01—Abstract
Summary
Summary of the 10-Q filed November 4, 2009. Cited figures are marked; the original filing is the authoritative source.
Republic Services, Inc.'s (RSG) Q3 2009 filing indicates a significant transformation post-merger with Allied Waste Industries.
The company reported a substantial increase in revenue due to the acquisition, reaching $2.07 billiona for the quarter and $6.20 billion year-to-date, a stark contrast to the prior year's figures. Despite the top-line growth driven by the merger, underlying "core" revenue (excluding the Allied acquisition impact) showed a decline, reflecting the challenging economic environment with lower volumes across most service lines, partially offset by price increases. The company has been actively managing its debt, issuing new senior notes and using proceeds to retire existing debt, incurring a loss on extinguishment of debt in the process.
Republic Services also reported progress on restructuring and integration plans related to the Allied merger, with associated charges expected to be largely complete by year-end. The balance sheet reflects a substantial increase in assets and liabilities due to the merger, including a significant amount of goodwill. Management highlighted efforts to control costs and maintain operational efficiencies amidst the economic downturn.
Overall, investors can view this report as a snapshot of a company in transition, integrating a major acquisition while navigating a difficult economic climate. The focus is on managing the combined entity, realizing merger synergies, controlling costs, and maintaining a healthy balance sheet and cash flow.
02—Key points
Key Highlights
- Revenue increased significantly to $2.07 billion for the third quarter and $6.20 billion year-to-date, primarily driven by the acquisition of Allied Waste Industries, Inc.
- Despite the reported revenue increase, 'core' revenue (adjusted for the merger) saw a decline of 11.4% year-to-date, attributed to reduced volumes caused by the economic downturn, though price increases partially offset this.
- The company incurred a $31.8 million loss on extinguishment of debt related to the early retirement of senior notes using proceeds from a new $650 million senior notes issuance.
- Restructuring and integration charges amounted to $55.9 million year-to-date for the Allied merger, with expectations of substantially completing the plan by the fourth quarter of 2009.
- Total assets grew to $19.53 billion and total liabilities to $12.00 billion, reflecting the scale of the Allied acquisition.
- Diluted earnings per share were $0.32 for the quarter and $1.21 year-to-date, compared to $0.48 and $1.11 for the prior year periods, respectively. Adjusted diluted EPS also shows growth year-over-year.
- The company maintained compliance with its debt covenants, with an EBITDA to interest coverage ratio of 3.85:1 and a total debt to EBITDA ratio of 2.91:1 at quarter-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2009, Republic Services, Inc. kept $0.06.
- Revenue$2.07B100.0%
- Cost of revenue−$1.21B58.2%
- Gross profit$866.0M41.8%
- Operating costs−$479.1M23.1%
- Operating income$386.9M18.7%
- Interest, other & tax−$266.4M12.8%
- Net income$120.5M5.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2009filed November 4, 2009Financial Statements
Q3 FY2009 against Q3 FY2008
| Line item | Q3 FY2009Q3 FY2008 | Change |
|---|---|---|
| Revenue | $2.07B$834.00M | +148.6% |
| Cost of Revenue | $1.21B$499.50M | +141.7% |
| Gross Profit | $866.00M$334.50M | +158.9% |
| SG&A Expenses | $225.40M$85.60M | +163.3% |
| Operating Income | $386.90M$167.00M | +131.7% |
| Interest Expense | $144.80M$22.60M | +540.7% |
| Net Income | $120.50M$88.70M | +35.9% |
| EPS (Basic) | $0.32$0.49 | −34.7% |
| EPS (Diluted) | $0.32$0.48 | −33.3% |
| Shares Outstanding (Basic) | 379.73M182.30M | +108.3% |
| Shares Outstanding (Diluted) | 381.13M184.10M | +107.0% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the significant increase in Republic Services' revenue in this filing?
The substantial increase in revenue, from $834 million in Q3 2008 to $2.07 billion in Q3 2009, is primarily due to the acquisition of Allied Waste Industries, Inc. which was completed in December 2008. This merger significantly expanded the company's operational scale and asset base.
How is the company managing its debt after the Allied acquisition?
Republic Services has been actively managing its debt. In September 2009, they issued $650 million in new senior notes and used a portion of the proceeds to retire $325.5 million of existing senior notes maturing in 2010 and 2011, incurring a loss on extinguishment of debt. The company also utilized its revolving credit facilities to repay debt and manage its capital structure, while remaining in compliance with all debt covenants.
What impact is the current economic environment having on Republic Services' 'core' business?
The challenging economic environment has negatively impacted the company's 'core' business. Year-to-date, adjusted core revenue declined by 11.4% due to decreased volumes across residential, commercial, and industrial services. While price increases have partially offset these volume declines, management anticipates continued volume decreases through the remainder of 2009.
Are there any significant legal or environmental matters that investors should be aware of?
Yes, the company is involved in several significant legal and environmental matters. Key issues include ongoing litigation related to the Countywide landfill in Ohio, with ongoing compliance and remediation efforts, and a significant tax dispute with the IRS regarding capital loss deductions from prior transactions, which has resulted in substantial accrued liabilities. While management believes most proceedings will not have a material adverse impact, these represent areas of potential financial and operational risk.
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