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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(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, 2008
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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
(State of Incorporation)
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65-0716904
(I.R.S. Employer Identification No.)
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18500 North Allied Way
Phoenix, Arizona
(Address of Principal Executive Offices)
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85054
(Zip Code)
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Registrants telephone number,
including area code:
(480) 627-2700
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
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No 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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2008, the aggregate market value of the
shares of the Common Stock held by non-affiliates of the
registrant was $5.4 billion.
As of February 19, 2009, the registrant had outstanding
378,785,623 shares of Common Stock (excluding treasury
shares of 14,894,412)
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement relative to
the 2009 Annual Meeting of Stockholders are incorporated by
reference in Part III hereof.
Unless the context requires otherwise, all references in this
Form 10-K
to Republic, the company,
we, us and our refer to
Republic Services, Inc. and its consolidated subsidiaries
including Allied Waste Industries, Inc. and its subsidiaries
(Allied) for periods on or after December 5, 2008.
PART I
Overview
As of December 31, 2008, we are the second largest 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 400 collection companies in 40 states and Puerto
Rico. We also own or operate 242 transfer stations, 213 active
solid waste landfills and 78 recycling facilities. We were
incorporated as a Delaware corporation in 1996.
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
$52.0 billion, of which approximately 58% is generated by
publicly owned waste companies. For 2008, and after giving
effect to the merger described below, we and one other company
generated a significant percentage of the publicly owned
companies total revenue. Additionally, industry data
indicates that the non-hazardous waste industry in the United
States remains fragmented as privately held companies and
municipal and other local governmental authorities generate
approximately 16% and 26% respectively, 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 households and business formation and is subject to changes
in residential and commercial construction activity.
On December 5, 2008, we completed our merger with Allied.
On the effective date of the merger each share of Allied common
stock outstanding was converted into .45 shares of our
common stock. We issued approximately 195.8 million shares
of common stock to Allied stockholders in the transaction. As a
condition to the merger, we agreed to divest of certain assets
as required by the Antitrust Division of the
U.S. Department of Justice (DOJ) under the
Hart-Scott-Rodino Antitrust Act (HSR Act). In February 2009, we
announced an agreement to sell Waste Connections, Inc. the
majority of the assets we are required to divest. The assets
being divested include six municipal solid waste landfills, six
collection operations and three transfer stations across seven
markets. This transaction is subject to closing conditions
regarding due diligence, regulatory approval and other customary
matters. Closing is expected to occur in the second quarter of
2009. However, the timing and proceeds received from the
divestiture to Waste Connections, and the divestiture of the
remaining assets as required by the DOJ, cannot be predicted. In
addition, the merger is expected to generate total annual
run-rate integration synergies, primarily resulting from
operating efficiencies, economies of scale, and leveraging
corporate and overhead resources of approximately
$150.0 million by the end of 2010. We have identified and
are on track to realize in 2009 approximately
$100.0 million, or 67% of the total expected annual
run-rate synergies. Our financial results for 2008 include
Allieds operating results from the date of the merger, and
have not been retroactively restated to include Allieds
historical financial position or results of operations.
Our operations are national in scope, but the physical
collection and disposal of waste is very much a local business;
therefore, the dynamics and opportunities differ in each of our
markets. By combining local operating management with
standardized business practices, we can drive greater overall
operating efficiency across the company, while maintaining
day-to-day
operating decisions at the local level, closest to the customer.
We facilitate the implementation of this strategy through an
organizational structure that groups our operations within a
corporate, region and area structure. We manage our operations
through four geographic operating segments which are also our
reportable segments: Eastern, Central, Southern and Western. Due
to the timing of our acquisition of Allied, management reviewed
and we have presented Allied as a separate operating segment in
our consolidated financial statements. Additionally, during the
first quarter of 2008, we realigned our reporting segments and
consolidated our previous Southwestern
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operations into our Western operations. The boundaries of our
operating segments may change from time to time. Each of our
regions is organized into several operating areas and each area
contains multiple operating locations. Each of our regions and
substantially all our areas provide collection, transfer,
recycling and disposal services. We believe this structure
facilitates the integration of our operations within each
region, which is a critical component of our operating strategy,
and allows us to maximize the growth opportunities in each of
our markets and to operate the business efficiently, while
maintaining effective controls and standards over operational
and administrative matters, including financial reporting. See
Note 14, Segment Reporting, to our consolidated
financial statements in Item 8 of this
Form 10-K
for further discussion of our operating segments.
We had revenue of $3.7 billion and $3.2 billion and
operating income of $283.2 million and $536.0 million
for the years ended December 31, 2008 and 2007,
respectively. In addition to our merger with Allied, there were
a number of items that impacted our 2008 financial results. For
a description of these items, see Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview of Our
Business and Consolidated Results of Operations included
elsewhere in this Annual Report on
Form 10-K.
Our presence in markets with growing populations throughout the
Sunbelt, including California, Arizona 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 us to experience growth at rates that are
generally higher than the industrys overall growth rate.
We continue to focus on enhancing shareholder value by
implementing our financial, operating and growth strategies as
described below.
Financial
Strategy
Key components of our financial strategy include our ability to
generate free cash flow and sustain or improve our return on
invested capital. Our definition of free cash flow, which is not
a measure determined in accordance with United States generally
accepted accounting principles (GAAP), is cash provided by
operating activities less purchases of property and equipment,
plus proceeds from sales of property and equipment as presented
in our consolidated statements of cash flows. We believe that
free cash flow is a driver of shareholder value and provides
useful information regarding the recurring cash provided by our
operating activities after expenditures for property and
equipment, net of proceeds from sales of property and equipment.
It also demonstrates our ability to execute our financial
strategy, which includes reinvesting in capital assets to ensure
a high level of customer service, investing in capital assets to
facilitate growth in our customer base and services provided,
maintaining our investment grade ratings and minimizing debt,
paying cash dividends and maintaining and improving our market
position through business optimization. In addition, free cash
flow is a key metric used to determine compensation.
Furthermore, we expect to generate total annual run-rate
integration synergies, in connection with the merger with
Allied, of approximately $150.0 million by the end of 2010,
primarily by achieving greater operating efficiencies, capturing
inherent economies of scale, and leveraging corporate and
overhead resources. We have identified and are on track to
realize $100.0 million of annual run-rate integration
benefits by the end of 2009. We are confident that we will be
able to realize the balance of the targeted $150.0 million
in synergies in the second year following the merger despite the
economic slowdown. Consequently, we have developed and
implemented incentive programs that help focus our entire
company on the realization of key financial metrics of
increasing free cash flow, achieving targeted earnings,
maintaining and improving returns on invested capital, as well
as achieving integration synergies.
The presentation of free cash flow has material limitations.
Free cash flow does not represent our cash flow available for
discretionary expenditures because it excludes certain
expenditures that are required or to which we have committed,
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.
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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
shareholder 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 the highest level of service to our
customers and the communities we serve. We continue to focus on
innovative waste disposal processes and programs to help our
customers obtain their goals around sustainability and
environmentally sound waste practices. We believe that these in
turn will help us achieve profitable growth.
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Internal Growth
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Price Growth. Growth through price increases helps
ensure that we obtain an adequate return on our substantial
capital investment and the business risk associated with such
investment. Price increases also allow us to recover historical
and current year increases in operating costs, which ultimately
enhances our operating margins.
Volume 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. We work to increase collection and disposal
volumes while insuring that prices charged for such services
provide an appropriate return on our capital investment.
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Maintain Our Credit Ratings. We believe that
a key component of our financial strategy includes maintaining
investment grade ratings on our senior debt, which was rated BBB
by Standard & Poors, BBB- by Fitch and Baa3 by
Moodys as of December 31, 2008. Such ratings have
allowed us, and should continue to allow us, to readily access
capital markets at competitive rates. As such, we intend to
continue to use our free cash flow and proceeds from sale of
operations to reduce our debt.
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Dividends. In July 2003, our Board of
Directors initiated a quarterly cash dividend of $.04 per share.
The dividend has been increased each year thereafter, the latest
increase occurring in the third quarter of 2008, representing an
average annualized growth rate of approximately 36%. Our current
quarterly dividend per share is $.19. We may consider increasing
our quarterly cash dividend if we believe it will enhance
shareholder value.
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Market Growth and Optimization. Within our
markets, our goal is to deliver sustainable, long-term
profitable growth while efficiently operating our assets to
generate acceptable rates of return. We allocate capital to
businesses, markets and development projects to support growth
while achieving acceptable rates of return. We develop
previously non-permitted, non-contiguous landfill sites
(greenfield landfill sites). We also expand our existing
landfill sites, when possible. We supplement this organic growth
with acquisitions of operating assets, such as landfills,
transfer stations, and tuck-in acquisitions of collection and
disposal operations in existing markets. We continuously
evaluate our existing operating assets and their deployment
within each market to determine if we have optimized our
position and to ensure appropriate investment of capital. Where
operations are not generating acceptable returns, we examine
opportunities to achieve greater efficiencies and returns
through the integration of additional assets. If such
enhancements are not possible, we may ultimately decide to
divest the existing assets and reallocate resources to other
markets.
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For certain risks related to our financial strategy, see
Item 1A. Risk Factors.
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Operating
Strategy
We seek to leverage existing assets and revenue growth to
increase operating margins and enhance shareholder value. Our
operating strategy for accomplishing this goal includes the
following:
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utilize the extensive industry knowledge and experience of our
executive management team,
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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 business information systems to improve consistency in
financial and operational performance.
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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. OConnor, who has served as our Chief Executive
Officer (CEO) 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. OConnor has
34 years of experience in the solid waste industry.
Donald W. Slager became our President & Chief Operating
Officer (COO) upon our merging with Allied in December 2008.
Prior to the merger, Mr. Slager worked for Allied from 1992
through 2008 and served in various management positions,
including President & COO from 2004 through 2008 and
Executive Vice President and COO from 2003 to 2004. From 2001 to
2003, Mr. Slager served as Senior Vice President,
Operations. He held various management positions at Allied from
1992 to 2003, and was previously General Manager at National
Waste Services, where he served in various management positions
since 1985. Mr. Slager has over 23 years of experience in
the solid waste industry.
Tod C. Holmes has served as our Chief Financial Officer (CFO)
since August 1998. Mr. Holmes served as our Vice President
of Finance from June 1998 until August 1998 and as Vice
President of Finance of our former parent companys Solid
Waste Group from January 1998 until June 1998. From 1987 to
1998, Mr. Holmes served in various management positions
with Browning-Ferris Industries, Inc., including Vice President,
Investor Relations from 1996 to 1998, Divisional Vice President,
Collection Operations from 1995 to 1996, Divisional Vice
President and Regional Controller Northern Region
from 1993 to 1995, and Divisional Vice President and Assistant
Corporate Controller from 1991 to 1993. Mr. Holmes has over
21 years of experience in the solid waste industry.
Our regional senior vice presidents have an average of 21 years
of experience in the industry.
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Merger Integration Strategy. As
previously mentioned, on December 5, 2008 we completed our
merger with Allied. We believe this merger is different than
historical attempts to consolidate the waste industry for a
number of reasons including the following:
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Two Mature Companies. Most previous attempts to
consolidate the waste industry focused on a roll up
strategy often involving relatively young companies solely
focused on increasing revenue through acquisitions. Our merger
with Allied involved two mature companies with similar business
practices and performance metrics that have been developed and
refined over the course of a number of years. We believe that
the combination of our maturity and proven business practices
and performance metrics will be a critical component of our
future success.
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Best Practices. Our merger also affords us the
opportunity to select the best tools and systems and to adopt
the best practices of two successful companies. Republic has a
history of financial discipline evident in the consistent
generation of increasing levels of free cash flow. Allied is
noted for its
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integrated operations and focus on procurement. We believe that
our merger gives us a unique opportunity to combine the
strengths of these two successful organizations and create a
best-in-class waste management company.
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Timely and Focused Integration Process. We are
acutely aware that previous acquisitions in the waste management
and other industries failed because of a lack of focus on
integration. As such, we began to develop our integration
process and strategy in June 2008, long before our merger
was consummated. Our process identified specific integration
related tasks focused on all levels of the organization,
especially our individual business units. We have engaged
employees at all levels of the company in this process to
develop a detailed integration plan and ensure that each of our
employees understands their role in the process.
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Strong Operating Platform. The combination of
Republic and Allied creates a company with a strong, national
operating platform. The foundation of this platform is our large
network of disposal sites. This disposal network provides us
with a far stronger vertically integrated operating structure
than either company would be able to achieve on its own. We
believe that our improved vertically integrated operations will
be a key driver of our future profitability.
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Complementary Operations. The overlay of our
operating locations reflects another compelling attribute of our
merger. We operate complementary geographies. We also share very
similar cultures that are centered on a shared commitment to
providing industry-leading solid waste and environmental
services that exceed our customers highest
expectations.
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Significant Synergies. We have identified
approximately $150.0 million of annual run-rate synergies
associated with the merger. These synergies focus on right
sizing our combined corporate and field staff. They also take
advantage of our complementary operations which allows us to
eliminate duplicative facilities and collection routes. All of
our employees are focused on the achievement of our operating
strategies. In addition, certain employees whose role is
considered critical will be incentivized based upon the timely
achievement of our synergy goal. We believe that such incentives
help to further focus our management team on increasing
shareholder value.
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Strong Capital Structure. Unlike many other mergers
or acquisitions in the waste management and other industries,
Republic Services enjoys a strong capital structure and
investment grade credit ratings post-merger. Our combination
with Allied creates a company that will produce substantial
annual free cash flow. This strong cash producing characteristic
will allow us to pursue our mission of increasing shareholder
value by focusing on investing in our business, paying down our
debt and funding dividends.
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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. Each regional management team includes a
senior vice president of operations, vice president-controller,
vice president of human resources, vice president of sales, vice
president of operations support, director of safety, director of
engineering and environmental management, and director of market
planning and development. We believe that our strong regional
management teams allow us to more effectively and efficiently
drive our initiatives and help 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 our 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
managers 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, landfill operating agreements 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 December 2008, subsequent
to our acquisition of Allied, approximately 67% 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, operating
agreements, and market 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, operating agreements 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. We continue to identify and implement
best practices throughout our organization with the goal of
permanently improving overall operating and financial results.
These best practice initiatives focus on critical areas of our
operations such as landfill operations, truck routing,
maintenance and related service efficiencies, purchasing and
administrative activities. The consolidation of acquired
businesses into existing operations reduces costs by decreasing
capital and expenses used for truck 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. Of particular benefit are the opportunities associated
with the blending of operations as a result of the Allied
merger. Scheduled for completion by early 2010, these markets
offer the potential for marked improvement in operating results.
Generally speaking, there are significant opportunities in these
markets to leverage economies of scale and the existing asset
base, while realizing improved operating efficiencies. Upon the
completion of the integration of Allied, our goal is to maintain
our selling, general and administrative costs at no more than
10.0% of revenue, which we believe is appropriate given our
existing business platform. In addition, our procurement
initiatives ensure that we negotiate the best volume discounts
for goods and services purchased, including waste disposal rates
at landfills operated by third parties. Furthermore, we have
taken steps to maximize the utilization of our assets. For
example, to reduce the number of collection vehicles and
maximize the efficiency of our fleet and drivers, we use a route
optimization program to minimize drive times and improve
operating density. By using assets more efficiently, operating
expenses can be reduced.
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High Levels of Customer Satisfaction. We
strive to provide the highest level of service to our customer
base. Our policy is to periodically visit each commercial
account to ensure customer satisfaction and to verify that we
are providing the appropriate level of service. In addition to
visiting existing customers, a salesperson develops a base of
prospective customers within each market. We also have municipal
marketing representatives in most service areas that are
responsible for working with each municipality or community to
which we provide residential service to ensure customer
satisfaction. Additionally, the municipal representatives
organize and drive the effort to obtain new or renew municipal
contracts in their service areas.
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Focus on Systems Utilization. We continue to
invest in the integration and expansion of our information
systems and technology platform. Our future platform will
consist of
best-in-class
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legacy systems from both Republic and Allied. Our initiatives
will include customer relationship management, billing,
productivity, maintenance, general ledger and human resource
systems. We believe that the combination of these systems will
prove to be a competitive advantage for our company.
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For certain risks related to our operating strategy, see
Item 1A. Risk Factors.
Growth
Strategy
Our growth strategy focuses on increasing revenue, gaining
market share and enhancing shareholder value through internal
growth and acquisitions. We manage our growth strategy as
follows:
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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, to improve our
operating margins and to obtain adequate returns on our
substantial investments in assets such as our landfills. During
2008, we continued to secure broad-based price increases across
all lines of our business to offset various escalating capital
and operating costs. Price increases will remain a major
component of our overall future operating strategy.
Long-Term Contracts. We seek to obtain long-term
contracts for collecting solid waste in markets with growing
populations. 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. We believe it is
important to have secured exclusive, long-term franchise
agreements in market areas in some of the fastest growing states
according to the U.S. Census Bureau, for example, Arizona,
Texas and California. We believe that this positions us to
experience internal growth rates that are generally higher than
our industrys overall growth rate. In addition, we believe
that by securing a base of long-term recurring revenue in
growing population markets, we are better able to protect our
market position from competition and our business may be less
susceptible to downturns in economic conditions.
Sales and Marketing Activities. We seek to manage
our sales and marketing activities to enable us to capitalize on
our leading position in many of the markets in which we operate.
We provide a National Accounts program in response to the needs
of our national clients, centralizing services to effectively
manage their needs, such as minimizing their procurement costs.
We currently have approximately 1,200 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 customer relationship management
system that assists our sales people in tracking leads. It also
tracks renewal periods for potential commercial, industrial and
franchise contracts.
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 landfills that would provide
vertically integrated waste services or expand the service areas
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. We look to acquire
businesses that complement our existing business platform. Our
acquisition growth strategy focuses primarily on privately held
solid waste companies and the waste operations of municipal and
other local governmental authorities. We believe that our
ability to
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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, as they seek to increase
available capital and reduce risk. In addition, we will continue
to evaluate opportunities to acquire operations and facilities
that are being divested by other publicly owned waste companies.
In sum, our acquisition growth strategy focuses primarily on the
following:
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acquiring privately held businesses that position us for growth
in existing and new markets,
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acquiring well-managed companies and, when appropriate,
retaining local management, and
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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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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.
On December 5, 2008, we completed our merger with Allied.
We expect to achieve total annual run-rate integration
synergies, primarily relating to operating efficiencies,
inherent economies of scale, and leveraging corporate and
overhead resources of approximately $150.0 million by the
end of 2010. We have identified and are on track to realize in
2009 approximately $100.0 million, or 67%, of the total
expected annual run-rate synergies.
For certain risks related to our growth strategy, see
Item 1A. Risk Factors.
Operations
Our operations primarily consist of the collection, transfer and
disposal of non-hazardous solid waste.
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Collection Services. We provide solid waste
collection services to commercial, industrial, municipal and
residential customers through 400 collection companies. In 2008,
77.7% of our revenue was derived from collection services.
Within the collection line of business, 33.7% of our revenue is
from services provided to municipal and residential customers,
40.6% is from services provided to commercial customers, and
25.7% is from services provided to industrial and other
customers.
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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 us
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 us. 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
considerations such as market factors, collection frequency,
type of equipment furnished, the type and volume or weight of
the waste collected, the distance to the disposal
facility, and the cost of disposal.
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We also provide waste collection services to industrial and
construction facilities on a contractual basis with terms
ranging from a single pickup to one year or longer. Our
construction services are provided to the commercial
construction and home building sectors. We collect the
containers or compacted waste and transport the waste either to
a landfill or a transfer station for disposal.
We also provide recycling services in certain markets in
compliance with local laws or the terms of 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 242 transfer stations. We deposit waste at these
transfer stations, as do other private haulers and municipal
haulers, for compaction and transfer to trailers for transport
to disposal sites or recycling facilities.
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As of December 31, 2008, we owned or operated
213 active landfills, which had approximately 36,900
permitted acres and total available permitted and probable
expansion disposal capacity of approximately 4.9 billion
in-place
cubic yards. The in-place capacity of our landfills is subject
to change based on engineering factors, requirements of
regulatory authorities, our ability to continue to operate our
landfills in compliance with applicable regulations, and our
ability to successfully renew operating permits and obtain
expansion permits at our sites. Some of our landfills accept
non-hazardous special waste, including utility ash, asbestos and
contaminated soils.
Most of our active 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
an 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. However, no assurances can be made
that all proposed or future expansions will be permitted as
designed.
We also have responsibility for 126 closed landfills, for which
we have associated closure and post-closure liabilities.
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Recycling Facilities and Other Services. We
own or operate 78 materials recovery facilities and other
recycling operations. 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.
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Sales and
Marketing
We seek to provide quality services that will enable us to
maintain high levels of customer satisfaction. We derive our
business from a broad customer base, which we believe will
enable us 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 1,200 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, we
also provide a National Accounts program in response to the
needs of some of our national and regional customers. Our
National Accounts program is designed to provide the best total
solution to our customers evolving waste management needs
in an environmentally responsible manner. We partner with our
national clients to reach their sustainability goals, optimize
waste streams, balance equipment and service intervals and
provide customized reporting. The National Accounts program
centralizes services to effectively manage customer needs, while
helping minimize procurement costs. With our extended geographic
reach, our national program
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effectively serves 40 states and Puerto Rico. As industry
leaders, our mission is to utilize our strengths and expertise
to exceed customer expectations by consistently delivering the
best national program available.
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.
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.
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, Inc. (Waste), several regional publicly and
privately owned solid waste companies, and thousands of small
privately owned companies. In any given market, competitors may
have larger operations and greater resources. 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 revenue 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. Our ability to increase prices in certain markets may
be impacted by the pricing policies of our competitors. This may
have an impact on our future revenue and profitability.
Seasonality and
Severe Weather
Our operations can be adversely affected by periods of inclement
or severe 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.
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 revoke or decline
to renew any of our operating permits, obtain injunctions, or
impose fines or penalties in the case of violations, including
criminal penalties. The U.S. Environmental Protection
Agency (EPA) and various other federal, state and local
environmental, public and occupational health and safety
agencies and authorities administer these regulations.
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
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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 final capping, closure,
post-closure and remediation liabilities 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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The Solid Waste Disposal Act, as amended, including the
Resource Conservation and Recovery Act (RCRA). RCRA
establishes a framework for regulating the handling,
transportation, treatment, storage and disposal of hazardous and
non-hazardous solid waste, and requires 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, final capping, 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 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. Our failure
to comply with the environmental requirements of federal, state
and local authorities at any of our locations may lead to
temporary or permanent loss of an operating permit.
All of our planned landfill expansions and 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
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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The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (CERCLA). 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 a site, parties
who were owners or operators of a site at the time the hazardous
substances were disposed of, parties who transported the
hazardous substances to a site and parties who arranged for the
disposal of the hazardous substances at a 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 on 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 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 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.
Liability under CERCLA is not dependent on the intentional
disposal of hazardous waste. 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
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substances. Thus, even if we have never knowingly transported or
received hazardous waste as such, it is possible that one or
more hazardous substances may have been deposited or
released at landfills or other properties owned by
third parties where we have transported to and disposed of waste
or 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,
financial condition or results of operations.
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The Federal Water Pollution Control Act of 1972, as amended
(the Clean Water Act). 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 sampling and monitoring, and, under certain
circumstances, reduce the quantity of pollutants in those
discharges. Storm water discharge regulations under the Clean
Water 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 the Clean Water 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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The Clean Air Act, as amended (the Clean Air Act). The
Clean Air Act imposes limitations on emissions from various
sources, including landfills. In March 1996, the 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
on calculated emission rates at the landfill. Many state
regulatory agencies also currently require monitoring systems
for the collection and control of certain landfill gas.
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The Occupational Safety and Health Act of 1970, as amended
(OSHA). OSHA 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.
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State and Local 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
liabilities for such matters. States also have adopted
regulations governing the design, operation, maintenance and
closure of landfills and transfer stations. Some counties,
municipalities and other local governments have adopted similar
laws and regulations. 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 EPA, respectively.
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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 permits and
approvals may be difficult and time-consuming to obtain and to
operate in compliance with, are often opposed by neighboring
landowners and citizens groups, may be subject to periodic
renewal, and are subject to modification, non-renewal and
revocation by the issuing agency. In connection with our
acquisition of existing landfills, it may be and on occasion has
been necessary for us 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
all applicable regulations. If underground storage tanks we own
or operate leak, we could be liable for response costs and, if
the leakage migrates onto the property of others, we could be
liable for damages to third parties. We are unaware of facts
indicating that issues of compliance with regulations related to
underground storage tanks will have a material adverse effect on
our consolidated 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
and local government authorities have enacted or promulgated, or
are considering enacting or promulgating, laws and regulations
that would restrict the transportation of solid waste across
state, county, or other jurisdiction lines. 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 those 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.
In 2007, the Supreme Court upheld the right of a local
government to direct the flow of solid waste to a publicly owned
waste facility. A number of county and other local jurisdictions
have enacted ordinances or other regulations restricting the
free movement of solid waste across jurisdictional boundaries.
Other governments may enact similar regulations in the future.
These regulations may, in some cases, cause a decline in volumes
of waste delivered to our landfills or transfer stations and may
increase our costs of disposal, thereby adversely affecting our
operations.
We have established liabilities for landfill and environmental
costs, which include 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 liabilities recorded for such
landfill and environmental expenditures are adequate. However,
environmental laws may change, and there can be no assurance
that our recorded liabilities 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.
Liability
Insurance and Bonding
The nature of our business exposes us 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 or other wrongdoing 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
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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 such
environmental liability insurance would be adequate, in scope or
amount, 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, workers compensation and employers
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 consolidated financial condition, results
of operations and cash flows.
Our insurance programs for workers 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, or
cash or marketable securities deposits in connection with
municipal residential collection contracts, the operation,
closure or post-closure of landfills, environmental remediation,
environmental permits, and business licenses and permits 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, 2008, we employed approximately
35,000 full-time employees, approximately 27% of whom were
covered by collective bargaining agreements. From time to time,
our operating locations may experience union organizing efforts.
We have not historically experienced any significant work
stoppages. We currently have no disputes or bargaining
circumstances that we believe could cause significant
disruptions in our business. 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 our 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 on
free cash flow, earnings and return on invested capital for each
managers geographic area of responsibility. Great effort
is taken to ensure that these goals agree with our overall
goals. Incentive compensation at the corporate level is based on
the obtainment of our overall goals. Furthermore, in conjunction
with the merger with Allied, we have developed integration
metrics to be achieved by our executive management team and key
employees based upon targeted annual run-rate synergies of
approximately $150.0 million by the end of 2010. In
addition, certain field and corporate employees also participate
in a long-term incentive program. We believe this program aligns
our short- and long-term goals and helps ensure that our
long-term success is not sacrificed for the obtainment of
short-term goals.
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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 Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
Proxy Statements 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 (SEC). Our
corporate website also contains our Corporate Governance
Guidelines, Code of Ethics and Charters of the Nominating and
Corporate Governance Committee, Audit Committee, Integration
Committee and Compensation Committee of the Board of Directors.
In addition, the SEC website is
http://www.sec.gov.
The SEC 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
SEC. Information on our website or the SEC website is not part
of this document. We intend to satisfy the disclosure
requirements under Item 5.05 of
Form 8-K
and applicable New York Stock Exchange (NYSE) rules regarding
amendments to or waivers of our Code of Ethics by posting this
information on our website at www.republicservices.com.
In 2008, our CEO provided to the NYSE the annual CEO
certification regarding our compliance with the corporate
governance listing standards of that exchange. In addition, our
CEO and CFO filed with the SEC all required certifications
regarding the quality of our disclosures in our fiscal 2008 SEC
reports, including the certifications required to be filed with
this Annual Report on
Form 10-K.
There were no qualifications to these certifications.
This Annual Report on
Form 10-K
contains certain forward-looking information about us that is
intended to be covered by the safe harbor for
forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are statements that are not historical facts. Words
such as expect, will, may,
anticipate, plan, estimate,
intend, should, can,
likely, could and similar expressions
are intended to identify forward-looking statements. These
statements include statements about the expected benefits of the
merger, our plans, strategies and prospects. Forward-looking
statements are not guarantees of performance. These statements
are based upon the current beliefs and expectations of our
management and are subject to risk and uncertainties, including
the risks set forth below in these risk factors, that could
cause actual results to differ materially from those expressed
in, or implied or projected by, the forward-looking information
and statements.
In light of these risks, uncertainties, assumptions and factors,
the results anticipated by the forward-looking statements
discussed in this Annual Report on
Form 10-K
may not occur. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the
date hereof. Except to the extent required by applicable law or
regulation, we undertake no obligation to update or publish
revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
We may
experience difficulties integrating Allieds
business.
Achieving the anticipated benefits of the merger with Allied
will depend significantly on whether we can integrate
Allieds business in an efficient and effective manner.
Although Republic and Allied were able to conduct some planning
regarding the integration of the two companies prior to the
merger, we might not have determined the exact nature of how the
businesses and operations of the two companies will be combined
after the merger. The actual integration may result in
additional and unforeseen expenses, and the anticipated benefits
of the integration plan may not be realized. We may not be able
to accomplish the integration process smoothly, successfully or
on a timely basis. The necessity of coordinating geographically
separated organizations, information systems and facilities, and
addressing possible differences in business backgrounds,
corporate cultures and management philosophies, may increase the
difficulties of integration. We and Allied operate numerous
systems and controls, including those
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involving information management, purchasing, accounting and
finance, sales, billing, employee benefits, payroll and
regulatory compliance. The integration of operations following
the merger will require the dedication of significant management
and external resources, which may temporarily distract
managements attention from our
day-to-day
business and be costly. Employee uncertainty and lack of focus
during the integration process may also disrupt our business.
The inability of our management to successfully and timely
integrate the operations of Republic and Allied could have a
material adverse effect on the business and results of
operations of the combined company.
We may not realize the anticipated synergies and related
benefits from the merger with Allied fully or within the timing
anticipated.
We entered into the merger agreement with Allied because we
believe that the merger will be beneficial to our stockholders
primarily as a result of the anticipated synergies resulting
from the combined operations. We may not be able to achieve the
anticipated operating and cost synergies or the long-term
strategic benefits of the merger fully or within the timing
anticipated. For example, elimination of duplicative costs may
not be fully achieved or may take longer than anticipated. For
at least the first year after an acquisition, and possibly
longer, the benefits from the acquisition will be offset by the
costs incurred in integrating the businesses and operations. The
inability to realize the full extent of, or any of, the
anticipated synergies or other benefits of the merger, or our
encountering delays in the integration process (which may delay
the timing of such synergies or other benefits), could have a
material adverse effect on our business and results of
operations.
Future expenses resulting from the application of the
purchase method of accounting may adversely affect the market
value of our common stock following the merger.
In accordance with GAAP, we are considered the acquirer of
Allied for accounting purposes. We have accounted for the merger
using the purchase method of accounting. There may be future
expenses related to the acquisition that are required to be
recorded in our earnings that could adversely affect the market
value of our common stock following the completion of the
merger. Under the purchase method of accounting, we have
allocated the total purchase price to the assets (including
identifiable intangible assets) and liabilities acquired from
Allied based on their fair values as of the effective date of
the merger, and we have recorded the excess of the purchase
price over those fair values as goodwill. For certain tangible
and intangible assets, and for our capping, closure and
post-closure asset retirement obligations, revaluing them to
their fair values as of the merger completion date will result
in additional depreciation, depletion and amortization and
accretion expense that will exceed the combined amounts recorded
by Republic and Allied prior to the merger. Interest expense
will increase significantly as a result of revaluing
Allieds debt and other long-term liabilities, including,
for example, self-insurance reserves and environmental
liabilities. In addition, as discussed in the following risk
factor, to the extent the value of goodwill or other intangible
assets were to become impaired after the merger, we may incur
material non-cash charges to our results of operations.
Our goodwill
and other intangible assets may become impaired, which could
result in material non-cash charges to our results of
operations.
We have a substantial amount of goodwill and other intangible
assets resulting from the merger with Allied. At least annually,
or whenever events or changes in circumstances indicate a
potential impairment in the carrying value as defined by GAAP,
we evaluate this goodwill for impairment based on the fair
values of each of our operating segments. The estimated fair
value of our operating segments could change if there are
changes in our capital structure, cost of debt, interest rates,
capital expenditure levels, operating cash flows or market
capitalization, or in general economic conditions. Impairments
of goodwill or other intangible assets could require material
non-cash charges to our results of operations.
16
We may incur significant unexpected transaction- and
integration-related costs in connection with the merger.
We have incurred and may continue to incur costs associated with
combining the operations of Republic and Allied, including
charges and payments to some employees pursuant to change
in control contractual obligations. The substantial
majority of these expenses resulting from the merger are
comprised of transaction costs related to the merger, facilities
and systems consolidation costs, and employee-related costs.
Additional unanticipated costs may be incurred in the
integration of the two companies businesses or may result
from the application of purchase accounting used to effectuate
the merger. The elimination of duplicative costs, as well as the
realization of other efficiencies related to the integration of
the businesses, may not offset incremental transaction- and
other integration-related costs in the near term.
The timing of and proceeds received from the mandatory
divestiture of certain assets of the company may result in
additional expenditures of money and resources or reduce the
benefit of the merger.
Completion of the merger is predicated on divesting of certain
assets as required by the Antitrust Division of the DOJ under
the HSR Act. In February 2009, we announced an agreement with
Waste Connections, Inc. to sell them a majority of the assets we
are required to divest. The assets being divested to Waste
Connections include six municipal solid waste landfills, six
collection operations and three transfer stations across seven
markets. This transaction is subject to closing conditions
regarding due diligence, regulatory approval and other customary
matters. Closing is expected to occur in the second quarter of
2009. However, the timing of and proceeds we will receive from
the divestiture to Waste Connections and the divestiture of the
remaining assets as required by the DOJ cannot be predicted.
Delays in divesting of these assets may result in additional
expenditures of money and resources which would reduce the
financial benefit we expect from the merger. In addition, the
amount of proceeds received from such divestitures cannot be
guaranteed. An unanticipated shortfall in proceeds may limit our
ability to execute our financial strategy, including repaying
our debt.
We have substantial indebtedness as a result of the
merger, which may limit our financial flexibility.
As of December 31, 2008, we have approximately
$7.7 billion in total debt outstanding. This amount of
indebtedness and our debt service requirements may limit our
financial flexibility to access additional capital and make
capital expenditures and other investments in our business, to
withstand economic downturns and interest rate increases, to
plan for or react to changes in our business and our industry,
and to comply with the financial and other restrictive covenants
of our debt instruments. Further, our ability to comply with the
financial and other covenants contained in our debt instruments
may be affected by changes in economic or business conditions or
other events that are beyond our control. If we do not comply
with these covenants and restrictions, we may be required to
take actions such as reducing or delaying capital expenditures,
reducing dividends, selling assets, restructuring or refinancing
all or part of our existing debt, or seeking additional equity
capital.
The downturn
in the U.S. economy may have an adverse impact on our operating
results.
A weak economy generally results in decreases in the volumes of
waste generated. In the past, weakness in the U.S. economy
has had a negative effect on our operating results, including
decreases in revenue and operating cash flows. Previous economic
slowdowns have negatively impacted the portion of our collection
business servicing the manufacturing and construction industries
and our proceeds from sales of recycled commodities. As a result
of the global economic crisis, we may experience the negative
effects of increased competitive pricing pressure and customer
turnover as well. There can be no assurance that worsening
economic conditions or a prolonged or recurring recession will
not have a significant adverse impact on our results of
operations or cash flows. Further, there can be no assurance
that an improvement in economic conditions will result in an
immediate, if at all positive, improvement in our results of
operations or cash flows.
17
The downturn in the U.S. economy may expose us to credit
risk for amounts due from governmental agencies, large national
accounts and others.
The weak U.S. economy has reduced the amount of taxes
collected by various governmental agencies. We provide services
to a number of these agencies including numerous municipalities.
These governmental agencies may suffer financial difficulties
resulting from a decrease in tax revenue and may ultimately be
unable or unwilling to pay amounts owed to us. In addition, the
weak economy may cause other customers, including our large
national accounts, to suffer financial difficulties and
ultimately be unable or unwilling to pay amounts owed to us.
This could have a negative impact on our results of operations
and cash flows.
The downturn in the U.S. economy and in the financial
markets could expose us to counter-party risk associated with
our derivatives.
To reduce our exposure to fluctuations in various commodities
and interest rates, we have entered into a number of derivative
agreements. These derivative agreements require us or the
counter-party to such agreements to make payments to the other
party if the price of certain commodities or interest rates
exceed a specified amount. A continued downturn in the
U.S. economy or in the financial markets could adversely
impact the financial stability of the counter-parties with which
we do business, potentially limiting their ability to fulfill
their obligations under our derivative agreements. This could
have a negative impact on our results of operations and cash
flows.
The waste industry is highly competitive and includes
competitors that may have greater financial and operational
resources, flexibility to reduce prices and other competitive
advantages that could make it difficult for us to compete
effectively.
We principally compete with large national waste management
companies, municipalities and numerous regional and local
companies for collection and disposal accounts. Competition for
collection accounts is primarily based on price and the quality
of services. Competition for landfill business is primarily
based on disposal costs, geographic location and quality of
operations. Some of our competitors may have greater financial
and operational resources than us. Many counties and
municipalities that operate their own waste collection and
disposal facilities have the benefits of tax revenue or
tax-exempt financing. Our ability to obtain solid waste volume
for our landfills may also 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 or in certain markets. If we were to lower prices
to address these competitive issues, it could negatively impact
our revenue growth and profitability.
Price
increases may not be adequate to offset the impact of increased
costs and may cause us to lose volume.
We compete for collection accounts primarily on the basis of
price and the quality of services. In addition, we seek to
secure price increases necessary to offset increased costs
(including fuel costs), to improve operating margins and to
obtain adequate returns on our substantial investments in assets
such as our landfills. From time to time, our competitors may
reduce the price of their services in an effort to expand their
market share. Contractual, general economic or market-specific
conditions may also limit our ability to raise prices. As a
result of these factors, we may be unable to offset increases in
costs, improve our operating margins and obtain adequate
investment returns through price increases. We may also lose
volume to lower-cost competitors.
Increases in the cost of fuel or oil will increase our
operating expenses, and there can be no assurance that we will
be able to recover fuel or oil cost increases from our
customers.
Our operations are dependent on fuel to run our collection and
transfer trucks and other equipment used for collection,
transfer, and disposal. We buy fuel in the open market. Fuel
prices are unpredictable and can
18
fluctuate significantly based on events beyond our control,
including geopolitical developments, actions by the Organization
of the Petroleum Exporting Countries, and other oil and gas
producers, supply and demand for oil and gas, war, terrorism and
unrest in oil-producing countries, and regional production
patterns. We may not be able to offset such volatility through
fuel surcharges. For example, our fuel costs were
$235.3 million in 2008, representing 9.7% of our cost of
operations compared to $180.3 million in 2007, representing
9.0% of our cost of operations. This increase primarily reflects
an increase in the price of fuel.
In addition, regulations affecting the type of fuel our trucks
use are changing and could materially increase the cost and
consumption of our fuel. Our operations also require the use of
certain petroleum-based products (such as liners at our
landfills) whose costs may vary with the price of oil. An
increase in the price of oil could increase the cost of those
products, which would increase our operating and capital costs.
We are also susceptible to increases in indirect fuel surcharges
from our vendors.
Fluctuations
in prices for recycled commodities that we sell to customers may
adversely affect our revenue, operating income and cash
flows.
We process recyclable materials such as paper, cardboard,
plastics, aluminum and other metals for sale to third parties.
Our results of operations may be affected by changing prices or
market requirements for recyclable materials. The resale and
purchase prices of, and market demand for, recyclable materials
can be volatile due to changes in economic conditions and
numerous other factors beyond our control. These fluctuations
may affect our future revenue, operating income and cash flows.
Adverse weather conditions may limit our operations and
increase the costs of collection and disposal.
Our collection and landfill operations could be adversely
impacted by extended periods of inclement weather, which could
increase the volume of waste collected under our existing
contracts (without corresponding compensation), may interfere
with collection and landfill operations, delay the development
of landfill capacity or reduce the volume of waste generated by
our customers. In addition, weather conditions may result in the
temporary suspension of our operations, which can significantly
affect our operating results in the affected regions during
those periods.
We currently have matters pending with the DOJ and
Internal Revenue Service (IRS), which could result in large cash
expenditures and could have a material adverse impact on our
operating results and cash flows.
As a result of the merger with Allied, we are currently under
examination by the IRS with regard to Allieds federal
income tax returns for tax years 2000 through 2006.
An Allied subsidiary, Browning-Ferris Industries, LLC (BFI,
f/k/a Browning-Ferris Industries, Inc.), currently has a tax
matter in litigation for the tax years ended September 30,
1997 through July 30, 1999 related to a capital loss
deduction. A portion of this loss was subsequently carried
forward to Allieds 1999 through 2002 tax years. We are
currently engaged in two refund suits related to this matter.
The BFI tax years September 30, 1997 through July 30,
1999 are currently before the U.S. Court of Federal Claims,
while the Allied tax year ended December 31, 1999 is
currently before the U.S. District Court of Arizona. All
future tax years impacted by the BFI capital loss deduction and
subsequent carryforward by Allied are presently in various
stages of the IRS examination or appeals process. Any resolution
or final determination on the merits for an earlier tax year
will also resolve the issue for all subsequent periods.
During its examination of Allieds 2002 tax year, the IRS
asserted that a 2002 redemption of four partnership interests in
waste-to-energy businesses should have been recharacterized as
disguised sale transactions. This issue is currently before the
Appeals Division of the IRS.
For both of the matters described above, the potential tax and
interest through December 31, 2008 (to the extent unpaid)
has been fully reserved for in our consolidated balance sheet. A
disallowance would not
19
materially affect our consolidated results of operations;
however, a deficiency payment would adversely impact our cash
flow in the period the payment was made. In addition, for the
capital loss deduction matter described above, the potential
penalty and penalty-related interest through December 31,
2008 has also been fully reserved for in our consolidated
balance sheet. The successful assertion by the IRS of penalty
and penalty-related interest in this matter would not materially
affect our consolidated results of operations; however, a
payment of penalty and penalty-related interest would adversely
impact our cash flows in the period such payment was made. The
accrual of additional interest charges through the time these
matters are resolved will affect our consolidated results of
operations. In addition, the successful assertion by the IRS of
penalty and penalty-related interest in connection with
Allieds 2002 exchange of partnership interests could have
a material adverse impact on our consolidated results of
operations and cash flows.
Additionally, during its examination of Allieds 2000
through 2003 tax years, the IRS proposed that certain landfill
costs be allocated to the collection and control of methane gas
that is naturally emitted from landfills. The IRS position
is that the methane gas emitted by a landfill constitutes a
joint product resulting from landfill operations and, therefore,
associated costs should not be expensed until the methane gas is
sold or otherwise disposed. We believe we have several
meritorious defenses, including the fact that methane gas is not
actively produced for sale by us but rather arises naturally in
the context of providing disposal services. Therefore, we
believe that the resolution of this issue will not have a
material adverse impact on our consolidated financial position,
results of operations or cash flows.
For additional information on these matters, see Note 10,
Income Taxes, to our consolidated financial statements in
Item 8 of this
Form 10-K.
Other matters may also arise in the course of tax audits that
could adversely impact our consolidated financial condition,
results of operations or cash flows.
We may be
unable to execute our financial strategy.
Our ability to execute our financial strategy is dependent on
our ability to maintain investment grade ratings on our senior
debt. The credit rating process is contingent upon a number of
factors, many of which are beyond our control. There can be no
assurance that we will be able to maintain our investment grade
ratings in the future. Our interest expense would increase and
our ability to obtain financing on favorable terms may be
adversely affected should we fail to maintain investment grade
ratings.
Our financial strategy is also dependent on our ability to
generate sufficient cash flow to reinvest in our existing
business, fund internal growth, acquire other solid waste
businesses, pay dividends, reduce indebtedness and minimize
borrowings, and take other actions to enhance shareholder value.
There can be no assurance 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 be able to pay cash dividends at our present rate or that
we will be able to increase the amount of such dividends.
A downgrade in
our bond ratings could adversely affect our liquidity by
increasing the cost of debt and financial assurance
instruments.
While downgrades of our bond ratings may not have an immediate
impact on our cost of debt or liquidity, they may impact our
cost of debt and liquidity over the near to medium term. If the
rating agencies downgrade our debt, this may increase the
interest rate we must pay to issue new debt, and it may even
make it prohibitively expensive for us to issue new debt. If our
debt ratings are downgraded, future access to financial
assurance markets at a reasonable cost, or at all, also may be
adversely impacted.
20
The solid waste industry is a capital-intensive industry
and the amount we spend on capital expenditures may exceed
current expectations, which could require us to obtain
additional funding for our operations or impair our ability to
grow our business.
Our ability to remain competitive and to grow and expand our
operations largely depends on our cash flow from operations and
access to capital. If our capital efficiency programs are unable
to offset the impact of inflation and business growth, it may be
necessary to increase the amount we spend. Additionally, if we
make acquisitions or further expand our operations, the amount
we expend on capital, capping, closure, post-closure and
environmental remediation expenditures will increase. Our cash
needs will also increase if the expenditures for capping,
closure, post-closure and remediation activities increase above
our current estimates, which may occur over a long period due to
changes in federal, state or local government requirements and
other factors beyond our control. Increases in expenditures
would negatively impact our cash flows.
Further, federal regulations have tightened the emission
standards on class A vehicles, which includes the
collection vehicles we purchase. As a result, we could
experience an increase in capital costs and a reduction in
operating efficiency. This could also cause an increase in
vehicle operating costs. We may reduce the number of vehicles we
purchase until manufacturers adopt the new standards to increase
efficiency.
We may be unable to obtain or maintain required permits or
to expand existing permitted capacity of our landfills, which
could decrease our revenue and increase our costs.
There can be no assurance that we will successfully obtain or
maintain the permits we require to operate our business because
permits to operate non-hazardous solid waste landfills and to
expand the permitted capacity of existing landfills have become
more difficult and expensive to obtain and maintain. Permits
often take years to obtain as a result of numerous hearings and
compliance requirements with regard to zoning, environmental and
other regulations. These permits are also often subject to
resistance from citizen or other groups and other political
pressures. Local communities and citizen groups, adjacent
landowners or governmental agencies may oppose the issuance of a
permit or approval we may need, allege violations of the permits
under which we currently operate or laws or regulations to which
we are subject, or seek to impose liability on us for
environmental damage. 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, maintaining
permits for our facilities or expanding existing facilities. Our
failure to obtain the required permits to operate our
non-hazardous solid waste landfills could have a material
adverse impact on our future results of operations or cash
flows. In addition, we may have to dispose collected waste at
landfills operated by our competitors or haul the waste long
distances at a higher cost to one of our landfills, either of
which could significantly increase our waste disposal costs.
The waste industry is subject to extensive government
regulation, and existing or future regulations may restrict our
operations, increase our costs of operations or require us to
make additional capital expenditures.
If we inadequately accrue for landfill capping, closure
and post-closure costs, our financial condition and results of
operations may be adversely affected.
A landfill must be closed and capped, and post-closure
maintenance commenced once the permitted capacity of the
landfill is reached and additional capacity is not authorized.
We have significant financial obligations relating to capping,
closure and post-closure costs at our existing owned or operated
landfills, and will have material financial obligations with
respect to any future owned or operated disposal facilities. We
establish accruals for the estimated costs associated with
capping, closure and post-closure financial obligations. We
could underestimate such accruals, and our financial obligations
for capping, closure or post-closure costs could exceed the
amount accrued and reserved or amounts otherwise receivable
pursuant to trust funds established for this purpose. Such a
shortfall could result in significant
21
unanticipated charges to income. Additionally, if a landfill is
required to be closed earlier than expected or its remaining
airspace is reduced for any other reason, the accruals for
capping, closure and post-closure could be required to be
accelerated, which could have a material adverse impact our
results of operations and cash flows.
We cannot assure you that we will continue to operate our
landfills at currently estimated volumes due to the use of
alternatives to landfill disposal caused by state requirements
or voluntary initiatives.
Most of the states in which we operate landfills require
counties and municipalities to formulate comprehensive plans to
reduce the volume of solid waste deposited in landfills through
waste planning, composting and recycling, or other programs.
Some state and local governments mandate waste reduction at the
source and prohibit the disposal of certain types of wastes,
such as yard waste, at landfills. Although such actions are
useful in protecting our environment, these actions, as well as
voluntary private initiatives by customers to reduce waste or
seek disposal alternatives, have and may in the future reduce
the volume of waste going to landfills in certain areas. If this
occurs, there can be no assurance that we will be able to
operate our landfills at their current estimated volumes or
charge current prices for landfill disposal services due to the
decrease in demand for such services.
The possibility of landfill and transfer station site
development projects, expansion projects or pending acquisitions
not being completed or certain other events could result in a
material charge to income.
We capitalize certain expenditures relating to development,
expansion and other projects. If a facility or operation is
permanently shut down or determined to be impaired, or a
development or expansion project is not completed or is
determined to be impaired, we will charge any unamortized
capitalized expenditures to income relating to such facility or
project that we are unable to recover through sale, transfer or
otherwise. In future periods, we may incur charges against
earnings in accordance with this policy, or other events may
cause impairments. Such charges could have a material adverse
impact on our financial condition and results of operations.
We are subject to costly environmental regulations and
flow-control regulations that may affect our operating margins,
restrict our operations and subject us to additional
liability.
Complying with laws and regulations governing the use,
treatment, storage, transfer and disposal of solid and hazardous
wastes and materials, air quality, water quality and the
remediation of contamination associated with the release of
hazardous substances is costly. Laws and regulations often
require us to enhance or replace our equipment and to modify
landfill operations or initiate final closure of a landfill.
There can be no assurance that we will be able to implement
price increases sufficient to offset the costs of complying with
these laws and regulations. In addition, environmental
regulatory changes could accelerate or increase expenditures for
capping, closure and post-closure, and environmental and
remediation activities at solid waste facilities and obligate us
to spend sums in addition to those presently accrued for such
purposes.
Our collection, transfer, and landfill operations are, and may
in the future continue to be, affected by state or local laws or
regulations that restrict the transportation of solid waste
across state, county or other jurisdictional lines. Such laws
and regulations could negatively affect our operations resulting
in declines in landfill volumes and increased costs of alternate
disposal.
In addition to the costs of complying with environmental
regulations, we incur costs to defend against litigation brought
by government agencies and private parties who may allege we are
in violation of our permits and applicable environmental laws
and regulations, or who assert claims alleging environmental
damage, personal injury or property damage. As a result, we may
be required to pay fines or implement corrective measures, or we
may have our permits and licenses modified or revoked. A
significant judgment
22
against us, the loss of a significant permit or license, or the
imposition of a significant fine could have a material adverse
impact on our consolidated financial condition, results of
operations and cash flows.
We establish accruals for our estimates of the costs associated
with our environmental obligations. We could underestimate such
accruals and remediation costs could exceed amounts accrued.
Such shortfalls could result in significant unanticipated
charges to income.
We may have
potential environmental liabilities that are not covered by our
insurance. Changes in insurance markets may also impact our
financial results.
We may incur liabilities for the deterioration of the
environment as a result of our operations. We maintain high
deductibles for our environmental liability insurance coverage.
If we were to incur substantial liability for environmental
damage, our insurance coverage may be inadequate to cover such
liability. This could have a material adverse impact on our
consolidated financial condition, results of operations and cash
flows.
Also, due to the variable condition of the insurance market, we
may experience future increases in self-insurance levels as a
result of increased 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.
Despite our
efforts, we may incur additional hazardous substances liability
in excess of amounts presently known and accrued.
We are a potentially responsible party at many sites under
CERCLA, which provides for the remediation of contaminated
facilities and imposes strict, joint and several liability for
the cost of remediation on current owners and operators of a
facility at which there has been a release or a threatened
release of a hazardous substance, on parties who
were site owners and operators at the time hazardous
substance(s) was disposed of, and on persons who arrange for the
disposal of such substances at the facility (i.e., generators of
the waste and transporters who selected the disposal site).
Hundreds of substances are defined as hazardous
under CERCLA and their presence, even in minute amounts, can
result in substantial liability. Notwithstanding our efforts to
comply with applicable regulations and to avoid transporting and
receiving hazardous substances, we may have additional liability
under CERCLA or similar laws in excess of our current reserves
because such substances may be present in waste collected by us
or disposed of in our landfills, or in waste collected,
transported or disposed of in the past by companies we have
acquired. Actual costs for these liabilities could be
significantly greater than amounts presently accrued for these
purposes, which could have a material adverse impact on our
consolidated financial position, results of operations and cash
flows.
Currently
pending or future litigation or governmental proceedings could
result in material adverse consequences, including judgments or
settlements.
We are, and from time to time become, involved in lawsuits,
regulatory inquiries, and governmental and other legal
proceedings arising out of the ordinary course of our business.
Many of these matters raise difficult and complicated factual
and legal issues and are subject to uncertainties and
complexities. The timing of the final resolutions to these types
of matters is often uncertain. Additionally, the possible
outcomes or resolutions to these matters could include adverse
judgments or settlements, either of which could require
substantial payments, adversely affecting our results of
operations and cash flows.
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 may need to add administrative and other personnel,
and will need to make additional investments in operations and
systems. There can be no assurance 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.
23
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 those of acquired companies may present
significant challenges to our management. In addition,
competition among our competitors for acquisition candidates may
prevent us from acquiring certain acquisition candidates. As
such, 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 we acquire, or
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Any acquisitions will be profitable or accretive to our earnings.
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If any of the aforementioned factors force us to alter our
growth strategy, our growth prospects could be adversely
affected.
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 such as environmental,
remediation or contractual, as a successor owner we may be
responsible for such undisclosed liabilities. We expect to try
to minimize our exposure to such liabilities by obtaining
indemnification from each of the sellers 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, there can be no assurance 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.
Our
consolidated financial statements are based on estimates and
assumptions that may differ from actual results.
Our consolidated financial statements have been prepared in
accordance with GAAP and necessarily include amounts based on
estimates and assumptions made by management. Actual results
could differ from these amounts. Significant items requiring
management to make subjective or complex judgements about
matters that are inherently uncertain 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
and deferred tax assets, liabilities for potential litigation,
claims and assessments, and liabilities for environmental
remediation, employee benefit and pension plans, deferred taxes,
uncertain tax positions and self-insurance.
There can be no assurance that the liabilities recorded for
landfill and environmental costs will be adequate to cover the
requirements of existing environmental regulations, future
changes to or interpretations of existing regulations, or the
identification of adverse environmental conditions previously
unknown to management.
The
introduction of new accounting rules, laws or regulations could
adversely impact our results of operations.
Complying with new accounting rules, laws or regulations could
adversely impact our financial condition, results of operations
or funding requirements, or cause unanticipated fluctuations in
our results of operations in future periods.
24
We may be
subject to workforce influences, including work stoppages, which
could increase our operating costs and disrupt our
operations.
As of December 31, 2008, approximately 27% of our workforce
was represented by various local labor unions. If, in the
future, our unionized workers were to engage in a strike, work
stoppage or other slowdown, we could experience a significant
disruption of our operations and an increase in our operating
costs, which could have an adverse impact on our results of
operations and cash flows. In addition, if a greater percentage
of our workforce becomes unionized, our business and financial
results could be materially and adversely impacted due to the
potential for increased operating costs.
Our obligation
to fund multi-employer pension plans to which we contribute may
have an adverse impact on us.
We contribute to at least 25 multi-employer pension plans
covering at least 22% of our current employees. We do not
administer these plans and generally are not represented on the
boards of trustees of these plans. The Pension Protection Act
enacted in 2006 requires under-funded pension plans to improve
their funding ratios. We do not have current plan financial
information for the multi-employer plans to which we contribute
but, based on the information available to us, we believe that
some of them are under-funded. We cannot determine at this time
the amount of additional funding, if any, we may be required to
make to these plans and, therefore, have not recorded any
related liabilities. However, plan assessments could have an
adverse impact on our results of operations or cash flows for a
given period. Furthermore, under current law, upon the
termination of a multi-employer pension plan, or in the event of
a mass withdrawal of contributing employers, we would be
required to make payments to the plan for our proportionate
share of the plans unfunded vested liabilities. There can
be no assurance that there will not be a termination of, or mass
withdrawal of employers contributing to, any of the
multi-employer pension plans to which we contribute or that, in
the event of such a termination or mass withdrawal, the amounts
we would be required to contribute would not have a material
adverse impact on our results of operations or cash flows.
The costs of
providing for pension benefits and related funding requirements
are subject to changes in pension fund values and fluctuating
actuarial assumptions, and may have a material adverse impact
on our results of operations and cash flows.
We sponsor a defined benefit pension plan which is funded with
trustee assets invested in a diversified portfolio of debt and
equity securities. Our costs for providing such benefits and
related funding requirements are subject to changes in the
market value of plan assets. The recent significant decline in
the markets resulted in our recording a value for the plan
assets that significantly differed from the plan asset value
Allied had recorded in its financial statements prior to the
merger. A continuation or further decline in the value of these
investments could increase our pension expenses and related
funding requirements in the future. Additionally, our pension
expenses and related funding requirements are also subject to
various actuarial calculations and assumptions, which may differ
materially from actual results due to changing market and
economic conditions, interest rates and other factors. A
significant increase in our pension obligations and funding
requirements could have a material adverse impact on our results
of operations and cash flows.
The loss of
key personnel could have material adverse effect on our
financial condition, results of operations and growth
prospects.
Our future success depends on the continued contributions of
several key employees and 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.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
25
Our corporate headquarters is located at 18500 North Allied Way,
Phoenix, Arizona 85054 where we currently lease approximately
145,000 square feet of office space. We also maintain
regional administrative offices in all of our regions.
Our principal property and equipment consists of land,
landfills, buildings, vehicles and equipment. We own or lease
real property in the states in which we conduct operations. At
December 31, 2008, we owned or operated 400 collection
companies, 242 transfer stations, 213 active solid waste
landfills and 78 recycling facilities within 40 states and
Puerto Rico. In aggregate, our active solid waste landfills
total approximately 110,200 acres, including approximately
36,900 permitted acres. We also own or have responsibilities for
126 closed landfills. We believe that our property and equipment
are adequate for our current needs.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are involved in routine judicial and administrative
proceedings that arise in the ordinary course of business and
that relate to, among other things, personal injury or property
damage claims, employment matters and commercial and contractual
disputes. We are subject to federal, state and local
environmental laws and regulations. Due to the nature of our
business, we are also often routinely a party to judicial or
administrative proceedings involving governmental authorities
and other interested parties related to environmental
regulations or liabilities. From time to time, we may also be
subject to actions brought by citizens groups, adjacent
landowners or others in connection with the permitting and
licensing of our landfills or transfer stations, or alleging
personal injury, environmental damage, or violations of the
permits and licenses pursuant to which we operate.
We are subject to various federal, state and local tax rules and
regulations. These rules are extensive and often complex, and we
are required to interpret and apply them to our transactions.
Positions taken in tax filings are subject to challenge by
taxing authorities. Accordingly, we may have exposure for
additional tax liabilities if, upon audit, any positions taken
are disallowed by the taxing authorities.
The following is a discussion of certain proceedings against us.
Although the ultimate outcome of any legal matter cannot be
predicted with certainty, except as identified below, we do not
believe that the outcome of our pending legal and administrative
proceedings will have a material adverse impact on our
consolidated, financial position, results of operations or cash
flows.
Litigation
Related to the Merger with Allied
On July 25, 2008, a putative class action was filed, and on
August 15, 2008 was amended, in the Court of Chancery of
the State of Delaware by the New Jersey Carpenters Pension and
the New Jersey Carpenters Annuity Funds against us and the
members of our Board of Directors, individually.
On August 21, 2008, a second putative class action was
filed in the Court of Chancery of the State of Delaware by David
Shade against us, the members of Republics Board of
Directors, individually, and Allied. On September 22, 2008,
the New Jersey Carpenters and the Shade cases were consolidated
by the Court of Chancery, and on September 24, 2008, the
plaintiffs in the Delaware case, now known as In Re: Republic
Services Inc. Shareholders Litigation, filed a verified
consolidated amended class action complaint in the Court of
Chancery of the State of Delaware.
On September 5, 2008, a putative class action was filed in
the Circuit Court in and for Broward County, Florida, by the
Teamsters Local 456 Annuity Fund against us and the members of
Republics Board of Directors, individually.
Both the Delaware consolidated action and the Florida action
were brought on behalf of a purported class of our stockholders
and primarily sought, among other things, to enjoin the proposed
transaction between Republic and Allied, as well as damages and
attorneys fees. The actions also sought to compel us to
26
accept the unsolicited proposals made by Waste, or at least
compel our Board of Directors to further consider and evaluate
the Waste proposals, which proposals were subsequently withdrawn.
On September 24, 2008, the defendants in the Florida
litigation filed a Motion to Stay or to Dismiss the lawsuit in
light of the consolidated Delaware class action.
On October 17, 2008, plaintiffs in the consolidated
Delaware action filed a motion for a preliminary injunction
seeking to require the defendants to make certain additional
disclosures prior to the stockholder vote on the merger.
On October 29, 2008, the defendants entered into a
memorandum of understanding with plaintiffs regarding the
settlement of the Delaware and Florida actions. As part of this
memorandum of understanding, we agreed to make certain
additional disclosures to our stockholders and such disclosures
were made by us in our Current Report on
Form 8-K
filed with the SEC on October 30, 2008. As of
January 16, 2009, following completion of certain
confirmatory discovery by counsel to plaintiffs, the parties
executed a stipulation of settlement. The stipulation of
settlement is subject to customary conditions, including court
approval following notice to our stockholders. The stipulation
of settlement provides that a hearing will be scheduled at which
the court will consider the fairness, reasonableness and
adequacy of the settlement which, if finally approved by the
court, will resolve all of the claims that were or could have
been brought in the actions being settled, including all claims
relating to the merger transaction, the merger agreement, our
rejections of the unsolicited Waste proposals, and any
disclosures made in connection therewith. The stipulation of
settlement also provides that plaintiffs counsel may
petition the court for an award of attorneys fees and
expenses to be paid by us. On February 20, 2009, the court
preliminarily approved the settlement agreed to in the
stipulation and set a final hearing to consider the fairness of
the settlement for May 19, 2009. There can be no assurance
that the court will approve the settlement agreed to in the
stipulation of settlement. In such event, the settlement may be
terminated.
On December 3, 2008, the DOJ and seven state attorneys
general filed a complaint, Hold Separate Stipulation and Order,
and competitive impact statement, together with a proposed final
judgment, in the United States District Court for the District
of Columbia, in connection with approval under the HSR Act of
our merger with Allied. The court entered the Hold Separate
Stipulation and Order on December 4, 2008, which terminated
the waiting period under the HSR Act and allowed the parties to
close the transaction subject to the conditions described in the
Hold Separate Stipulation and Order. These conditions include
the divestiture of certain assets. However, the final judgment
can only be approved by the court after the DOJ publishes a
notice in the Federal Register and considers comments it
receives. During this period, if the DOJ believes that the final
judgment is no longer in the public interest, the DOJ may
withdraw its support of the final judgment and seek to prevent
the final judgment from becoming final in its present form.
Likewise, the court may, in its discretion, modify the
divestitures or other relief sought by the DOJ if the court
believes that such modification is in the public interest. The
precise timing for the confirmation of the final judgment is not
known. Management believes that the court will enter the final
judgment and that modifications to the final judgment, if any,
will not be material.
Landfill and
Environmental
We have been notified that we are considered a potentially
responsible party at a number of sites under CERCLA or other
environmental laws. In all cases, such alleged responsibility is
due to the actions of companies prior to the time we acquired
them. We continually review our status with respect to each
site, taking into account the alleged connection to the site and
the extent of the contribution to the volume of waste at the
site, the available evidence connecting the entity to that site,
and the number and financial soundness of other potentially
responsible parties at the site. The ultimate amounts for
environmental liabilities at sites where we may be a potentially
responsible party cannot be determined and estimates of such
liabilities made by us require assumptions about future events
subject to a number of uncertainties, including the extent of
the contamination, the appropriate remedy, the financial
viability of other potentially responsible parties and the final
apportionment of responsibility among the potentially
responsible parties.
27
Where we have concluded that our share of potential liabilities
is probable and can be reasonably estimated, a provision has
been made in the consolidated financial statements. Since the
ultimate outcome of these matters may differ from the estimates
used in our assessments to date, the recorded liabilities are
periodically evaluated as additional information becomes
available to ascertain that the accrued liabilities are
adequate. We have liabilities recorded for environmental matters
as of December 31, 2008 of approximately
$389.9 million. It is reasonably possible that we could
have adjustments to our estimates for these matters in the near
term that could have a material effect on our consolidated
financial position, results of operations or cash flows. For
more information about our potential environmental liabilities
see Note 8, Landfill and Environmental Costs, to our
consolidated financial statements in Item 8 of this
Form 10-K.
Countywide
Matter
On March 26, 2007, the Ohio Environmental Protection Agency
(OEPA) issued Final Findings and Orders (F&Os) to Republic
Services of Ohio II, LLC (Republic-Ohio), an Ohio limited
liability company and our wholly owned subsidiary. The F&Os
relate to environmental conditions attributed to a chemical
reaction resulting from the disposal of certain aluminum
production waste at the Countywide Recycling and Disposal
facility (Countywide) in East Sparta, Ohio. The F&Os, and
certain other remedial actions Republic-Ohio agreed with the
OEPA to undertake to address the environmental conditions,
include, without limitation, the following actions:
(a) prohibiting leachate recirculation, (b) refraining
from the disposal of solid waste in certain portions of the
site, (c) updating engineering plans and specifications and
providing further information regarding the integrity of various
engineered components at the site, (d) performing
additional data collection, (e) taking additional measures
to address emissions, (f) expanding the gas collection and
control system, (g) installing a fire break,
(h) removing liquids from gas extraction wells, and
(i) submitting a plan to the OEPA to suppress the chemical
reaction and, following approval by the OEPA, implementing such
plan. We also paid approximately $.7 million in sanctions
to comply with the F&Os during the three months ended
March 31, 2007. Republic-Ohio has performed certain interim
remedial actions required by the OEPA, but the OEPA has not
approved Republic-Ohios plan to suppress the chemical
reaction.
Republic-Ohio received additional orders from the OEPA requiring
certain actions to be taken by Republic-Ohio, including
additional air quality monitoring and the installation and
continued maintenance of gas well dewatering systems.
Republic-Ohio has also entered into an Agreed Order on Consent
(AOC) with the EPA requiring the reimbursement of costs incurred
by the EPA and requiring Republic-Ohio to (a) design and
install a temperature and gas monitoring system, (b) design
and install a composite cap or cover, and (c) develop and
implement an air monitoring program. The AOC became effective on
April 17, 2008 and Republic-Ohio has complied with the
terms of the AOC. Republic-Ohio also is in the process of
constructing an additional fire break under the
authority and supervision of the EPA.
We had learned that the Commissioner of the Stark County Health
Department (Commission) recommended that the Stark County Board
of Health (Board of Health) suspend Countywides 2007
annual operating license. We had also learned that the
Commissioner intended to recommend that the Board of Health deny
Countywides license application for 2008. Republic-Ohio
obtained a preliminary injunction on November 28, 2007
prohibiting the Board of Health from suspending its 2007
operating license. Republic-Ohio also obtained a preliminary
injunction on February 15, 2008 prohibiting the Board of
Health from denying its 2008 operating license application. The
litigation with the Board of Health is pending in the Stark
County Court of Common Pleas. We and the Board of Health have
been participating in discussions regarding facility licensing
that have resulted in an agreement whereby Republic-Ohio will
secure its operating license and pay $10.0 million to
resolve the issues at Countywide. The specific terms of the
agreement are being finalized.
We believe that we have performed or are diligently performing
all actions required under the F&Os and the AOC and that
Countywide does not pose a threat to the environment.
Additionally, we believe that we satisfy the rules and
regulations that govern the operating license at Countywide.
28
We are vigorously pursuing financial contributions from third
parties for our costs to comply with the F&Os and the other
required remedial actions.
In a suit filed on October 8, 2008 in the Tuscarawas County
Ohio Court of Common Pleas, approximately 700 plaintiffs have
named Republic Services, Inc. and Republic-Ohio as defendants.
The claims alleged are negligence and nuisance and arise from
the operation of Countywide. Republic-Ohio has owned and
operated Countywide since February 1, 1999. Waste
Management, Inc. and Waste Management Ohio, Inc., previous
owners and operators of Countywide, have been named as
defendants as well. Plaintiffs are individuals and businesses
located in the geographic area around Countywide. They claim
that due to the acceptance of a specific waste stream and
operational issues and conditions, the landfill has generated
odors and other unsafe emissions which have allegedly impaired
the use and value of their property. There are also allegations
that the emissions from the landfill may have adverse health
effects. The relief requested includes compensatory damages,
punitive damages, costs for medical monitoring and screening,
interest on damages, costs and disbursements, and reasonable
attorney and expert witness fees. We intend to vigorously defend
against the plaintiffs allegations.
Sunrise
Matter
On August 1, 2008, Republic Services of Southern Nevada
(RSSN), our wholly owned subsidiary, signed a Consent Decree
with the EPA, the Bureau of Land Management and Clark County,
Nevada related to the Sunrise Landfill. Under the Consent
Decree, RSSN has agreed to perform certain remedial actions at
the Sunrise Landfill for which RSSN and Clark County were
otherwise jointly and severally liable. We were also assessed
$1.0 million in sanctions related to the Consent Decree.
RSSN is currently working with the Clark County Staff and Board
of Commissioners to develop a mechanism to fund the costs to
comply with the Consent Decree. However, we have not recorded
any potential recoveries.
It is reasonably possible that we will need to adjust the
remediation liabilities recorded to reflect the effects of new
or additional information, to the extent that such information
impacts the costs, timing or duration of the required actions.
Future changes in our estimates of the costs, timing or duration
of the required actions could have a material adverse effect on
our consolidated financial position, results of operations or
cash flows.
Luri
Matter
On August 17, 2007, a lawsuit was filed against us and
certain of our subsidiaries relating to an alleged retaliation
claim by a former employee, Ronald Luri v. Republic
Services, Inc., Republic Services of Ohio Hauling LLC, Republic
Services of Ohio I LLC, Jim Bowen and Ron Krall in the Cuyahoga
County Common Pleas Court in Ohio. On July 3, 2008, a jury
verdict was awarded against us in the amount of
$46.6 million, including $43.1 million in punitive
damages. On September 24, 2008, the Court awarded
pre-judgement interest of $.3 million and attorney fees and
litigation costs of $1.1 million. Post-judgement interest
is presently accruing at a rate of 8% for 2008 and 5% for 2009.
Management anticipates that post-judgement interest could accrue
through the middle of 2010 for a total of $5.4 million.
Post-judgment motions filed on our behalf and certain of our
subsidiaries were denied, and on October 1, 2008, we filed
a notice of appeal. It is reasonably possible that a final,
non-appealable judgment of liability for compensatory and
punitive damages may be assessed against us related to this
matter. Although it is not possible to predict the ultimate
outcome, management believes that the amount of any final,
non-appealable judgment will not be material.
Forward
Matter
On November 23, 2005, Allied received a letter from the
San Joaquin District Attorneys Office, Environmental
Prosecutions Unit (the District Attorney), alleging violations
of California permit and regulatory requirements relating to
Forward, Inc. (Forward), its wholly owned subsidiary, and the
operation of its landfill. The District Attorney is
investigating whether Forward may have (i) mixed green
waste with food waste as alternative daily cover,
(ii) exceeded the daily and weekly tonnage
29
intake limits, (iii) allowed a concentration of methane gas
well in excess of 5 percent, or (iv) accepted
hazardous waste at a landfill which is not authorized to accept
hazardous waste. Such conduct allegedly violates provisions of
Business and Professions Code sections 17200, et seq, by
virtue of violations of Public Resources Code Division 30,
Part 4, Chapter 3, Article 1, sections 44004
and 44014(b); California Code of Regulations Title 27,
Chapter 3, Subchapter 4, Article 6,
sections 20690(11) and 20919.5; and Health and Safety Code
sections 25200, 25100, et seq, and 25500, et seq. On
December 7, 2006, Forward received a subpoena and
interrogatories from the District Attorney and responded to both
as of February 15, 2007. On October 1, 2008, the
District Attorney served suit against Allied alleging violations
of the California Business and Professional Code
sections 17200, et seq. and is seeking monetary sanctions
of up to $2,500 per violation and a permanent injunction to obey
all applicable laws and regulations. We intend to vigorously
defend the allegations.
Sycamore
Matter
On July 10, 2008, the State of West Virginia Department of
Environmental Protection filed suit against Allieds
subsidiary, Allied Waste Sycamore Landfill, LLC (Sycamore
Landfill), in Putnam County Circuit Court alleging thirty-eight
violations of the Solid Waste Management Act, W. Va. Code sec.
22-15-1 et
seq, the Water Pollution Control Act, W. Va. Code Sec.
22-11-1 et
seq and the Groundwater Protection Act, W. Va. Code sec.
22-12-1 et
seq (collectively, the Applicable Statues) between January 2007
and August 2007. The State of West Virginia is seeking
injunctive relief requiring the Sycamore Landfill to comply with
the Applicable Statutes as well to eliminate all common law
public nuisances, and is seeking monetary sanctions of up to
$25,000 per day for each violation. We are currently negotiating
a settlement with the State which we believe will include
monetary sanctions below $200,000.
20 Atlantic
Avenue Matter
On October 3, 2008, a jury in federal district court in
Boston, Massachusetts, returned a verdict in favor of the
plaintiff and against the defendant, Allied, in a breach of
contract action. The jury concluded that, between 1997 and 2002,
Allied had failed to deliver as much fiber recyclables as
required under a contract and the jury stated that damages were
approximately $10.4 million. Under applicable law,
prejudgment interest of 12% per year (approximately
$10.5 million through December 31, 2008) is
automatically added to the verdict amount when judgment is
entered by the court. The jury verdict did not address all the
claims pending in the lawsuit. A hearing before the judge on
some of the remaining claims was scheduled to begin
January 6, 2009. On January 5, 2009, the parties
reached a settlement in which all claims in the lawsuit will be
dismissed in exchange for a payment of $18.0 million from
us to the plaintiff, which we have recorded as a liability. The
payment will be made in three installments during the first
three quarters of 2009 and the second and third installments
will bear interest at 3% per annum.
Carter Valley
Matter
On April 12, 2006, federal agents executed a search warrant
at BFI Waste Systems of Tennessee, LLCs Carter Valley
Landfill (the Landfill) and seized information regarding the
Landfills receipt of special waste from one of its
commercial customers. On the same date, the
U.S. Attorneys Office for the Eastern District of
Tennessee served a grand jury subpoena on us seeking related
documents (the 2006 Subpoena). Shortly thereafter, the
government agreed to an indefinite extension of our time to
respond to the subpoena, and there were no further
communications between us and the federal government until 2008.
In 2007, while the federal investigation was pending, the
Tennessee Department of Environment and Conservation
investigated the Landfills receipt of the same special
waste, determined that there was not a sufficient basis to
conclude that the Landfill had disposed of hazardous waste, and
took no enforcement action. On April 2, 2008, the US
Attorneys Office issued a new grand jury subpoena seeking
the same categories of documents requested in the 2006 Subpoena.
We are currently producing documents in response to the 2008
subpoena. On January 21, 2009, the DOJ sent a letter to us
stating that it believed, based on its initial investigation,
that certain unnamed employees at the Landfill had violated the
RCRA and that we were liable for these criminal violations under
the theory of respondeat superior. If convicted, pursuant
to applicable law, we could be subject to a wide range of
criminal or civil
30
penalties. Criminal penalties may not be more than the greatest
of a maximum of $50,000 for each day of violation, a calculation
of twice the gross pecuniary gain from the offense or a maximum
of $500,000. We could also be subject to civil penalties of
$32,500 per day per violation. We intend to meet with the DOJ as
soon as practicable to discuss the governments
investigation and understand the basis for the governments
belief that our employees violated RCRA.
Tax
Matters
We and our subsidiaries are subject to income tax in the U.S.
and Puerto Rico as well as income tax in multiple state
jurisdictions. We acquired Allieds open tax periods as
part of the acquisition. Allied is currently under examination
or administrative review by various state and federal taxing
authorities for certain tax years, including federal income tax
audits for calendar years 2000 through 2006. We are also engaged
in tax litigation as a result of our risk management companies.
These matters are further discussed below.
Risk
Management Companies
Prior to Allieds acquisition of BFI on July 30, 1999,
BFI operating companies, as part of a risk management initiative
to manage and reduce costs associated with certain liabilities,
contributed assets and existing environmental and self-insurance
liabilities to six fully consolidated BFI risk management
companies (RMCs) in exchange for stock representing a minority
ownership interest in the RMCs. Subsequently, the BFI operating
companies sold that stock in the RMCs to third parties at fair
market value which resulted in a capital loss of approximately
$900.0 million for tax purposes, calculated as the excess
of the tax basis of the stock over the cash proceeds received.
On January 18, 2001, the IRS designated this type of
transaction and other similar transactions as a
potentially abusive tax shelter under IRS
regulations. During 2002, the IRS proposed the disallowance of
all of this capital loss. At the time of the disallowance, the
primary argument advanced by the IRS for disallowing the capital
loss was that the tax basis of the stock of the RMCs received by
the BFI operating companies was required to be reduced by the
amount of liabilities assumed by the RMCs even though such
liabilities were contingent and, therefore, not liabilities
recognized for tax purposes. Under the IRS interpretation, there
was no capital loss on the sale of the stock since the tax basis
of the stock should have approximated the proceeds received.
Allied protested the disallowance to the Appeals Office of the
IRS in August 2002.
In April 2005, the Appeals Office of the IRS upheld the
disallowance of the capital loss deduction. As a result, in late
April 2005 Allied paid a deficiency to the IRS of
$22.6 million for BFI tax years prior to the acquisition.
Allied also received a notification from the IRS assessing a
penalty of $5.4 million and interest of $12.8 million
relating to the asserted $22.6 million deficiency. In July
2005, Allied filed a suit for refund in the United States Court
of Federal Claims (CFC). The government thereafter filed a
counterclaim in the case for the $5.4 million penalty and
$12.8 million of interest claimed by the IRS. In December
2005, the IRS agreed to suspend the collection of this penalty
and interest until a decision is rendered on Allieds suit
for refund.
In July 2006, while the CFC case was pending, Allied discovered
what it construed to be a jurisdictional defect in the case that
could have prevented its recovery of the refund amounts claimed
even if Allied would have been successful on the underlying
merits. Accordingly, in September 2006, Allied filed a
motion to dismiss the case without prejudice on jurisdictional
grounds. In March 2007, the CFC granted Allieds motion
dismissing the case. Thereafter, in July 2007, the government
appealed the decision to the United States Court of Appeals for
the Federal Circuit (Federal Circuit). In April 2008, the
Federal Circuit reversed the lower courts decision and
remanded the case back to the CFC for further proceedings. In
May 2008, Allied filed a petition for panel rehearing with the
Federal Circuit, requesting that the court reconsider its
ruling. In June 2008, the Federal Circuit denied Allieds
petition.
In December 2008, a hearing was held in the CFC. At this
hearing, we informed the judge of our intention to withdraw our
suit from the CFC in order to continue to litigate the merits of
our position in the U.S. District
31
Court of Arizona. We believe the decisional law applicable to
this matter is more favorable to taxpayers in the
U.S. District Court of Arizona than in the CFC.
To expedite the withdrawal from the CFC, in January 2009, we
paid the governments counterclaim for penalty and
penalty-related interest of approximately $11.0 million.
Prior to December 31, 2008, Allied had already paid
$51.0 million in tax and related interest relating to the
1997 through 1999 BFI tax years. As a result, we have paid all
tax, interest, and penalty related to the 1997 through 1999 BFI
tax years, which are the tax years under CFC jurisdiction. If,
in response to our decision to withdraw our suit from the CFC,
the court issues an order dismissing the case with prejudice,
the tax, interest and penalty amounts paid by us will not be
recoverable in any subsequent action. However, if the court
issues an order dismissing the case without prejudice, we will
not be entirely prevented from asserting a claim contesting the
IRS tax adjustment applicable to the 1997 through 1999 BFI tax
years and seeking the recovery of some or all of the tax,
interest and penalty amounts previously paid, although some of
our claim may be barred by the applicable statute of limitations.
In addition, Allied has a second refund suit currently pending
in Arizona. In August 2008, Allied received from the IRS a
Statutory Notice of Deficiency (Notice) related to its
utilization of BFIs capital loss carryforward on
Allieds 1999 tax return. Because of the high rate of
interest associated with this matter, Allied previously paid all
tax and interest related to this tax year. Consequently, the
Notice related only to the IRS asserted penalty for
Allieds 1999 tax year. On October 30, 2008, Allied
filed a suit for refund in the U.S. District Court of
Arizona. We anticipate that the DOJ will file a counterclaim for
the asserted penalty and consequently the IRS will suspend
collection of the penalty, as occurred in connection with the
CFC action. However, there can be no assurance that the IRS will
suspend collection efforts.
If the capital loss deduction is fully disallowed for all
applicable years, we estimate that it would have a total cash
impact (including amounts already paid to the IRS as described
below) of approximately $457.0 million related to federal
taxes, state taxes and interest, and, approximately
$164.0 million related to penalty and penalty-related
interest. These amounts have been fully accrued on our
consolidated balance sheet, and disallowance would not
materially affect our consolidated results of operations;
however, a payment beyond the amounts already paid would
adversely impact our cash flows in the period such payment was
made. The accrual of additional interest charges through the
time these matters are resolved will affect our consolidated
results of operations. Due to the high rate of interest
associated with this matter, we have previously paid the IRS and
various state tax authorities $369.0 million related to
capital loss deductions taken on BFIs 1997 through 1999
and Allieds 1999 through 2002 tax returns. In addition, we
have paid approximately $11.0 million of penalty and
penalty-related interest for our refund suit in the CFC.
Although we have fully accrued all tax, interest, penalty and
penalty-related interest relating to this matter, we intend to
vigorously pursue our claim for refund of the tax and interest
and our defense to the IRS claims for penalties and
penalty-related interest. While there can be no assurances, we
anticipate that the final resolution of the dispute, through
adjudication or settlement, may be more favorable than the full
amount currently accrued for tax, interest, penalty and
penalty-related interest.
Exchange of
Partnership Interests
In April 2002, Allied exchanged minority partnership interests
in four
waste-to-energy
facilities for majority partnership interests in equipment
purchasing businesses, which are now wholly owned subsidiaries.
In November 2008, the IRS issued a formal disallowance to Allied
contending that the exchange was instead a sale on which a
corresponding gain should have been recognized. Although we
intend to vigorously defend our position on this matter, if the
exchange is treated as a sale, we estimate it could have a
potential federal and state cash tax impact of approximately
$156.0 million plus accrued interest through
December 31, 2008 of approximately $48.0 million. In
addition, the IRS has asserted a penalty of 20% of the
additional income tax due. The potential tax and interest (but
not penalties or penalty-related interest) of a full adjustment
for this matter have been fully reserved on our consolidated
balance sheet at December 31, 2008. The successful
assertion by the IRS of penalty and penalty-related interest in
32
connection with this matter could have a material adverse impact
on our consolidated cash flows and results of operations.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
On November 14, 2008, our stockholders voted to approve our
merger with Allied Waste Industries, Inc. at a special meeting
held for that purpose.
Results of the voting at that meeting are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affirmative
|
|
|
Against
|
|
|
Abstentions
|
|
|
(1) To issue shares of Republic common stock and other
securities convertible into or exercisable for shares of
Republic common stock, contemplated by the Agreement and Plan of
Merger, dated as of June 22, 2008, as amended July 31,
2008, among Republic, RS Merger Wedge, Inc,, a wholly owned
subsidiary of Republic, formed for the purpose of the merger,
and Allied Waste Industries, Inc.
|
|
|
141,728,743
|
|
|
|
297,976
|
|
|
|
156,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) To adjourn the Special Meeting, if necessary, to
solicit additional proxies in favor of the foregoing proposal
|
|
|
134,081,897
|
|
|
|
8,068,370
|
|
|
|
32,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information, Holders and Dividends
Our common stock trades on the New York Stock Exchange.
In January 2007, our Board of Directors approved a
3-for-2
stock split effective on March 16, 2007 for stockholders of
record on March 5, 2007. Our share and per share amounts
have been retroactively restated to reflect the stock split.
The following table sets forth the range of the high and low
sale prices of our common stock and the cash dividends declared
per share of common stock for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
32.00
|
|
|
$
|
27.30
|
|
|
$
|
.1700
|
|
Second Quarter
|
|
|
34.44
|
|
|
|
29.09
|
|
|
|
.1700
|
|
Third Quarter
|
|
|
36.52
|
|
|
|
27.29
|
|
|
|
.1900
|
|
Fourth Quarter
|
|
|
29.96
|
|
|
|
18.25
|
|
|
|
.1900
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
29.67
|
|
|
$
|
26.22
|
|
|
$
|
.1067
|
|
Second Quarter
|
|
|
31.09
|
|
|
|
27.05
|
|
|
|
.1067
|
|
Third Quarter
|
|
|
33.26
|
|
|
|
27.93
|
|
|
|
.1700
|
|
Fourth Quarter
|
|
|
35.00
|
|
|
|
30.90
|
|
|
|
.1700
|
|
There were approximately 930 record holders of our common
stock at February 19, 2009, which does not include
beneficial owners for whom Cede & Co. or others act as
nominees.
In February 2009, our Board of Directors declared a regular
quarterly dividend of $.19 per share for stockholders of record
on April 1, 2009. We expect to continue to pay quarterly
cash dividends, and we may consider increasing our quarterly
cash dividends if we believe it will enhance shareholder value.
We have the ability under our credit facilities to pay dividends
and repurchase our common stock subject to our compliance with
the financial covenants in our credit facilities. As of
December 31, 2008, we were in compliance with the financial
covenants of our credit facilities.
Issuer Purchases
of Equity Securities
From 2000 through 2008, our Board of Directors authorized the
repurchase of up to $2.6 billion of our common stock. As of
December 31, 2008, we had paid $2.3 billion to
repurchase 82.6 million shares of our common stock, of
which 4.6 million shares were acquired during 2008 for
$138.4 million. We suspended our share repurchase program
in the second quarter of 2008 due to the pending merger with
Allied. We expect that our share repurchase program will
continue to be suspended until our credit statistics return to
pre-merger levels.
Recent Sales of
Unregistered Securities
None
34
Performance
Graph
The following performance graph compares the performance of our
common stock to the Standard & Poors 500 Stock
Index (S&P 500 Index), the Dow Jones Waste &
Disposal Services Index (DJW&DS Index) and to an index of
peer companies as described below.
The merger with Allied in December 2008 resulted in the
following changes to our performance comparison:
|
|
§
|
We are part of the S&P 500 Index, post merger, therefore,
as required by applicable SEC rules, we replaced the NYSE
Composite Index comparison with the S&P 500 Index, and
|
|
§
|
We are using the DJW&DS Index to replace the peer group
index we used last year. The prior peer group index consisted of
Waste and Allied only. Since December 5, 2008, Allied has
been our subsidiary as a result of the merger. We believe that
comparing ourselves to a single competitor (Waste) going forward
would not be meaningful. We believe that the numerous and
diversified companies represented by the DJW&DS index
provides a more relevant comparison. For purposes of preserving
the prior year index we included Allied through the end of
November 2008, which approximates the merger date.
|
The graph covers the period from December 31, 2003 to
December 31, 2008 and assumes that the value of the
investment in our common stock and in each index was $100 at
December 31, 2003 and that all dividends were reinvested.
Comparison of
Five Year Cumulative Total Return
Assumes Initial Investment of $100
December 2008
Indexed Returns
For Years Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Republic Services, Inc.
|
|
$
|
100.00
|
|
|
$
|
132.45
|
|
|
$
|
113.61
|
|
|
$
|
109.91
|
|
|
$
|
117.71
|
|
|
$
|
81.14
|
|
S&P 500 Stock Index
|
|
|
100.00
|
|
|
|
110.88
|
|
|
|
104.91
|
|
|
|
115.80
|
|
|
|
105.49
|
|
|
|
63.00
|
|
DJW&DS Index
|
|
|
100.00
|
|
|
|
103.45
|
|
|
|
106.06
|
|
|
|
122.88
|
|
|
|
104.58
|
|
|
|
93.91
|
|
Prior Peer Group
|
|
|
100.00
|
|
|
|
85.33
|
|
|
|
99.18
|
|
|
|
132.41
|
|
|
|
90.46
|
|
|
|
101.13
|
(1)
|
|
|
(1) |
Includes Allied through November 28, 2008.
|
35
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following Selected Financial Data should be read in
conjunction with our consolidated financial statements and notes
thereto as of December 31, 2008 and 2007 and for each of
the three years in the period ended December 31, 2008 and
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations included
elsewhere in this Annual Report on
Form 10-K.
Our merger with Allied was effective December 5, 2008 and
has been accounted for as an acquisition of Allied by Republic.
The consolidated financial statements include the operating
results of Allied from the date of the acquisition, and have not
been retroactively restated to include Allieds historical
financial position or results of operations. In accordance with
the purchase method of accounting, the purchase price paid has
been allocated to the assets and liabilities acquired based upon
their estimated fair values as of the acquisition date, with the
excess of the purchase price over the net assets acquired being
recorded as goodwill.
Our shares, per share data and weighted average common and
common equivalent shares outstanding have been retroactively
adjusted for all periods prior to 2007 to reflect a
3-for-2
stock split in the form of a stock dividend that was effective
on March 16, 2007.
See Notes 1, 2, 3, 8, 9, 10 and 11 of the notes to our
consolidated financial statements in Item 8 of this
Form 10-K for a discussion of basis of presentation,
significant accounting policies, business acquisitions and
divestitures, assets held for sale, restructuring charges,
landfill and environmental costs, debt, income taxes and
stockholders equity and their effect on comparability of
year-to-year
data. These historical results are not necessarily indicative of
the results to be expected in the future (in millions, except
per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,685.1
|
|
|
$
|
3,176.2
|
|
|
$
|
3,070.6
|
|
|
$
|
2,863.9
|
|
|
$
|
2,708.1
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
2,416.7
|
|
|
|
2,003.9
|
|
|
|
1,924.4
|
|
|
|
1,803.9
|
|
|
|
1,714.4
|
|
Depreciation amortization and depletion
|
|
|
354.1
|
|
|
|
305.5
|
|
|
|
296.0
|
|
|
|
278.8
|
|
|
|
259.4
|
|
Accretion
|
|
|
23.9
|
|
|
|
17.1
|
|
|
|
15.7
|
|
|
|
14.5
|
|
|
|
13.7
|
|
Selling, general and administrative
|
|
|
434.7
|
|
|
|
313.7
|
|
|
|
315.0
|
|
|
|
289.5
|
|
|
|
268.3
|
|
Asset impairments
|
|
|
89.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
82.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
283.2
|
|
|
|
536.0
|
|
|
|
519.5
|
|
|
|
477.2
|
|
|
|
452.3
|
|
Interest expense
|
|
|
(131.9
|
)
|
|
|
(94.8
|
)
|
|
|
(95.8
|
)
|
|
|
(81.0
|
)
|
|
|
(76.7
|
)
|
Interest income
|
|
|
9.6
|
|
|
|
12.8
|
|
|
|
15.8
|
|
|
|
11.4
|
|
|
|
6.9
|
|
Other income (expense), net
|
|
|
(1.6
|
)
|
|
|
14.1
|
|
|
|
4.2
|
|
|
|
1.6
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
159.3
|
|
|
|
468.1
|
|
|
|
443.7
|
|
|
|
409.2
|
|
|
|
383.7
|
|
Provision for income taxes
|
|
|
85.4
|
|
|
|
177.9
|
|
|
|
164.1
|
|
|
|
155.5
|
|
|
|
145.8
|
|
Minority interests
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
73.8
|
|
|
$
|
290.2
|
|
|
$
|
279.6
|
|
|
$
|
253.7
|
|
|
$
|
237.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.38
|
|
|
$
|
1.53
|
|
|
$
|
1.41
|
|
|
$
|
1.23
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
196.7
|
|
|
|
190.1
|
|
|
|
198.2
|
|
|
|
207.0
|
|
|
|
217.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
.37
|
|
|
$
|
1.51
|
|
|
$
|
1.39
|
|
|
$
|
1.20
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares outstanding
|
|
|
198.4
|
|
|
|
192.0
|
|
|
|
200.6
|
|
|
|
210.8
|
|
|
|
221.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
.7200
|
|
|
$
|
.5534
|
|
|
$
|
.4000
|
|
|
$
|
.3466
|
|
|
$
|
.2400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
512.2
|
|
|
$
|
661.3
|
|
|
$
|
511.2
|
|
|
$
|
747.8
|
|
|
$
|
672.1
|
|
Capital expenditures
|
|
|
386.9
|
|
|
|
292.5
|
|
|
|
326.7
|
|
|
|
309.0
|
|
|
|
289.6
|
|
Proceeds from sales of property and equipment
|
|
|
8.2
|
|
|
|
6.1
|
|
|
|
18.5
|
|
|
|
10.1
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68.7
|
|
|
$
|
21.8
|
|
|
$
|
29.1
|
|
|
$
|
131.8
|
|
|
$
|
141.5
|
|
Restricted cash and marketable securities
|
|
|
281.9
|
|
|
|
165.0
|
|
|
|
153.3
|
|
|
|
255.3
|
|
|
|
275.7
|
|
Total assets
|
|
|
19,921.4
|
|
|
|
4,467.8
|
|
|
|
4,429.4
|
|
|
|
4,550.5
|
|
|
|
4,464.6
|
|
Total debt
|
|
|
7,702.5
|
|
|
|
1,567.8
|
|
|
|
1,547.2
|
|
|
|
1,475.1
|
|
|
|
1,354.3
|
|
Total stockholders equity
|
|
|
7,281.4
|
|
|
|
1,303.8
|
|
|
|
1,422.1
|
|
|
|
1,605.8
|
|
|
|
1,872.5
|
|
37
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion should be read in conjunction with
our audited consolidated financial statements and the notes
thereto, included elsewhere herein. This discussion may contain
forward-looking statements that anticipate results based on
managements plans that are subject to uncertainty. We
discuss in more detail various factors that could cause actual
results to differ from expectations in Item 1A. Risk
Factors.
Overview of Our
Business
As of December 31, 2008, we are the second largest 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 400 collection companies in 40 states and Puerto
Rico. We also own or operate 242 transfer stations, 213 active
solid waste landfills and 78 recycling facilities.
In early 2008, we began to experience the impact of the economic
slowdown on our operations. This slowdown intensified during
2008 which, combined with a tightening of the credit markets,
resulted in unprecedented changes in the U.S. and global
economies. Against this backdrop, consumption in the U.S. slowed
dramatically. New housing construction, a primary driver of our
temporary industrial collection business, declined in excess of
40% compared to 2007. More recently we are seeing a slowdown in
commercial construction. A slowdown in manufacturing has
resulted in a decrease in our permanent industrial collection
business. Furthermore, volumes in our commercial collection
business began to decline in the second half of 2008 as
consumers decreased discretionary spending. We are also
beginning to see lower commercial volumes due to store closures
and increased commercial vacancies. Fuel prices, which reached
historic highs in the summer, dropped quickly in the fall of
2008. This decrease in fuel prices was offset by corresponding
declines in fuel surcharges and, therefore, did not
significantly improve our profitability. In addition, prices for
recycling commodities declined in response to a decline in
global demand. Although we hedged a portion of our commodity
sales, declines in commodity prices have had, and will continue
to have, a significant impact on our profitability.
Despite the challenging economic environment, our business
performed well during 2008 due in large part to the
indispensible nature of our services and the scalability of our
business. Our internal revenue growth during 2008 was 2.5%.
Increases in core price and fuel recovery fees offset volume
declines. This increase in price and fuel recovery fees,
together with cost control steps taken by our operations
management to scale the business down for lower volumes, also
served to moderate profit margin declines associated with rising
costs and declining revenue due to decreases in service volumes.
During December 2008, we completed our merger with Allied,
forming the second largest waste management company in the U.S.
We believe that this merger creates a strong operating platform
that will allow us to continue to provide quality service to our
customers and superior returns to our stockholders.
We expect that the economic challenges we experienced during the
latter part of 2008 will continue throughout 2009. We anticipate
a decrease in volumes in all lines of our business. We also
anticipate that prices for recycling commodities will remain
depressed. However, we believe that we will benefit from our
cost control and pricing initiatives. Ours is a capital
intensive business. Slower growth allows us to reduce capital
spending, thus maintaining strong free cash flow despite a
weaker economy. In addition, we intend to focus our attention on
integrating our newly merged company and achieving cost
synergies as a result of the merger.
Business
Acquisitions and Divestitures
We make decisions to acquire, invest in or divest of 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.
38
Merger with
Allied Waste Industries, Inc.
On June 22, 2008, Republic entered into an Agreement and
Plan of Merger with Allied. Prior to the merger, Allied was the
second largest provider of non-hazardous solid waste collection,
transfer, recycling and disposal services in the United States,
as measured by revenue. The completion of the merger was subject
to certain terms and conditions, including, but not limited to,
approval of the transaction by the stockholders of both Republic
and Allied, regulatory approval from the DOJ, and receipt of
credit ratings for the combined company classifying our senior
unsecured debt as investment grade. Having met those terms and
conditions on December 5, 2008, we completed the merger.
As of the effective date of the merger, each share of Allied
common stock outstanding was converted into .45 shares of
our common stock. We issued approximately 195.8 million
shares of common stock to Allied stockholders in the merger.
Allied stockholders received approximately 52% of the
outstanding common stock of the combined company in respect of
their Allied shares on a diluted basis as a result of the
merger, and Republic stockholders retained approximately 48% of
the outstanding common stock of the combined company on a
diluted basis. The total purchase price paid for Allied,
including the value of common stock issued (based on the average
closing prices of Republics common stock for the
five-day
period around June 23, 2008 (the announcement date))
totaled approximately $11.5 billion.
Republic has been determined to be the acquiring company for
accounting purposes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141, Business
Combinations (SFAS 141). Therefore, we have accounted
for the merger as an acquisition of Allied by Republic, using
the purchase method of accounting in accordance with GAAP. Our
consolidated financial statements include the operating results
of Allied from the date of the acquisition, and have not been
retroactively restated to include Allieds historical
financial position or results of operations. In accordance with
the purchase method of accounting, the purchase price paid has
been allocated to the assets and liabilities acquired based upon
their estimated fair values as of the acquisition date, with the
excess of the purchase price over the net assets acquired being
recorded as goodwill. Republic is in the process of valuing all
of the assets and liabilities acquired in the acquisition, and,
until we have completed our valuation process, there may be
adjustments to our estimates of fair values and the resulting
preliminary purchase price allocation.
Cost in excess of fair value of net assets acquired (goodwill)
associated with the acquisition of Allied totaled
$9.0 billion. In addition, when we acquire landfills as
part of a group of assets, we allocate part of the purchase
price to airspace based on the estimated fair value of the
landfills relative to the fair value of other assets within the
acquired group. We allocated $2.6 billion of the total
purchase price paid for the acquisition of Allied to landfill
airspace. Landfill purchase price is amortized using the
units-of-consumption
method over total available airspace, which includes probable
expansion airspace where appropriate.
As a condition of the merger with Allied, we reached a
settlement with the DOJ requiring us to divest of assets serving
fifteen metropolitan areas, including Los Angeles and San
Francisco, CA; Denver, CO; Atlanta, GA; Northwestern Indiana;
Lexington, KY; Flint, MI; Cape Girardeau, MO; Charlotte, NC;
Cleveland, OH; Philadelphia, PA; Greenville-Spartanburg, SC; and
Fort Worth, Houston and Lubbock, TX. The settlement requires us
to divest of 87 commercial waste collection routes, nine
municipal solid waste landfills and ten transfer stations,
together with ancillary assets and, in three cases, access to
landfill disposal capacity. In February 2009, we entered into an
agreement to divest certain assets to Waste Connections, Inc.
The assets that are being divested under this agreement include
six municipal solid waste landfills, six collection operations
and three transfer stations across the following seven markets:
Los Angeles, CA; Denver, CO; Houston, TX; Lubbock, TX;
Greenville-Spartanburg, SC; Charlotte, NC; and Flint, MI. The
transaction with Waste Connections is subject to closing
conditions regarding due diligence, regulatory approval and
other customary matters. Closing is expected to occur in the
second quarter of 2009. Combined revenue of the assets being
sold is approximately $110.0 million.
During December 2008, we incurred $82.7 million of
restructuring charges associated with integrating our operations
with Allied. These charges primarily consist of severance and
other employee termination and relocation benefits and
consulting fees paid to outside parties.
39
Other Business
Acquisitions and Divestitures
In addition to the acquisition of Allied in December 2008, we
acquired various other solid waste businesses during the years
ended December 31, 2008, 2007 and 2006. The aggregate
purchase price we paid for these transactions was
$13.4 million, $4.4 million and $4.9 million,
respectively.
Cost in excess of fair value of net assets acquired (goodwill)
associated with these acquisitions during 2008, 2007 and 2006
totaled $2.2 million, $1.0 million and
$1.0 million, respectively.
In November 2007, we divested of our Texas-based compost, mulch
and soil business and received proceeds of $36.5 million. A
gain of $12.5 million was recorded in 2007 on this
divestiture.
Revenue
We generate revenue primarily from our solid waste collection
operations. Our remaining revenue is from other services
including landfill disposal and recycling.
The following table reflects our revenue by service line for the
respective years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Collection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
966.0
|
|
|
|
26.2
|
%
|
|
$
|
802.1
|
|
|
|
25.3
|
%
|
|
$
|
758.3
|
|
|
|
24.7
|
%
|
Commercial
|
|
|
1,161.4
|
|
|
|
31.5
|
|
|
|
944.4
|
|
|
|
29.7
|
|
|
|
883.6
|
|
|
|
28.8
|
|
Industrial
|
|
|
711.4
|
|
|
|
19.3
|
|
|
|
645.6
|
|
|
|
20.3
|
|
|
|
654.1
|
|
|
|
21.3
|
|
Other
|
|
|
23.2
|
|
|
|
.7
|
|
|
|
19.5
|
|
|
|
.6
|
|
|
|
22.4
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Collection
|
|
|
2,862.0
|
|
|
|
77.7
|
|
|
|
2,411.6
|
|
|
|
75.9
|
|
|
|
2,318.4
|
|
|
|
75.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer and disposal
|
|
|
1,343.4
|
|
|
|
|
|
|
|
1,192.5
|
|
|
|
|
|
|
|
1,182.1
|
|
|
|
|
|
Less: Intercompany
|
|
|
(683.5
|
)
|
|
|
|
|
|
|
(612.3
|
)
|
|
|
|
|
|
|
(588.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer and disposal, net
|
|
|
659.9
|
|
|
|
17.9
|
|
|
|
580.2
|
|
|
|
18.3
|
|
|
|
593.5
|
|
|
|
19.3
|
|
Other
|
|
|
163.2
|
|
|
|
4.4
|
|
|
|
184.4
|
|
|
|
5.8
|
|
|
|
158.7
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,685.1
|
|
|
|
100.0
|
%
|
|
$
|
3,176.2
|
|
|
|
100.0
|
%
|
|
$
|
3,070.6
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenue from collection operations consists of fees we
receive from commercial, industrial, municipal and residential
customers. Our residential and commercial collection operations
in some markets are based on long-term contracts with
municipalities. We generally provide industrial and commercial
collection services to individual customers under contracts with
terms up to three years. Our revenue from landfill operations is
from disposal or tipping fees charged to third parties. In
general, we integrate our recycling operations with our
collection operations and obtain revenue from the sale of
recyclable materials. No one customer has individually accounted
for more than 10% of our consolidated revenue or of our
reportable segment revenue in any of the last three years.
The cost of our collection operations is primarily variable and
includes disposal, labor, self-insurance, fuel and equipment
maintenance costs. It also includes capital costs for equipment
and facilities. We seek operating efficiencies by controlling
the movement of waste from the point of collection through
disposal. During December 2008, subsequent to our acquisition of
Allied, approximately 67% of the total volume of waste we
collected was disposed of at landfills that 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 on the consumption
of cubic yards of available airspace. These costs include all
40
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 at least annually by
engineers. These estimates are used by our operating and
accounting personnel to adjust the rates we use to expense
capitalized costs. Changes in these estimates primarily relate
to changes in costs, available airspace, inflation and
applicable regulations. Changes in available airspace include
changes in engineering estimates, 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.
Summarized financial information concerning our reportable
segments for the years ended December 31, 2008, 2007 and
2006 is shown in the following table (in millions, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and
|
|
|
SFAS 143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
|
|
Adjustments
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
to
|
|
|
Amortization,
|
|
|
Operating
|
|
|
|
|
|
|
Net
|
|
|
SFAS 143
|
|
|
Amortization
|
|
|
Depletion and
|
|
|
Income
|
|
|
Operating
|
|
|
|
Revenue
|
|
|
Adjustments
|
|
|
Expense(1)
|
|
|
Accretion
|
|
|
(Loss)
|
|
|
Margin
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
576.1
|
|
|
$
|
48.1
|
|
|
$
|
5.6
|
|
|
$
|
53.7
|
|
|
$
|
(99.9
|
)
|
|
|
(17.3
|
)%
|
Central
|
|
|
674.4
|
|
|
|
85.6
|
|
|
|
(.8
|
)
|
|
|
84.8
|
|
|
|
119.5
|
|
|
|
17.7
|
|
Southern
|
|
|
840.2
|
|
|
|
75.0
|
|
|
|
(.5
|
)
|
|
|
74.5
|
|
|
|
177.1
|
|
|
|
21.1
|
|
Western
|
|
|
1,130.6
|
|
|
|
104.3
|
|
|
|
(4.2
|
)
|
|
|
100.1
|
|
|
|
203.6
|
|
|
|
18.0
|
|
Allied
|
|
|
463.7
|
|
|
|
56.4
|
|
|
|
|
|
|
|
56.4
|
|
|
|
29.8
|
|
|
|
6.4
|
|
Corporate
entities(3)
|
|
|
.1
|
|
|
|
8.0
|
|
|
|
.5
|
|
|
|
8.5
|
|
|
|
(146.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,685.1
|
|
|
$
|
377.4
|
|
|
$
|
.6
|
|
|
$
|
378.0
|
|
|
$
|
283.2
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
577.0
|
|
|
$
|
50.6
|
|
|
$
|
1.0
|
|
|
$
|
51.6
|
|
|
$
|
66.1
|
|
|
|
11.5
|
%
|
Central
|
|
|
647.5
|
|
|
|
88.0
|
|
|
|
(6.0
|
)
|
|
|
82.0
|
|
|
|
119.9
|
|
|
|
18.5
|
|
Southern
|
|
|
828.8
|
|
|
|
72.8
|
|
|
|
.4
|
|
|
|
73.2
|
|
|
|
180.2
|
|
|
|
21.7
|
|
Western
|
|
|
1,122.2
|
|
|
|
100.7
|
|
|
|
7.9
|
|
|
|
108.6
|
|
|
|
233.9
|
|
|
|
20.8
|
|
Corporate
entities(3)
|
|
|
.7
|
|
|
|
7.2
|
|
|
|
|
|
|
|
7.2
|
|
|
|
(64.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,176.2
|
|
|
$
|
319.3
|
|
|
$
|
3.3
|
|
|
$
|
322.6
|
|
|
$
|
536.0
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
568.8
|
|
|
$
|
44.6
|
|
|
$
|
(.9
|
)
|
|
$
|
43.7
|
|
|
$
|
92.4
|
|
|
|
16.2
|
%
|
Central
|
|
|
635.1
|
|
|
|
92.6
|
|
|
|
(1.9
|
)
|
|
|
90.7
|
|
|
|
111.4
|
|
|
|
17.5
|
|
Southern
|
|
|
798.1
|
|
|
|
73.8
|
|
|
|
1.5
|
|
|
|
75.3
|
|
|
|
153.6
|
|
|
|
19.2
|
|
Western
|
|
|
1,070.1
|
|
|
|
97.2
|
|
|
|
(1.0
|
)
|
|
|
96.2
|
|
|
|
229.6
|
|
|
|
21.5
|
|
Corporate
entities(3)
|
|
|
(1.5
|
)
|
|
|
5.8
|
|
|
|
|
|
|
|
5.8
|
|
|
|
(67.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,070.6
|
|
|
$
|
314.0
|
|
|
$
|
(2.3
|
)
|
|
$
|
311.7
|
|
|
$
|
519.5
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of adjustments to
amortization expense for changes in estimates and assumptions
related to our reviews of landfill asset retirement obligations
under SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143).
|
|
(2) |
|
Certain amounts for 2007 and 2006
have been reclassified to conform with the 2008 presentation.
|
|
(3) |
|
Corporate functions include legal,
tax, treasury, information technology, risk management, human
resources, corporate accounts and other typical administrative
functions.
|
Our operations are managed and reviewed through four geographic
regions that we designate as our reportable segments. We
acquired Allied on December 5, 2008, and, due to the timing
of the acquisition, management reviewed and we have presented
Allied as a separate reportable segment in our
41
consolidated financial statements. In addition, during the first
quarter of 2008, we consolidated our Southwestern operations
into our Western Region and, accordingly, the historical
operating results of our Southwestern operations have been
consolidated into our Western Region.
2008 compared to 2007:
|
|
§ |
Eastern Region. Revenue in our Eastern
Region decreased during 2008 compared to 2007 due to a decrease
in volumes in all lines of business and a decrease in the prices
of commodities. The decrease in volume is primarily attributable
to less temporary work and lower transfer station volumes due to
less construction activity. Landfill volumes were also lower.
This decrease in revenue was partially offset by price increases
in all lines of business.
|
The operating loss in 2008 includes remediation charges of
$99.9 million related to estimated costs to comply with the
F&Os issued by the OEPA and the AOC issued by the EPA
related to our Countywide facility and an impairment charge of
$75.9 million related to the anticipated loss of permitted
airspace at Countywide based upon recent negotiations with the
OEPA and EPA. It also includes $11.0 million of settlement
reserves for certain legal matters.
Operating income for 2007 includes a $44.6 million charge
to operating expenses associated with environmental conditions
at Countywide.
|
|
§ |
Central Region. Revenue increased
during 2008 compared to 2007 due to price increases in all lines
of business. This increase in revenue was partially offset by
lower volumes in all lines of business and lower prices of
commodities due to the economic slowdown.
|
Operating margins decreased during 2008 compared to 2007 due to
an adjustment to landfill amortization expense associated with
SFAS 143 during 2007.
|
|
§ |
Southern Region. Price increases in all
lines of business resulted in an increase in revenue during 2008
compared to 2007. This increase in revenue was partially offset
by volume declines in our industrial and commercial collection
lines of business and at our landfills and transfer stations.
|
Operating margins decreased during 2008 compared to 2007 due to
higher fuel costs partially offset by higher revenue, lower
disposal costs and lower insurance costs.
|
|
§ |
Western Region. Price increases in all
lines of business resulted in an increase in revenue during 2008
compared to 2007. This increase in revenue was partially offset
by a decrease in industrial collection, residential collection,
transfer station and landfill volumes resulting from the
economic slowdown. This increase in revenue was also partially
offset by lower prices of commodities and by the sale of our
Texas-based compost, mulch and soil business in November 2007.
|
Operating income in 2008 includes a $34.0 million charge
related to estimated costs to comply with a Consent Decree and
Settlement Agreement signed with the EPA, the Bureau of Land
Management and Clark County, Nevada related to the Sunrise
Landfill. It also includes a $21.9 million charge recorded
during 2008 associated with environmental conditions at our
closed disposal facility in Contra Costa County, California.
Operating income in 2007 includes an $8.1 million increase
in landfill operating costs and a $5.2 million increase in
SFAS 143 amortization expense associated with environmental
conditions at our closed disposal facility in Contra Costa
County, California.
|
|
§ |
Allied. The operating results for
Allied are included in the consolidated financial statements of
Republic from the date of the acquisition of December 5,
2008. These results include $17.2 million of bad debt
expense related to conforming Allieds calculation of
allowance for doubtful accounts with ours and providing for
specific bankruptcy exposures, $3.9 million of
restructuring charges for severance and other employee
termination benefits and $5.6 million of amortization
expense associated with the intangible assets recorded as a
result of our merger.
|
42
|
|
§ |
Corporate Entities. The increase in
operating costs for the Corporate Entities includes professional
fees, distributions under cash and equity award programs, and
relocation, severance and other employee termination benefits
related to our merger with Allied.
|
2007 compared
to 2006:
|
|
§ |
Eastern Region. Revenue increased
during 2007 compared to 2006 due to price increases in all lines
of business and an increase in the prices of commodities. This
increase in revenue was partially offset by lower volumes in the
industrial collection line of business primarily due to less
temporary work, and lower landfill volumes. These lower volumes
resulted from less favorable weather conditions and a general
slowdown in residential construction during 2007.
|
Operating margins decreased from 16.2% to 11.5% primarily
because of a $44.6 million charge to operating income
associated with environmental conditions at our Countywide
facility.
|
|
§ |
Central Region. Revenue increased
during 2007 compared to 2006 due to price increases in all lines
of business and an increase in the prices of commodities. This
increase in revenue was partially offset by lower volumes in the
commercial collection, industrial collection and landfill lines
of business. Lower volumes in the collection lines of business
are primarily due to less favorable weather conditions during
2007 and the economic slowdown. Lower landfill volumes are
primarily due to our decision to limit our acceptance of certain
waste streams.
|
Operating margins increased due to higher revenue, lower
disposal costs and adjustments to landfill amortization expense
associated with SFAS 143. This increase in operating
margins was partially offset by increases in risk insurance and
landfill operating costs.
|
|
§ |
Southern Region. Price increases in all
lines of business, increases in the prices of commodities, and
increases in commercial collection, residential collection and
landfill volumes resulted in an increase in revenue during 2007
compared to 2006. This increase in revenue was partially offset
by lower industrial collection volumes. These lower volumes are
primarily due to a slowdown in residential construction in 2007,
and hurricane-related work that was performed during 2006.
|
Operating margins increased primarily due to higher revenue,
lower disposal costs due to drier weather, lower truck and
equipment maintenance costs, and lower labor costs.
|
|
§ |
Western Region. Price increases in all
lines of business, volume increases in the residential
collection line of business and increases in the prices of
commodities resulted in an increase in revenue during 2007
compared to 2006. This increase in revenue was partially offset
by a decrease in industrial collection and landfill volumes
resulting from a general slowdown in residential construction in
2007.
|
Operating margins decreased because of an $8.1 million
increase in landfill operating costs and a $5.2 million
increase in SFAS 143 amortization expense associated with
environmental conditions at our closed disposal facility in
Contra Costa County, California.
|
|
§ |
Corporate Entities. The decrease in
operating costs from 2006 to 2007 is due to a $4.3 million
reduction to our allowance for doubtful accounts recorded during
2007 as a result of refining our estimate of our allowance based
on our historical collection experience, which was partially
offset by increases in operating costs associated with the
expansion of our business.
|
2008 Business
Performance
During 2008, our internal revenue growth was 2.5% with a 4.0%
increase in core price offset by a 3.9% decrease in core volume.
During 2008, we experienced lower volumes in all of our lines of
business due to the economic slowdown. Revenue growth from fuel
surcharges and environmental fees was 1.8% and .4%,
respectively. In addition, our merger with Allied in December
2008 resulted in a 13.4% increase in revenue.
43
The cost of fuel increased significantly during the summer and
fall of 2008. The economic slowdown helped to moderate fuel
prices in the later part of the year. Fuel ended the year at
levels consistent with those experienced during 2007. This
decrease in fuel prices was offset by corresponding declines in
fuel surcharges and, therefore, did not significantly improve
our profitability.
Also during 2008, prices for recycling commodities declined in
response to a decline in global demand. Although we hedged a
portion of our commodity sales, declines in commodity prices
have had, and will continue to have, a significant impact on our
profitability.
2009 Business
Initiatives
Our business initiatives for 2009 focus on the timely
integration of our operations with Allieds, while
remaining focused on the aspects of our operations that have
made us successful. Our initiatives include:
|
|
§
|
Safety. Safety remains our highest priority for all
of our employees. Both Republic and Allied have long-standing
commitments to ensuring a safe working environment for our
employees. Our commitment to safety is unwavering and is evident
in our mission statement. We will continue to foster a safe work
environment for our employees and the communities that we
service. In addition, we will continue to reward our people for
operating in a safe and conscientious manner.
|
|
§
|
Service Delivery. We believe that our focus on
service delivery differentiates us from others in the waste
management industry. During 2009, we will continue to exceed our
customers expectations through the consistent delivery of
high quality service. We will also focus on increasing the
efficiency of our service delivery. We believe that our
attention to efficient delivery of high quality customer service
will enhance customer retention.
|
|
§
|
Pricing. We remain dedicated to effective pricing
practices. Our commitment to competitive pricing helps ensure
that fees charged to our customers are fair relative to the
services they receive. Our focus on pricing also creates
long-term value for our company and our stockholders.
|
|
§
|
Integration. Our merger with Allied provides us with
a unique opportunity to integrate two successful operations and
create a
best-in-class
waste management company. During 2009, we will be keenly focused
on the seamless integration of our operations and cultures.
|
|
§
|
Synergy Capture. During 2009, we will remain
committed to achieving and surpassing our approximately
$150.0 million synergy goal. We have already developed a
detailed plan for realizing this goal which includes
participation at all levels throughout the company from the
drivers of our fleet of collection vehicles to our board of
directors. This plan anticipates achieving $100.0 million
of annual
run-rate
integration synergies by the end of fiscal 2009. We expect to
incur approximately $135.0 million and $55.0 million
of one-time costs directly attributable to achieving our synergy
goal during 2009 and 2010, respectively. We believe that our
synergy goal is achievable despite the economic slowdown.
|
|
§
|
Return on Invested Capital. Enhancing our return on
invested capital is the culmination of all our 2009 initiatives.
We will maintain our focus on disciplined growth and investing
in our business to ensure increasing capital returns and
shareholder value.
|
Consolidated
Results of Operations
Years Ended
December 31, 2008, 2007 and 2006
Our net income was $73.8 million for the year ended
December 31, 2008, or $.37 per diluted share, compared to
$290.2 million, or $1.51 per diluted share, in 2007 and
$279.6 million, or $1.39 per diluted share, in 2006.
In January 2007, our Board of Directors approved a
3-for-2
stock split in the form of a stock dividend, effective on
March 16, 2007, to stockholders of record as of
March 5, 2007. We distributed approximately
64.5 million shares from treasury stock to effect the stock
split. Our shares, per share data and weighted average common
and common equivalent shares outstanding have been retroactively
adjusted for all periods to reflect the stock split.
44
During the year ended December 31, 2008, we recorded a
number of charges and other expenses that impacted our pre-tax
income, net income and diluted earnings per share. These items
primarily consist of the following (in millions, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
Pre-Tax
|
|
|
|
|
|
Earnings
|
|
|
|
Income
|
|
|
Net Income
|
|
|
per Share
|
|
Remediation and related
charges(1)
|
|
$
|
156.8
|
|
|
$
|
94.6
|
|
|
$
|
.48
|
|
Asset
impairments(2)
|
|
|
89.8
|
|
|
|
54.1
|
|
|
|
.27
|
|
Restructuring
charges(3)
|
|
|
82.7
|
|
|
|
49.9
|
|
|
|
.25
|
|
Landfill amortization
expense(4)
|
|
|
2.8
|
|
|
|
1.7
|
|
|
|
.01
|
|
Intangible asset amortization
expense(5)
|
|
|
5.6
|
|
|
|
3.4
|
|
|
|
.02
|
|
Bad debt
expense(6)
|
|
|
19.6
|
|
|
|
11.8
|
|
|
|
.06
|
|
Legal settlement
reserves(7)
|
|
|
24.3
|
|
|
|
14.7
|
|
|
|
.07
|
|
Synergy incentive
plan(8)
|
|
|
2.9
|
|
|
|
1.7
|
|
|
|
.01
|
|
Non-cash interest
expense(9)
|
|
|
10.1
|
|
|
|
6.1
|
|
|
|
.03
|
|
Tax impact on non-deductible
items(10)
|
|
|
|
|
|
|
31.1
|
|
|
|
.16
|
|
|
|
|
(1) |
|
Remediation and related charges of
$156.8 million during 2008 were attributable to changes to
our estimates of costs incurred at our Countywide facility in
Ohio and our closed disposal facility in Contra Costa County,
California as well as the Sunrise Landfill in Nevada.
|
|
(2) |
|
During 2008, asset impairments of
$89.8 million primarily relate to our Countywide facility,
our former corporate headquarters in Florida and expected losses
on sales of Department of Justice required divestitures as a
result of our merger with Allied.
|
|
(3) |
|
During 2008, we incurred
restructuring charges of $82.7 million, consisting
primarily of severance and other employee termination and
relocation benefits attributable to integrating our operations
with Allied.
|
|
(4) |
|
During 2008, we recorded
$2.8 million of incremental landfill amortization expense
as compared to the amortization expense Allied would have
recorded for the same period. The increase in the landfill
amortization expense is the result of conforming Allieds
policies for estimating the costs and timing for capping,
closure and post-closure obligations to Republics.
|
|
(5) |
|
During 2008, we recorded
$5.6 million of intangible asset amortization expense
related to the intangible assets we recorded in the purchase
price allocation for the acquisition of Allied.
|
|
(6) |
|
During 2008, we recorded bad debt
expense of $14.2 million related to conforming
Allieds methodology for recording the allowance for
doubtful accounts for accounts receivable with our methodology
and $5.4 million to provide for specific bankruptcy
exposures.
|
|
(7) |
|
During 2008, we incurred
$24.3 million of settlement charges related to our
estimates of the outcome of various legal matters.
|
|
(8) |
|
During 2008, we recorded
$2.9 million to accrue for the synergy incentive plan pro
rata over the periods earned.
|
|
(9) |
|
During 2008, we incurred
$10.1 million of non-cash interest expense primarily
associated with amortizing the discount on the debt we acquired
from Allied that was recorded at fair value in purchase
accounting.
|
|
(10) |
|
During 2008, our effective tax rate
was impacted by several expenses associated with the merger that
are not tax deductible.
|
The following table summarizes our operating revenue, costs and
expenses in millions of dollars and as a percentage of our
revenue for the years ended December 31, 2008, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue
|
|
$
|
3,685.1
|
|
|
|
100.0
|
%
|
|
$
|
3,176.2
|
|
|
|
100.0
|
%
|
|
$
|
3,070.6
|
|
|
|
100.0
|
%
|
Cost of operations
|
|
|
2,416.7
|
|
|
|
65.6
|
|
|
|
2,003.9
|
|
|
|
63.1
|
|
|
|
1,924.4
|
|
|
|
62.7
|
|
Depreciation, amortization and depletion of property and
equipment
|
|
|
342.3
|
|
|
|
9.3
|
|
|
|
299.0
|
|
|
|
9.4
|
|
|
|
289.0
|
|
|
|
9.4
|
|
Amortization of intangible assets
|
|
|
11.8
|
|
|
|
.3
|
|
|
|
6.5
|
|
|
|
.2
|
|
|
|
7.0
|
|
|
|
.2
|
|
Accretion
|
|
|
23.9
|
|
|
|
.7
|
|
|
|
17.1
|
|
|
|
.5
|
|
|
|
15.7
|
|
|
|
.5
|
|
Selling, general and administrative expenses
|
|
|
434.7
|
|
|
|
11.8
|
|
|
|
313.7
|
|
|
|
9.9
|
|
|
|
315.0
|
|
|
|
10.3
|
|
Asset impairments
|
|
|
89.8
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
82.7
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
283.2
|
|
|
|
7.7
|
%
|
|
$
|
536.0
|
|
|
|
16.9
|
%
|
|
$
|
519.5
|
|
|
|
16.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Revenue was $3.7 billion,
$3.2 billion and $3.1 billion for the years ended
December 31, 2008, 2007 and 2006, respectively. Revenue
increased $508.9 million, or 16.0%, from 2007 to 2008. Our
acquisition of Allied in December 2008 contributed
$463.7 million to this increase in revenue. Revenue
45
increased by $105.6 million, or 3.4%, from 2006 to 2007.
The following table reflects the components of our revenue
growth for the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Core price
|
|
|
4.0
|
%
|
|
|
4.2
|
%
|
|
|
3.4
|
%
|
Fuel surcharges
|
|
|
1.8
|
|
|
|
.2
|
|
|
|
1.1
|
|
Environmental fees
|
|
|
.4
|
|
|
|
.2
|
|
|
|
.4
|
|
Recycling commodities
|
|
|
.1
|
|
|
|
.9
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total price
|
|
|
6.3
|
|
|
|
5.5
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
volume(1)
|
|
|
(3.9
|
)
|
|
|
(1.5
|
)
|
|
|
2.4
|
|
Non-core volume
|
|
|
.1
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume
|
|
|
(3.8
|
)
|
|
|
(1.6
|
)
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total internal growth
|
|
|
2.5
|
|
|
|
3.9
|
|
|
|
7.2
|
|
Acquisitions, net of
divestitures(2)
|
|
|
13.4
|
|
|
|
(.5
|
)
|
|
|
(.1
|
)
|
Taxes(3)
|
|
|
.1
|
|
|
|
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue growth
|
|
|
16.0
|
%
|
|
|
3.4
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Core volume growth for the year
ended December 31, 2006 includes .8% associated with
hauling waste from the city of Toronto to one of our landfills
in Michigan. This hauling service is provided to the city at a
rate that approximates our cost.
|
|
(2) |
|
Includes the impact of the
acquisition of Allied in December 2008.
|
|
(3) |
|
Represents new taxes levied on
landfill volumes in certain states that are passed on to
customers.
|
|
|
§
|
2008: During the year ended December 31, 2008, our
core revenue growth continued to benefit from a broad-based
pricing initiative. In addition, 14.7% of our revenue growth is
due to our acquisition of Allied in December 2008. Revenue
growth also benefited from higher fuel surcharges and
environmental fees. However, during 2008 we experienced lower
prices for commodities. We also experienced a decrease in core
volumes primarily due to lower commercial and industrial
collection volumes and lower landfill volumes resulting from the
slowdown in the economy. We expect to continue to experience
lower volumes until economic conditions improve.
|
|
§
|
2007: During the year ended December 31, 2007, our
revenue growth from core pricing continued to benefit from a
broad-based pricing initiative. Our revenue growth also
benefited from higher prices for commodities. However, we
experienced a decrease in core volume growth primarily due to
lower industrial collection and landfill volumes resulting from
the slowdown in residential construction.
|
|
§
|
2006: During the year ended December 31, 2006, our
revenue growth continued to benefit from our broad-based pricing
initiative. We experienced core volume growth in our collection
and landfill lines of business. This core volume growth was
partially offset by hurricane
clean-up
efforts that took place during the fourth quarter of 2005.
|
|
§
|
2009 Outlook: We anticipate internal revenue from core
operations to decrease approximately 4.0% during 2009. This
decrease is the expected net of growth in core pricing of
approximately 4.0% and an expected decrease in volume of
approximately 8.0%. Our projections assume no deterioration or
improvement in the overall economy from that experienced during
the fourth quarter of 2008. However, our internal growth may
remain flat or may decline in 2009 depending on economic
conditions and our success in implementing pricing initiatives.
|
Cost of Operations. Cost of operations was
$2.4 billion, $2.0 billion and $1.9 billion, or,
as a percentage of revenue, 65.6%, 63.1% and 62.7%, for the
years ended December 31, 2008, 2007 and 2006, respectively.
The increase in cost of operations in aggregate dollars for the
year ended December 31, 2008 versus the comparable 2007
period is primarily a result of our acquisition of Allied in
December 2008. The remaining increase in cost of operations in
aggregate dollars and the increase as a percentage of revenue is
primarily due to charges we recorded during 2008 of
$98.0 million related to estimated costs to comply with
F&Os issued by the OEPA and the AOC issued by the EPA in
response to environmental conditions at our Countywide facility
in Ohio, $21.9 million related to environmental conditions
at our closed disposal facility
46
in Contra Costa County, California and $34.0 million
related to environmental conditions at the Sunrise Landfill. The
increase in cost of operations and as a percentage of our
revenue for the year ended December 31, 2007 versus the
comparable 2006 period is primarily a result of the
$41.0 million charge we recorded in cost of operations
related to environmental conditions at our Countywide facility
and an $8.1 million charge related to our closed disposal
facility in Contra Costa County, California.
The following table summarizes the major components of our cost
of operations for the years ended December 31, 2008, 2007
and 2006 in millions of dollars and as a percentage of our
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Subcontractor, disposal and third-party fees
|
|
$
|
770.6
|
|
|
|
20.9
|
%
|
|
$
|
699.6
|
|
|
|
22.0
|
%
|
|
$
|
718.7
|
|
|
|
23.4
|
%
|
Labor and benefits
|
|
|
705.5
|
|
|
|
19.2
|
|
|
|
620.0
|
|
|
|
19.5
|
|
|
|
588.5
|
|
|
|
19.2
|
|
Maintenance and operating expenses
|
|
|
721.8
|
|
|
|
19.6
|
|
|
|
511.0
|
|
|
|
16.1
|
|
|
|
457.3
|
|
|
|
14.9
|
|
Insurance and other
|
|
|
218.8
|
|
|
|
5.9
|
|
|
|
173.3
|
|
|
|
5.5
|
|
|
|
159.9
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
2,416.7
|
|
|
|
65.6
|
%
|
|
$
|
2,003.9
|
|
|
|
63.1
|
%
|
|
$
|
1,924.4
|
|
|
|
62.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A description of our cost categories is as follows:
|
|
§
|
Subcontractor, disposal and third-party fees include costs such
as third-party disposal, transportation of waste, host fees and
cost of goods sold. The decrease in such expenses as a
percentage of revenue for all periods presented is primarily due
to higher revenue resulting from improved pricing. In addition,
the decrease in such expenses as a percentage of revenue for the
year ended December 31, 2008 versus the comparable 2007
period is also due to lower costs of goods sold associated with
the sale of our lower margin, Texas-based compost, mulch and
soil business in November 2007. During 2007, drier weather,
particularly in our Southern Region, resulted in lower disposal
costs. The reduction in costs were partially offset by
additional third-party hauling costs incurred during 2006
associated with our assuming responsibility for hauling waste
from the city of Toronto to one of our landfills in Michigan.
|
|
§
|
Labor and benefits include costs such as wages, salaries,
payroll taxes and health benefits for our frontline service
employees and their supervisors. Such expenses as a percentage
of revenue for the year ended December 31, 2008 versus the
comparable 2007 period decreased due to higher revenue resulting
from improved pricing and lower labor costs associated with
volume decreases in various lines of business. The increase in
such expenses as a percentage of revenue for the year ended
December 31, 2007 versus the comparable 2006 period is due
to increases in benefits including health insurance. In
addition, during December 2006, we assumed responsibility for
hauling a portion of our transfer station volumes to one of our
landfills. This hauling service reduced our third-party fees and
increased various other cost categories, the most significant of
which was labor.
|
|
§
|
Maintenance and operating includes costs such as fuel, parts,
shop labor and benefits, third-party repairs, and landfill
monitoring and operating. The increase in such expenses in
aggregate dollars and as a percentage of revenue for the year
ended December 31, 2008 versus the comparable 2007 period
is primarily a result of the $98.0 million charge related
to the Countywide facility, the $21.9 million charge
related to our closed disposal facility in California and the
$34.0 million charge related to the Sunrise Landfill. This
increase is partially offset by the $41.0 million of
charges related to our Countywide facility and the
$8.1 million charge related to our closed disposal facility
in California recorded during 2007. The increase in such
expenses as a percentage of revenue for the year ended
December 31, 2007 versus the comparable 2006 period is
primarily due to an increase in landfill operating costs
resulting from the charges recorded during the year ended
December 31, 2007 of $41.0 million related to our
Countywide facility and $8.1 million charge related to our
closed disposal facility in California. Excluding these charges
in the respective periods, the decrease in expenses in aggregate
dollars and as a percentage of revenue for the years ended
December 31, 2008 and 2007 are primarily due to increases
in fuel prices. Our average cost of fuel per gallon increased
approximately 32% from $2.76 per gallon during 2007 to $3.63 per
gallon during 2008, and increased approximately 7% from $2.59
per gallon during 2006 to $2.76 per gallon for 2007. Current
average fuel prices are $2.12 per gallon.
|
47
|
|
§ |
Insurance and other includes costs such as workers
compensation, auto and general liability insurance, property
taxes, property maintenance and utilities. The increase in such
expenses as a percentage of revenue for all of the years
presented is primarily due to an increase in the severity of our
automobile insurance claims.
|
The cost categories shown above may change from time to time and
may not be comparable to similarly titled categories used by
other companies. As such, care should be taken when comparing
our cost of operations by cost component to that of other
companies.
Depreciation, Amortization and Depletion of Property and
Equipment. Depreciation, amortization and depletion
expenses for property and equipment were $342.3 million,
$299.0 million and $289.0 million, or, as a percentage
of revenue, 9.3%, 9.4% and 9.4%, for the years ended
December 31, 2008, 2007 and 2006, respectively. The
increase in such expenses in aggregate dollars for the year
ended December 31, 2008 versus the comparable 2007 is
primarily due to our acquisition of Allied in December 2008. The
decrease in such expenses as a percentage of revenue for the
year ended December 31, 2008 versus the comparable 2007
period is primarily due to a reduction of amortization expense
associated with lower landfill volumes. The increase in such
expenses in aggregate dollars for the year ended
December 31, 2007 versus the comparable 2006 period is
partially due to $3.3 million of adjustments to landfill
amortization expense for changes in estimates and assumptions
related to our reviews of landfill asset retirement obligations
under SFAS 143. In addition, during the year ended
December 31, 2007, we incurred approximately
$3.3 million of additional depletion and amortization
expense associated with a reduction of estimated remaining
available airspace at our Countywide facility. Depreciation
expense during 2007 was also slightly higher due to our ongoing
truck and equipment replacement program.
Amortization of Intangible Assets. Intangible assets
that have a finite life and are amortized generally consist of
customer relationships, long-term contracts and covenants not to
compete. Expenses for amortization of intangible assets were
$11.8 million, $6.5 million and $7.0 million, or,
as a percentage of revenue, .3%, .2% and .2% for the years ended
December 31, 2008, 2007 and 2006, respectively. The
increase in such expenses in aggregate dollars and as a
percentage of revenue for the year ended December 31, 2008
versus the comparable 2007 and 2006 periods is due to the
amortization of intangible assets recorded as a result of our
acquisition of Allied. We expect this acquisition will increase
our intangible asset amortization expense by approximately
$65.0 million in 2009.
Accretion Expense. Accretion expense was
$23.9 million, $17.1 million and $15.7 million,
or, as a percentage of revenue, .7%, .5% and .5% for the years
ended December 31, 2008, 2007 and 2006, respectively. The
increase in such expenses in aggregate dollars in 2008 versus
the comparable 2007 and 2006 periods is primarily due to an
increase in asset retirement obligations associated with our
acquisition of Allied. The asset retirement obligations acquired
from Allied are recorded using a discount rate of 9.75%, which
is higher than the credit-adjusted, risk-free rate we have used
historically to record such obligations. Our accretion expense
in 2009 will reflect the increase in asset retirement
obligations recorded in the acquisition of Allied and the impact
of using a higher overall average discount rate for recording
these liabilities.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses
were $434.7 million, $313.7 million and
$315.0 million, or, as a percentage of revenue, 11.8%, 9.9%
and 10.3%, for the years ended December 31, 2008, 2007 and
2006, respectively.
The increase in such expenses both in aggregate dollars and as a
percentage of revenue for the year ended December 31, 2008
versus the comparable 2007 period is primarily due to
$14.2 million of bad debt expense related to conforming
Allieds methodology for recording the allowance for
doubtful accounts on accounts receivable with ours and
$5.4 million to provide for specific bankruptcy exposures.
This increase is also due to $24.3 million of settlement
charges related to our estimates of the outcome of various legal
matters.
Excluding these costs, selling, general and administrative
expenses for the year ended December 31, 2008 would have
been $390.8 million, or 10.6% as a percentage of revenue.
The increase in selling,
48
general and administrative expenses (excluding the costs
mentioned above) in aggregate dollars during 2008 versus the
comparable 2007 period is primarily due to our merger with
Allied. The increase in such expenses as a percentage of revenue
for 2008 versus the comparable 2007 period is primarily due to
our merger with Allied and a $4.3 million reduction in our
allowance for doubtful accounts which we recorded during the
year ended December 31, 2007 as a result of refining our
estimate for our allowance based on our historical collection
experience.
The increase in such expenses in aggregate dollars for the year
ended December 31, 2007 versus the comparable 2006 period
is primarily due to the expansion of our business. The decrease
in such expenses as a percentage of revenue for 2007 versus 2006
is primarily due to a reduction in incentive compensation costs
and the $4.3 million reduction to our allowance for
doubtful accounts recorded during 2007.
Upon the completion of the integration of Allied, our goal is to
maintain our selling, general and administrative costs at no
more than 10.0% of revenue, which we believe is appropriate
given our existing business platform.
Asset Impairments. During the year ended
December 31, 2008, we recorded a $75.9 million charge
related to the impairment of our Countywide facility. This
impairment relates to the anticipated loss of permitted airspace
associated with complying with F&Os issued by the OEPA and
the AOC issued by the EPA based upon recent negotiations with
the OEPA and the EPA. During the year ended December 31,
2008, we recorded a loss of $6.1 million for expected
losses on asset divestitures mandated by the DOJ. Also during
the year ended December 31, 2008, we recorded
$7.8 million of other impairment charges, consisting
primarily of charges related to our former corporate
headquarters in South Florida.
Restructuring Charges. During the year ended December 31,
2008, we incurred $82.7 million of restructuring charges
associated with integrating our operations with Allied. These
charges primarily consist of severance and other employee
termination and relocation benefits and consulting fees paid to
outside parties.
Operating Income. Operating income was
$283.2 million, $536.0 million and
$519.5 million, or, as a percentage of revenue, 7.7%, 16.9%
and 16.9%, for the years ended December 31, 2008, 2007 and
2006, respectively. The reduction in operating income as a
percentage of revenue for 2008 versus the comparable 2007 and
2006 periods is primarily due to the remediation, asset
impairment and restructuring charges noted above.
Interest Expense. We incurred interest expense
primarily on our credit facilities, senior notes and tax-exempt
bonds. Interest expense was $131.9 million,
$94.8 million and $95.8 million for the years ended
December 31, 2008, 2007 and 2006, respectively. The
increase in interest expense during the year ended
December 31, 2008 versus the comparable 2007 period is
primarily due to the additional debt we acquired as a
result of our acquisition of Allied. In addition, during
December 2008, we incurred approximately $10.1 million of
non-cash interest expense. This expense relates primarily to a
$624.3 million discount we recorded to fair value the debt
we acquired from Allied that is being amortized generally over
the term of the related debt. It also relates to accretion
expenses associated with discounted environmental and risk
insurance reserves.
Capitalized interest was $2.6 million, $3.0 million
and $2.7 million for the years ended December 31,
2008, 2007 and 2006, respectively.
Interest Income and Other Income (Expense),
Net. Interest income and other income, net of other
expense, was $8.0 million, $26.9 million and
$20.0 million for the years ended December 31, 2008,
2007 and 2006, respectively. The amount in 2007 is primarily due
to a $12.5 million gain related to the sale of our compost,
mulch and soil business in Texas.
Income Taxes. Our provision for income taxes was
$85.4 million, $177.9 million and $164.1 million
for the years ended December 31, 2008, 2007 and 2006,
respectively. Our effective income tax rate was 53.6%, 38.0% and
37.0% for the years ended December 31, 2008, 2007 and 2006,
respectively. During the year ended December 31, 2008, we
incurred several expenses that were not tax deductible as a
result of the
49
merger with Allied. In addition, lower pre-tax earnings
contributed to the increase in the effective tax rate. During
the year ended December 31, 2007, we recorded a net tax
benefit of $4.8 million in our provision for income taxes
related to the resolution of various income tax matters,
including the effective completion of Internal Revenue Service
audits of our consolidated tax returns for fiscal years 2001
through 2004. Income tax expense for the year ended
December 31, 2006 includes a $5.1 million benefit
related to the resolution of various income tax matters,
including the effective completion of Internal Revenue Service
audits for the years 1998 through 2000.
Landfill and
Environmental Matters
Available
Airspace
The following tables reflect landfill airspace activity for
active landfills owned or operated by us for the years ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Permits
|
|
|
|
|
|
Changes
|
|
|
|
|
|
Balance
|
|
|
|
as of
|
|
|
Acquisition
|
|
|
Granted,
|
|
|
|
|
|
in
|
|
|
Changes
|
|
|
as of
|
|
|
|
December 31,
|
|
|
of
|
|
|
Net of
|
|
|
Airspace
|
|
|
Engineering
|
|
|
in
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Allied
|
|
|
Closures
|
|
|
Consumed
|
|
|
Estimates(1)
|
|
|
Design(1)
|
|
|
2008
|
|
|
Permitted airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
1,537.3
|
|
|
|
3,061.1
|
|
|
|
22.5
|
|
|
|
(42.7
|
)
|
|
|
(18.6
|
)
|
|
|
|
|
|
|
4,559.6
|
|
Number of sites
|
|
|
58
|
|
|
|
157
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
Probable expansion airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
192.0
|
|
|
|
214.1
|
|
|
|
(18.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
386.2
|
|
Number of sites
|
|
|
11
|
|
|
|
15
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
1,729.3
|
|
|
|
3,275.2
|
|
|
|
3.6
|
|
|
|
(42.7
|
)
|
|
|
(18.6
|
)
|
|
|
(1.0
|
)
|
|
|
4,945.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of sites
|
|
|
58
|
|
|
|
157
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Landfill
|
|
|
Permits
|
|
|
|
|
|
Changes
|
|
|
|
|
|
Balance
|
|
|
|
as of
|
|
|
New
|
|
|
Operating
|
|
|
Granted,
|
|
|
|
|
|
in
|
|
|
Changes
|
|
|
as of
|
|
|
|
December 31,
|
|
|
Expansions
|
|
|
Contracts,
|
|
|
Net of
|
|
|
Airspace
|
|
|
Engineering
|
|
|
in
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Undertaken
|
|
|
Net
|
|
|
Closures
|
|
|
Consumed
|
|
|
Estimates(1)
|
|
|
Design(1)
|
|
|
2007
|
|
|
Permitted airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
1,597.2
|
|
|
|
|
|
|
|
.2
|
|
|
|
1.2
|
|
|
|
(40.3
|
)
|
|
|
6.9
|
|
|
|
(27.9
|
)
|
|
|
1,537.3
|
|
Number of sites
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Probable expansion airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
124.6
|
|
|
|
74.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.5
|
|
|
|
(7.5
|
)
|
|
|
192.0
|
|
Number of sites
|
|
|
8
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
1,721.8
|
|
|
|
74.4
|
|
|
|
.2
|
|
|
|
1.2
|
|
|
|
(40.3
|
)
|
|
|
7.4
|
|
|
|
(35.4
|
)
|
|
|
1,729.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of sites
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Permits
|
|
|
|
|
|
Changes
|
|
|
|
|
|
|
as of
|
|
|
Granted,
|
|
|
|
|
|
in
|
|
|
Balance
|
|
|
|
December 31,
|
|
|
Net of
|
|
|
Airspace
|
|
|
Engineering
|
|
|
as of December 31,
|
|
|
|
2005
|
|
|
Closures
|
|
|
Consumed
|
|
|
Estimates(1)
|
|
|
2006
|
|
|
Permitted airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
1,577.7
|
|
|
|
56.6
|
|
|
|
(43.5
|
)
|
|
|
6.4
|
|
|
|
1,597.2
|
|
Number of sites
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Probable expansion airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
177.7
|
|
|
|
(52.5
|
)
|
|
|
|
|
|
|
(.6
|
)
|
|
|
124.6
|
|
Number of sites
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available airspace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic yards (in millions)
|
|
|
1,755.4
|
|
|
|
4.1
|
|
|
|
(43.5
|
)
|
|
|
5.8
|
|
|
|
1,721.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of sites
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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
landfills footprint or vertical slopes.
|
50
As of December 31, 2008, we owned or operated 213 active
solid waste landfills with total available disposal capacity
estimated to be 4.9 billion in-place cubic yards. Total
available disposal capacity represents the sum of estimated
permitted airspace plus an estimate of probable expansion
airspace. These estimates are developed at least annually by
engineers utilizing information provided by annual aerial
surveys. As of December 31, 2008, total available disposal
capacity is estimated to be 4.5 billion in-place cubic
yards of permitted airspace plus .4 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 all of our expansion
criteria. See Note 2, Summary of Significant Accounting
Policies, and Note 8, Landfill and Environmental
Costs, to our consolidated financial statements in
Item 8 of this
Form 10-K
for further information.
During 2008, total available airspace increased by a net
3.2 billion cubic yards due the merger with Allied in
December, which contributed 157 active landfills
representing 3.3 billion cubic yards of permitted and
probable expansion airspace to our landfill assets. Excluding
the merger with Allied, total available airspace decreased by a
net .1 billion cubic yards primarily due to airspace
consumed, changes in engineering estimates and changes in
design. The decrease during 2008 due to changes in engineering
estimates is primarily due to a reduction of remaining airspace
at our Countywide facility. During 2007, total available
airspace increased by a net 7.5 million cubic yards due to
new expansions undertaken, changes in engineering estimates and
permits granted, partially offset by airspace consumed and
changes in design. In addition, during the year ended
December 31, 2007, total available airspace increased as a
result of obtaining a new contract to operate a landfill in
Texas, which was substantially offset by a reduction resulting
from not renewing a contract to operate a small landfill in
Texas. Changes in design in 2007 are primarily due to a
reduction of estimated remaining available airspace at our
Countywide facility. During 2006, total available airspace
decreased by 33.6 million cubic yards due to airspace
consumption, partially offset by permits granted and changes in
engineering estimates.
At December 31, 2005, 10.1% of our total available
airspace, or 177.7 million cubic yards, consisted of
probable expansion airspace at nine of our landfills. At
December 31, 2008, 7.8% of our total available airspace, or
386.2 million cubic yards, consisted of probable expansion
airspace at 23 of our landfills. Between December 31, 2005
and December 31, 2008, we received permits for
eight of our probable expansions, which demonstrates our
continued success in obtaining permits for expansion airspace.
As of December 31, 2008, 23 of our landfills meet all
of our criteria for including their probable expansion airspace
in their total available disposal capacity, 15 of which were
added as a result of our acquisition of Allied. At projected
annual volumes, these landfills have an estimated remaining
average site life of 32 years, including probable expansion
airspace. The average estimated remaining life of all of our
landfills is 42 years. We have other expansion
opportunities that are not included in our total available
airspace because they do not meet all of our criteria for
probable expansion airspace.
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, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Sites
|
|
|
Number of Sites
|
|
|
|
|
|
Percent
|
|
|
|
without Expansion
|
|
|
with Expansion
|
|
|
Total
|
|
|
of
|
|
|
|
Airspace
|
|
|
Airspace
|
|
|
Sites
|
|
|
Total
|
|
|
0 to 5 years
|
|
|
19
|
|
|
|
2
|
|
|
|
21
|
|
|
|
9.9
|
%
|
6 to 10 years
|
|
|
17
|
|
|
|
2
|
|
|
|
19
|
|
|
|
8.9
|
|
11 to 20 years
|
|
|
64
|
|
|
|
6
|
|
|
|
70
|
|
|
|
32.9
|
|
21 to 40 years
|
|
|
43
|
|
|
|
8
|
|
|
|
51
|
|
|
|
23.9
|
|
41+ years
|
|
|
47
|
|
|
|
5
|
|
|
|
52
|
|
|
|
24.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
190
|
|
|
|
23
|
|
|
|
213
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sites with expansion airspace include two landfills with
less than five years of remaining permitted airspace.
51
Final Capping,
Closure and Post-Closure Costs
As of December 31, 2008, accrued final capping, closure and
post-closure costs were $1.0 billion, of which
$130.6 million is current and $910.0 million is
long-term as reflected in our consolidated balance sheets in
accrued landfill and environmental costs.
Remediation and
Other Charges for Landfill Matters
In December 2008, we recorded a preliminary purchase price
allocation of $208.1 million for the environmental
liabilities we acquired as part of the acquisition of Allied.
These liabilities represent our preliminary estimate of our
costs to remediate sites that were previously owned or operated
by Allied, or sites at which Allied, or a predecessor company
that they had acquired, had been identified as a potentially
responsible party. The remediation of these sites is in various
stages of completion from having received an initial notice from
a regulatory agency and commencing investigation to being in the
final stages of postremedial monitoring. See Note 2,
Summary of Significant Accounting Policies
Environmental Remediation Liabilities, to our consolidated
financial statements in Item 8 of this
Form 10-K
for further information.
During 2007, we recorded pre-tax charges of $45.3 million
related to estimated costs to comply with F&Os issued by
the OEPA in response to environmental conditions at Countywide
and to undertake certain other remedial actions that we agreed
with the OEPA to perform, including, without limitation,
installing a fire break and removing liquids from
gas extraction wells. We also recorded $3.3 million of
additional depletion and amortization expense during the year
ended December 31, 2007 associated with a reduction of
estimated remaining available airspace at this landfill as a
result of the OEPAs F&Os.
During 2008, Republic-Ohio, an Ohio limited liability company
and wholly owned subsidiary of ours and parent of Countywide,
entered into an AOC with the EPA requiring the reimbursement of
costs incurred by the EPA and requiring Republic-Ohio to
(a) design and install a temperature and gas monitoring
system, (b) design and install a composite cap or cover,
and (c) develop and implement an air monitoring program.
The AOC became effective on April 17, 2008 and
Republic-Ohio is complying with the terms of the AOC. We
received additional orders from the OEPA in 2008. Based upon
current information and engineering analyses and discussions
with the OEPA and EPA subsequent to the signing of the
above-mentioned agreement, we recorded an additional pre-tax
charge for remediation costs of $98.0 million during 2008.
These costs include placing an enhanced cap (in excess of
Countywides current permit requirements) over certain
portions of the landfill.
We have requested relief with respect to certain requirements of
the orders received from the OEPA as we believe the requirements
should no longer be considered essential in light of the work we
have now agreed with the EPA to perform.
While we are vigorously pursuing financial contributions from
third parties for our costs to comply with the F&Os and the
additional remedial actions, we have not recorded any
receivables for potential recoveries.
In addition, during 2008 we recorded an impairment charge of
$75.9 million related to a reduction in our estimated
remaining airspace at Countywide.
During 2007, we recorded a pre-tax charge of $9.6 million
associated with an increase in estimated leachate disposal costs
and costs to upgrade onsite equipment that captures and treats
leachate at our closed disposal facility in Contra Costa County,
California. These additional costs are attributable to a consent
agreement with the California Department of Toxic Substance
Control. During 2008, we recorded an additional pre-tax charge
of $21.9 million for increases in our estimated leachate
disposal costs and leachate treatment equipment costs at this
facility.
On August 1, 2008, Republic Services of Southern Nevada
(RSSN), a wholly owned subsidiary of ours, signed a Consent
Decree and Settlement Agreement (Consent Decree) with the EPA,
the Bureau of Land Management and Clark County, Nevada related
to the Sunrise Landfill. Under the Consent Decree, RSSN has
agreed to perform certain remedial actions at the Sunrise
Landfill for which RSSN and Clark County
52
were otherwise jointly and severally liable. As a result, we
recorded, based on managements best estimates, a pre-tax
charge of $35.0 million during 2008, of which
$34.0 million was recorded for remediation costs associated
with complying with the Consent Decree. RSSN is currently
working with the Clark County Staff and Board of Commissioners
to develop a mechanism to fund the costs to comply with the
Consent Decree. However, we have not recorded any potential
recoveries. The majority of this remediation liability is
expected to be paid during 2009 and 2010.
It is reasonably possible that we will need to adjust the
charges noted above to reflect the effects of new or additional
information, to the extent that such information impacts the
costs, timing or duration of the required actions. Future
changes in our estimates of the costs, timing or duration of the
required actions could have a material adverse effect on our
consolidated financial position, results of operations or cash
flows.
No other significant amounts were charged to income for
remediation costs during the years ended December 31, 2008,
2007 and 2006.
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 accrue costs
related to environmental remediation activities associated with
acquisitions of properties 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.
Investment in
Landfills
The following tables reflect changes in our investment in
landfills for the years ended December 31, 2008, 2007 and
2006 and the future expected investment as of December 31,
2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Additions
|
|
|
Transfers
|
|
|
|
|
|
Balance
|
|
|
|
as of
|
|
|
|
|
|
Acquisition
|
|
|
for Asset
|
|
|
|
|
|
Charged
|
|
|
and
|
|
|
Impairments
|
|
|
as of
|
|
|
|
December 31,
|
|
|
Capital
|
|
|
of
|
|
|
Retirement
|
|
|
SFAS 143
|
|
|
to
|
|
|
Other
|
|
|
and Transfers
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Additions
|
|
|
Allied
|
|
|
Obligations
|
|
|
Adjustments
|
|
|
Expense
|
|
|
Adjustments
|
|
|
to Held for Sale
|
|
|
2008
|
|
|
Non-depletable landfill land
|
|
$
|
52.7
|
|
|
$
|
.2
|
|
|
$
|
115.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
.7
|
|
|
$
|
|
|
|
$
|
169.3
|
|
Landfill development costs
|
|
|
1,809.1
|
|
|
|
3.6
|
|
|
|
2,610.8
|
|
|
|
20.5
|
|
|
|
(33.2
|
)
|
|
|
|
|
|
|
74.8
|
|
|
|
(359.3
|
)
|
|
|
4,126.3
|
|
Construction-in-progress
landfill
|
|
|
66.4
|
|
|
|
105.1
|
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74.0
|
)
|
|
|
(21.6
|
)
|
|
|
76.2
|
|
Accumulated depletion and amortization
|
|
|
(1,039.5
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
0.6
|
|
|
|
(119.1
|
)
|
|
|
|
|
|
|
155.0
|
|
|
|
(1,004.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$
|
888.7
|
|
|
$
|
108.9
|
|
|
$
|
2,725.6
|
|
|
$
|
20.5
|
|
|
$
|
(32.6
|
)
|
|
$
|
(119.1
|
)
|
|
$
|
1.5
|
|
|
$
|
(225.9
|
)
|
|
$
|
3,367.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Expected Future
|
|
|
Total
|
|
|
|
2008
|
|
|
Investment
|
|
|
Expected Investment
|
|
|
Non-depletable landfill land
|
|
$
|
169.3
|
|
|
$
|
|
|
|
$
|
169.3
|
|
Landfill development costs
|
|
|
4,126.3
|
|
|
|
6,137.3
|
|
|
|
10,263.6
|
|
Construction-in-progress
landfill
|
|
|
76.2
|
|
|
|
|
|
|
|
76.2
|
|
Accumulated depletion and amortization
|
|
|
(1,004.2
|
)
|
|
|
|
|
|
|
(1,004.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$
|
3,367.6
|
|
|
$
|
6,137.3
|
|
|
$
|
9,504.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Additions
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
as of
|
|
|
|
|
|
|
|
|
Landfill
|
|
|
for Asset
|
|
|
|
|
|
Charged
|
|
|
and
|
|
|
as of
|
|
|
|
December 31,
|
|
|
Capital
|
|
|
|
|
|
Operating
|
|
|
Retirement
|
|
|
SFAS 143
|
|
|
to
|
|
|
Other
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Additions
|
|
|
Retirements
|
|
|
Contracts
|
|
|
Obligations
|
|
|
Adjustments
|
|
|
Expense
|
|
|
Adjustments
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-depletable landfill land
|
|
$
|
52.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfill development costs
|
|
|
1,710.6
|
|
|
|
.9
|
|
|
|
(2.5
|
)
|
|
|
2.5
|
|
|
|
19.5
|
|
|
|
(.7
|
)
|
|
|
|
|
|
|
78.8
|
|
|
|
1,809.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction-in-progress
landfill
|
|
|
61.1
|
|
|
|
95.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.6
|
)
|
|
|
66.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depletion and amortization
|
|
|
(930.6
|
)
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
(110.1
|
)
|
|
|
|
|
|
|
(1,039.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$
|
893.8
|
|
|
$
|
96.8
|
|
|
$
|
(.2
|
)
|
|
$
|
2.5
|
|
|
$
|
19.5
|
|
|
$
|
(1.8
|
)
|
|
$
|
(110.1
|
)
|
|
$
|
(11.8
|
)
|
|
$
|
888.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Additions
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
as of
|
|
|
|
|
|
|
|
|
for Asset
|
|
|
|
|
|
Charged
|
|
|
and
|
|
|
as of
|
|
|
|
December 31,
|
|
|
Capital
|
|
|
|
|
|
Retirement
|
|
|
SFAS 143
|
|
|
to
|
|
|
Other
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Additions
|
|
|
Retirements
|
|
|
Obligations
|
|
|
Adjustments
|
|
|
Expense
|
|
|
Adjustments
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-depletable landfill land
|
|
$
|
51.6
|
|
|
$
|
1.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfill development costs
|
|
|
1,618.4
|
|
|
|
1.6
|
|
|
|
(7.0
|
)
|
|
|
22.8
|
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
85.1
|
|
|
|
1,710.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction-in-progress
landfill
|
|
|
55.8
|
|
|
|
90.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84.8
|
)
|
|
|
61.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depletion and amortization
|
|
|
(829.3
|
)
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
|
|
.3
|
|
|
|
(108.1
|
)
|
|
|
(.5
|
)
|
|
|
(930.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in landfill land and development costs
|
|
$
|
896.5
|
|
|
$
|
92.8
|
|
|
$
|
|
|
|
$
|
22.8
|
|
|
$
|
(10.0
|
)
|
|
$
|
(108.1
|
)
|
|
$
|
(.2
|
)
|
|
$
|
893.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of landfills owned or operated
|
|
|
213
|
|
|
|
58
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment, excluding non-depletable land (in millions)
|
|
$
|
3,198.3
|
|
|
$
|
836.0
|
|
|
$
|
841.1
|
|
Total estimated available disposal capacity (in millions of
cubic yards)
|
|
|
4,945.8
|
|
|
|
1,729.3
|
|
|
|
1,721.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment per cubic yard
|
|
$
|
.65
|
|
|
$
|
.48
|
|
|
$
|
.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfill depletion and amortization expense (in millions)
|
|
$
|
119.7
|
|
|
$
|
110.1
|
|
|
$
|
108.1
|
|
Accretion expense (in millions)
|
|
|
23.9
|
|
|
|
17.1
|
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143.6
|
|
|
|
127.2
|
|
|
|
123.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airspace consumed (in millions of cubic yards)
|
|
|
42.7
|
|
|
|
40.3
|
|
|
|
43.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion, amortization and accretion expense per cubic yard of
airspace consumed
|
|
$
|
3.36
|
|
|
$
|
3.16
|
|
|
$
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in the investment in our landfills, both in
aggregate dollars and as an investment per cubic yard, is
primarily due to the acquisition of Allied in December 2008.
Landfill development cost in the above table include
$2.6 billion of purchase price for the acquisition that has
been allocated to the permitted and probable expansion airspace
acquired based on its fair value as of the date of the
acquisition. The increase in depletion, amortization and
accretion expense from 2007 to 2008 is primarily due to
$5.8 million of accretion expense associated with capping,
closure and post-closure liabilities acquired from Allied. The
asset retirement obligations acquired from Allied are recorded
using a discount rate of 9.75%, which is higher than the rate we
have historically used. See Note 2, Summary of
Significant Accounting Policies, regarding SFAS 143
adjustments.
The increase in depletion, amortization and accretion expense
per cubic yard of airspace consumed from 2006 to 2007 is
partially due to an increase of $3.3 million in landfill
amortization expense that we recorded during the year ended
December 31, 2007 related to reviews of landfill asset
retirement obligations at our landfills. This increase is also
partially due to $3.3 million of additional depletion and
amortization expense we recorded during the year ended
December 31, 2007 associated with a reduction of estimated
remaining available airspace at our Countywide facility.
During the years ended December 31, 2008, 2007 and 2006,
our weighted-average compaction rate was approximately
1,650 pounds per cubic yard based on our three-year
historical moving average. Our compaction rates may improve as a
result of the settlement and decomposition of waste.
As of December 31, 2008, we expect to spend an estimated
additional $6.1 billion on existing landfills, primarily
related to cell construction and environmental structures, over
their expected remaining lives. Our total expected investment,
excluding non-depletable land, estimated to be
$9.3 billion, or $1.89 per cubic yard, is used in
determining our depletion and amortization expense based on
airspace consumed using the
units-of-consumption
method.
54
Selected Balance
Sheet Accounts
The following tables reflect the activity in our allowance for
doubtful accounts, final capping, closure, post-closure
liabilities, environmental remediation liabilities, and accrued
self-insurance during the years ended December 31, 2008,
2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Final Capping,
|
|
|
|
|
|
|
|
|
|
Doubtful
|
|
|
Closure and
|
|
|
|
|
|
Self-
|
|
|
|
Accounts
|
|
|
Post-Closure
|
|
|
Remediation
|
|
|
Insurance
|
|
|
Balance, December 31, 2007
|
|
$
|
14.7
|
|
|
$
|
277.7
|
|
|
$
|
67.5
|
|
|
$
|
178.0
|
|
Non-cash asset additions
|
|
|
|
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
Acquisition of Allied
|
|
|
27.2
|
|
|
|
813.1
|
|
|
|
208.1
|
|
|
|
184.1
|
|
SFAS 143 adjustments
|
|
|
|
|
|
|
(32.6
|
)
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
|
|
|
|
23.9
|
|
|
|
1.7
|
|
|
|
1.1
|
|
Other additions charged to expense
|
|
|
36.5
|
|
|
|
|
|
|
|
155.9
|
|
|
|
203.0
|
|
Transfers to assets held for sale
|
|
|
|
|
|
|
(34.1
|
)
|
|
|
|
|
|
|
|
|
Payments or usage
|
|
|
(12.7
|
)
|
|
|
(27.9
|
)
|
|
|
(43.3
|
)
|
|
|
(180.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
65.7
|
|
|
|
1,040.6
|
|
|
|
389.9
|
|
|
|
385.3
|
|
Less: Current portion
|
|
|
(65.7
|
)
|
|
|
(130.6
|
)
|
|
|
(102.8
|
)
|
|
|
(173.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
|
|
|
$
|
910.0
|
|
|
$
|
287.1
|
|
|
$
|
211.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Final Capping,
|
|
|
|
|
|
|
|
|
|
Doubtful
|
|
|
Closure and
|
|
|
|
|
|
Self-
|
|
|
|
Accounts
|
|
|
Post-Closure
|
|
|
Remediation
|
|
|
Insurance
|
|
|
Balance, December 31, 2006
|
|
$
|
18.8
|
|
|
$
|
257.6
|
|
|
$
|
45.1
|
|
|
$
|
157.7
|
|
Non-cash asset additions
|
|
|
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
SFAS 143 adjustments
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
Other additions charged to expense, net of adjustments
|
|
|
3.9
|
|
|
|
|
|
|
|
51.4
|
|
|
|
188.2
|
|
Divestitures
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments or usage
|
|
|
(7.8
|
)
|
|
|
(14.7
|
)
|
|
|
(29.0
|
)
|
|
|
(167.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
14.7
|
|
|
|
277.7
|
|
|
|
67.5
|
|
|
|
178.0
|
|
Less: Current portion
|
|
|
(14.7
|
)
|
|
|
(32.6
|
)
|
|
|
(33.4
|
)
|
|
|
(59.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
|
|
|
$
|
245.1
|
|
|
$
|
34.1
|
|
|
$
|
118.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Final Capping,
|
|
|
|
|
|
|
|
|
|
Doubtful
|
|
|
Closure and
|
|
|
|
|
|
Self-
|
|
|
|
Accounts
|
|
|
Post-Closure
|
|
|
Remediation
|
|
|
Insurance
|
|
|
Balance, December 31, 2005
|
|
$
|
17.3
|
|
|
$
|
239.5
|
|
|
$
|
50.3
|
|
|
$
|
158.6
|
|
Non-cash asset additions
|
|
|
|
|
|
|
22.8
|
|
|
|
|
|
|
|
|
|
SFAS 143 adjustments
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
|
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
Other additions charged to expense
|
|
|
8.4
|
|
|
|
|
|
|
|
8.5
|
|
|
|
164.4
|
|
Payments or usage
|
|
|
(6.9
|
)
|
|
|
(10.4
|
)
|
|
|
(13.7
|
)
|
|
|
(165.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
18.8
|
|
|
|
257.6
|
|
|
|
45.1
|
|
|
|
157.7
|
|
Less: Current portion
|
|
|
(18.8
|
)
|
|
|
(29.0
|
)
|
|
|
(13.0
|
)
|
|
|
(50.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
|
|
|
$
|
228.6
|
|
|
$
|
32.1
|
|
|
$
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our expense related to doubtful accounts as a percentage of
revenue for 2008, 2007 and 2006 was 1.0%, .1% and .3%,
respectively. The increase in the allowance for doubtful
accounts during the year ended December 31, 2008 versus the
comparable 2007 period is primarily due to the following:
$27.2 million related to the acquisition of Allied,
$14.2 million to adjust the allowance for doubtful accounts
acquired from
55
Allied to conform to Republics accounting policies and
$5.4 million related to providing for specific bankruptcy
exposures. The reduction in the allowance for doubtful accounts
during the year ended December 31, 2007 versus the
comparable 2006 period is due to an adjustment we recorded in
2007 of $4.3 million as a result of refining our estimate
for our allowance based on our historical collection experience.
As of December 31, 2008, accounts receivable were
$945.5 million, net of allowance for doubtful accounts of
$65.7 million, resulting in days sales outstanding of 40,
or 25 days net of deferred revenue. At December 31,
2008, our accounts receivable in excess of 90 days old
totaled $59.4 million, or 5.9% of gross receivables
outstanding.
Our expense for self-insurance, which includes risk insurance
and health insurance for all of our employees, as a percentage
of revenue for 2008, 2007 and 2006 was 5.5%, 5.9% and 5.4%,
respectively. The decrease in self-insurance expense as a
percentage of revenue for the year ended 2008 versus the
comparable 2007 period is primarily due to lower health
insurance costs. The increase in self-insurance expense as a
percentage of revenue for the year ended December 31, 2007
versus the comparable 2006 period is primarily due to an
increase in the severity of our automobile insurance claims.
Property and
Equipment
The following tables reflect the activity in our property and
equipment accounts for the years ended December 31, 2008,
2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Transfers
|
|
|
Impairments
|
|
|
|
|
|
|
as of
|
|
|
|
|
|
|
|
|
Acquisitions,
|
|
|
for Asset
|
|
|
|
|
|
and
|
|
|
and Transfers
|
|
|
Balance
|
|
|
|
December 31,
|
|
|
Capital
|
|
|
|
|
|
Net of
|
|
|
Retirement
|
|
|
SFAS 143
|
|
|
Other
|
|
|
to Held for
|
|
|
as of December 31,
|
|
|
|
2007
|
|
|
Additions
|
|
|
Retirements
|
|
|
Divestitures
|
|
|
Obligations
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Sale
|
|
|
2008
|
|
|
Other land
|
|
$
|
105.7
|
|
|
$
|
1.4
|
|
|
$
|
(.1
|
)
|
|
$
|
358.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(.7
|
)
|
|
$
|
(.4
|
)
|
|
$
|
464.4
|
|
Non-depletable landfill land
|
|
|
52.7
|
|
|
|
.2
|
|
|
|
|
|
|
|
115.7
|
|
|
|
|
|
|
|
|
|
|
|
.7
|
|
|
|
|
|
|
|
169.3
|
|
Landfill development costs
|
|
|
1,809.1
|
|
|
|
3.6
|
|
|
|
|
|
|
|
2,610.8
|
|
|
|
20.5
|
|
|
|
(33.2
|
)
|
|
|
74.8
|
|
|
|
(359.3
|
)
|
|
|
4,126.3
|
|
Vehicles and equipment
|
|
|
1,965.1
|
|
|
|
232.8
|
|
|
|
(87.8
|
)
|
|
|
1,380.4
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
(61.0
|
)
|
|
|
3,432.3
|
|
Buildings and improvements
|
|
|
346.7
|
|
|
|
5.0
|
|
|
|
(7.5
|
)
|
|
|
379.9
|
|
|
|
|
|
|
|
|
|
|
|
19.9
|
|
|
|
(38.0
|
)
|
|
|
706.0
|
|
Construction-in-progress -
landfill
|
|
|
66.4
|
|
|
|
105.1
|
|
|
|
|
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
(74.0
|
)
|
|
|
(21.6
|
)
|
|
|
76.2
|
|
Construction-in-progress -
other
|
|
|
11.8
|
|
|
|
23.9
|
|
|
|
|
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
(23.5
|
)
|
|
|
(.1
|
)
|
|
|
26.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,357.5
|
|
|
$
|
372.0
|
|
|
$
|
(95.4
|
)
|
|
$
|
4,859.8
|
|
|
$
|
20.5
|
|
|
$
|
(33.2
|
)
|
|
$
|
|
|
|
$
|
(480.4
|
)
|
|
$
|
9,000.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation, Amortization and Depletion
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
|
Balance
|
|
|
|
Balance
|
|
|
Charged
|
|
|
|
|
|
Acquisitions,
|
|
|
|
|
|
and
|
|
|
as of
|
|
|
|
as of December 31,
|
|
|
to
|
|
|
|
|
|
Net of
|
|
|
SFAS 143
|
|
|
Transfers to
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Expense
|
|
|
Retirements
|
|
|
Divestitures
|
|
|
Adjustments
|
|
|
Held for Sale
|
|
|
2008
|
|
|
Landfill development costs
|
|
$
|
(1,039.5
|
)
|
|
$
|
(119.1
|
)
|
|
$
|
|
|
|
$
|
(1.2
|
)
|
|
$
|
.6
|
|
|
$
|
155.0
|
|
|
$
|
(1,004.2
|
)
|
Vehicle and equipment
|
|
|
(1,052.7
|
)
|
|
|
(208.3
|
)
|
|
|
87.5
|
|
|
|
2.9
|
|
|
|
|
|
|
|
23.3
|
|
|
|
(1,147.3
|
)
|
Buildings and improvements
|
|
|
(101.0
|
)
|
|
|
(15.0
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
(111.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2,193.2
|
)
|
|
$
|
(342.4
|
)
|
|
$
|
88.5
|
|
|
$
|
1.7
|
|
|
$
|
.6
|
|
|
$
|
182.2
|
|
|
$
|
(2,262.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
as of
|
|
|
|
|
|
|
|
|
Acquisitions,
|
|
|
for Asset
|
|
|
|
|
|
Transfers
|
|
|
as of
|
|
|
|
December 31,
|
|
|
Capital
|
|
|
|
|
|
Net of
|
|
|
Retirement
|
|
|
SFAS 143
|
|
|
and
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Additions
|
|
|
Retirements
|
|
|
Divestitures
|
|
|
Obligations
|
|
|
Adjustments
|
|
|
Other Adjustments
|
|
|
2007
|
|
|
Other land
|
|
$
|
105.9
|
|
|
$
|
1.4
|
|
|
$
|
(.3
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1.8
|
|
|
$
|
105.7
|
|
Non-depletable landfill land
|
|
|
52.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.7
|
|
Landfill development costs
|
|
|
1,710.6
|
|
|
|
.9
|
|
|
|
(2.5
|
)
|
|
|
2.5
|
|
|
|
19.5
|
|
|
|
(.7
|
)
|
|
|
78.8
|
|
|
|
1,809.1
|
|
Vehicles and equipment
|
|
|
1,886.8
|
|
|
|
173.4
|
|
|
|
(77.8
|
)
|
|
|
(22.1
|
)
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
1,965.1
|
|
Buildings and improvements
|
|
|
319.1
|
|
|
|
2.6
|
|
|
|
(.1
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
27.6
|
|
|
|
346.7
|
|
Construction-in-progress
landfill
|
|
|
61.1
|
|
|
|
95.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.6
|
)
|
|
|
66.4
|
|
Construction-in-progress
other
|
|
|
12.3
|
|
|
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.4
|
)
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,148.5
|
|
|
$
|
296.1
|
|
|
$
|
(80.7
|
)
|
|
$
|
(25.2
|
)
|
|
$
|
19.5
|
|
|
$
|
(.7
|
)
|
|
$
|
|
|
|
$
|
4,357.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation, Amortization and Depletion
|
|
|
|
Balance
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
as of
|
|
|
Charged
|
|
|
|
|
|
Acquisitions,
|
|
|
|
|
|
and
|
|
|
as of
|
|
|
|
December 31,
|
|
|
to
|
|
|
|
|
|
Net of
|
|
|
SFAS 143
|
|
|
Other
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Expense
|
|
|
Retirements
|
|
|
Divestitures
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
2007
|
|
|
Landfill development costs
|
|
$
|
(930.6
|
)
|
|
$
|
(110.1
|
)
|
|
$
|
2.3
|
|
|
$
|
|
|
|
$
|
(1.1
|
)
|
|
$
|
|
|
|
$
|
(1,039.5
|
)
|
Vehicle and equipment
|
|
|
(963.5
|
)
|
|
|
(176.7
|
)
|
|
|
72.1
|
|
|
|
15.7
|
|
|
|
|
|
|
|
(.3
|
)
|
|
|
(1,052.7
|
)
|
Buildings and improvements
|
|
|
(90.6
|
)
|
|
|
(12.2
|
)
|
|
|
.2
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
(101.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,984.7
|
)
|
|
$
|
(299.0
|
)
|
|
$
|
74.6
|
|
|
$
|
17.3
|
|
|
$
|
(1.1
|
)
|
|
$
|
(.3
|
)
|
|
$
|
(2,193.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
as of
|
|
|
|
|
|
|
|
|
Acquisitions,
|
|
|
for Asset
|
|
|
|
|
|
and
|
|
|
as of
|
|
|
|
December 31,
|
|
|
Capital
|
|
|
|
|
|
Net of
|
|
|
Retirement
|
|
|
SFAS 143
|
|
|
Other
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Additions
|
|
|
Retirements
|
|
|
Divestitures
|
|
|
Obligations
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
2006
|
|
|
Other land
|
|
$
|
100.9
|
|
|
$
|
5.9
|
|
|
$
|
(1.3
|
)
|
|
$
|
.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
105.9
|
|
Non-depletable landfill land
|
|
|
51.6
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.7
|
|
Landfill development costs
|
|
|
1,618.4
|
|
|
|
1.6
|
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
22.8
|
|
|
|
(10.3
|
)
|
|
|
85.1
|
|
|
|
1,710.6
|
|
Vehicles and equipment
|
|
|
1,746.8
|
|
|
|
216.7
|
|
|
|
(79.3
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
5.3
|
|
|
|
1,886.8
|
|
Buildings and improvements
|
|
|
298.7
|
|
|
|
4.3
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.2
|
|
|
|
319.1
|
|
Construction-in-progress
landfill
|
|
|
55.8
|
|
|
|
90.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84.8
|
)
|
|
|
61.1
|
|
Construction-in-progress
other
|
|
|
18.0
|
|
|
|
17.9
|
|
|
|
|
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(23.3
|
)
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,890.2
|
|
|
$
|
337.6
|
|
|
$
|
(89.7
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
22.8
|
|
|
$
|
(10.3
|
)
|
|
$
|
.5
|
|
|
$
|
4,148.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation, Amortization and Depletion
|
|
|
|
Balance
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
as of
|
|
|
Charged
|
|
|
|
|
|
Acquisitions,
|
|
|
|
|
|
and
|
|
|
as of
|
|
|
|
December 31,
|
|
|
to
|
|
|
|
|
|
Net of
|
|
|
SFAS 143
|
|
|
Other
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Expense
|
|
|
Retirements
|
|
|
Divestitures
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
2006
|
|
|
Landfill development costs
|
|
$
|
(829.3
|
)
|
|
$
|
(108.1
|
)
|
|
$
|
7.0
|
|
|
$
|
|
|
|
$
|
.3
|
|
|
$
|
(.5
|
)
|
|
$
|
(930.6
|
)
|
Vehicle and equipment
|
|
|
(865.3
|
)
|
|
|
(169.2
|
)
|
|
|
67.3
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
(963.5
|
)
|
Buildings and improvements
|
|
|
(80.3
|
)
|
|
|
(11.7
|
)
|
|
|
1.1
|
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
(90.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,774.9
|
)
|
|
$
|
(289.0
|
)
|
|
$
|
75.4
|
|
|
$
|
4.0
|
|
|
$
|
.3
|
|
|
$
|
(.5
|
)
|
|
$
|
(1,984.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and
Capital Resources
The major components of changes in cash flows for the years
ended December 31, 2008, 2007 and 2006 are discussed below.
Cash Flows From Operating Activities. Cash provided
by operating activities was $512.2 million,
$661.3 million and $511.2 million for the years ended
December 31, 2008, 2007 and 2006, respectively. The changes
in cash provided by operating activities during the periods are
primarily due to the expansion of our business, the timing of
payments received for accounts receivable, and the timing of
payments made for accounts payable and federal income taxes.
Cash flow for the year ended
57
December 31, 2008, was negatively impacted by $132.3
million of payments made to the IRS for interest and taxes
related to the risk management companies matter discussed in
Item 3. Legal Proceedings. This payment was accrued by
Allied and in our purchase accounting for the acquisition, and
paid in December 2008 to stop further accrual of interest and
taxes on this matter. Additionally, during the year ended
December 31, 2006, we paid approximately $83.0 million
in income taxes related to fiscal 2005. This tax payment had
been deferred as a result of an IRS notice issued in response to
Hurricane Katrina.
We use cash flows from operations to fund capital expenditures,
acquisitions, dividend payments and debt repayments.
Cash Flows Used In Investing Activities. Cash used
in investing activities was $934.7 million,
$260.3 million and $204.5 million for the years ended
December 31, 2008, 2007 and 2006, respectively. Cash used
in investing activities consists primarily of cash used for
capital additions for all periods presented, cash paid, net of
cash acquired, of $540.4 million related to the acquisition
of Allied in 2008, cash provided by the disposition of our
compost, mulch and soil business in Texas in 2007, and cash
provided by a decrease in restricted cash in 2006. Capital
additions were $386.9 million, $292.5 million and
$326.7 million during the years ended December 31,
2008, 2007 and 2006, respectively. Cash used to acquire
businesses, net of cash acquired, was $553.8 million,
$4.4 million and $4.9 million during the years ended
December 31, 2008, 2007 and 2006, respectively.
We intend to finance capital expenditures and acquisitions
through cash on hand, restricted cash held for capital
expenditures, cash flows from operations, our revolving credit
facilities, and tax-exempt bonds and other financings. We expect
to use primarily cash for future business acquisitions.
Cash Flows Provided By (Used In) Financing
Activities. Cash provided by financing activities was
$469.4 million for the year ended December 31, 2008
and cash used in financing activities was $408.3 million
and $409.4 million for the years ended December 31,
2007 and 2006, respectively, and consists primarily of purchases
of common stock for treasury, proceeds from and payments of
notes payable and long-term debt, proceeds from issuances of
common stock due to stock option exercises and payments of cash
dividends. Purchases of common stock for treasury were
$138.4 million, $362.8 million and $492.0 million
during 2008, 2007 and 2006, respectively. Dividends paid were
$128.3 million, $93.9 million and $78.5 million
during 2008, 2007 and 2006, respectively.
From 2000 through 2008, our Board of Directors authorized the
repurchase of up to $2.6 billion of our common stock. As of
December 31, 2008, we paid $2.3 billion to repurchase
82.6 million shares of our common stock, of which
$138.4 million was paid during 2008 to repurchase
4.6 million shares of our common stock. The stock
repurchase program was suspended in the second quarter of 2008
due to the pending merger with Allied. We expect that the share
repurchase program will continue to be suspended until at least
2011.
We used cash on hand, cash flows from operations and proceeds
from issuances of tax-exempt bonds to fund capital expenditures,
repay debt and fund acquisitions. We intend to use the proceeds
from asset divestitures in 2008 to repay debt. We intend to
finance future dividend payments through cash on hand, cash
flows from operations, our revolving credit facilities and other
financings.
Financial
Condition
At December 31, 2008, we had $68.7 million of cash and
cash equivalents. We also had $281.9 million of restricted
cash deposits, including $133.5 million of restricted cash
held for capital expenditures under certain debt facilities.
In conjunction with the merger with Allied, we entered into a
$1.75 billion revolving credit facility with a group of
banks in September 2008. The credit facility matures in
September 2013. It was used initially at the time of the merger
to refinance borrowings and letters of credit under
Allieds senior credit facility, to pay fees and expenses
in connection therewith, and to pay fees and expenses incurred
in connection with the merger. Since the merger, borrowings
under the new credit facility are being used for working
capital,
58
capital expenditures, letters of credit and other general
corporate purposes. Borrowings under the $1.75 billion
credit facility bear interest at a Base Rate, or a Eurodollar
Rate, both terms defined in the agreements, plus an applicable
margin based on our Debt Ratings, also a term defined in the
agreements (see Note 9, Debt, to our consolidated
financial statements included in Item 8 of this
Form 10-K).
At December 31, 2008, we had $168.9 million available
under the $1.75 billion credit facility.
In April 2007, we increased our unsecured revolving credit
facility to $1.0 billion and extended the term to 2012. In
September 2008, we amended the $1.0 billion credit facility
to conform certain terms of the facility to be consistent with
the new $1.75 billion revolving credit facility. We did not
change the maturity date of the credit facility. Borrowings
under the $1.0 billion credit facility bear interest at a
Base Rate, or a Eurodollar Rate, both terms defined in the
agreements, plus an applicable margin based on our Debt Ratings,
also a term defined in the agreements. At December 31,
2008, we had $229.6 million available under the
$1.0 billion credit facility.
In May 1999, we sold $375.0 million of unsecured notes in
the public market. These notes bear interest at 7.125% per annum
and mature in 2009. Interest on these notes is payable
semi-annually in May and November. The notes were offered at a
discount of $.5 million. In March 2005, we exchanged
$275.7 million of our outstanding 7.125% notes due
2009 for new notes due 2035. The new notes bear interest at
6.086%. We paid a premium of $27.6 million related to the
exchange. This premium is being amortized over the life of the
new notes using the effective yield method.
In August 2001, we sold $450.0 million of unsecured notes
in the public market. The notes bear interest at 6.75% 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.
As part of our acquisition of Allied in December 2008, we
acquired Allieds then outstanding senior notes totaling
$4.25 billion, with interest rates ranging from 5.75% to
7.875% and maturity dates ranging from 2010 to 2017,
$99.5 million and $360.0 million of Allieds
debentures with interest rates of 9.25% and 7.40% and maturity
dates of 2021 and 2035, respectively, and $230.0 million of
Allieds 4.25% convertible debentures due 2034.
We also acquired $400.0 million of receivables secured
loans, which bear interest at a market based interest rate plus
a margin as defined in the agreement. We intend to renew the
accounts receivable securitization program when it matures in
May 2009; however, if we are unable to renew this facility at
favorable terms, we will refinance any then outstanding amounts
with our existing credit facilities.
In addition, we acquired $527.0 million of tax-exempt bonds
with interest rates ranging from 5.15% to 11.50% and maturity
dates ranging from 2010 to 2031, and other debt of
$106.7 million.
The total fair value of the debt acquired in the acquisition was
$5.4 billion as of the effective date of the merger. See
Note 9, Debt to our consolidated financial
statements under Item 8 of this
Form 10-K
for further information regarding the debt acquired from Allied.
In order to manage risk associated with fluctuations in interest
rates, we have entered into interest rate swap agreements with
investment grade-rated financial institutions. Our outstanding
swap agreements have a total notional value of
$210.0 million and require us to pay interest at floating
rates based on changes in LIBOR and receive interest at a fixed
rate of 6.75%. Our swap agreements mature in August 2011.
At December 31, 2008, we had $1.3 billion of
tax-exempt bonds and other tax-exempt financings outstanding of
which $527.0 million were acquired in the acquisition of
Allied in 2008 and $207.4 million were issued during 2008
for Republic projects. Borrowings under these bonds and other
financings bear interest based on fixed or floating interest
rates at the prevailing market ranging from 3.25% to 11.50% at
December 31, 2008 and have maturities ranging from 2010 to
2037. As of December 31, 2008, we had $133.5 million
of restricted cash related to proceeds from tax-exempt bonds and
other tax-exempt financings. This restricted cash will be used
to reimburse capital expenditures under the terms of the
agreements.
59
We intend to use excess cash on hand, cash from operating
activities and proceeds from the asset divestitures to repay
debt. We believe that our excess cash, cash from operating
activities and proceeds from our revolving credit facilities
provide us with sufficient financial resources to meet our
anticipated capital requirements and obligations as they come
due. Despite the current economic conditions, we believe that we
will be able to raise additional debt or equity financing, if
necessary.
Credit
Rating
We have received investment grade credit ratings. As of
December 31, 2008, our senior debt was rated BBB, Baa3, and
BBB- by Standard & Poors Rating Services, Inc.,
Moodys Investors Service, Inc. and Fitch, Inc.,
respectively.
Fuel
Hedges
We use derivative instruments designated as cash flow hedges to
manage our exposure to changes in diesel fuel prices and other
commodity prices. We have entered into multiple option
agreements related to forecasted diesel fuel purchases and other
commodity prices. Under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities
(SFAS 133), the options qualified for, and were
designated as, effective hedges of changes in the prices of
forecasted diesel fuel purchases (fuel hedges).
We have the following fuel hedges outstanding at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
Contract Price
|
Inception Date
|
|
Commencement Date
|
|
Termination Date
|
|
(in Gallons per Month)
|
|
|
per Gallon
|
|
September 22, 2008
|
|
January 1, 2009
|
|
December 31, 2011
|
|
|
150,000
|
|
|
$4.1600-4.1700
|
March 17, 2008
|
|
January 5, 2009
|
|
December 31, 2012
|
|
|
50,000
|
|
|
3.7200
|
March 17, 2008
|
|
January 5, 2009
|
|
December 31, 2012
|
|
|
50,000
|
|
|
3.7400
|
November 5, 2007
|
|
January 5, 2009
|
|
December 30, 2013
|
|
|
60,000
|
|
|
3.2815
|
January 26, 2007
|
|
January 5, 2009
|
|
December 28, 2009
|
|
|
500,000
|
|
|
2.8270
|
January 26, 2007
|
|
January 4, 2010
|
|
December 27, 2010
|
|
|
500,000
|
|
|
2.8100
|
If the national U.S. on-highway average price for a gallon
of diesel fuel (average price) as published by the Department of
Energy exceeds the contract price per gallon, we receive the
difference between the average price and the contract price
(multiplied by the notional gallons) from the counter-party. If
the national U.S. on-highway average price for a gallon of
diesel fuel is less than the contract price per gallon, we pay
the difference to the counter-party.
The fair values of our fuel hedges are obtained from third-party
counter-parties and are determined using standard option
valuation models with assumptions about commodity prices being
based on those observed in underlying markets (Level 2 in
the fair value hierarchy). The aggregated fair values of the
outstanding fuel hedges at December 31, 2008 and 2007 were
$11.7 million and $11.4 million, respectively, and
have been recorded in other current liabilities and other
current assets in our consolidated balance sheets, respectively.
In accordance with SFAS 133, the effective portions of the
changes in fair values as of December 31, 2008 and
December 31, 2007, net of tax, of $7.1 million and
$6.9 million, respectively, have been recorded in
stockholders equity as components of accumulated other
comprehensive income. The ineffective portions of the changes in
fair values as of December 31, 2008, 2007 and 2006 were
immaterial and have been recorded in other income (expense), net
in our consolidated statements of income. Realized gains of
$5.9 million and realized losses of $1.6 million and
$1.3 million related to these fuel hedges are included in
cost of operations in our consolidated statements of income for
the years ended December 31, 2008, 2007 and 2006,
respectively.
Commodity
Hedges
We use derivative instruments designated as cash flow hedges to
manage our exposure to changes in prices of certain commodities.
We have entered into multiple agreements related to certain
forecasted
60
commodity sales. Under SFAS 133, the options qualified for,
and were designated as, effective hedges of changes in the
prices of certain forecasted commodity sales (commodity hedges).
We have the following commodity hedges outstanding at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Contract Price
|
|
|
Commencement
|
|
|
|
|
|
(in Short Tons
|
|
per Short
|
Inception Date
|
|
Date
|
|
Termination Date
|
|
Hedged Transaction
|
|
per Month)
|
|
Ton
|
|
May 16, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Corrugated Cardboard
|
|
|
1,000
|
|
|
$
|
105.00
|
|
May 16, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Newspaper
|
|
|
1,000
|
|
|
|
102.00
|
|
May 16, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Newspaper
|
|
|
1,000
|
|
|
|
106.00
|
|
May 16, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Corrugated Cardboard
|
|
|
1,000
|
|
|
|
103.00
|
|
April 28, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Corrugated Cardboard
|
|
|
1,000
|
|
|
|
106.00
|
|
April 28, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Newspaper
|
|
|
1,000
|
|
|
|
106.00
|
|
April 28, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Corrugated Cardboard
|
|
|
1,000
|
|
|
|
110.00
|
|
April 28, 2008
|
|
January 1, 2009
|
|
December 31, 2010
|
|
Old Newspaper
|
|
|
1,000
|
|
|
|
103.00
|
|
If the price per short ton of the hedging instrument (average
price) as reported on the Official Board Market is less than the
contract price per short ton, we receive the difference between
the average price and the contract price (multiplied by the
notional short tons) from the counter-party. If the price of the
commodity exceeds the contract price per short ton, we pay the
difference to the counter-party.
The fair values of our commodity hedges are obtained from a
third-party counter-party and are determined using standard
option valuation models with assumptions about commodity prices
being based on those observed in underlying markets
(Level 2 in the fair value hierarchy). The aggregated fair
value of the outstanding commodity hedges at December 31,
2008 was an asset of $8.8 million and has been recorded in
other current assets in our consolidated balance sheet. In
accordance with SFAS 133, the effective portions of the
changes in fair values as of December 31, 2008, net of tax,
of $5.3 million have been recorded in stockholders
equity as a component of accumulated other comprehensive income.
The ineffective portion of the changes in fair values as of
December 31, 2008 was immaterial and has been recorded in
other income (expense), net in our consolidated statement of
income.
Contractual
Obligations
The following table summarizes our contractual obligations as of
December 31, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
Final Capping,
|
|
|
|
|
|
Unconditional
|
|
|
|
|
Year Ending
|
|
Operating
|
|
|
Capital
|
|
|
and Other Long-
|
|
|
Closure and
|
|
|
|
|
|
Purchase
|
|
|
|
|
December 31,
|
|
Leases
|
|
|
Leases(1)
|
|
|
Term
Debt(2)
|
|
|
Post-Closure(3)
|
|
|
Remediation
|
|
|
Commitments(4)
|
|
|
Total
|
|
|
2009
|
|
$
|
44.5
|
|
|
$
|
10.3
|
|
|
$
|
966.6
|
|
|
$
|
130.6
|
|
|
$
|
102.8
|
|
|
$
|
171.3
|
|
|
$
|
1,426.1
|
|
2010
|
|
|
36.0
|
|
|
|
16.2
|
|
|
|
824.6
|
|
|
|
86.2
|
|
|
|
81.1
|
|
|
|
66.9
|
|
|
|
1,111.0
|
|
2011
|
|
|
29.0
|
|
|
|
15.3
|
|
|
|
1,528.0
|
|
|
|
87.9
|
|
|
|
46.5
|
|
|
|
54.7
|
|
|
|
1,761.4
|
|
2012
|
|
|
22.6
|
|
|
|
40.4
|
|
|
|
358.0
|
|
|
|
105.1
|
|
|
|
35.1
|
|
|
|
43.9
|
|
|
|
605.1
|
|
2013
|
|
|
20.1
|
|
|
|
14.7
|
|
|
|
1,453.9
|
|
|
|
107.1
|
|
|
|
30.5
|
|
|
|
38.8
|
|
|
|
1,665.1
|
|
Thereafter
|
|
|
102.3
|
|
|
|
290.2
|
|
|
|
6,966.9
|
|
|
|
4,491.9
|
|
|
|
215.6
|
|
|
|
298.4
|
|
|
|
12,365.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
254.5
|
|
|
$
|
387.1
|
|
|
$
|
12,098.0
|
|
|
$
|
5,008.8
|
|
|
$
|
511.6
|
|
|
$
|
674.0
|
|
|
$
|
18,934.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The present value of these
obligations is included in our consolidated balance sheets.
|
|
(2) |
|
Amounts include interest payments
at the stated rate for fixed rate debt or at the applicable rate
as of December 31, 2008 for variable rate debt.
|
|
(3) |
|
The estimated remaining final
capping, closure and post-closure expenditures presented above
are uninflated and undiscounted and reflect the estimated future
payments for liabilities incurred and recorded as of
December 31, 2008.
|
|
(4) |
|
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.
|
In addition to the above, we have unrecognized tax benefits at
December 31, 2008 of $611.9 million of which we expect
to settle approximately $10.0 million to $20.0 million
within the following twelve months. Due to the
61
uncertainty with respect to the timing of future cash flows
associated with the unrecognized tax benefits at
December 31, 2008, we are unable to make reasonably
reliable estimates of the timing of any cash settlements.
We also have letters of credit of $1.7 billion outstanding
under our revolving credit facilities and $.1 billion
outstanding under other agreements at December 31, 2008.
Debt covenants. Our revolving credit facilities
contain financial covenants. We have the ability to pay
dividends and to repurchase common stock provided that we are in
compliance with these covenants. At December 31, 2008, we
were in compliance with all financial and other covenants under
our revolving credit facilities. We were also in compliance with
the non-financial covenants of the indentures relating to our
senior notes as of December 31, 2008.
On December 10, 2008, we received the requisite consents
for a previously announced consent solicitation to amend the
supplemental indentures governing certain outstanding debt
securities of Allied Waste North America, Inc. (AWNA). The
amendment to each supplemental indenture modified the ongoing
reporting obligations required of Allied. Under the amended
supplemental indentures, the ongoing reporting obligations may
be satisfied by Republic.
The collateral that had secured the AWNA senior notes and the
BFI debentures equally and ratably with the Allied bank credit
facility was released upon the completion of the merger with
Allied and the repayment of that facility.
Failure to comply with the financial and other covenants under
our revolving credit facilities, as well as the occurrence of
certain material adverse events, would constitute defaults and
would allow the lenders under the revolving credit facilities to
accelerate the maturity of all indebtedness under the related
agreements. This could also have an adverse impact on
availability of financial assurances. In addition, maturity
acceleration on the revolving credit facilities constitutes an
event of default under our other debt instruments, including our
senior notes and, therefore, our senior notes would also be
subject to acceleration of maturity. If such acceleration of
maturities were to occur, we would not have sufficient liquidity
available to repay the indebtedness. We would likely have to
seek an amendment under our revolving credit facilities for
relief from the financial covenants or repay the debt with
proceeds from the issuance of new debt or equity, or asset
sales, if necessary. We may be unable to amend the revolving
credit facilities or raise sufficient capital to repay such
obligations in the event the maturities are accelerated.
Financial assurance. We are required to provide
financial assurance to governmental agencies and a variety of
other entities under applicable environmental regulations
relating to our landfill operations for capping, closure and
post-closure costs, and related to our performance under certain
collection, landfill and transfer station contracts. We satisfy
these financial assurance requirements by providing surety
bonds, letters of credit, insurance policies or trust deposits.
The amount of the financial assurance requirements for capping,
closure and post-closure costs is determined by applicable state
environmental regulations. The financial assurance requirements
for capping, closure and post-closure costs may be associated
with a portion of the landfill or the entire landfill.
Generally, states will require a third-party engineering
specialist to determine the estimated capping, closure and
post-closure costs that are used to determine the required
amount of financial assurance for a landfill. The amount of
financial assurance required can, and generally will, differ
from the obligation determined and recorded under GAAP. The
amount of the financial assurance requirements related to
contract performance varies by contract.
Additionally, we are required to provide financial assurance for
our insurance program and collateral for certain performance
obligations. We do not expect a material increase in financial
assurance requirements during 2009, although the mix of
financial assurance instruments may change.
These financial instruments are issued in the normal course of
business and are not debt of our company. Since we currently
have no liability for these financial assurance instruments,
they are not reflected in our consolidated balance sheets.
However, we record capping, closure and post-closure liabilities
and self-insurance liabilities as they are incurred. The
underlying obligations of the financial assurance instruments,
in excess of those already reflected in our consolidated balance
sheets, would be
62
recorded if it is probable that we would be unable to fulfill
our related obligations. We do not expect this to occur.
Off-Balance Sheet
Arrangements
We have no off-balance sheet debt or similar obligations, other
than financial assurance instruments and operating leases that
are not classified as debt. We do not guarantee any third-party
debt.
Free Cash
Flow
We define free cash flow, which is not a measure determined in
accordance with GAAP, as cash provided by operating activities
less purchases of property and equipment, plus proceeds from
sales of property and equipment as presented in our consolidated
statements of cash flows.
Our free cash flow for the years ended December 31, 2008,
2007 and 2006 is calculated as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash provided by operating activities
|
|
$
|
512.2
|
|
|
$
|
661.3
|
|
|
$
|
511.2
|
|
Purchases of property and equipment
|
|
|
(386.9
|
)
|
|
|
(292.5
|
)
|
|
|
(326.7
|
)
|
Proceeds from sales of property and equipment
|
|
|
8.2
|
|
|
|
6.1
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
133.5
|
|
|
$
|
374.9
|
|
|
$
|
203.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow for the year ended December 31, 2008 was
negatively impacted by $132.3 million of payments made to
the IRS for interest and taxes related to the risk management
companies matter discussed in Item 3. Legal
Proceedings. This payment was accrued by Allied and included
in our purchase accounting allocation for the acquisition, and
paid in December 2008 to stop further accrual of interest and
taxes on this matter.
Free cash flow for the year ended December 31, 2008 was
positively impacted due to approximately $32.0 million of
federal tax payments being deferred until February 2009 as a
result of our merger with Allied.
Free cash flow for the year ended December 31, 2007 was
higher than anticipated due to lower than expected purchases of
property and equipment, higher deferred income taxes and lower
payments for asset retirement obligations.
Free cash flow for the year ended December 31, 2006 was
negatively affected by an $83.0 million federal tax payment
for 2005 that had been deferred until February 2006 as a result
of an IRS notice issued in response to Hurricane Katrina.
Purchases of property and equipment as reflected in our
consolidated statements of cash flows and as presented in the
free cash flow above represent amounts paid during the period
for such expenditures. A reconciliation of property and
equipment reflected in the consolidated statements of cash flows
to property and equipment received during the period for the
years ended December 31, 2008, 2007 and 2006 is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Purchases of property and equipment presented in the
consolidated statements of cash flows
|
|
$
|
386.9
|
|
|
$
|
292.5
|
|
|
$
|
326.7
|
|
Adjustment for property and equipment received during the prior
period but paid for in the following period, net
|
|
|
(14.9
|
)
|
|
|
3.2
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment received during the current period
|
|
$
|
372.0
|
|
|
$
|
295.7
|
|
|
$
|
337.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjustments noted above do not affect either our net change
in cash and cash equivalents as reflected in our consolidated
statements of cash flows or our free cash flow.
63
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 sales 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, maintaining our investment grade rating and minimizing
debt, paying cash dividends, and maintaining and improving our
market position through business optimization. In addition, free
cash flow is a key metric used to determine compensation. The
presentation of free cash flow has material limitations. 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.
Contingencies
For a description of our commitments and contingencies, see
Note 10, Income Taxes, and Note 16,
Commitments and Contingencies, to our consolidated
financial statements included under Item 8 of this
Form 10-K.
Critical
Accounting Judgments and Estimates
Our consolidated financial statements have been prepared in
accordance with GAAP 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 consolidated financial position, results of
operations or cash flows and that may require management to make
subjective or complex judgments about matters that are
inherently uncertain. Such critical accounting policies,
estimates and judgments are applicable to all of our operating
segments.
We have noted examples of the residual accounting and business
risks inherent in the accounting for these areas. Residual
accounting and business risks are defined as the inherent risks
that we face after the application of our policies and processes
that are generally outside of our control or ability to forecast.
Accounting for
the Acquisition of Allied
Acquisitions of businesses are accounted for using the purchase
method of accounting in accordance with GAAP. The purchase
method of accounting requires that the purchase price paid for
an acquisition be allocated to the assets and liabilities
acquired based on their estimated fair values as of the
effective date of the acquisition, with the excess of the
purchase price over the net assets acquired being recorded as
goodwill. The consolidated financial statements of the acquirer
include the operating results of the acquired business from the
date of the acquisition, and are not retroactively restated to
include the historical position or the results of operations of
the acquired business. These estimates are revised during the
allocation period when the information necessary to finalize the
fair value estimates is received and analyzed, or if information
regarding contingencies becomes available to further define and
quantify the assets and liabilities acquired.
Republic is in the process of valuing all of the assets and
liabilities acquired in our acquisition of Allied. Until we have
completed our valuation process, there may be adjustments to our
estimates of fair values and the resulting preliminary purchase
price allocation reflected in our consolidated financial
statements as of and for the year ended December 31, 2008.
The significant areas of accounting where estimates of fair
values are reflected in our consolidated financial statements
include landfills and other property and equipment, other
intangible assets, landfill asset retirement obligations, legal
and environmental reserves, self-insurance reserves, income
taxes, other non-current assets and long-term obligations, and
assets held for sale. Our consolidated financial statements also
include our estimates of restructuring costs incurred through
December 31, 2008, a portion of which will be paid in
future periods.
Changes in our estimates of fair values may impact our results
of operations in future periods.
64
Residual risks:
|
|
§ |
The residual risks identified below related to critical
accounting judgments and estimates are relevant to the fair
value estimation processes for acquisitions. For discussion of
other significant residual risks inherent in the accounting for
acquisitions, see Item 1A. Risk Factors.
|
Landfill
Accounting
Landfill operating costs are treated as period expenses and are
not discussed further herein.
Our landfill assets and liabilities fall into the following two
categories, each of which requires accounting judgments and
estimates:
|
|
§
|
Landfill development costs that are capitalized as an asset.
|
|
§
|
Landfill retirement obligations relating to our capping, closure
and post-closure liabilities which result in a corresponding
landfill retirement asset.
|
Landfill
Development Costs
We use life-cycle accounting and the
units-of-consumption
method to recognize landfill development 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
on the consumption of cubic yards of available airspace.
Obligations associated with final capping, closure and
post-closure are also capitalized, and amortized on a
units-of-consumption
basis as airspace is consumed. Cost and airspace estimates are
developed at least annually by engineers.
Site permits. In order to develop, construct and
operate a landfill, we are required to obtain permits from
various regulatory agencies at the local, state and federal
levels. The permitting process requires an initial siting study
to determine whether the location is feasible for landfill
operations. The initial studies are reviewed by our
environmental management group and then submitted to the
regulatory agencies for approval. During the development stage
we capitalize certain costs that we incur after site selection
but prior to the receipt of all required permits if we believe
that it is probable that the site will be permitted.
Residual risks:
|
|
§
|
Changes in legislative or regulatory requirements may cause
changes to the landfill site permitting process. These changes
could make it more difficult and costly to obtain and maintain
the landfill permit.
|
|
§
|
Studies performed could be inaccurate, which could result in the
denial or revocation of a permit and changes to accounting
assumptions. Conditions could exist that were not identified in
the study, which may make the location not feasible for a
landfill and could result in the denial of a permit. Denial or
revocation of a permit could impair the recorded value of the
landfill asset.
|
|
§
|
Actions by neighboring parties, private citizen groups or others
to oppose our efforts to obtain, maintain or expand permits
could result in denial, revocation or suspension of a permit,
which could adversely impact the economic viability of the
landfill and could impair the recorded value of the landfill. As
a result of opposition to our obtaining a permit, improved
technical information as a project progresses, or changes in the
anticipated economics associated with a project, we may decide
to reduce the scope of or abandon a project which could result
in an asset impairment.
|
Technical landfill design. Upon receipt of initial
regulatory approval, technical landfill designs are prepared.
The technical designs, which include the detailed specifications
to develop and construct all components of the landfill,
including the types and quantities of materials that will be
required, are reviewed by our environmental management group.
The technical designs are submitted to the regulatory agencies
for approval. Upon approval of the technical designs, the
regulatory agencies issue permits to develop and operate the
landfill.
65
Residual risks:
|
|
§
|
Changes in legislative or regulatory requirements may require
changes in the landfill technical design. These changes could
make it more difficult and costly to meet new design standards.
|
|
§
|
Technical design requirements, as approved, may need
modifications at some future point in time.
|
|
§
|
Technical designs could be inaccurate and could result in
increased construction costs, difficulty in obtaining a permit
or the use of rates to recognize the amortization of landfill
development costs and asset retirement obligations that are not
appropriate.
|
Permitted and probable landfill disposal
capacity. Included in the technical designs are factors
that determine the ultimate disposal capacity of the landfill.
These factors include the area over which the landfill will be
developed, the depth of excavation, the height of the landfill
elevation and the angle of the side-slope construction. The
disposal capacity of the landfill is calculated in cubic yards.
This measurement of volume is then converted to a disposal
capacity expressed in tons based on a site-specific expected
density to be achieved over the remaining operating life of the
landfill.
Residual risks:
|
|
§
|
Estimates of future disposal capacity may change as a result of
changes in legislative or regulatory design requirements.
|
|
§
|
The density of waste may vary due to variations in operating
conditions, including waste compaction practices, site design,
climate and the nature of the waste.
|
|
§
|
Capacity is defined in cubic yards but waste received is
measured in tons. The number of tons per cubic yard varies by
type of waste.
|
Development costs. The types of costs that are
detailed in the technical design specifications generally
include excavation, natural and synthetic liners, construction
of leachate collection systems, installation of methane gas
collection systems and monitoring probes, installation of
groundwater monitoring wells, construction of leachate
management facilities and other costs associated with the
development of the site. We review the adequacy of our cost
estimates on an annual basis by comparing estimated costs with
third-party bids or contractual arrangements, reviewing the
changes in year over year cost estimates for reasonableness, and
comparing our resulting development cost per acre with prior
period costs. These development costs, together with any costs
incurred to acquire, design and permit the landfill, including
capitalized interest, are recorded to the landfill asset on the
balance sheet as incurred.
Residual risk:
|
|
§ |
Actual future costs of construction materials and third-party
labor could differ from the costs we have estimated because of
the impact from general economic conditions on the availability
of the required materials and labor. Technical designs could be
altered due to unexpected operating conditions, regulatory
changes or legislative changes.
|
Landfill development asset amortization. In order to
match the expense related to the landfill asset with the revenue
generated by the landfill operations, we amortize the landfill
development asset over its operating life on a per-ton basis as
waste is accepted at the landfill. The landfill asset is fully
amortized at the end of a landfills operating life. The
per-ton rate is calculated by dividing the sum of the landfill
development asset net book value plus estimated future
development costs (as described above) for the landfill by the
landfill