10-QPeriod: Q3 FY2008

REPUBLIC SERVICES, INC. Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 10, 2008For Securities:RSG

Summary

Republic Services, Inc. (RSG) reported its third-quarter 2008 financial results, showing a revenue increase of 3.4% to $834.0 million for the quarter and 2.5% to $2,440.7 million for the nine months ended September 30, 2008. Net income for the quarter rose to $88.7 million ($0.48 per diluted share) from $67.0 million ($0.35 per diluted share) in the prior year quarter, though net income for the nine-month period slightly decreased to $205.5 million ($1.11 per diluted share) from $208.1 million ($1.08 per diluted share) in the comparable 2007 period. The company is significantly impacted by substantial environmental charges related to the Countywide and Sunrise landfills, which affected profitability, particularly in the first nine months of the year. A major development is the pending merger with Allied Waste Industries, Inc., expected to close in the fourth quarter of 2008, which has led to the suspension of the company's share repurchase program and significant capitalized transaction costs. Financially, the company maintained a solid balance sheet with total assets of $4,606.5 million. While long-term debt decreased to $1,497.2 million from $1,565.5 million, accrued landfill and environmental costs increased significantly to $377.1 million, largely due to remediation efforts. The company also secured a new $1.75 billion revolving credit facility, enhancing its liquidity. Investors should monitor the successful integration of the Allied Waste merger, the resolution of significant environmental liabilities, and the company's ability to maintain pricing power and manage operational costs, especially fuel, in the prevailing economic climate.

Financial Highlights

31 data points
Beta

Revenue

$834.00M

40.1% Gross Margin

Net Income

$88.70M

10.6% Net Margin

EPS (Diluted)

$0.48

Cash & Equivalents

$39.90M

Free Cash Flow

-$266.80M

Financial Statements
Beta
Revenue$834.00M
Cost of Revenue$499.50M
Gross Profit$334.50M
SG&A Expenses$85.60M
Operating Income$167.00M
Interest Expense$22.60M
Net Income$88.70M
EPS (Basic)$0.49
EPS (Diluted)$0.48
Shares Outstanding (Basic)182.30M
Shares Outstanding (Diluted)184.10M

Key Highlights

  • 1Revenue increased by 3.4% year-over-year for the quarter to $834.0 million, driven by price increases and fuel surcharges, partially offset by volume declines.
  • 2Net income for the three months ended September 30, 2008, increased to $88.7 million ($0.48 per diluted share) from $67.0 million ($0.35 per diluted share) in the prior year period.
  • 3The company incurred significant pre-tax charges totaling $34.0 million related to environmental remediation at the Sunrise Landfill and $34.0 million for the Countywide facility, impacting profitability.
  • 4A significant event is the proposed merger with Allied Waste Industries, Inc., expected to close in Q4 2008, with $33.3 million in capitalized transaction costs recorded.
  • 5The company secured a new $1.75 billion revolving credit facility in September 2008, enhancing its liquidity, and had $308.2 million in availability under its existing credit lines.
  • 6Accrued landfill and environmental costs rose substantially to $377.1 million from $279.2 million, reflecting ongoing remediation efforts and new orders.
  • 7The company's share repurchase program remained suspended due to the planned merger with Allied.

Frequently Asked Questions

The company recorded significant pre-tax charges related to environmental remediation at the Countywide and Sunrise landfills. For the nine months ended September 30, 2008, these charges amounted to $34.0 million for Sunrise Landfill and $34.0 million for the Countywide facility. These charges negatively impacted net income, particularly for the nine-month period, where net income decreased slightly year-over-year.

Republic Services, Inc. entered into a merger agreement with Allied Waste Industries, Inc. on June 22, 2008, and the transaction is expected to close in the fourth quarter of 2008. The merger is subject to shareholder and regulatory approvals. The company has incurred $33.3 million in capitalized costs related to the transaction as of September 30, 2008, and has suspended its share repurchase program in anticipation of the merger.

Long-term debt, net of current maturities, decreased to $1,497.2 million as of September 30, 2008, from $1,565.5 million as of December 31, 2007. This reduction is primarily due to payments exceeding new borrowings in the period. The company also secured a new $1.75 billion revolving credit facility, which is expected to fund upon closing of the Allied merger, enhancing its liquidity and refinancing existing debt.

Revenue grew due to price increases and fuel surcharges, though volumes saw a slight decline, particularly in industrial collection, likely due to broader economic conditions. Cost of operations increased primarily due to the substantial environmental remediation charges. While labor and benefits costs, as a percentage of revenue, decreased, maintenance and operating costs, particularly fuel, saw an increase due to rising prices.