Republic Services reported a net loss for the three months ended December 31, 2008, of $131.7 million, or $.55 per diluted share, compared to net income of $82.1 million, or $.44 per diluted share, for the same period in 2007. The company 2008 financial results include Allied Waste Industries, Inc. (Allied) from the effective date of the merger which was December 5, 2008. Revenue for the three months ended December 31, 2008 was $1,244.4 million compared to $796.0 million for the same period in 2007.
Operating loss for the three months ended December 31, 2008 was $111.6 million compared to operating income of $139.9 million for the same period last year. During the three months ended December 31, 2008, we recorded charges totaling $315.5 million for remediation and related costs, asset impairments, restructuring, landfill and intangible asset amortization expense, bad debt expense, legal settlement reserves and the synergy incentive plan.
For the year ended December 31, 2008, net income was $73.8 million, or $.37 per diluted share, compared to $290.2 million, or $1.51 per diluted share, for 2007. Revenue for the year ended December 31, 2008 was $3,685.1 million compared to $3,176.2 million during 2007.
Operating income for the year ended December 31, 2008 was $283.2 million compared to $536.0 million for 2007. During the year ended December 31, 2008, we recorded charges totaling $383.5 million for remediation and related costs, asset impairments, restructuring, landfill and intangible asset amortization expense, bad debt expense, legal settlement reserves and the synergy incentive plan.
I am very pleased with our progress to date concerning the integration of Republic and Allied following the merger that took place on December 5, 2008, said James E. O’Connor, chairman and chief executive officer of Republic Services. We have already completed initiatives that provide an annual benefit of more than $50.0 million in synergies. I remain confident that we will achieve the estimated $150.0 million in annual run-rate savings by the end of 2010.
Fiscal Year 2009 Outlook
Despite a weaker economy, we expect 2009 free cash flow, excluding merger-related payments, to be around $650.0 million, which compares favorably to 2008, said Donald W. Slager, president and chief operating officer. Our field organization is adjusting the business for changing economic conditions while remaining focused on the basic aspects of our business including safety, customer service, pricing, and achieving strong and predictable free cash flow.
The company objectives for 2009 remain consistent with previous years and once again focus on enhancing shareholder value through the generation and efficient use of free cash flow. We remain committed to implementing a broad- based pricing initiative across all lines of business to recover increasing costs and provide an adequate return on invested capital. We anticipate using free cash flow to pay regular quarterly dividends and reduce debt. Additionally, we expect to use proceeds from sales of asset divestitures to reduce debt.
The company guidance is based on current economic conditions and does not assume any improvement or deterioration in the overall economy in 2009 from that experienced at the end of 2008.
Specific guidance is as follows:
Free Cash Flow: The company anticipate 2009 free cash flow, excluding merger- related payments, of around $650.0 million. The company defines free cash flow as cash provided by operating activities less purchases of property and equipment plus proceeds from sales of property and equipment as presented in our consolidated statement of cash flows. Additionally, we expect to realize proceeds from sales of asset divestitures which are not included in free cash flow.
Earnings Per Share: The company anticipate reported 2009 earnings per diluted share before the accounting impact of our merger with Allied and restructuring charges to be in the range of $1.70 to $1.75 per share. Reported earnings per diluted share are expected to be in the range of $1.10 to $1.15 per share. As of the effective date of the merger, Republic recorded significant changes in the carrying values of Allied’s assets, liabilities and debt, as a result of assigning fair values in purchase accounting. Republic also conformed Allied’s accounting policies to Republic’s. Taken together, we estimate that the impact of these changes will have the effect of lowering 2009 earnings by around $.60 per diluted share. This decrease in 2009 earnings consists of the following (around):
$.17 per diluted share is attributable to higher depreciation, depletion and amortization,
$.18 per diluted share is attributable to non-cash interest expense for amortizing the discount to fair value on Allied’s debt,
$.05 per diluted share is for conforming Allied’s accounting policies with ours, and
$.20 per diluted share is related to the integration of our businesses.
Revenue: The company expects 2009 revenue to increase by around 129%. This reflects increases of around 139% resulting from our merger with Allied and around 4% for price increases, which are partially offset by a decline of around 14% due to weaker economic conditions (but not a loss of market share) and divestitures.
Margins: EBITDA margins for 2009 are anticipated to be around 28%, or around 29.5% before costs related to integrating our businesses.
Merger Synergies: In 2009, the company anticipates realizing $100.0 million in year-end, run-rate synergies as a result of the merger of Republic Services and Allied. Our goal for the merger is $150.0 million in annual run-rate synergies by the end of 2010. The cost to merge our systems and business units, and thus achieve the $150.0 million synergies, is projected to be around $135.0 million, or $.20 per diluted share, in 2009, and $55.0 million, or $.08 per diluted share, in 2010.
