| REPUBLIC SERVICES INC ITEM 1A RISK FACTORS Risk Factors This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, certain statements about our plans, strategies and prospects |
| Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved |
| Important factors that could cause our actual results to differ materially from our forward-looking statements include those set forth in this Risk Factors section |
| All forward-looking statements attributable to us or any persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth below |
| Unless the context requires otherwise, all references to the “company,” “we,” “us” or “our” include Republic Services, Inc |
| and its subsidiaries |
| If any of the following risks, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected |
| We operate in a highly competitive industry and may be unable to compete effectively |
| We operate in a highly competitive business environment |
| Some of our competitors have significantly larger operations and may have significantly greater financial resources than we do |
| In addition, the solid waste industry is constantly changing as a result of consolidation which may create additional competitive pressures in our business environment |
| 13 _________________________________________________________________ We also compete with municipalities that maintain their own waste collection or disposal operations |
| These municipalities may have a financial advantage over us as a result of the availability of tax revenue and tax-exempt financing |
| We compete for collection accounts primarily on the basis of price and the quality of services |
| From time to time our competitors may reduce the price of their services in an effort to expand their market share or to win competitively bid municipal contracts |
| In each market in which we own or operate a landfill, we compete for solid waste volume on the basis of disposal or “tipping” fees, geographical location and quality of operations |
| Our ability to obtain solid waste volume for our landfills may 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 |
| Economic conditions could adversely affect our business, operations and internal growth |
| In the past, economic slowdowns have negatively impacted the portion of our collection business servicing the manufacturing sector and the non-residential construction industry |
| Landfill volumes attributable to manufacturing and construction activity were also impacted |
| A slowdown in the economy in any of the markets we service could adversely affect volumes, pricing and operating margins in our collection, transfer and disposal operations |
| An increase in the price of fuel may adversely affect our business |
| Our operations are dependent upon fuel, which we generally purchase in the open market on a daily basis |
| Direct fuel costs include the cost of fuel and other petroleum-based products used to operate our fleet of vehicles and heavy equipment |
| We are also susceptible to increases in indirect fuel costs which include fuel surcharges from vendors, increased construction and excavation costs, and increases in the costs of other petroleum-based products such as synthetic landfill liners |
| During 2003, 2004 and 2005, we experienced increases in the cost of fuel and other petroleum-based products |
| However, because of the competitive nature of the waste industry, there can be no assurance that we will be able to pass on current or future increases in fuel prices to our customers |
| Due to political instability in oil-producing countries, fuel prices may continue to increase significantly in 2006 |
| A significant increase in fuel costs could adversely affect our business |
| We may be unable to execute our financial strategy |
| Our ability to execute our financial strategy is dependent upon our ability to maintain an investment grade rating on our senior debt |
| The credit rating process is contingent upon a number of factors, many of which are beyond our control |
| Our financial strategy is also dependent upon our ability to generate sufficient cash flow to reinvest in our existing business, fund our internal growth, acquire other solid waste businesses, repurchase shares of our common stock, pay dividends, minimize our borrowings and take other actions to enhance stockholder value |
| We cannot assure you 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 continue to repurchase our common stock, or that we will be able to pay cash dividends or increase the amount of our dividends |
| 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 the operations of acquired companies, including the consolidation of systems, procedures, personnel and facilities, the relocation of staff, and the achievement of anticipated cost savings, 14 _________________________________________________________________ economies of scale and other business efficiencies, presents significant challenges to our management, particularly if several acquisitions occur at the same time |
| In short, we cannot assure you that: • desirable acquisition candidates exist or will be identified, • we will be able to acquire any of the candidates identified, • we will effectively consolidate companies which are acquired and fully or timely realize the expected cost savings, economies of scale or business efficiencies, or • any acquisitions will be profitable or accretive to our earnings |
| Additional factors may negatively impact our acquisition growth strategy |
| Our acquisition strategy may require spending significant amounts of capital |
| If we are unable to obtain additional needed financing on acceptable terms, we may need to reduce the scope of our acquisition growth strategy, which could have a material adverse effect on our growth prospects |
| The intense competition among our competitors pursuing the same acquisition candidates may increase purchase prices for solid waste businesses and increase our capital requirements and/or prevent us from acquiring certain acquisition candidates |
| If any of the aforementioned factors force us to alter our growth strategy, our financial condition, results of operations and growth prospects could be adversely affected |
| 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 will need to add administrative and other personnel, and make additional investments in operations and systems |
| We cannot assure you 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 |
| 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, as a successor owner we may be responsible for such undisclosed liabilities |
| We typically try to minimize our exposure to such liabilities by obtaining indemnification from each seller 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, we cannot assure you 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 financial statements are based upon estimates and assumptions that may differ from actual results |
| Our financial statements have been prepared in accordance with US generally accepted accounting principles and necessarily include amounts based on estimates and assumptions made by us |
| Actual results could differ from these amounts |
| Significant items subject to such estimates and assumptions 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, liabilities for potential litigation, claims and assessments, and liabilities for environmental remediation, deferred taxes and self-insurance |
| We cannot assure you that our 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 us |
| 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 |
| 15 _________________________________________________________________ We depend on key personnel |
| Our future success depends on the continued contributions of several key employees and officers |
| We do not maintain key man life insurance policies on any of our 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 |
| Compliance with environmental and other laws and regulations may impede our growth |
| We may need to spend considerable time, effort and capital to keep our facilities in compliance with federal, state and local requirements regulating health, safety, environment, zoning, land use and transportation |
| In addition, some of our waste operations that cross state boundaries could be adversely affected if the federal government, or the state or locality in which these waste operations are located, imposes fees on, or otherwise limits or prohibits, the transportation or disposal of solid waste |
| If environmental laws become more stringent, our environmental capital expenditures and costs for environmental compliance may increase in the future |
| In addition, due to the possibility of unanticipated events or regulatory developments, the amounts and timing of future environmental expenditures could vary substantially from those we currently anticipate |
| Because of the nature of our operations, we have in the past, currently are, and may in the future be named as a potentially responsible party in connection with the investigation or remediation of environmental conditions |
| We cannot assure you that the resolution of any such investigations will not have a material adverse effect on our financial condition, results of operations or cash flows |
| A significant judgment or fine against our company, or our loss of significant permits or licenses, could have a material adverse effect on our financial condition, results of operations, cash flows or prospects |
| Regulatory approval to develop or expand our landfills and transfer stations may be delayed or denied |
| Our plans include developing new landfills and transfer stations, as well as expanding the disposal and transfer capacities of certain of our landfills and transfer stations, respectively |
| Various parties, including citizens’ groups and local politicians, sometimes challenge these projects |
| 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 and expanding existing facilities |
| Seasonal changes may adversely affect our business and operations |
| Our operations may be adversely affected by periods of inclement 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 |
| The outcome of audits by the Internal Revenue Service may adversely affect our company |
| The Internal Revenue Service is auditing our consolidated tax returns for fiscal years 1998 through 2004 |
| No assurance can be given with respect to the outcome of the audits for these periods or the effect they may have on us, or that our reserves with respect thereto are adequate |
| A significant assessment against us could have a material adverse effect on our financial position, results of operations or cash flows |