Republic Services, Inc.
Operating income for the three months ended June 30, 2008 was $119.6 million, or 14.5 percent of revenue, compared to $153.1 million, or 18.9 percent of revenue, for the same period last year. Excluding the $34.0 million charge to operating expenses for the Company's Countywide Recycling and Disposal Facility, operating income for the three months ended June 30, 2008 would have been $153.6 million, or 18.6 percent of revenue.
Revenue for the six months ended June 30, 2008 increased 2.1 percent to $1,606.7 million from $1,574.0 million for the same period in 2007. Net income for the six months ended June 30, 2008 was $138.4 million, or $0.75 per diluted share, compared to $141.1 million, or $0.72 per diluted share, for the same period last year. The Company's income before income taxes for the six months ended June 30, 2008 includes a $34.0 million pre-tax charge ($21.8 million, or approximately $.12 per diluted share, net of tax) related to environmental conditions at the Company's Countywide Recycling and Disposal Facility. The Company's income before income taxes for the six months ended June 30, 2007 includes a $22.0 million pre-tax charge ($13.5 million, or approximately $.07 per diluted share, net of tax) related to environmental conditions at Countywide.
Operating income for the six months ended June 30, 2008 was $261.8 million, or 16.3 percent of revenue, compared to $267.8 million, or 17.0 percent of revenue, for the same period last year. Excluding $34.0 million and $21.3 million of operating expenses included in the charges for the Company's Countywide Recycling and Disposal Facility during 2008 and 2007, respectively, operating income for the six months ended June 30, 2008 and 2007 would have been $295.8 million, or 18.4 percent of revenue, and $289.1 million, or 18.4 percent of revenue, respectively.
Republic Services also announced today that it has updated its financial guidance for 2008.
"The Company's performance was strong during the first half of 2008," said James E. O'Connor, Chairman and CEO of Republic Services. "Excluding the charge associated with the environmental remediation project in Ohio, we are on track to achieve the earnings guidance that we provided at the beginning of the year. I am especially pleased to see margins holding steady despite extensive pressure from diesel fuel costs."
Based upon its performance for the first six months of 2008, the Company has updated its financial guidance as follows:
-- Earnings Per Share: The Company reaffirmed earnings per share guidance in the range of $1.78 to $1.82 per diluted share, excluding the environmental remediation charge for Countywide. -- Operating Margins: The Company expects margins at or above prior year margins, excluding the environmental remediation charge. -- Free Cash Flow: The Company expects free cash flow to be approximately $350 million. -- Internal Growth: The Company expects higher internal growth of approximately 3.5 percent to 4.0 percent, with approximately 6.5 percent to 7.0 percent growth from price increases, while volume is expected to decline by 3.0 percent. -- Capital Spending: The Company anticipates 2008's net capital spending of approximately $335 million. Quarterly Dividend Increased
Republic also announced that its Board of Directors has approved a 12 percent increase in the Company's regular quarterly dividend from $0.17 per share to $0.19 per share. The quarterly dividend of $0.19 per share will be paid on October 15, 2008 to shareholders of record on October 1, 2008.
"The combination of solid earnings and efficient use of capital has allowed us to increase our shareholder dividend," said James E. O'Connor.
Share Repurchase Program
Republic reiterated the suspension of the Company's share repurchase program due to the planned merger with Allied Waste Industries, Inc.
Republic Services, Inc. is a leading provider of solid waste collection, transfer and disposal services in the United States. The Company's operating units are focused on providing solid waste services for commercial, industrial, municipal and residential customers.
Certain statements and information included herein constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied in or by such forward-looking statements. Such factors include, among other things:
-- whether the Company's estimates and assumptions concerning its selected balance sheet accounts, income tax accounts, final capping, closure, post-closure and remediation costs, available airspace, and projected costs and expenses related to the Company's landfills and property and equipment, and labor, fuel rates, and economic and inflationary trends, turn out to be correct or appropriate; -- various factors that will impact the actual business and financial performance of the Company such as competition and demand for services in the solid waste industry; -- the Company's ability to manage growth; -- the Company's ability to complete its merger with Allied Waste Industries, Inc.; -- compliance with, and future changes in, environmental regulations; -- the Company's ability to obtain approvals from regulatory agencies in connection with operating and expanding the Company's landfills; -- the ability to obtain financing on acceptable terms to finance the Company's operations and growth strategy and for the Company to operate within the limitations imposed by financing arrangements; -- the ability of the Company to repurchase common stock at prices that are accretive to earnings per share; -- the Company's dependence on key personnel; -- general economic and market conditions including, but not limited to, inflation and changes in commodity pricing, fuel, labor, risk and health insurance, and other variable costs that are generally not within control of the Company; -- the Company's dependence on large, long-term collection, transfer and disposal contracts; -- the Company's dependence on acquisitions for growth; -- risks associated with undisclosed liabilities of acquired businesses; -- risks associated with pending legal proceedings; and -- other factors contained in the Company's filings with the Securities and Exchange Commission. REPUBLIC SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except share data) June 30, December 31, 2008 2007 (1) (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $13.1 $21.8 Accounts receivable, less allowance for doubtful accounts of $14.4 and $14.7, respectively 320.1 298.2 Other current assets 117.4 93.8 Total Current Assets 450.6 413.8 RESTRICTED CASH 177.8 165.0 PROPERTY AND EQUIPMENT, NET 2,167.5 2,164.3 GOODWILL AND OTHER INTANGIBLE ASSETS, NET 1,586.8 1,582.2 OTHER ASSETS 152.3 142.5 $4,535.0 $4,467.8 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, deferred revenue and other current liabilities $581.4 $626.4 Notes payable and current maturities of long-term debt 101.6 2.3 Total Current Liabilities 683.0 628.7 LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,515.4 1,565.5 ACCRUED LANDFILL AND ENVIRONMENTAL COSTS 333.9 279.2 OTHER LIABILITIES 719.2 690.6 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, par value $.01 per share; 50,000,000 shares authorized; none issued - - Common stock, par value $.01 per share; 750,000,000 shares authorized; 196,773,081 and 195,761,969 issued, including shares held in treasury, respectively 2.0 2.0 Additional paid-in capital 64.6 38.7 Retained earnings 1,648.6 1,572.3 Treasury stock, at cost (14,894,412 and 10,338,970 shares, respectively) (456.7) (318.3) Accumulated other comprehensive income, net of tax 25.0 9.1 Total Stockholders' Equity 1,283.5 1,303.8 $4,535.0 $4,467.8 (1) Derived from the December 31, 2007 consolidated balance sheet. REPUBLIC SERVICES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 REVENUE $827.5 $808.4 $1,606.7 $1,574.0 EXPENSES: Cost of operations 543.5 497.9 1,020.0 986.3 Depreciation, amortization and depletion 76.2 76.9 149.6 155.9 Accretion 4.5 4.2 8.9 8.3 Selling, general and administrative 83.7 76.3 166.4 155.7 OPERATING INCOME 119.6 153.1 261.8 267.8 INTEREST EXPENSE (21.1) (23.2) (42.5) (47.2) INTEREST INCOME 2.5 3.1 5.3 6.4 OTHER INCOME (EXPENSE), NET 1.7 0.7 1.9 1.1 INCOME BEFORE INCOME TAXES 102.7 133.7 226.5 228.1 Provision for income taxes 40.4 46.5 88.1 87.0 NET INCOME $62.3 $87.2 $138.4 $141.1 BASIC EARNINGS PER SHARE: Basic earnings per share $0.34 $0.45 $0.76 $0.73 Weighted average common shares outstanding 182.0 192.7 182.7 193.2 DILUTED EARNINGS PER SHARE: Diluted earnings per share $0.34 $0.45 $0.75 $0.72 Weighted average common and common equivalent shares outstanding 183.9 194.6 184.5 195.1 CASH DIVIDENDS PER COMMON SHARE $0.1700 $0.1067 $0.3400 $0.2134 REPUBLIC SERVICES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Six Months Ended June 30, 2008 2007 CASH PROVIDED BY OPERATING ACTIVITIES: Net income $138.4 $141.1 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and depletion 149.6 155.9 Accretion 8.9 8.3 Other non-cash items 22.7 15.1 Change in operating assets and liabilities, net of effects from business acquisitions and dispositions (8.1) 23.5 311.5 343.9 CASH USED IN INVESTING ACTIVITIES: Purchases of property and equipment (165.4) (147.3) Proceeds from sales of property and equipment 3.3 2.7 Cash used in business acquisitions, net of cash acquired (12.2) - Cash proceeds from business dispositions, net of cash disposed - 4.9 Change in restricted cash (12.8) 23.9 Other (0.2) - (187.3) (115.8) CASH USED IN FINANCING ACTIVITIES: Proceeds from notes payable and long-term debt 167.0 105.0 Payments of notes payable and long-term debt(116.5) (151.7) Issuances of common stock 14.9 19.3 Excess income tax benefits from stock option exercises 2.8 2.8 Purchases of common stock for treasury (138.4) (165.1) Cash dividends paid (62.7) (41.6) (132.9) (231.3) DECREASE IN CASH AND CASH EQUIVALENTS (8.7) (3.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21.8 29.1 CASH AND CASH EQUIVALENTS AT END OF PERIOD $13.1 $25.9 REPUBLIC SERVICES, INC. SUPPLEMENTAL UNAUDITED FINANCIAL INFORMATION
The following information should be read in conjunction with the Company's audited Consolidated Financial Statements and notes thereto appearing in the Company's Form 10-K as of and for the year ended December 31, 2007. It should also be read in conjunction with the Company's Unaudited Condensed Consolidated Financial Statements and notes thereto appearing in the Company's Form 10-Q as of and for the three months ended March 31, 2008.
The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("the Interpretation") effective January 1, 2007, as required. During the first quarter of 2007, the Company recorded $4.2 million of additional income taxes related to the resolution of various income tax matters. During the second quarter of 2007, the Company recorded a $5.0 million reduction in income taxes related to the resolution of various income tax matters, including the effective closing of the Internal Revenue Service's audits of the Company's tax returns for fiscal years 2001 through 2004. The Company expects its effective tax rate for fiscal year 2008 to be approximately 38.5%.
Proposed Merger with Allied. As previously reported, on June 22, 2008, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Allied Waste Industries, Inc. ("Allied"). The completion of the Merger is subject to certain terms and conditions, including, but not limited to, approval of the transaction by the shareholders of both Republic and Allied, regulatory approval from the Department of Justice, and receipt of credit ratings for the combined company classifying its senior unsecured debt as investment grade. The Merger Agreement also contains other terms and conditions that are customary for a merger of equals transaction. At the effective time of the Merger, each share of Allied common stock outstanding will be converted into .45 shares of Republic common stock. Republic expects to issue approximately 198 million shares of common stock to Allied shareholders in the transaction. Mr. James E. O'Connor, currently Chairman of the Board of Directors and Chief Executive Officer of Republic, and Mr. Tod Holmes, the Company's Chief Financial Officer, will continue in their present positions with the combined company. The transaction is expected to close in the fourth quarter of 2008. As of June 30, 2008, the Company had capitalized $4.9 million of costs to other assets that are directly related to the transaction.
Countywide Landfill Remediation. During the first quarter of 2007, the Company recorded a pre-tax charge of $22.0 million ($13.5 million, or $.07 per diluted share, net of tax), related to estimated costs the Company believed would be required to comply with Final Findings and Orders ("F&Os") issued by the Ohio Environmental Protection Agency ("OEPA") in response to environmental conditions at the Company's Countywide Recycling and Disposal Facility ("Countywide") in East Sparta, Ohio. The Company has complied with and will continue to comply with the F&Os. However, even though indications existed that the reaction had begun to subside, the Company nevertheless agreed with the OEPA to take certain additional remedial actions at Countywide. Consequently, during the three months ended September 30, 2007, the Company recorded an additional pre-tax charge of $23.3 million ($14.4 million, or $.08 per diluted share, net of tax).
During the second quarter of 2008, the Company received additional orders from the OEPA. The Company also entered into an Agreed Order on Consent ("AOC") with the United States Environmental Protection Agency ("U.S. EPA"). As a result of the additional orders received from the OEPA and the orders received from the U.S. EPA, the Company recorded an additional pre-tax charge of $34.0 million ($21.8 million, or $.12 per diluted share, net of tax) during the three months ended June 30, 2008.
The remediation liability remaining as of June 30, 2008 is $46.8 million, of which approximately $14.0 million is expected to be paid out during the remainder of 2008. The majority of the remaining costs are expected to be paid during 2009 through 2011. While the Company is vigorously pursuing financial contributions from third parties for its costs to comply with the F&Os and the additional remedial actions, the Company has not recorded any receivables for potential recoveries.
It is reasonably possible that the Company 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 the Company's estimates of the costs, timing or duration of the required actions could have a material adverse effect on the Company's financial position, results of operations or cash flows.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, DEPLETION AND ACCRETION
Operating income before depreciation, amortization, depletion and accretion, which is not a measure determined in accordance with U.S. generally accepted accounting principles ("GAAP"), for the three and six months ended June 30, 2008 and 2007 is calculated as follows (in millions):
Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net income $62.3 $87.2 $138.4 $141.1 Provision for income taxes 40.4 46.5 88.1 87.0 Other (income) expense, net (1.7) (.7) (1.9) (1.1) Interest expense 21.1 23.2 42.5 47.2 Interest income (2.5) (3.1) (5.3) (6.4) Depreciation, amortization and depletion 76.2 76.9 149.6 155.9 Accretion 4.5 4.2 8.9 8.3 Operating income before depreciation, amortization, depletion and accretion $200.3 $234.2 $420.3 $432.0
The Company believes that the presentation of operating income before depreciation, amortization, depletion and accretion is useful to investors because it provides important information concerning the Company's operating performance exclusive of certain non-cash costs. Operating income before depreciation, amortization, depletion and accretion demonstrates the Company's ability to execute its 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 the Company's customer base and services provided, pursuing strategic acquisitions that augment the Company's existing business platform, repurchasing shares of common stock at prices that provide value to the Company's shareholders, paying cash dividends, maintaining the Company's investment grade rating and minimizing debt. This measure has material limitations. Although depreciation, amortization, depletion and accretion are considered operating costs in accordance with GAAP, they represent the allocation of non-cash costs generally associated with long-lived assets acquired or constructed in prior years.
The Company defines 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 the Company's unaudited condensed consolidated statements of cash flows. The Company's free cash flow for the three and six months ended June 30, 2008 and 2007 is calculated as follows (in millions):
Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Cash provided by operating activities $163.5 $204.7 $311.5 $343.9 Purchases of property and equipment (83.8) (63.2) (165.4) (147.3) Proceeds from sales of property and equipment 2.3 1.7 3.3 2.7 Free cash flow $82.0 $143.2 $149.4 $199.3
Purchases of property and equipment as reflected on the Company's unaudited condensed consolidated statements of cash flows and the free cash flow presented above represent amounts paid during the period for such expenditures. A reconciliation of property and equipment reflected on the unaudited condensed consolidated statements of cash flows to property and equipment received during the period is as follows (in millions):
Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Purchases of property and equipment per the unaudited condensed consolidated statements of cash flows $83.8 $63.2 $165.4 $147.3 Adjustments for property and equipment received during the prior period but paid for in the following period, net 5.9 5.8 (27.9) (34.2) Property and equipment received during the current period $89.7 $69.0 $137.5 $113.1
The adjustments noted above do not affect either the Company's net change in cash and cash equivalents as reflected in its unaudited condensed consolidated statements of cash flows or its free cash flow.
The Company believes that the presentation of free cash flow provides useful information regarding the Company's recurring cash provided by operating activities after expenditures for property and equipment, net of proceeds from sales of property and equipment. It also demonstrates the Company's ability to execute its financial strategy as previously discussed and is a key metric used by the Company to determine compensation. The presentation of free cash flow has material limitations. Free cash flow does not represent the Company's cash flow available for discretionary expenditures because it excludes certain expenditures that are required or that the Company has committed to such as debt service requirements and dividend payments. The Company's definition of free cash flow may not be comparable to similarly titled measures presented by other companies.
Capital expenditures include $.7 million and $1.0 million of capitalized interest for the three and six months ended June 30, 2008, and $.7 million and $1.3 million of capitalized interest for the three and six months ended June 30, 2007.
As of June 30, 2008, accounts receivable were $320.1 million, net of allowance for doubtful accounts of $14.4 million, resulting in days sales outstanding of approximately 34.7 (or 20.8 net of deferred revenue).
STOCK REPURCHASE PROGRAM
During the three months ended June 30, 2008, the Company paid $40.6 million to repurchase 1.4 million shares of its common stock. During the six months ended June 30, 2008, the Company repurchased a total of 4.6 million shares of its common stock for $138.4 million. As of June 30, 2008, the Company was authorized to repurchase up to an additional $248.0 million of its common stock under its existing stock repurchase program. During the second quarter of 2008, the Company suspended its share repurchase program as a result of its planned merger with Allied.
In April 2008, the Company paid a cash dividend of $31.1 million to shareholders of record as of April 1, 2008. As of June 30, 2008, the Company recorded a dividend payable of $30.9 million to shareholders of record at the close of business on July 1, 2008, which has been paid. In July 2008, the Company's Board of Directors approved a 12% increase in the Company's quarterly dividend to $.19 per share. The Board also declared a regular quarterly dividend of $.19 per share payable to shareholders of record as of October 1, 2008.
The following table reflects total revenue of the Company by revenue source for the three and six months ended June 30, 2008 and 2007 (in millions):
Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Collection: Residential $212.3 $201.6 $417.2 $397.4 Commercial 254.8 233.6 503.3 464.0 Industrial 162.1 166.8 315.0 322.5 Other 5.4 5.0 10.3 9.8 Total collection 634.6 607.0 1,245.8 1,193.7 Transfer and disposal 307.0 313.1 581.9 591.9 Less: Intercompany (156.7) (160.2) (301.2) (305.2) Transfer and disposal, net 150.3 152.9 280.7 286.7 Other 42.6 48.5 80.2 93.6 Total revenue $827.5 $808.4 $1,606.7 $1,574.0
The following table reflects the Company's revenue growth for the three and six months ended June 30, 2008 and 2007:
Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Core price 4.1% 4.0% 4.1% 4.2% Fuel surcharges 1.9 .1 1.5 .1 Environmental fee .4 .3 .3 .4 Commodities .6 .8 .7 .8 Total price 7.0 5.2 6.6 5.5 Core volume (3.4) (.9) (2.9) (1.3) Non-core volume .3 (.2) .1 (.1) Total volume (3.1) (1.1) (2.8) (1.4) Total internal growth 3.9 4.1 3.8 4.1 Acquisitions, net of divestitures (1.7) (.5) (1.8) (.4) Taxes .2 .1 .1 - Total revenue growth 2.4% 3.7% 2.1% 3.7%
First Call Analyst:
FCMN Contact: firstname.lastname@example.org
SOURCE: Republic Services, Inc.
CONTACT: Media, Will Flower, +1-954-769-6392, or Investors, Tod Holmes,
+1-954-769-2387, or Ed Lang, +1-954-769-3591, all for Republic Services, Inc.
Web site: http://www.republicservices.com/