provisions, including an increase in
the number of shares of common stock reserved for issuance under
the Stock Incentive Plan from 20.0 million to
27.0 million. As of December 31, 2004, there were
6.0 million stock options reserved for future grants under
the Stock Incentive Plan.
During the three months ended March 31, 2004, the Company
awarded 20,000 deferred stock units to its non-employee
directors under its Stock Incentive Plan. An additional 5,000
deferred stock units were granted to a new director during the
three months ended December 31, 2004. These stock units
vest immediately but the directors receive the underlying shares
only after their board service ends. The stock units do not
carry any voting or dividend rights, except the right to receive
additional stock units in lieu of dividends.
Also during the three months ended March 31, 2004, the
Company awarded 79,500 shares of restricted stock to its
executive officers. 7,500 of these restricted shares vest
effective January 1, 2005. The remaining 72,000 shares
vest in four equal annual installments beginning one year from
the date of grant except that vesting may be accelerated based
upon the achievement of certain performance targets. During the
vesting period, the participants have voting rights and receive
dividends, but the shares may not be sold, assigned,
transferred, pledged or otherwise encumbered. Additionally,
granted but unvested shares are forfeited upon termination of
employment.
The fair value of stock units and restricted shares on the date
of grant is amortized ratably over the vesting period, or the
accelerated vesting period if certain performance targets are
achieved. The fair value of stock units and restricted shares
granted during the year ended December 31, 2004 was
$2.8 million, of which
78
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
$1.8 million was recorded as compensation expense in the
Company’s Consolidated Statements of Income. The remaining
$1.0 million, representing the unamortized balance of
unearned compensation on restricted stock, is included as a
separate component of stockholders’ equity in the
Company’s Consolidated Balance Sheets. No other stock units
or restricted shares were granted during the twelve months ended
December 31, 2004.
The following table summarizes the activity for Equity-Based
Compensation Units for the years ended 2002, 2003 and 2004:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted-Average |
| |
|
Shares |
|
Exercise Price |
| |
|
|
|
|
|
Units outstanding at December 31, 2001
|
|
|
12.4 |
|
|
$ |
16.22 |
|
|
Granted
|
|
|
2.3 |
|
|
|
17.45 |
|
|
Exercised
|
|
|
(1.9 |
) |
|
|
15.18 |
|
|
Cancelled
|
|
|
(.2 |
) |
|
|
15.39 |
|
| |
|
|
|
|
|
|
|
|
|
Units outstanding at December 31, 2002
|
|
|
12.6 |
|
|
|
16.61 |
|
|
Granted
|
|
|
2.0 |
|
|
|
19.30 |
|
|
Exercised
|
|
|
(2.5 |
) |
|
|
16.21 |
|
|
Cancelled
|
|
|
(.3 |
) |
|
|
16.02 |
|
| |
|
|
|
|
|
|
|
|
|
Units outstanding at December 31, 2003
|
|
|
11.8 |
|
|
|
17.18 |
|
|
Granted
|
|
|
1.8 |
|
|
|
24.65 |
|
|
Exercised
|
|
|
(2.3 |
) |
|
|
16.24 |
|
|
Cancelled
|
|
|
(.2 |
) |
|
|
19.72 |
|
| |
|
|
|
|
|
|
|
|
|
Units outstanding at December 31, 2004
|
|
|
11.1 |
|
|
$ |
18.51 |
|
| |
|
|
|
|
|
|
|
|
The following table summarizes information about the
Company’s outstanding and exercisable stock options at
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding |
|
Exercisable |
| |
|
|
|
|
| |
|
|
|
Weighted- |
|
|
|
|
| |
|
|
|
Average |
|
Weighted- |
|
|
|
Weighted- |
| |
|
|
|
Remaining |
|
Average |
|
|
|
Average |
| |
|
|
|
Contractual |
|
Exercise |
|
|
|
Exercise |
| Range of Exercise Price |
|
Shares |
|
Life (Yrs.) |
|
Price |
|
Shares |
|
Price |
| |
|
|
|
|
|
|
|
|
|
|
|
$10.16 — $13.55
|
|
|
.6 |
|
|
|
3.5 |
|
|
$ |
11.87 |
|
|
|
.6 |
|
|
$ |
11.87 |
|
|
$13.56 — $16.93
|
|
|
1.3 |
|
|
|
4.9 |
|
|
|
14.68 |
|
|
|
.9 |
|
|
|
14.73 |
|
|
$16.94 — $20.32
|
|
|
7.3 |
|
|
|
4.8 |
|
|
|
18.12 |
|
|
|
5.1 |
|
|
|
17.93 |
|
|
$20.33 — $33.88
|
|
|
1.8 |
|
|
|
8.6 |
|
|
|
26.05 |
|
|
|
.2 |
|
|
|
24.78 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
11.0 |
|
|
|
5.4 |
|
|
|
18.68 |
|
|
|
6.8 |
|
|
|
17.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also maintains the Republic Services 401(k) Plan
(the “Plan”), which is a defined contribution plan
covering all eligible employees. Under the provisions of the
Plan, participants may direct the Company to defer a portion of
their compensation to the Plan, subject to a maximum of 15% of
eligible compensation, as defined. In general, the Company
provides matching contributions of 50% of the amount contributed
by each participant up to 4% of the employee’s salary. The
employer match is generally made in shares of the Company’s
common stock. Both employee and Company contributions vest
immediately. During 2004, the Company contributed shares of its
common stock valued at $3.5 million to the Plan.
79
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares (including deferred
stock units) 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 and unvested restricted stock awards. In computing
diluted earnings per share, the Company utilizes the treasury
stock method.
Earnings per share for the years ended December 31, 2004,
2003 and 2002 are calculated as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
237.9 |
|
|
$ |
177.6 |
|
|
$ |
239.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Denominator for basic earnings per share
|
|
|
152.8 |
|
|
|
160.3 |
|
|
|
165.4 |
|
| |
Effect of dilutive securities —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options to purchase common stock
|
|
|
2.5 |
|
|
|
1.8 |
|
|
|
1.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Denominator for diluted earnings per share
|
|
|
155.3 |
|
|
|
162.1 |
|
|
|
166.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic earnings per share
|
|
$ |
1.56 |
|
|
$ |
1.11 |
|
|
$ |
1.45 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Diluted earnings per share
|
|
$ |
1.53 |
|
|
$ |
1.10 |
|
|
$ |
1.44 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive securities not included in the diluted earnings per
share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options to purchase common stock
|
|
|
— |
|
|
|
.1 |
|
|
|
.8 |
|
| |
|
Weighted-average exercise price
|
|
$ |
31.50 |
|
|
$ |
25.02 |
|
|
$ |
19.87 |
|
The Company’s operations are managed and evaluated through
five regions: Eastern, Central, Southern, Southwestern and
Western. These five regions are presented below as the
Company’s reportable segments. These reportable segments
provide integrated waste management services consisting of
collection, transfer and disposal of domestic non-hazardous
solid waste.
Summarized financial information concerning the Company’s
reportable segments for the respective years ended
December 31 is shown in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Depreciation, |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Amortization, |
|
|
|
|
|
|
| |
|
Gross |
|
Intercompany |
|
Net |
|
Depletion and |
|
Operating |
|
Capital |
|
Total |
| 2004 |
|
Revenue |
|
Revenue(b) |
|
Revenue |
|
Accretion(c) |
|
Income |
|
Expenditures(d) |
|
Assets |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Region
|
|
$ |
648.6 |
|
|
$ |
(103.2 |
) |
|
$ |
545.4 |
|
|
$ |
43.8 |
|
|
$ |
80.0 |
|
|
$ |
51.4 |
|
|
$ |
878.5 |
|
|
Central Region
|
|
|
700.9 |
|
|
|
(156.6 |
) |
|
|
544.3 |
|
|
|
79.4 |
|
|
|
100.9 |
|
|
|
84.9 |
|
|
|
1,083.6 |
|
|
Southern Region
|
|
|
751.9 |
|
|
|
(79.6 |
) |
|
|
672.3 |
|
|
|
66.7 |
|
|
|
110.8 |
|
|
|
71.4 |
|
|
|
879.3 |
|
|
Southwestern Region
|
|
|
342.1 |
|
|
|
(33.0 |
) |
|
|
309.1 |
|
|
|
30.6 |
|
|
|
41.2 |
|
|
|
24.7 |
|
|
|
405.3 |
|
|
Western Region
|
|
|
788.4 |
|
|
|
(151.9 |
) |
|
|
636.5 |
|
|
|
48.3 |
|
|
|
158.3 |
|
|
|
48.7 |
|
|
|
817.6 |
|
|
Corporate Entities(a)
|
|
|
.6 |
|
|
|
(.1 |
) |
|
|
.5 |
|
|
|
4.3 |
|
|
|
(38.9 |
) |
|
|
2.7 |
|
|
|
400.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
3,232.5 |
|
|
$ |
(524.4 |
) |
|
$ |
2,708.1 |
|
|
$ |
273.1 |
|
|
$ |
452.3 |
|
|
$ |
283.8 |
|
|
$ |
4,464.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Depreciation, |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Amortization, |
|
|
|
|
|
|
| |
|
Gross |
|
Intercompany |
|
Net |
|
Depletion and |
|
Operating |
|
Capital |
|
Total |
| 2003 |
|
Revenue |
|
Revenue(b) |
|
Revenue |
|
Accretion(c) |
|
Income |
|
Expenditures(d) |
|
Assets |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Region
|
|
$ |
600.2 |
|
|
$ |
(93.0 |
) |
|
$ |
507.2 |
|
|
$ |
36.4 |
|
|
$ |
71.3 |
|
|
$ |
40.7 |
|
|
$ |
826.9 |
|
|
Central Region
|
|
|
671.7 |
|
|
|
(151.6 |
) |
|
|
520.1 |
|
|
|
74.0 |
|
|
|
106.6 |
|
|
|
75.7 |
|
|
|
960.5 |
|
|
Southern Region
|
|
|
680.3 |
|
|
|
(76.9 |
) |
|
|
603.4 |
|
|
|
62.8 |
|
|
|
107.5 |
|
|
|
69.9 |
|
|
|
865.6 |
|
|
Southwestern Region
|
|
|
332.6 |
|
|
|
(31.2 |
) |
|
|
301.4 |
|
|
|
28.7 |
|
|
|
50.2 |
|
|
|
28.9 |
|
|
|
409.4 |
|
|
Western Region
|
|
|
729.4 |
|
|
|
(143.9 |
) |
|
|
585.5 |
|
|
|
46.2 |
|
|
|
148.8 |
|
|
|
51.4 |
|
|
|
813.2 |
|
|
Corporate Entities(a)
|
|
|
.2 |
|
|
|
— |
|
|
|
.2 |
|
|
|
3.7 |
|
|
|
(71.7 |
) |
|
|
6.6 |
|
|
|
678.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
3,014.4 |
|
|
$ |
(496.6 |
) |
|
$ |
2,517.8 |
|
|
$ |
251.8 |
|
|
$ |
412.7 |
|
|
$ |
273.2 |
|
|
$ |
4,554.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Depreciation, |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Amortization, |
|
Other |
|
|
|
|
|
|
| |
|
Gross |
|
Intercompany |
|
Net |
|
and |
|
Charges |
|
Operating |
|
Capital |
|
Total |
| 2002 |
|
Revenue |
|
Revenue(b) |
|
Revenue |
|
Depletion(c) |
|
(Income) |
|
Income |
|
Expenditures(d) |
|
Assets |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Region
|
|
$ |
564.1 |
|
|
$ |
(79.7 |
) |
|
$ |
484.4 |
|
|
$ |
32.0 |
|
|
$ |
(4.1 |
) |
|
$ |
87.0 |
|
|
$ |
39.2 |
|
|
$ |
822.2 |
|
|
Central Region
|
|
|
589.6 |
|
|
|
(120.2 |
) |
|
|
469.4 |
|
|
|
53.6 |
|
|
|
(1.5 |
) |
|
|
105.3 |
|
|
|
77.1 |
|
|
|
950.9 |
|
|
Southern Region
|
|
|
643.1 |
|
|
|
(65.5 |
) |
|
|
577.6 |
|
|
|
52.7 |
|
|
|
— |
|
|
|
118.3 |
|
|
|
58.0 |
|
|
|
830.7 |
|
|
Southwestern Region
|
|
|
311.8 |
|
|
|
(29.1 |
) |
|
|
282.7 |
|
|
|
22.8 |
|
|
|
— |
|
|
|
41.9 |
|
|
|
30.6 |
|
|
|
374.6 |
|
|
Western Region
|
|
|
690.0 |
|
|
|
(139.1 |
) |
|
|
550.9 |
|
|
|
41.3 |
|
|
|
— |
|
|
|
145.5 |
|
|
|
47.3 |
|
|
|
826.7 |
|
|
Corporate Entities(a)
|
|
|
.2 |
|
|
|
(.1 |
) |
|
|
.1 |
|
|
|
(2.8 |
) |
|
|
— |
|
|
|
(38.5 |
) |
|
|
6.4 |
|
|
|
404.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
2,798.8 |
|
|
$ |
(433.7 |
) |
|
$ |
2,365.1 |
|
|
$ |
199.6 |
|
|
$ |
(5.6 |
) |
|
$ |
459.5 |
|
|
$ |
258.6 |
|
|
$ |
4,209.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
Corporate functions include legal, tax, treasury, information
technology, risk management, human resources, national accounts
and other typical administrative functions. The increase in
operating income for Corporate Entities from 2003 to 2004 is due
primarily to higher self-insurance expense recorded during 2003. |
| (b) |
Intercompany operating revenue reflects transactions within and
between segments and are generally made on a basis intended to
reflect the market value of such services. |
| (c) |
Effective January 1, 2003, the Company adopted
SFAS 143. (See Note 1, Basis of Presentation, for
further information.) |
| (d) |
Capital expenditures for 2002 exclude $72.6 million used to
purchase equipment consisting primarily of revenue-producing
vehicles originally placed into service pursuant to an operating
lease. |
Goodwill is the cost of acquired businesses in excess of the
fair value of net assets acquired. The activity in goodwill, net
of accumulated amortization, during 2004 and 2003 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance as of |
|
|
|
|
|
Balance as of |
| |
|
December 31, |
|
|
|
|
|
December 31, |
| |
|
2003 |
|
Acquisitions |
|
Transfers |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
Eastern Region
|
|
$ |
435.9 |
|
|
$ |
2.6 |
|
|
$ |
(2.1 |
) |
|
$ |
436.4 |
|
|
Central Region
|
|
|
350.5 |
|
|
|
10.7 |
|
|
|
(3.6 |
) |
|
|
357.6 |
|
|
Southern Region
|
|
|
325.8 |
|
|
|
2.0 |
|
|
|
(1.3 |
) |
|
|
326.5 |
|
|
Southwestern Region
|
|
|
135.0 |
|
|
|
.2 |
|
|
|
(1.6 |
) |
|
|
133.6 |
|
|
Western Region
|
|
|
310.9 |
|
|
|
(2.3 |
) |
|
|
— |
|
|
|
308.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
1,558.1 |
|
|
$ |
13.2 |
|
|
$ |
(8.6 |
) |
|
$ |
1,562.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Cumulative Effect |
|
|
| |
|
Balance as of |
|
|
|
|
|
of Changes in |
|
Balance as of |
| |
|
December 31, |
|
|
|
|
|
Accounting |
|
December 31, |
| |
|
2002 |
|
Acquisitions |
|
Divestitures |
|
Principles |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
|
Eastern Region
|
|
$ |
429.0 |
|
|
$ |
7.2 |
|
|
$ |
(.3 |
) |
|
$ |
— |
|
|
$ |
435.9 |
|
|
Central Region
|
|
|
343.0 |
|
|
|
7.5 |
|
|
|
— |
|
|
|
— |
|
|
|
350.5 |
|
|
Southern Region
|
|
|
323.2 |
|
|
|
2.6 |
|
|
|
— |
|
|
|
— |
|
|
|
325.8 |
|
|
Southwestern Region
|
|
|
134.7 |
|
|
|
.3 |
|
|
|
— |
|
|
|
— |
|
|
|
135.0 |
|
|
Western Region
|
|
|
314.3 |
|
|
|
3.6 |
|
|
|
— |
|
|
|
(7.0 |
) |
|
|
310.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
1,544.2 |
|
|
$ |
21.2 |
|
|
$ |
(.3 |
) |
|
$ |
(7.0 |
) |
|
$ |
1,558.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue of the Company by revenue source for the years ended
December 31, 2004, 2003 and 2002 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Collection:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential
|
|
$ |
655.2 |
|
|
$ |
601.2 |
|
|
$ |
530.7 |
|
| |
Commercial
|
|
|
737.9 |
|
|
|
706.0 |
|
|
|
696.7 |
|
| |
Industrial
|
|
|
558.1 |
|
|
|
523.0 |
|
|
|
501.6 |
|
| |
Other
|
|
|
62.2 |
|
|
|
50.9 |
|
|
|
50.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total collection
|
|
|
2,013.4 |
|
|
|
1,881.1 |
|
|
|
1,779.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer and disposal
|
|
|
1,031.0 |
|
|
|
967.5 |
|
|
|
854.1 |
|
|
Less: Intercompany
|
|
|
(519.8 |
) |
|
|
(493.7 |
) |
|
|
(428.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Transfer and disposal, net
|
|
|
511.2 |
|
|
|
473.8 |
|
|
|
425.6 |
|
|
Other
|
|
|
183.5 |
|
|
|
162.9 |
|
|
|
159.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Revenue
|
|
$ |
2,708.1 |
|
|
$ |
2,517.8 |
|
|
$ |
2,365.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
During June 2001, the Company entered into option agreements for
approximately 14.3 million gallons of heating oil. Under
SFAS 133, the options qualified for and were designated as
effective hedges of changes in the prices of forecasted diesel
fuel purchases. These option agreements settled each month in
equal notional amounts through December 2002. The option
agreements were structured as zero-cost collars indexed to the
price of heating oil. These option agreements expired in
December 2002. In accordance with SFAS 133,
$1.6 million representing the effective portion of the
change in fair value for the year ended December 31, 2002,
net of tax, has been recorded in stockholders’ equity as a
component of accumulated other comprehensive income. The
ineffective portion of the change in fair value was a gain of
approximately $.1 million for the year ended
December 31, 2002, and has been included in other income
(expense), net in the accompanying Consolidated Statements of
Income. Realized losses of $.8 million related to these
option agreements are included in cost of operations in the
Company’s Consolidated Statements of Income for the year
ended December 31, 2002.
82
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
|
|
| 12. |
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.
Lease Commitments
During December 1999, the Company entered into a
$100.0 million operating lease facility established to
finance the acquisition of operating equipment (primarily
revenue-producing vehicles). In July 2002, the Company exercised
its right to purchase the equipment underlying this facility by
paying $72.6 million. 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. Rent expense during the years ended
December 31, 2004, 2003 and 2002 was approximately
$11.4 million, $11.4 million and $20.0 million,
respectively.
Future minimum lease obligations under non-cancelable real
property, equipment and software leases with initial terms in
excess of one year at December 31, 2004 are as follows:
| |
|
|
|
|
| Years Ending |
|
|
| December 31, |
|
|
| |
|
|
|
2005
|
|
$ |
4.1 |
|
|
2006
|
|
|
3.1 |
|
|
2007
|
|
|
2.8 |
|
|
2008
|
|
|
1.6 |
|
|
2009
|
|
|
1.3 |
|
|
Thereafter
|
|
|
5.6 |
|
| |
|
|
|
|
| |
|
$ |
18.5 |
|
| |
|
|
|
|
Unconditional Purchase Commitments
Future minimum payments under unconditional purchase commitments
at December 31, 2004 are as follows:
| |
|
|
|
|
| Years Ending |
|
|
| December 31, |
|
|
| |
|
|
|
2005
|
|
$ |
27.6 |
|
|
2006
|
|
|
9.9 |
|
|
2007
|
|
|
2.0 |
|
|
2008
|
|
|
1.4 |
|
|
2009
|
|
|
1.4 |
|
|
Thereafter
|
|
|
11.8 |
|
| |
|
|
|
|
| |
|
$ |
54.1 |
|
| |
|
|
|
|
83
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
Unconditional purchase commitments consist primarily of
commitments to purchase collection vehicles and long-term
disposal agreements that require the Company to dispose of a
minimum number of tons at third party facilities.
Liability Insurance
The Company carries general liability, vehicle liability,
employment practices liability, pollution liability, directors
and officers liability, worker’s 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 subject to policy limits. Accruals are based on
claims filed and estimates of claims incurred but not reported.
During 2003, the Company experienced an increase in expense
associated with self-insurance. This increase was attributable
to the expansion of the Company’s operations and various
changes in estimates as a result of continued negative trends
through the 2003 policy year, based upon recent actuarial claims
experience, expected claims development and medical cost
inflation.
The Company’s liabilities for unpaid and incurred but not
reported claims at December 31, 2004 was
$143.8 million under its current risk management program
and are included in other current and other liabilities in the
accompanying Consolidated Balance Sheets. While the ultimate
amount of claims incurred are 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 results of operations in the periods in which such
adjustments are known.
Guarantees of Subsidiary Debt
The Company has guaranteed the tax-exempt bonds of its
subsidiaries. If a subsidiary fails to meet its obligations
associated with tax-exempt bonds as they come due, the Company
will be required to perform under the related guarantee
agreement. No additional liability has been recorded for these
guarantees because the underlying obligations are reflected in
the Company’s Consolidated Balance Sheets. (For further
information, see Note 5, Debt).
Restricted Cash and Marketable Securities, and Other
Financial Guarantees
In the normal course of business, the Company is required by
regulatory agencies, governmental entities and contract parties
to post performance bonds, letters of credit and/or cash
deposits as financial guarantees of the Company’s
performance. At December 31, 2004, letters of credit
totaling $489.8 million were outstanding, and surety bonds
totaling $392.2 million were outstanding, which will expire
on various dates through 2015.
At December 31, 2004, the Company had $237.0 million
of restricted cash deposits and $38.7 million of restricted
marketable securities held as financial guarantees, including
$119.0 million of restricted cash held for capital
expenditures under certain debt facilities, and
$34.3 million and $38.7 million of restricted cash and
restricted marketable securities, respectively, pledged to
regulatory agencies and governmental entities as financial
guarantees of the Company’s performance related to its
final capping, closure and post-closure obligations at its
landfills. The Company’s restricted marketable securities
consist of mutual funds invested in short-term investment grade
securities, including mortgage-backed securities and
U.S. Government obligations. These securities are available
for sale and, as a result, are stated at fair value based upon
quoted market
84
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
prices. Unrealized gains and losses, net of tax, are recorded as
a component of accumulated other comprehensive income (loss).
The Company liquidated a portion of these marketable securities
and used the proceeds to repay the $225.0 million of public
notes, which matured in May 2004.
Other Matters
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.
|
|
| 13. |
RELATED PARTY TRANSACTIONS |
It is the Company’s policy that transactions with related
parties must be on terms that, on the whole, are no less
favorable than those that would be available from unaffiliated
parties. It is management’s belief that all of these
transactions met that standard at the time such transactions
were effected.
|
|
| 14. |
QUARTERLY FINANCIAL INFORMATION (UNAUDITED) |
The following is an analysis of certain items in the
Consolidated Statements of Income by quarter for 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
| |
|
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| |
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
2004 |
|
|
$ |
637.3 |
|
|
$ |
683.2 |
|
|
$ |
699.9 |
|
|
$ |
687.7 |
|
| |
|
|
2003 |
|
|
$ |
594.6 |
|
|
$ |
637.3 |
|
|
$ |
648.0 |
|
|
$ |
637.9 |
|
| |
|
Operating income
|
|
|
2004 |
|
|
$ |
110.0 |
|
|
$ |
116.2 |
|
|
$ |
116.5 |
|
|
$ |
109.6 |
|
| |
|
|
2003 |
|
|
$ |
105.4 |
|
|
$ |
113.5 |
|
|
$ |
87.3 |
|
|
$ |
106.5 |
|
| |
|
Income before cumulative effect of changes in accounting
principles
|
|
|
2004 |
|
|
$ |
56.9 |
|
|
$ |
60.9 |
|
|
$ |
62.5 |
|
|
$ |
57.6 |
|
| |
|
|
2003 |
|
|
$ |
54.6 |
|
|
$ |
60.4 |
|
|
$ |
44.7 |
|
|
$ |
55.7 |
|
| |
|
Net income
|
|
|
2004 |
|
|
$ |
56.9 |
|
|
$ |
60.9 |
|
|
$ |
62.5 |
|
|
$ |
57.6 |
|
| |
|
|
2003 |
|
|
$ |
16.8 |
|
|
$ |
60.4 |
|
|
$ |
44.7 |
|
|
$ |
55.7 |
|
| |
|
Diluted income per share before cumulative effect of changes in
accounting principles
|
|
|
2004 |
|
|
$ |
.36 |
|
|
$ |
.39 |
|
|
$ |
.41 |
|
|
$ |
.38 |
|
| |
|
|
2003 |
|
|
$ |
.33 |
|
|
$ |
.37 |
|
|
$ |
.28 |
|
|
$ |
.35 |
|
| |
|
Diluted net income per share
|
|
|
2004 |
|
|
$ |
.36 |
|
|
$ |
.39 |
|
|
$ |
.41 |
|
|
$ |
.38 |
|
| |
|
|
2003 |
|
|
$ |
.10 |
|
|
$ |
.37 |
|
|
$ |
.28 |
|
|
$ |
.35 |
|
| |
|
Weighted average common and common equivalent shares outstanding
|
|
|
2004 |
|
|
|
158.4 |
|
|
|
155.7 |
|
|
|
153.8 |
|
|
|
153.5 |
|
| |
|
|
2003 |
|
|
|
163.3 |
|
|
|
162.5 |
|
|
|
162.2 |
|
|
|
160.5 |
|
During 2003, the Company experienced an increase in expense
associated with self-insurance. This increase was attributable
to the expansion of the Company’s operations and various
changes in estimates as a result of continued negative trends
through the 2003 policy year, based upon recent actuarial claims
85
REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share
data) — (Continued)
experience, expected claims development and medical cost
inflation. The majority of this increase in self-insurance
expense was recorded during the third quarter of 2003.
On February 16, 2005, the Company commenced an offer to the
holders of its
71/8%
unsecured notes due 2009 to exchange up to $275.0 million
aggregate principal amount of such notes for a like principal
amount of new notes due 2035. This offering is conditioned upon
receiving valid tenders of at least $175.0 million of the
aggregate principal of existing notes. These new notes will bear
interest at a rate equal to the sum of: (a) the bid side
yield on the 5.375% U.S. Treasury Note due
February 15, 2031, calculated on the second business day
prior to the expiration date of the exchange offering, and
(b) 130 basis points. The total exchange price for the
old notes is intended to result in a yield to maturity on the
settlement date equal to the sum of: (a) the bid-side yield
on the 3.875% U.S. Treasury Note due May 15, 2009,
calculated on the second business day prior to the expiration
date, and (b) 35 basis points. The exchange offering
is expected to close March 16, 2005, unless further
extended by the Company. However, there can be no assurance that
the conditions to the exchange offering will be met and the
transaction will be consummated.
86
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this Annual Report. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of
the end of the period covered by this Annual Report in
accumulating and communicating to our management, including our
Chief Executive Officer and Chief Financial Officer, material
information required to be included in the reports we file or
submit under the Securities Exchange Act of 1934 as appropriate
to allow timely decisions regarding required disclosure.
Report of Management on Republic Services, Inc.’s
Internal Control Over Financial Reporting
We, as members of management of Republic Services, Inc. are
responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f). Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management
and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.
Because of its inherent limitations, our internal control
systems and procedures may not prevent or detect misstatements.
An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Because of
the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
We, under the supervision of and with the participation of our
management, including the Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer, assessed the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2004, based on
criteria for effective internal control over financial reporting
described in “Internal Control — Integrated
Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
assessment, we concluded that we maintained effective internal
control over financial reporting as of December 31, 2004,
based on the specified criteria.
Management’s assessment of the effectiveness of our
internal control over financial reporting has been audited by
Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
87
Changes in Internal Control Over Financial Reporting
Based on an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, there has been no change in
our internal control over financial reporting during our last
fiscal quarter identified in connection with that evaluation,
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
| ITEM 9B. |
OTHER INFORMATION |
None.
88
PART III
The information required by Items 10, 11, 12 (except
for the information required by Item 201(d) of
Regulation S-K), 13 and 14 of Part III of
Form 10-K will be set forth in the Proxy Statement of the
Company relating to the 2005 Annual Meeting of Stockholders and
is incorporated by reference herein.
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT |
The following table sets forth certain information regarding
equity compensation plans as of December 31, 2004 (number
of securities in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of |
| |
|
|
|
|
|
Securities Remaining |
| |
|
Number of |
|
|
|
Available for |
| |
|
Securities to be |
|
|
|
Future Issuance |
| |
|
Issued Under |
|
Weighted-Average |
|
Under Equity |
| |
|
Exercise of |
|
Exercise Price of |
|
Compensation Plans |
| |
|
Outstanding |
|
Outstanding |
|
Excluding Securities |
| |
|
Options, Warrants |
|
Options, Warrants |
|
Reflected in |
| Plan Category |
|
and Rights |
|
and Rights |
|
Column A |
| |
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
11.1 |
|
|
$ |
18.51 |
|
|
|
6.0 |
|
|
Equity compensation plans not approved by security holders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
11.1 |
|
|
$ |
18.51 |
|
|
|
6.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
89
PART IV
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
(a) The following documents are filed as part of this
report:
|
|
| |
1. All Financial Statements: |
|
|
| |
The following financial statements are filed as part of this
report under Item 8 — Financial Statements and
Supplementary Data. |
| |
|
|
|
|
| |
|
Page |
| |
|
|
|
Report of Independent Registered Public Accounting Firm on the
Financial Statements
|
|
|
51 |
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
|
|
|
52 |
|
|
Consolidated Balance Sheets as of December 31, 2004 and 2003
|
|
|
53 |
|
|
Consolidated Statements of Income for each of the Three Years
Ended December 31, 2004
|
|
|
54 |
|
|
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income for each of the Three Years Ended
December 31, 2004
|
|
|
55 |
|
|
Consolidated Statements of Cash Flows for each of the Three
Years Ended December 31, 2004
|
|
|
56 |
|
|
Notes to Consolidated Financial Statements
|
|
|
57 |
|
|
|
| |
2. Financial Statement Schedules: |
|
|
| |
Schedule II — Valuation and Qualifying Accounts
and Reserves, for each of the Three Years Ended
December 31, 2004, 2003 and 2002. |
| |
| |
All other schedules are omitted as the required information is
not applicable or the information is presented in the
Consolidated Financial Statements and Notes thereto in
Item 8 above. |
|
|
| |
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission, as
indicated in the description of each. We agree to furnish to the
Commission upon request a copy of any instrument with respect to
long-term debt not filed herewith as to which the total amount
of securities authorized thereunder does not exceed
10 percent of our total assets on a consolidated basis. |
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Exhibit |
| |
|
|
|
|
| |
3.1 |
|
|
— |
|
Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 of the Company’s Quarterly
Report on Form 10-Q for the period ended June 30,
1998). |
| |
3.2 |
|
|
— |
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Republic Services, Inc. (incorporated by
reference to Exhibit 4.2 of the Company’s Registration
Statement on Form S-8, Registration No. 333-81801,
filed with the Commission on June 29, 1999). |
| |
3.3 |
|
|
— |
|
Amended and Restated Bylaws of Republic Services, Inc.
(incorporated by reference to Exhibit 3.2 of the
Company’s Quarterly Report on Form 10-Q for the period
ended June 30, 1998). |
| |
4.1 |
|
|
— |
|
Republic Services, Inc. Common Stock Certificate (incorporated
by reference to Exhibit 4.4 of the Company’s
Registration Statement on Form S-8, Registration
No. 333-81801, filed with the Commission on June 29,
1999). |
90
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Exhibit |
| |
|
|
|
|
| |
4.2 |
|
|
— |
|
Long Term Credit Agreement dated July 3, 2002 among
Republic Services, Inc., Bank of America N.A. as Administrative
Agent, and the several financial institutions party thereto
(incorporated by reference to Exhibit 4.2 of the
Company’s Annual Report on Form 10-K for the year
ended December 31, 2002). |
| |
4.3 |
|
|
— |
|
Indenture dated May 24, 1999 by Republic Services, Inc. to
The Bank of New York, as trustee (incorporated by reference to
Exhibit 4.3 of the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999). |
| |
4.4 |
|
|
— |
|
65/8% Note
due May 15, 2004 in the principal amount of $200,000,000
(incorporated by reference to Exhibit 4.4 of the
Company’s Annual Report on Form 10-K for the year
ended December 31, 1999). |
| |
4.5 |
|
|
— |
|
65/8% Note
due May 15, 2004 in the principal amount of $25,000,000
(incorporated by reference to Exhibit 4.5 of the
Company’s Annual Report on Form 10-K for the year
ended December 31, 1999). |
| |
4.6 |
|
|
— |
|
71/8% Note
due May 15, 2009 in the principal amount of $200,000,000
(incorporated by reference to Exhibit 4.6 of the
Company’s Annual Report on Form 10-K for the year
ended December 31, 1999). |
| |
4.7 |
|
|
— |
|
71/8% Note
due May 15, 2009 in the principal amount of $175,000,000
(incorporated by reference to Exhibit 4.7 of the
Company’s Annual Report on Form 10-K for the year
ended December 31, 1999). |
| |
4.8 |
|
|
— |
|
Indenture dated as of August 15, 2001, by Republic
Services, Inc. to The Bank of New York, as trustee (incorporated
by reference to Exhibit 4.1 of the Company’s Current
Report on Form 8-K dated August 9, 2001). |
| |
4.9 |
|
|
— |
|
First Supplemental Indenture, dated as of August 15, 2001
by Republic Services, Inc. to The Bank Of New York, as trustee
(incorporated by reference to Exhibit 4.2 of the
Company’s Current Report on Form 8-K dated
August 9, 2001). |
| |
4.10 |
|
|
— |
|
63/4% Senior
Note due 2011, in principal amount of $400,000,000 (incorporated
by reference to Exhibit 4.4 of the Company’s Current
Report on Form 8-K dated August 9, 2001). |
| |
4.11 |
|
|
— |
|
63/4% Senior
Note due 2011, in principal amount of $50,000,000 (incorporated
by reference to Exhibit 4.4 of the Company’s Current
Report on Form 8-K dated August 9, 2001). |
| |
10.1 |
|
|
— |
|
Separation and Distribution Agreement dated June 30, 1998
by and between Republic Services, Inc. and AutoNation, Inc.
(then known as Republic Industries, Inc.) (incorporated by
reference to Exhibit 10.1 of the Company’s Quarterly
Report on Form 10-Q for the period ended June 30,
1998). |
| |
10.2 |
|
|
— |
|
Tax Indemnification and Allocation Agreement dated June 30,
1998 by and between Republic Services, Inc. and AutoNation, Inc.
(then known as Republic Industries, Inc.) (incorporated by
reference to Exhibit 10.4 of the Company’s Quarterly
Report on Form 10-Q for the period ended June 30,
1998). |
| |
10.3 |
|
|
— |
|
Republic Services, Inc. 1998 Stock Incentive Plan (as amended
and restated March 6, 2002) (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on
Form 10-Q for the period ended March 31, 2002).* |
| |
10.4 |
|
|
— |
|
Employment Agreement dated October 25, 2000 by and between
James E. O’Connor and Republic Services, Inc. (incorporated
by reference to Exhibit 10.7 of the Company’s Annual
Report on Form 10-K for the year ended December 31,
2000).* |
| |
10.5 |
|
|
— |
|
Employment Agreement dated October 25, 2000 by and between
Tod C. Holmes and Republic Services, Inc. (incorporated by
reference to Exhibit 10.9 of the Company’s Annual
Report on Form 10-K for the year ended December 31,
2000).* |
| |
10.6 |
|
|
— |
|
Employment Agreement dated October 25, 2000 by and between
David A. Barclay and Republic Services, Inc. (incorporated by
reference to Exhibit 10.10 of the Company’s Annual
Report on Form 10-K for the year ended December 31,
2000).* |
91
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description of Exhibit |
| |
|
|
|
|
| |
10.7 |
|
|
— |
|
Employment Agreement dated July 31, 2001 by and between
Harris W. Hudson and Republic Services, Inc. (incorporated by
reference to Exhibit 10.8 of the Company’s Annual
Report on Form 10-K for the year ended December 31,
2001).* |
| |
10.8 |
|
|
— |
|
Employment Agreement dated May 14, 2001 by and between
Michael Cordesman, who became an executive officer in March
2002, and Republic Services, Inc. (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on
Form 10-Q, for the period ended March 31, 2002).* |
| |
21.1 |
|
|
— |
|
Subsidiaries of the Company (filed herewith). |
| |
23.1 |
|
|
— |
|
Consent of Ernst & Young (filed herewith). |
| |
31.1 |
|
|
— |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer (filed herewith). |
| |
31.2 |
|
|
— |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer (filed herewith). |
| |
32.1 |
|
|
— |
|
Section 1350 Certification of Chief Executive Officer
(filed herewith). |
| |
32.2 |
|
|
— |
|
Section 1350 Certification of Chief Financial Officer
(filed herewith). |
|
|
| * |
Indicates a management contract or compensatory plan, contract
or arrangement. |
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
REGISTRANT: |
| |
| |
REPUBLIC SERVICES, INC. |
|
|
| |
|
| |
James E. O’Connor |
| |
Chairman of the Board and Chief Executive Officer |
| |
(principal executive officer) |
February 25, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ James E.
O’Connor
James
E. O’Connor |
|
Chairman of the Board and Chief Executive Officer (principal
executive officer)
|
|
February 25, 2005 |
| |
/s/ Harris W. Hudson
Harris
W. Hudson |
|
Vice Chairman and Director
|
|
February 25, 2005 |
| |
/s/ Tod C. Holmes
Tod
C. Holmes |
|
Senior Vice President and Chief Financial Officer (principal
financial officer)
|
|
February 25, 2005 |
| |
/s/ Charles F. Serianni
Charles
F. Serianni |
|
Vice President and Chief Accounting Officer (principal
accounting officer)
|
|
February 25, 2005 |
| |
/s/ John W. Croghan
John
W. Croghan |
|
Director
|
|
February 25, 2005 |
| |
/s/ W. Lee Nutter
W.
Lee Nutter |
|
Director
|
|
February 25, 2005 |
| |
/s/ Ramon A. Rodriguez
Ramon
A. Rodriguez |
|
Director
|
|
February 25, 2005 |
| |
/s/ Allan C. Sorensen
Allan
C. Sorensen |
|
Director
|
|
February 25, 2005 |
| |
/s/ Michael W. Wickham
Michael
W. Wickham |
|
Director
|
|
February 25, 2005 |
93
REPUBLIC SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
Additions |
|
Accounts |
|
|
|
Balance at |
| |
|
Beginning |
|
Charged to |
|
Written |
|
|
|
End |
| |
|
of Year |
|
Income |
|
Off |
|
Other(1) |
|
of Year |
| |
|
|
|
|
|
|
|
|
|
|
|
CLASSIFICATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2004
|
|
$ |
19.0 |
|
|
$ |
8.0 |
|
|
$ |
(9.0 |
) |
|
$ |
— |
|
|
$ |
18.0 |
|
| |
2003
|
|
|
19.0 |
|
|
|
10.4 |
|
|
|
(10.4 |
) |
|
|
— |
|
|
|
19.0 |
|
| |
2002
|
|
|
19.0 |
|
|
|
11.2 |
|
|
|
(11.4 |
) |
|
|
.2 |
|
|
|
19.0 |
|
|
|
| (1) |
Allowance of acquired and divested businesses, net. |
94