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| RSG > SEC Filings for RSG > Form 10-K on 15-Feb-2013 | All Recent SEC Filings |
15-Feb-2013
Annual Report
2012 2011 2010
Revenue $ 8,118.3 100.0 % $ 8,192.9 100.0 % $ 8,106.6 100.0 %
Expenses:
Cost of operations 5,005.7 61.7 4,865.1 59.4 4,764.8 58.8
Depreciation,
amortization and
depletion of property
and equipment 778.4 9.6 766.9 9.4 762.2 9.4
Amortization of other
intangible assets and
other assets 70.1 0.9 76.7 0.9 71.5 0.9
Accretion 78.4 1.0 78.0 0.9 80.5 1.0
Selling, general and
administrative 820.9 10.1 825.4 10.1 858.0 10.6
Negotiation and
withdrawal costs -
Central States
Pension Fund 35.8 0.4 - - - -
(Gain) loss on
disposition of assets
and impairments, net (2.7 ) - 28.1 0.3 19.1 0.2
Restructuring charges 11.1 0.1 - - 11.4 0.1
Operating income $ 1,320.6 16.3 % $ 1,552.7 19.0 % $ 1,539.1 19.0 %
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Our pre-tax income was $823.9 million, $906.3 million and $877.0 million for the years ended December 31, 2012, 2011 and 2010, respectively. Our net income attributable to Republic Services, Inc. was $571.8 million, or $1.55 per diluted share, for the year ended December 31, 2012, compared to $589.2 million, or $1.56 per diluted share, in 2011 and $506.5 million, or $1.32 per diluted share, in 2010.
During each of the three years ended December 31, 2012, 2011 and 2010, we recorded a number of charges and other expenses and benefits that impacted our pre-tax income, net income attributable to Republic Services, Inc. (Net Income - Republic) and diluted earnings per share as noted in the following table (in millions, except per share data). Additionally, see our "Cost of Operations," "Selling, General and Administrative Expenses" and "Income Taxes" discussions contained in the Results of Operations section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of other items that impacted our earnings.
Year Ended December 31, 2012 Year Ended December 31, 2011 Year Ended December 31, 2010
Diluted Diluted Diluted
Net Earnings Net Earnings Net Earnings
Pre-tax Income - per Pre-tax Income - per Pre-tax Income - per
Income Republic Share Income Republic Share Income Republic Share
As reported $ 823.9 $ 571.8 $ 1.55 $ 906.3 $ 589.2 $ 1.56 $ 877.0 $ 506.5 $ 1.32
Negotiation and
withdrawal costs -
Central States
Pension Fund 35.8 21.6 0.06 - - - - - -
Loss on extinguishment
of debt 112.6 68.6 0.18 210.8 129.3 0.34 160.8 98.6 0.26
Costs to achieve
synergies - - - - - - 33.3 20.3 0.05
Restructuring charges 11.1 6.6 0.02 - - - 11.4 7.0 0.02
(Gain) loss on
disposition of assets
and impairments, net (5.3 ) (5.2 ) (0.01 ) 28.1 19.8 0.06 19.1 25.4 0.06
Adjusted $ 978.1 $ 663.4 $ 1.80 $ 1,145.2 $ 738.3 $ 1.96 $ 1,101.6 $ 657.8 $ 1.71
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We believe the presentation of adjusted pre-tax income, adjusted net income
attributable to Republic Services, Inc. and adjusted diluted earnings per share,
which are not measures determined in accordance with generally accepted
accounting principles in the United States (U.S. GAAP), provides an
understanding of operational activities before the financial impact of certain
non-operational items. We use these measures, and believe investors will find
them helpful, in understanding the ongoing performance of our operations
separate from items that have a disproportionate impact on our results for a
particular period. Comparable charges and costs have been incurred in prior
periods, and similar types of adjustments can reasonably be expected to be
recorded in future periods. Our definition of adjusted pre-tax income, adjusted
net income attributable to Republic Services, Inc. and adjusted diluted earnings
per share may not be comparable to similarly titled measures presented by other
companies.
Negotiation and withdrawal costs - Central States Pension Fund. During the year
ended December 31, 2012, we incurred costs related to the negotiation of
collective bargaining agreements under which we have obligations to contribute
to the Central States, Southeast and Southwest Areas Pension Fund (the Fund).
During 2012, we recorded a charge to earnings of $35.8 million primarily related
to our partial withdrawal from the Fund.
Loss on extinguishment of debt. During the years ended December 31, 2012, 2011
and 2010, we completed refinancing transactions that resulted in cash paid for
premiums and professional fees to repurchase outstanding debt as well as the
non-cash write-off of unamortized debt discounts and deferred issuance costs.
For a more detailed discussion of the components of these costs and the debt
series to which they relate, see our "Loss on Extinguishment of Debt" discussion
contained in the Results of Operations section of this Management's Discussion
and Analysis of Financial Condition and Results of Operations.
Costs to achieve synergies. During the year ended December 31, 2010, we incurred
incremental costs to achieve our synergy plan that are recorded in selling,
general and administrative expenses. These incremental costs primarily relate to
our synergy incentive plan as well as other integration costs. We did not incur
any such expenses during the years ended December 31, 2012 and 2011.
Restructuring charges. During the year ended December 31, 2012, we restructured
our field and corporate operations to create a more efficient and competitive
company. These changes include consolidating our field regions from four to
three and our areas from 28 to 20, relocating office space, and reducing
administrative staffing levels.
During the year ended December 31, 2010, we incurred restructuring and
integration charges related to the Allied acquisition. These charges consist of
severance and other employee termination and relocation benefits as well as
consulting and professional fees. We completed the Allied restructuring plan in
2010.
(Gain) loss on disposition of assets and impairments, net. For more detailed
discussion of the components of these costs, see our "(Gain) Loss on Disposition
of Assets and Impairments, Net" discussion contained in the Results of
Operations section of this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
2013 Guidance
Our objectives for 2013 remain consistent with previous years and focus on
enhancing stockholder value by increasing returns on invested capital and
efficiently using free cash flow. We remain committed to continuing our
broad-based pricing initiatives
across all lines of business to recover increasing costs and to expand our
operating margins.
Our guidance is based on current economic conditions and does not assume any
improvement or deterioration in the overall economy in 2013. Specific guidance
follows:
Revenue
We expect 2013 revenue to increase by approximately 2.0 to 2.5%. This consists
of the following:
Increase
(Decrease)
Core price 1.0 to 1.5%
Volume 0.0 %
Fuel recovery fees 0.2 %
Recycling commodities (0.2 )%
Acquisitions / divestitures, net 1.0 %
Total change 2.0 to 2.5%
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Changes in price are restricted on approximately 50% of our annual revenue. These restrictions include:
• price changes based upon fluctuation in a specific index as defined in the contract;
• fixed price increases based on stated contract terms; or
• price changes based on a cost plus a specific profit margin or other measurement.
Of these restricted pricing arrangements, approximately 60% are based on a
consumer price index, 15% are fixed arrangements and the remainder are based
upon a cost plus or other specific arrangement. The consumer price index varies
from a single historical stated period of time or an average of trailing
historical rates over a stated period of time. In addition, many pricing resets
lag between the measurement period and the date the revised pricing goes into
effect. As a result, current changes in a specific index, such as the consumer
price index, may not manifest themselves in our reported pricing for several
quarters into the future.
Adjusted Diluted Earnings per Share
The following is a summary of anticipated adjusted diluted earnings per share
for the year ending December 31, 2013 compared to the actual adjusted diluted
earnings per share for the year ended December 31, 2012. Adjusted diluted
earnings per share is not a measure determined in accordance with GAAP:
Year Year
Ending Ended
December 31, December 31,
2013 2012
Diluted earnings per share $ 1.83 - 1.88 $ 1.55
Loss on extinguishment of debt - 0.18
Negotiation and withdrawal costs - Central
States Pension Fund - 0.06
(Gain) loss on disposition of assets and
impairments, net - (0.01 )
Restructuring charges 0.03 0.02
Adjusted diluted earnings per share $ 1.86 - 1.91 $ 1.80
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This 2013 anticipated adjusted diluted earnings per share assumes an effective tax rate of approximately 38%. We expect cash taxes as a percentage of the overall tax provision to be 90% - 100%. At this time, we are unable to estimate the magnitude or timing of charges associated with our loss on extinguishment of debt, negotiation and withdrawal costs from collective bargaining agreements under which we have obligations to contribute to the Central States Pension Fund or (gain) loss on disposition of assets and impairments, net.
We believe that the presentation of adjusted diluted earnings per share, which is not a measure determined in accordance with U. S. GAAP, provides an understanding of operational activities before the financial impact of certain non-operational items such as those detailed in the above table. We use this measure, and believe investors will find it helpful, in understanding the
ongoing performance of our operations separate from items that have a
disproportionate impact on our results for a particular period. We have incurred
comparable charges and costs in prior periods, and similar types of adjustments
can reasonably be expected to be recorded in future periods. Our definition of
adjusted diluted earnings per share may not be comparable to similarly titled
measures presented by other companies.
Property and Equipment
In 2013, we anticipate receiving approximately $860 million of property and
equipment as follows:
Trucks and equipment $ 370 Landfill 270 Containers 100 Facilities and other 120 Property and equipment received during 2013 $ 860 |
Purchases of property and equipment as reflected on our consolidated statement
of cash flows for 2013 are expected to be approximately $880 million. The
difference between property and equipment received and purchases of property and
equipment is approximately $20 million of property and equipment received during
2012, but paid for in 2013.
Results of Operations
Years Ended December 31, 2012, 2011 and 2010
Revenue
We generate revenue primarily from our solid waste collection operations. Our
remaining revenue is from other services, including transfer stations, landfill
disposal and recycling. 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. Certain of our municipal contracts have
annual price escalation clauses that are tied to changes in an underlying base
index such as the consumer price index. We generally provide commercial and
industrial collection services to customers under contracts with terms up to
three years. Our transfer stations, landfills and, to a lesser extent, our
recycling centers generate revenue from disposal or tipping fees. In general, we
integrate our recycling operations with our collection operations and obtain
revenue from the sale of recyclable materials. Other non-core revenue consists
primarily of revenue from National Accounts, which represents the portion of
revenue generated from nationwide contracts in markets outside our operating
areas, and, as such, the associated waste handling services are subcontracted to
local operators. Consequently, substantially all of this revenue is offset with
related subcontract costs, which are recorded in cost of operations.
The following table reflects our revenue by service line for the years ended December 31, 2012, 2011 and 2010 (in millions of dollars and as a percentage of our revenue):
2012 2011 2010
Collection:
Residential $ 2,155.7 26.6 % $ 2,135.7 26.1 % $ 2,173.9 26.8 %
Commercial 2,523.2 31.1 2,487.5 30.4 2,486.8 30.7
Industrial 1,544.2 19.0 1,515.4 18.5 1,482.9 18.3
Other 33.4 0.4 32.9 0.4 29.6 0.4
Total collection 6,256.5 77.1 6,171.5 75.4 6,173.2 76.2
Transfer 964.5 994.2 1,030.3
Less: Intercompany (575.3 ) (572.8 ) (587.9 )
Transfer, net 389.2 4.8 421.4 5.1 442.4 5.4
Landfill 1,863.3 1,867.6 1,865.8
Less: Intercompany (862.5 ) (846.9 ) (861.7 )
Landfill, net 1,000.8 12.3 1,020.7 12.5 1,004.1 12.4
Sale of recyclable materials 349.0 4.3 438.6 5.4 337.9 4.2
Other non-core 122.8 1.5 140.7 1.6 149.0 1.8
Other 471.8 5.8 579.3 7.0 486.9 6.0
Total revenue $ 8,118.3 100.0 % $ 8,192.9 100.0 % $ 8,106.6 100.0 %
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The following table reflects the percentage changes in our revenue for the years
ended December 31, 2012, 2011 and 2010.
2012 2011 2010
Core price 0.8 % 0.8 % 1.6 %
Fuel recovery fees 0.1 1.0 0.5
Total price 0.9 1.8 2.1
Volume (1.0 ) (0.4 ) (3.5 )
Recycling commodities (1.2 ) 1.0 1.4
San Mateo and Toronto contract losses - (1.4 ) -
Total internal growth (1.3 ) 1.0 -
Acquisitions / divestitures, net 0.4 0.1 (1.1 )
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Total (0.9 )% 1.1 % (1.1 )%
Revenue - 2012 versus 2011
The decrease in revenue in 2012 compared to 2011 is due to the following:
• Core price increased revenue by 0.8% year over year due to positive
pricing in our collection, transfer and landfill lines of business.
Pricing was higher in the second half of 2012, which reflects the
higher level of price resets to our index-based customers.
• Fuel recovery fees increased revenue by 0.1% and 1.0%, respectively.
The impact of the change in fuel recovery fees was diminished in 2012
as the average fuel price per gallon increased approximately 3% from
2011 to 2012 as compared to approximately 29% from 2010 to 2011. For
2012 and 2011, we were able to recover approximately 67% and 68%,
respectively, of our fuel costs with fuel recovery fees.
• Volume decreased revenue by 1.0% in 2012. Volume declines were
primarily in our landfill, transfer station and non-core lines of
business primarily due to the acquisition of a large national broker by
a competitor and the loss of a large National Accounts contract. Within
the landfill business, special waste and construction and demolition
volumes decreased by approximately 4.3% and 6.4%, respectively, and
landfill municipal solid waste volumes declined approximately 5.3%
versus the prior year. Volume declines in special waste were caused by
special waste event work not recurring in 2012 and being postponed due
to continuing weak economic conditions. The decline in landfill
municipal solid waste volumes relate primarily to a loss of certain
municipal disposal contracts in our East region and competitive
pressures in our Los Angeles market. Collection volumes were positive
0.2% year over year with most improvements coming from the commercial
and industrial lines of business.
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• Recycling commodities decreased revenue by 1.2% in 2012 due to a
decrease in the market price of materials. Average prices for old
corrugated cardboard (OCC) in 2012 were $124 per ton versus $159 per
ton in 2011, a decrease of $35 per ton or 22%. Average prices of old
newspaper (ONP) for 2012 were $105 per ton versus $142 per ton in 2011,
a decrease of $37 per ton or 26%. The declines in prices were partially
offset by increased volumes processed. Our 2012 recycling commodity
volume of 2.1 million tons was 2.5% higher than 2011 volumes.
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Changing market demand for recyclable materials causes volatility in commodity
prices. At current volumes and mix of materials, we believe a ten dollar per ton
change in the price of recyclable materials will change annual revenue and
operating income by approximately $29 million and $20 million, respectively, on
an annual basis.
Revenue - 2011 versus 2010
The increase in revenue in 2011 compared to 2010 is due to the following:
• Core price increased revenue by 0.8% and 1.6%, respectively. The lower
core price increase in 2011 compared to 2010 is due primarily to the
competitive municipal and franchise contract pricing environment in our
residential collection line of business and the continued low
inflationary environment, which limits our price increases on index
based contracts, partially offset by our continued broad-based pricing
initiatives particularly in our landfill line of business.
• Fuel recovery fees increased revenue by 1.0% and 0.5%, respectively.
Revenue benefited from increased fuel recovery fees due to higher fuel
prices during 2011 that were passed along to our customers.
• Volume decreased revenue by 0.4% and 3.5%, respectively. Volume
continued to decline throughout 2011, but at a lower rate of decline
than earlier in the year or during 2010. Volume in our industrial
collection and landfill lines of business was positive in 2011
primarily driven by special event work, offset by declines in our
commercial and residential collection and transfer station lines of
business.
• Recycling commodity prices increased revenue by 1.0% and 1.4%,
respectively. Revenue benefited from higher commodity prices for
recovered materials until the fourth quarter of 2011, when changes in
recycling commodity prices decreased revenue by 0.1% year over year.
• Our San Mateo County contract and our transportation and disposal
contract with the City of Toronto ended effective December 31, 2010,
which reduced our revenue growth by 1.4% in 2011.
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Cost of Operations
Cost of operations includes labor and related benefits, which consists of
salaries and wages, health and welfare benefits, incentive compensation and
payroll taxes. It also includes transfer and disposal costs representing tipping
fees paid to third party disposal facilities and transfer stations; maintenance
and repairs relating to our vehicles, equipment and containers, including
related labor and benefit costs; transportation and subcontractor costs, which
include costs for independent haulers who transport our waste to disposal
facilities and costs for local operators who provide waste handling services
associated with our national accounts in markets outside our standard operating
areas; fuel, which includes the direct cost of fuel used by our vehicles, net of
fuel credits; disposal franchise fees and taxes consisting of landfill taxes,
municipal franchise fees, host community fees and royalties; landfill operating
costs, which includes financial assurance, remediation costs, leachate disposal
and other landfill maintenance costs; risk management, which includes casualty
insurance premiums and claims; cost of goods sold, which includes material costs
paid to suppliers associated with recycling commodities; and other, which
includes expenses such as facility operating costs, equipment rent and gains or
losses on sale of assets used in our operations.
The following table summarizes the major components of our cost of operations
for the years ended December 31, 2012, 2011 and 2010 (in millions of dollars and
as a percentage of our revenue):
2012 2011 2010
Labor and related
benefits $ 1,573.9 19.4 % $ 1,530.4 18.7 % $ 1,534.4 18.9 %
Transfer and disposal
costs 616.4 7.6 636.1 7.8 664.3 8.2
Maintenance and
repairs 682.7 8.4 632.1 7.7 609.7 7.5
Transportation and
subcontract costs 431.9 5.3 443.4 5.4 466.7 5.8
Fuel 530.1 6.5 516.5 6.3 407.6 5.0
Franchise fees and
taxes 401.9 5.0 395.7 4.8 395.8 4.9
Landfill operating
costs 198.1 2.5 126.1 1.5 136.2 1.7
Risk management 177.3 2.2 167.5 2.0 171.6 2.1
Cost of goods sold 114.6 1.4 146.8 1.8 103.9 1.3
Other 278.8 3.4 270.5 3.4 274.6 3.4
Total cost of
operations $ 5,005.7 61.7 % $ 4,865.1 59.4 % $ 4,764.8 58.8 %
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The cost categories shown above may change from time to time and may not be
comparable to similarly titled categories used by other companies. Thus, you
should take care when comparing our cost of operations by cost component to that
of other companies.
Cost of Operations - 2012 versus 2011
Our cost of operations, as a percentage of revenue, increased 2.3% in 2012 compared to 2011, primarily as a result of the following:
. . .
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