Item 1. Financial Statements
Advanced Disposal Services, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
(in millions, except share data)
|
June 30,
2019
|
|
December 31,
2018
|
Assets
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
10.7
|
|
|
$
|
6.8
|
|
Accounts receivable, net of allowance for doubtful accounts of $5.1 and $4.6, respectively
|
219.6
|
|
|
211.4
|
|
Prepaid expenses and other current assets
|
36.7
|
|
|
44.8
|
|
Total current assets
|
267.0
|
|
|
263.0
|
|
Other assets
|
50.6
|
|
|
31.7
|
|
Property and equipment, net of accumulated depreciation of $1,647.3 and $1,540.7, respectively
|
1,769.1
|
|
|
1,761.4
|
|
Goodwill
|
1,224.1
|
|
|
1,215.1
|
|
Other intangible assets, net of accumulated amortization of $302.5 and $286.9, respectively
|
249.5
|
|
|
257.1
|
|
Total assets
|
$
|
3,560.3
|
|
|
$
|
3,528.3
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable
|
$
|
139.7
|
|
|
$
|
107.8
|
|
Accrued expenses
|
125.2
|
|
|
117.7
|
|
Deferred revenue
|
71.5
|
|
|
72.5
|
|
Current maturities of landfill retirement obligations
|
18.6
|
|
|
18.6
|
|
Current maturities of long-term debt
|
74.8
|
|
|
85.9
|
|
Total current liabilities
|
429.8
|
|
|
402.5
|
|
Other long-term liabilities
|
85.9
|
|
|
76.7
|
|
Long-term debt, less current maturities
|
1,809.6
|
|
|
1,817.1
|
|
Accrued landfill retirement obligations, less current maturities
|
236.7
|
|
|
229.4
|
|
Deferred income taxes
|
87.5
|
|
|
91.1
|
|
Total liabilities
|
2,649.5
|
|
|
2,616.8
|
|
Equity
|
|
|
|
Common stock: $.01 par value, 1,000,000,000 shares authorized, 88,934,243 and 88,685,920 issued including shares held in treasury, respectively
|
0.9
|
|
|
0.9
|
|
Treasury stock at cost, 18,636 and 2,274 shares, respectively
|
(0.6
|
)
|
|
—
|
|
Additional paid-in capital
|
1,511.9
|
|
|
1,501.7
|
|
Accumulated deficit
|
(598.5
|
)
|
|
(591.1
|
)
|
Accumulated other comprehensive loss
|
(2.9
|
)
|
|
—
|
|
Total stockholders' equity
|
910.8
|
|
|
911.5
|
|
Total liabilities and stockholders' equity
|
$
|
3,560.3
|
|
|
$
|
3,528.3
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Advanced Disposal Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except share and per share data)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
419.1
|
|
|
$
|
398.1
|
|
|
$
|
803.1
|
|
|
$
|
762.8
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
Operating
|
277.2
|
|
|
250.7
|
|
|
526.6
|
|
|
486.8
|
|
Selling, general and administrative
|
62.2
|
|
|
44.5
|
|
|
112.0
|
|
|
90.1
|
|
Depreciation and amortization
|
70.3
|
|
|
69.2
|
|
|
136.2
|
|
|
133.9
|
|
Acquisition and development costs
|
0.2
|
|
|
0.1
|
|
|
1.0
|
|
|
0.3
|
|
Loss (gain) on disposal of assets and asset impairments
|
0.5
|
|
|
(1.4
|
)
|
|
0.7
|
|
|
(3.3
|
)
|
Total operating costs and expenses
|
410.4
|
|
|
363.1
|
|
|
776.5
|
|
|
707.8
|
|
Operating income
|
8.7
|
|
|
35.0
|
|
|
26.6
|
|
|
55.0
|
|
Other (expense) income
|
|
|
|
|
|
|
|
Interest expense
|
(26.2
|
)
|
|
(23.6
|
)
|
|
(52.2
|
)
|
|
(46.6
|
)
|
Other (expense) income, net
|
(3.5
|
)
|
|
2.0
|
|
|
(2.8
|
)
|
|
7.9
|
|
Total other expense
|
(29.7
|
)
|
|
(21.6
|
)
|
|
(55.0
|
)
|
|
(38.7
|
)
|
(Loss) income before income taxes
|
(21.0
|
)
|
|
13.4
|
|
|
(28.4
|
)
|
|
16.3
|
|
Income tax (benefit) expense
|
(20.0
|
)
|
|
3.7
|
|
|
(21.4
|
)
|
|
4.5
|
|
Net (loss) income
|
$
|
(1.0
|
)
|
|
$
|
9.7
|
|
|
$
|
(7.0
|
)
|
|
$
|
11.8
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders per share
|
|
|
|
|
|
|
|
Basic (loss) income per share
|
$
|
(0.01
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.13
|
|
Diluted (loss) income per share
|
$
|
(0.01
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.13
|
|
Basic average shares outstanding
|
88,857,948
|
|
|
88,555,647
|
|
|
88,790,157
|
|
|
88,535,860
|
|
Diluted average shares outstanding
|
88,857,948
|
|
|
89,272,966
|
|
|
88,790,157
|
|
|
89,147,337
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Advanced Disposal Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(1.0
|
)
|
|
$
|
9.7
|
|
|
$
|
(7.0
|
)
|
|
$
|
11.8
|
|
Change in fair value of interest rate caps, net of tax for the three months ended June 30, 2019 and 2018 of $0.5 and ($0.4), respectively and for the six months ended June 30, 2019 and 2018 of $1.3 and ($1.1), respectively
|
(1.3
|
)
|
|
1.0
|
|
|
(3.3
|
)
|
|
3.2
|
|
Comprehensive (loss) income
|
$
|
(2.3
|
)
|
|
$
|
10.7
|
|
|
$
|
(10.3
|
)
|
|
$
|
15.0
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Advanced Disposal Services, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except share data)
|
Common Stock
|
|
Treasury Stock
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated
Other Comprehensive (Loss) Income
|
|
Total Stockholders' Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
88,493,468
|
|
|
$
|
0.9
|
|
|
2,274
|
|
|
$
|
—
|
|
|
$
|
1,487.4
|
|
|
$
|
(603.3
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
884.6
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
2.1
|
|
Stock-based compensation
|
22,565
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
Stock option exercises
|
21,295
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
Unrealized loss resulting from change in fair value of derivative instruments, net of tax of $0.7
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
|
2.2
|
|
Impact of implementing new revenue recognition standard, net of tax of ($1.1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.8
|
|
|
—
|
|
|
2.8
|
|
Balance at March 31, 2018
|
88,537,328
|
|
|
$
|
0.9
|
|
|
2,274
|
|
|
$
|
—
|
|
|
$
|
1,490.2
|
|
|
$
|
(598.4
|
)
|
|
$
|
1.8
|
|
|
$
|
894.5
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.7
|
|
|
—
|
|
|
9.7
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
Stock option exercises
|
40,323
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
Unrealized loss resulting from change in fair value of derivative instruments, net of tax of ($0.4)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
Balance at June 30, 2018
|
88,577,651
|
|
|
$
|
0.9
|
|
|
2,274
|
|
|
$
|
—
|
|
|
$
|
1,493.3
|
|
|
$
|
(588.7
|
)
|
|
$
|
2.8
|
|
|
$
|
908.3
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.9
|
)
|
|
—
|
|
|
(4.9
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
|
—
|
|
|
3.6
|
|
Stock option exercises
|
79,195
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
Unrealized loss resulting from change in fair value of derivative instruments, net of tax of ($0.3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
Balance at September 30, 2018
|
88,656,846
|
|
|
$
|
0.9
|
|
|
2,274
|
|
|
$
|
—
|
|
|
$
|
1,498.4
|
|
|
$
|
(593.6
|
)
|
|
$
|
3.5
|
|
|
$
|
909.2
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
2.5
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
2.7
|
|
Stock option exercises
|
29,074
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
Unrealized loss resulting from change in fair value of derivative instruments, net of tax of $1.4
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
(3.5
|
)
|
Balance at December 31, 2018
|
88,685,920
|
|
|
$
|
0.9
|
|
|
2,274
|
|
|
$
|
—
|
|
|
$
|
1,501.7
|
|
|
$
|
(591.1
|
)
|
|
$
|
—
|
|
|
$
|
911.5
|
|
Advanced Disposal Services, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated
Other Comprehensive (Loss) Income
|
|
Total Stockholders' Equity
|
(in millions, except share data)
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2018
|
88,685,920
|
|
|
$
|
0.9
|
|
|
2,274
|
|
|
$
|
—
|
|
|
$
|
1,501.7
|
|
|
$
|
(591.1
|
)
|
|
$
|
—
|
|
|
$
|
911.5
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
|
(6.0
|
)
|
Stock-based compensation
|
18,735
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
Stock option exercises
|
90,807
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
Unrealized loss resulting from change in fair value of derivative instruments, net of tax of $0.8
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.0
|
)
|
|
$
|
(2.0
|
)
|
Impact of implementing new derivatives standard, net of tax of ($0.2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.4
|
)
|
|
0.4
|
|
|
$
|
—
|
|
Balance at March 31, 2019
|
88,795,462
|
|
|
$
|
0.9
|
|
|
2,274
|
|
|
$
|
—
|
|
|
$
|
1,507.7
|
|
|
$
|
(597.5
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
909.5
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
(1.0
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
Stock option exercises and performance stock units vested
|
138,781
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
Stock repurchases (a)
|
—
|
|
|
—
|
|
|
16,362
|
|
|
$
|
(0.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
Unrealized loss resulting from change in fair value of derivative instruments, net of tax of $0.5
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
|
(1.3
|
)
|
Balance at June 30, 2019
|
88,934,243
|
|
|
$
|
0.9
|
|
|
18,636
|
|
|
$
|
(0.6
|
)
|
|
$
|
1,511.9
|
|
|
$
|
(598.5
|
)
|
|
$
|
(2.9
|
)
|
|
$
|
910.8
|
|
(a) Stock repurchases represent shares withheld by the Company to pay employee taxes associated with performance stock unit vesting.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Advanced Disposal Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
(in millions)
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
Cash flows from operating activities
|
|
|
|
Net (loss) income
|
$
|
(7.0
|
)
|
|
$
|
11.8
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities
|
|
|
|
Depreciation and amortization
|
136.2
|
|
|
133.9
|
|
Change in fair value of derivative instruments
|
4.6
|
|
|
(5.6
|
)
|
Amortization of debt issuance costs and original issue discount
|
2.8
|
|
|
3.3
|
|
Accretion on landfill retirement obligations
|
8.7
|
|
|
7.6
|
|
Other accretion and amortization
|
3.4
|
|
|
2.3
|
|
Provision for doubtful accounts
|
3.2
|
|
|
1.8
|
|
Loss (gain) on disposition of property and equipment
|
0.7
|
|
|
(3.4
|
)
|
Stock based compensation
|
6.3
|
|
|
4.9
|
|
Deferred tax (benefit) expense
|
(17.8
|
)
|
|
4.8
|
|
Earnings in equity investee
|
(1.1
|
)
|
|
(0.9
|
)
|
Write-off of 2012 Veolia acquisition related indemnification receivable
|
3.9
|
|
|
—
|
|
Changes in operating assets and liabilities, net of businesses acquired
|
|
|
|
Increase in accounts receivable
|
(10.2
|
)
|
|
(10.5
|
)
|
Decrease in prepaid expenses and other current assets
|
3.4
|
|
|
5.5
|
|
Decrease in other assets
|
1.9
|
|
|
0.5
|
|
Increase in accounts payable
|
15.4
|
|
|
26.9
|
|
Increase (decrease) in accrued expenses
|
4.4
|
|
|
(6.1
|
)
|
(Decrease) increase in deferred revenue
|
(1.1
|
)
|
|
0.5
|
|
Decrease in other long-term liabilities
|
(1.7
|
)
|
|
(5.8
|
)
|
Capping, closure and post-closure obligations
|
(7.5
|
)
|
|
(8.3
|
)
|
Net cash provided by operating activities
|
148.5
|
|
|
163.2
|
|
Cash flows from investing activities
|
|
|
|
Purchases of property and equipment and landfill construction and development
|
(83.4
|
)
|
|
(86.5
|
)
|
Proceeds from sale of property and equipment and insurance recoveries
|
1.7
|
|
|
4.2
|
|
Acquisition of businesses, net of cash acquired
|
(27.1
|
)
|
|
(5.9
|
)
|
Net cash used in investing activities
|
(108.8
|
)
|
|
(88.2
|
)
|
Cash flows from financing activities
|
|
|
|
Proceeds from borrowings on debt instruments
|
101.0
|
|
|
53.0
|
|
Repayment on debt instruments, including finance leases
|
(140.1
|
)
|
|
(128.9
|
)
|
Proceeds from issuance of common stock net of stock repurchases
|
3.3
|
|
|
1.0
|
|
Net cash used in financing activities
|
(35.8
|
)
|
|
(74.9
|
)
|
Net increase in cash and cash equivalents
|
3.9
|
|
|
0.1
|
|
Cash and cash equivalents, beginning of period
|
6.8
|
|
|
6.8
|
|
Cash and cash equivalents, end of period
|
$
|
10.7
|
|
|
$
|
6.9
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
Advanced Disposal Services, Inc. together with its consolidated subsidiaries (the "Company"), as a consolidated entity, is a non-hazardous solid waste services company which provides collection, transfer, recycling and disposal services. The Company manages and evaluates its principal operations through
three
reportable operating segments on a regional basis. Those operating segments are the South, East and Midwest regions. Additional information related to segments can be found in Note 10.
Two
acquisitions were completed during the
six months ended June 30, 2019
for aggregate consideration consisting of a cash purchase price of
$24.9
. Additionally, the Company made a
$2.2
deferred purchase price payment during the six months ended June 30, 2019 related to an acquisition completed during the fourth quarter of fiscal 2018.
Six
acquisitions were completed during the
six months ended June 30, 2018
for a cash purchase price of
$5.9
and notes payable of
$0.7
. The results of operations of each acquisition are included in the Company's unaudited condensed consolidated statements of operations subsequent to the closing date of each acquisition. Our acquisition accounting and valuation processes with respect to property and equipment, intangible assets, current liabilities and long-term liabilities related to acquisitions completed subsequent to October 1, 2018 are preliminary and subject to adjustments.
The Company’s condensed consolidated financial statements include its wholly-owned subsidiaries and their respective subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of
June 30, 2019
and for the
three and six months ended June 30, 2019
and 2018 are unaudited. In the opinion of management, these condensed consolidated financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair statement of the balance sheet, results of operations, comprehensive (loss) income, cash flows, and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The financial statements presented herein should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
In conformity with accounting principles generally accepted in the United States of America, the Company uses estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. The Company must make these estimates and assumptions because certain information that it uses is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methodologies. In preparing the Company's financial statements, the more subjective areas that deal with the greatest amount of uncertainty relate to: accounting for long-lived assets, including recoverability; landfill development costs; final capping, closure and post-closure costs; valuation allowances for accounts receivable and deferred tax assets; liabilities for potential litigation, claims and assessments; liabilities for environmental remediation; stock compensation; accounting for goodwill and intangible asset impairments; deferred taxes; uncertain tax positions; self-insurance reserves; and estimates of the fair value of assets acquired and liabilities assumed in any acquisition. Actual results could differ materially from the estimates and assumptions that the Company uses in preparation of its financial statements.
Recently Adopted Accounting Standards
In August 2017, the FASB issued Accounting Standards Update ("ASU") 2017-12 which intends to address concerns through changes to hedge accounting guidance which will accomplish the following: a) expand hedge accounting for nonfinancial and financial risk components and amend measurement methodologies to more closely align hedge accounting with a company's risk management activities; b) decrease the complexity of preparing and understanding hedge results through eliminating the separate measurement and reporting of hedge ineffectiveness; c) enhance transparency, comparability and understandability of hedge results through enhanced disclosures and changing the presentation of hedge results to align the effects of the hedging instrument and the hedged item; and d) reduce the cost and complexity of applying hedge accounting by simplifying the manner in which assessments of hedge effectiveness may be performed. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company's adoption of this guidance during the first quarter of fiscal 2019 required a
$0.4
adjustment to opening accumulated deficit, net of tax.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), in July 2018 the FASB issued ASU 2018-11, Leases: Targeted Improvements, in December 2018 the FASB issued ASU 2018-20, Leases: Narrow Scope Improvements for Lessors and in March 2019 the FASB issued ASU 2019-1, Leases: Codification Improvements. Lessees are required to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors are required to recognize a net lease investment. Additional qualitative and quantitative disclosures are also required to increase transparency and comparability among organizations. The Company adopted Topic 842 and applicable technical updates as of January 1, 2019 using the modified retrospective transition method. See Note 12 for further details.
Revenue by Segment
See Note 10 for information related to revenue by reportable segment and major line of business.
Capitalized Sales Commissions
Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company capitalizes sales commissions as contract assets related to commercial and permanent rolloff collection customers and amortizes those sales commissions over the estimated customer life. The balance of capitalized sales commissions as of June 30, 2019 and December 31, 2018 were
$4.5
and
$4.4
, respectively. The Company recorded amortization expense of
$0.4
and
$0.4
related to capitalized sales commissions for the three months ended June 30, 2019 and 2018, respectively. The Company recorded amortization expense of
$0.8
and
$0.7
related to capitalized sales commissions for the six months ended June 30, 2019 and 2018, respectively.
Deferred Revenues
The Company records deferred revenue when cash payments are received or are due in advance of the Company's performance. The increase in the deferred revenue balance from December 31, 2018 to June 30, 2019 is primarily driven by cash payments received or due in advance of the Company satisfying its performance obligations, offset by
$70.8
of revenues recognized that were included in the deferred revenue balance at December 31, 2018.
Practical Expedients
As allowed by ASC 606, the Company does not disclose the value of unsatisfied performance obligations related to its contracts and service agreements as the Company accounts for its revenue as variable consideration and has the right to invoice for services performed each period.
Liabilities for final closure and post-closure costs for the year ended December 31, 2018 and for the
six months ended
June 30, 2019
are shown in the table below:
|
|
|
|
|
Balance at December 31, 2017
|
$
|
225.9
|
|
Increase in retirement obligation
|
9.7
|
|
Accretion of closure and post-closure costs
|
17.0
|
|
Acquisition
|
4.9
|
|
Asset retirement obligation adjustments
|
10.7
|
|
Costs incurred
|
(20.2
|
)
|
Balance at December 31, 2018
|
248.0
|
|
Increase in retirement obligation
|
5.4
|
|
Accretion of closure and post-closure costs
|
8.7
|
|
Costs incurred
|
(6.8
|
)
|
Balance at June 30, 2019
|
255.3
|
|
Less: Current portion
|
(18.6
|
)
|
|
$
|
236.7
|
|
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
5. Earnings (Loss) Per Share
The following table sets forth the computation of basic earnings (loss) per share and earnings (loss) per share, assuming dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(1.0
|
)
|
|
$
|
9.7
|
|
|
$
|
(7.0
|
)
|
|
$
|
11.8
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
88,857,948
|
|
|
88,555,647
|
|
|
88,790,157
|
|
|
88,535,860
|
|
|
Other potentially dilutive common shares
|
—
|
|
|
717,319
|
|
|
—
|
|
|
611,477
|
|
|
Average common shares outstanding, assuming dilution
|
88,857,948
|
|
|
89,272,966
|
|
|
88,790,157
|
|
|
89,147,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share
|
$
|
(0.01
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.13
|
|
|
Diluted net (loss) income per share
|
$
|
(0.01
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.13
|
|
Basic net (loss) income per share is based on the weighted-average number of shares of common stock outstanding for each of the periods presented. Diluted net (loss) income per share is based on the weighted-average number of shares of common stock equivalents outstanding adjusted for the effects of common stock that may be issued as a result of potentially dilutive instruments. The Company's potentially dilutive instruments are made up of equity awards, which include stock options, restricted stock units and performance stock units.
Pursuant to the FASB’s ASC Topic 260, Earnings Per Share, the Company includes additional shares in the computation of diluted net income per share. The additional shares included in diluted net income per share represent the number of shares that would be issued if all of the above potentially dilutive instruments were converted into common stock. When calculating diluted net income per share, the ASC requires the Company to include the potential shares that would be outstanding if dilutive outstanding stock options were exercised. This number is different from outstanding stock options because it is offset by shares the Company could repurchase using the proceeds from these hypothetical exercises to obtain the common stock equivalent.
Approximately
5.4
million and
2.3
million of outstanding stock awards were excluded from the diluted net income (loss) per share calculation for the three months ended June 30, 2019 and June 30, 2018, respectively, because their effect was antidilutive. Approximately
5.5
million and
2.3
million of outstanding stock awards were excluded from the diluted net income (loss) per share calculation for the six months ended June 30, 2019 and June 30, 2018, respectively, because their effect was antidilutive.
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
The following table summarizes the major components of debt at each balance sheet date and provides the maturities and interest rate ranges of each major category of debt:
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Revolving line of credit with lenders (Revolver), interest at applicable rate plus margin, as defined (6.40% and 6.69% at June 30, 2019 and December 31, 2018, respectively) due quarterly; balance due at maturity in November 2021
|
$
|
25.0
|
|
|
$
|
37.0
|
|
Term loans (Term Loan B); quarterly payments of $3.75 commencing March 31, 2017 through September 30, 2023 with final payment due November 10, 2023; interest at an alternate base rate or adjusted LIBOR rate with a 0.75% floor plus an applicable margin
|
1,380.0
|
|
|
1,387.5
|
|
Senior notes (Senior Notes) payable; interest at 5.625% payable in arrears semi-annually commencing May 15, 2017; maturing on November 15, 2024
|
425.0
|
|
|
425.0
|
|
Finance lease obligations, maturing through 2024
|
68.8
|
|
|
69.2
|
|
Other debt
|
8.3
|
|
|
9.5
|
|
|
1,907.1
|
|
|
1,928.2
|
|
Less: Original issue discount and debt issuance costs classified as a reduction to long-term debt
|
(22.7
|
)
|
|
(25.2
|
)
|
Less: Current portion
|
(74.8
|
)
|
|
(85.9
|
)
|
|
$
|
1,809.6
|
|
|
$
|
1,817.1
|
|
All borrowings under the Term Loan B, Revolver and Senior Notes are guaranteed by each of the Company's current and future domestic subsidiaries, subject to certain agreed-upon exemptions. All guarantors are jointly, severally, fully and unconditionally liable. There are no significant restrictions on the Company or any guarantor to obtain funds from its subsidiaries by dividend or loan.
Revolver and Letter of Credit Facilities
As of
June 30, 2019
, the Company had an aggregate committed capacity of
$300.0
, of which
$100.0
was available for letters of credit under its credit facilities. The Company’s Revolver is its primary source of letter of credit capacity and expires in 2021. As of
June 30, 2019
and December 31, 2018, the Company had
$25.0
and
$37.0
of borrowings outstanding on the Revolver, respectively. As of
June 30, 2019
and December 31, 2018, the Company had an aggregate of
$28.5
and
$32.3
, respectively, of letters of credit outstanding under its credit facilities.
7. Derivative Instruments and Hedging Activities
The following table summarizes the fair values of derivative instruments recorded in the Company’s condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
June 30, 2019
|
|
December 31,
2018
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
2017 Interest rate caps
|
|
Other assets
|
|
$
|
—
|
|
|
$
|
0.7
|
|
2017 Interest rate caps
|
|
Accrued expenses
|
|
(1.8
|
)
|
|
—
|
|
2017 Interest rate caps
|
|
Other long-term liabilities
|
|
(2.2
|
)
|
|
—
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
2016 Interest rate caps
|
|
Prepaid expenses and other current assets
|
|
1.2
|
|
|
5.8
|
|
Total derivatives
|
|
|
|
$
|
(2.8
|
)
|
|
$
|
6.5
|
|
The Company has not offset fair value of assets and liabilities recognized for its derivative instruments.
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
Interest Rate Caps
In November 2017, the Company entered into
two
interest rate cap agreements as cash flow hedges (the "2017 interest rate caps") to hedge the risk of a rise in interest rates and associated cash flows on its variable rate debt. The Company has applied hedge accounting to the 2017 interest rate caps; therefore, changes in the fair value of the 2017 interest rate caps are recorded in change in fair value of interest rate caps, net of tax in the condensed consolidated statements of comprehensive (loss) income. The 2017 interest rate caps commence in 2019 and expire in 2021. The Company will pay the
$4.9
premium on the 2017 interest rate caps in monthly installments beginning in October 2019. The Company recorded a loss of
$1.8
and a gain of
$1.0
related to the 2017 interest rate caps for the three months ended June 30, 2019 and 2018, respectively, which was recorded in other comprehensive (loss) income in the condensed consolidated statement of comprehensive (loss) income. The Company recorded a loss related to the 2017 interest rate caps of
$4.6
for the six months ended June 30, 2019 which was recorded in other comprehensive loss in the condensed consolidated statements of comprehensive (loss) income. The Company recorded a gain related to the 2017 interest rate caps of
$3.8
for the six months ended June 30, 2018 of which the effective portion of
$3.2
was recorded in other comprehensive income in the condensed consolidated statement of comprehensive (loss) income and the ineffective portion of
$0.6
was recorded in other income, net in the consolidated statement of operations. The notional value of the 2017 interest rate cap contracts aggregated were
$600.0
as of June 30, 2019 and will remain constant through maturity in 2021.
In May 2016, the Company entered into
three
interest rate cap agreements (the "2016 interest rate caps") as economic hedges against the risk of a rise in interest rates and the associated cash flows on its variable rate debt. The Company is paying the
$5.5
premium of the 2016 interest rate caps equally over eleven quarters beginning on March 31, 2017. The Company elected not to apply hedge accounting to the 2016 interest rate caps; therefore, changes in the fair value of the 2016 interest rate caps are recorded in other (expense) income, net in the condensed consolidated statements of operations. The Company recorded a loss related to the 2016 interest rate caps of
$0.4
and a gain of
$1.4
for the three months ended
June 30, 2019
and
2018
, respectively. The Company recorded a loss related to the 2016 interest rate caps of
$0.9
and a gain of
$6.0
for the six months ended
June 30, 2019
and
2018
, respectively. The notional value of the 2016 interest rate cap contracts aggregated were
$800.0
as of
June 30, 2019
and will remain constant through maturity in September 2019.
8. Income Taxes
The Company has open tax years dating back to 2003. Prior to the acquisition in fiscal 2012, Veolia ES Solid Waste division was part of a consolidated group and was subject to IRS and state examinations dating back to 2004. Pursuant to the terms of the acquisition of Veolia ES Solid Waste, Inc., the Company is entitled to certain indemnifications for Veolia ES Solid Waste Division's pre-acquisition tax liabilities. During the three months ended June 30, 2019, the IRS and Veolia reached closure on the open tax matters which included open matters related to the Veolia ES Solid Waste division. This settlement will effectively close out the open tax years of 2004 - 2012 for Veolia ES Solid Waste division creating a net tax benefit for the Company. The settlement was the primary driver of the
$17.6
net tax benefit during the three months ended June 30, 2019. Also, as a result of the settlement, the Company recorded a charge to other expense of
$3.9
to write off an indemnification receivable that was recorded as part of the 2012 purchase accounting.
The Company’s effective income tax rate for the
three months ended June 30, 2019
and
2018
was
95.3%
and
27.6%
, respectively. The Company evaluates its effective income tax rate at each interim period and adjusts it accordingly as facts and circumstances warrant. The difference between income taxes computed at the federal statutory rate of
21%
and reported income taxes for the three months ended June 30, 2019 was primarily due to the favorable impact of the settlement of the IRS audit of the Veolia subsidiaries for tax years 2004 - 2012. The difference between income taxes computed at the federal statutory rate of
21%
and reported income taxes for the three months ended June 30, 2018 was primarily due to the unfavorable impact of state and local taxes and the unfavorable change in recorded valuation allowance.
The Company’s effective income tax rate for the six months ended June 30, 2019 and 2018 was
75.4%
and
27.6%
, respectively. The difference between income taxes computed at the federal statutory rate of
21%
and reported income tax benefit for the six months ended June 30, 2019 was primarily due to the favorable impact of the settlement of the IRS audit of the Veolia subsidiaries for tax years 2004 - 2012. The difference between income taxes computed at the federal statutory rate of
21%
and reported income tax benefit for the six months ended June 30, 2018 was primarily due to unfavorable impact of state and local taxes and the change in recorded valuation allowance.
As of
June 30, 2019
and December 31, 2018, the Company had liabilities of
$0.0
and
$31.3
, respectively, associated with unrecognized tax benefits and related interest. The reduction to the unrecognized tax benefits and related interest from December 31, 2018 to June 30, 2019 is the result of the Veolia settlement with the IRS for tax years 2004 - 2012.
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
|
|
9.
|
Commitments and Contingencies
|
Financial Instruments
The Company has obtained letters of credit, performance bonds and insurance policies for the performance of the following: landfill final capping, closure and post-closure requirements; certain collection, landfill and transfer station contracts; environmental remediation; and other obligations. Letters of credit are supported by the Company’s Revolver (Note 6).
The Company does not expect that any claims against or draws on these instruments would have a material adverse effect on the Company’s condensed consolidated financial statements. The Company has not experienced any unmanageable difficulty in obtaining the required financial assurance instruments for its current operations. In an ongoing effort to mitigate risks of future cost increases and reductions in available capacity, the Company continues to evaluate various options to access cost-effective sources of financial assurance.
Insurance
The Company carries insurance coverage for protection of its assets and operations from certain risks including automobile liability, general liability, real and personal property, workers' compensation, directors' and officers' liability, pollution, legal liability and other coverages the Company believes are customary to the industry. The Company's exposure to loss for insurance claims is generally limited to the per incident deductible, or self-insured retention, under the related insurance policy. Its exposure, however, could increase if its insurers are unable to meet their commitments on a timely basis.
The Company has retained a significant portion of the risks related to its automobile, general liability, workers' compensation and health claims programs. For its self-insured retentions, the exposure for unpaid claims and associated expenses, including incurred but not reported losses, is based on an actuarial valuation and internal estimates. The accruals for these liabilities could be revised if future occurrences or loss development significantly differ from the Company's assumptions used. The Company does not expect the impact of any known casualty, property, environmental or other contingency to have a material impact on its financial condition, results of operations or cash flows.
Landfill Remediation
In fiscal 2018, the Company observed surface anomalies in specific areas of a landfill and received a proposed consent order, from a state environmental regulatory agency, outlining conditions required to be met at the landfill. The consent order was finalized during the six months ended June 30, 2019 and the Company was assessed a penalty of
$0.2
. Based on the Company's best estimate during fiscal 2018, the Company recorded remediation accruals of
$16.2
for required engineering enhancements related to leachate and gas infrastructure at the site. These accruals included costs for an enhanced de-watering system and the removal, treatment, and disposal of leachate at the site. Based on updated engineering studies completed in May 2019, the expected costs and the time-frame related to this matter increased therefore the Company recorded additional remediation accruals of
$9.6
during the three months ended June 30, 2019. As of June 30, 2019,
$10.2
of expenditures related to the remediation accrual estimates have been incurred and
$15.6
remains on the consolidated balance sheet. This amount could increase or decrease as a result of actual costs incurred to completion. Although it is reasonably possible this amount could change as a result of actual cost incurred to completion, the Company is unable to estimate a range of potential exposure due to the uncertainty of the remediation efforts required due to the early stage of the process being undertaken.
Litigation and Other Matters
The Company and certain of its subsidiaries have been named as defendants in various class action suits. Past suits have been brought against the Company and certain of its subsidiaries in the following jurisdictions: (i) 2009, Circuit Court of Macon County, Alabama (the "Tiger Pride" suit), (ii) 2011, Duval County, Florida (the "JWG" suit), (iii) 2013, Quitman County, Georgia and Barbour County, Alabama (the "Bach" suit), (iv) 2014, Chester County, Pennsylvania (the "Flaccus" suit), and (v) 2015, Gwinnett County, Georgia (the "Sims" suit). The plaintiffs in these cases primarily allege that the defendants charged improper charges (fuel, administrative and environmental charges) that were in breach of the plaintiffs' service agreements with the Company and seek damages for unspecified amounts. The 2013 Georgia complaint was dismissed in March 2014. The Company has reached a settlement for
$9.0
(inclusive of plaintiff attorneys’ fees and costs), resolving the Tiger Pride, JWG, Bach and Sims suits. Obtaining final court approval for this settlement is in process and such approval is expected to be final in the third or fourth quarter of fiscal 2019. The Flaccus suit has not been settled and is still pending. Given the inherent
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
uncertainties of litigation, including the early stage of the Flaccus case, the unknown size of any potential class, and legal and factual issues in dispute, the outcome of this case cannot be predicted and a range of loss, if any, cannot currently be estimated.
In February 2017, a waste slide occurred in one cell at the Company’s Greentree Landfill in Kersey, Pennsylvania.
No
benefit or charge was recorded in operating expenses during the three and six months ended June 30, 2019. A
$3.7
benefit was recorded during the three and six months ended June 30, 2018 due to higher insurance recoveries than previously estimated. A
$3.8
charge was recorded in operating expenses during the six months ended June 30, 2018 to adjust the reserve related to this matter to the remaining probable costs to relocate displaced material and restore infrastructure, net of insurance recoveries. The Company does expect to incur further benefits or charges related to this matter.
The Company is subject to various other proceedings, lawsuits, disputes and claims and regulatory investigations arising in the ordinary course of its business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against the Company include commercial, customer, and employment-related claims. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. These actions are in various procedural stages, and some are covered in part by insurance. Although the Company cannot predict the ultimate outcome and the range of loss cannot be currently estimated, the Company does not believe that the eventual outcome of any such action could have a material adverse effect on its business, financial condition, results of operations, or cash flows.
Multiemployer Defined Benefit Pension Plans
Approximately
14.2%
of the Company’s workforce is covered by collective bargaining agreements with various local unions across its operating regions. As a result of some of these agreements, certain of the Company’s subsidiaries are participating employers in a number of trustee-managed multiemployer, defined benefit pension plans for the affected employees.
A complete or partial withdrawal from a multiemployer pension plan may occur if employees covered by a collective bargaining agreement vote to decertify a union from continuing to represent them. The Company is not aware of any such actions in connection with continuing operations. As a result of certain prior discontinued operations, the Company is potentially exposed to certain withdrawal liabilities.
The Company does not believe that any future withdrawals, individually or in the aggregate, from the multiemployer plans to which it contributes could have a material adverse effect on the Company's business, financial condition or liquidity. However, such withdrawals could have a material adverse effect on the Company's results of operations for a particular reporting period, depending on the number of employees withdrawn in any future period and the financial condition of the multiemployer plan(s) at the time of such withdrawal(s).
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
10. Segment and Related Information
The Company manages and evaluates its operations primarily through its South, East and Midwest regional segments. These
three
groups are presented below as the Company’s reportable segments. The Company’s
three
geographic operating segments provide collection, transfer, disposal and recycling services. The Company serves residential, commercial and industrial, and municipal customers throughout its operating segments.
Service revenues, operating income/(loss) and depreciation and amortization for the Company's reportable segments for the periods indicated are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
Revenues
|
|
Operating
Income
(Loss)
|
|
Depreciation
and
Amortization
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
South
|
$
|
162.0
|
|
|
$
|
14.3
|
|
|
$
|
21.7
|
|
East
|
109.5
|
|
|
6.8
|
|
|
21.6
|
|
Midwest
|
147.6
|
|
|
19.2
|
|
|
25.7
|
|
Corporate
|
—
|
|
|
(31.6
|
)
|
|
1.3
|
|
|
$
|
419.1
|
|
|
$
|
8.7
|
|
|
$
|
70.3
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
South
|
$
|
152.7
|
|
|
$
|
21.3
|
|
|
$
|
21.5
|
|
East
|
104.3
|
|
|
12.7
|
|
|
20.5
|
|
Midwest
|
141.1
|
|
|
18.6
|
|
|
26.1
|
|
Corporate
|
—
|
|
|
(17.6
|
)
|
|
1.1
|
|
|
$
|
398.1
|
|
|
$
|
35.0
|
|
|
$
|
69.2
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
South
|
$
|
321.9
|
|
|
$
|
38.3
|
|
|
$
|
44.4
|
|
East
|
204.4
|
|
|
8.5
|
|
|
40.7
|
|
Midwest
|
276.8
|
|
|
33.1
|
|
|
48.6
|
|
Corporate
|
—
|
|
|
(53.3
|
)
|
|
2.5
|
|
|
$
|
803.1
|
|
|
$
|
26.6
|
|
|
$
|
136.2
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
South
|
$
|
301.6
|
|
|
$
|
47.3
|
|
|
$
|
43.2
|
|
East
|
193.6
|
|
|
10.9
|
|
|
38.4
|
|
Midwest
|
267.6
|
|
|
32.5
|
|
|
50.0
|
|
Corporate
|
—
|
|
|
(35.7
|
)
|
|
2.3
|
|
|
$
|
762.8
|
|
|
$
|
55.0
|
|
|
$
|
133.9
|
|
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
The following table presents the Company's revenues disaggregated by major line of business. Recycling rebates paid to customers, franchise fees paid to customers and state landfill taxes are excluded from revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Residential Collection Revenue
|
|
$
|
102.3
|
|
|
$
|
101.7
|
|
|
$
|
203.0
|
|
|
$
|
201.1
|
|
Commercial Collection Revenue
|
|
99.6
|
|
|
93.9
|
|
|
197.5
|
|
|
186.0
|
|
Rolloff Collection Revenue
|
|
69.3
|
|
|
65.4
|
|
|
131.6
|
|
|
126.0
|
|
Disposal Revenue
|
|
77.3
|
|
|
73.4
|
|
|
138.1
|
|
|
130.5
|
|
Fuel and Environmental Charges
|
|
29.1
|
|
|
29.2
|
|
|
56.7
|
|
|
56.0
|
|
Sale of Recyclables
|
|
2.3
|
|
|
4.1
|
|
|
5.4
|
|
|
9.4
|
|
Other Revenue
|
|
39.2
|
|
|
30.4
|
|
|
70.8
|
|
|
53.8
|
|
|
|
$
|
419.1
|
|
|
$
|
398.1
|
|
|
$
|
803.1
|
|
|
$
|
762.8
|
|
Fluctuations in the Company's operating results may be caused by many factors, including period-to-period changes in the relative contribution of revenue by each line of business and operating segment and by general economic conditions. In addition, its revenues and income from operations typically reflect seasonal patterns. The Company expects its operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters and lower in the fourth quarter than in the second and third quarters. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring in the East and Midwest segments because of decreased construction and demolition activities during winter months in these regions of the United States. In addition, some of the Company's operating costs may be higher in the winter months. Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs. Greater precipitation in the winter increases the weight of collected municipal solid waste, resulting in higher disposal costs, which are calculated on a per ton basis.
Additionally, certain destructive weather conditions that tend to occur during the second half of the year, such as hurricanes that most often impact the South region, can increase the Company’s revenues in the areas affected. While weather-related and other occurrences can boost revenues through additional work, the earnings generated can be moderated as a result of significant start-up costs and other factors, resulting in earnings at comparatively lower margins. These destructive weather conditions can result in higher fuel costs, higher labor costs, reduced municipal contract productivity and higher disposal costs in disposal neutral markets. Certain weather conditions, including severe winter storms, may result in the temporary suspension of the Company’s operations, which can significantly affect the operating results of the affected regions.
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
11. Fair Value Measurements
Assets and Liabilities Accounted for at Fair Value
In measuring fair values of assets and liabilities, the Company uses valuation techniques that maximize the use of observable inputs (Level 1) and minimize the use of unobservable inputs (Level 3). The Company does not have any assets or liabilities measured using unobservable Level 3 inputs. The Company also uses market data or assumptions that it believes market participants would use in pricing an asset or liability, including assumptions about risk when appropriate. The carrying value for certain of the Company's financial instruments approximate fair value because of their short-term nature. The Company’s assets and liabilities that are measured at fair value on a recurring basis include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at June 30, 2019
Reporting Date Using
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Carrying
Value
|
|
|
|
|
|
|
|
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
10.7
|
|
|
$
|
10.7
|
|
|
$
|
—
|
|
|
$
|
10.7
|
|
Interest rate caps - asset position
|
1.2
|
|
|
—
|
|
|
1.2
|
|
|
1.2
|
|
Interest rate caps - liability position
|
(4.0
|
)
|
|
—
|
|
|
(4.0
|
)
|
|
(4.0
|
)
|
Total recurring fair value measurements
|
$
|
7.9
|
|
|
$
|
10.7
|
|
|
$
|
(2.8
|
)
|
|
$
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2018
Reporting Date Using
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Carrying
Value
|
|
|
|
|
|
|
|
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6.8
|
|
|
$
|
6.8
|
|
|
$
|
—
|
|
|
$
|
6.8
|
|
Interest rate caps - asset position
|
6.5
|
|
|
—
|
|
|
6.5
|
|
|
6.5
|
|
Total recurring fair value measurements
|
$
|
13.3
|
|
|
$
|
6.8
|
|
|
$
|
6.5
|
|
|
$
|
13.3
|
|
The fair value of the interest rate caps are determined using standard option valuation models with assumptions about interest rates based on those observed in underlying markets (Level 2 in fair value hierarchy).
Fair Value of Debt
The fair value of the Company’s debt (Level 2) is estimated using indirectly observable market inputs, except for the Revolver for which cost approximates fair value due to the short-term nature of the interest rate. Although the Company has determined the estimated fair value amounts using quoted market prices, considerable judgment is required in interpreting the information and in developing the estimated fair values. Therefore, these estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. The fair value estimates are based on information available as of
June 30, 2019
and
December 31, 2018
, respectively.
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
The estimated fair value of the Company’s debt is as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Revolver
|
$
|
25.0
|
|
|
$
|
37.0
|
|
Senior Notes
|
445.2
|
|
|
418.6
|
|
Term Loan B
|
1,380.0
|
|
|
1,332.0
|
|
|
$
|
1,850.2
|
|
|
$
|
1,787.6
|
|
The carrying value of the Company’s debt at
June 30, 2019
and
December 31, 2018
was
$1,830.0
and
$1,849.5
, respectively.
12. Leases
The Company adopted ASC Topic 842, Leases, as of January 1, 2019 and has applied its transition provisions at the beginning of the period of adoption (i.e. on the effective date), and did not restate comparative periods. Under this transition provision, the Company has applied the legacy guidance under ASC Topic 840, Leases, including its disclosure requirements, in the comparative periods presented.
Under ASC Topic 842, a lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (i.e., an identified asset) for a period of time in exchange for consideration. The Company’s contracts determined to be, or contain, a lease include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or financing. For operating leases, the Company has recognized a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for prepaid rents. The Company used its incremental borrowing rate to determine the present value of the lease payments. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determined the incremental borrowing rates for its leases by applying its applicable borrowing rate, with adjustment as appropriate for lease currency and lease term.
Upon adoption, the Company recognized right-of-use assets and lease liabilities for operating leases in the amount of
$23.5
and
$24.3
, respectively.
The Company enters into contracts to lease real estate, equipment and vehicles. The Company’s most individually significant lease liabilities relate to real estate leases that have initial contract lease terms ranging from
8
to
55 years
. The company’s most significant lease liabilities in aggregate value relate to equipment and vehicle leases that have initial contract lease terms of
3 years
. Certain leases include renewal, termination or purchase options that were not deemed reasonably assured of exercise under ASC 840. Under ASC Topic 842, the lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option, and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considered a number of factors when evaluating whether the options in its lease contracts were reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties.
Operating leases result in a straight-line lease expense, while finance leases result in a front-loaded expense pattern. The assets associated with financing leases have been included in Property, Plant and Equipment in the consolidated balance sheet. Depreciation on financing lease assets is included in Depreciation and amortization on the consolidated statement of operations. The Company does not sublease any of its material leased assets to third parties and the Company is not party to any lease contracts with related parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.
ASC Topic 842 includes practical expedient and policy election choices. The Company elected the package of practical expedients available in the standard and as a result, did not reassess the lease classification of existing leases, did not reassess whether existing contracts are or contain leases and did not reassess the initial direct costs associated with existing leases. The Company did not elect the hindsight practical expedient, and so did not re-evaluate lease term for existing leases.
Advanced Disposal Services, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share data)
The Company has made an accounting policy election not to recognize right of use assets and lease liabilities for leases with a lease term of 12 months or less, including renewal options that are reasonably certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise. Instead, lease payments for these leases are recognized as lease cost on a straight-line basis over the lease term.
ASC Topic 842 includes a number of reassessment and re-measurement requirements for lessees based on certain triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term and purchase options, measurement of lease payments, assessment of lease classification and assessment of the discount rate. The Company reviewed the reassessment and re-measurement requirements and did not identify any events or conditions during the six months ended June 30, 2019 that required a reassessment or re-measurement. In addition, there were no impairment indicators identified during the six months ended June 30, 2019 that required an impairment test for the Company’s right-of-use assets or other long-lived assets in accordance with ASC 360-10.
Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected not to separate the accounting for lease components and non-lease components, for all classes of leased assets.
The components of lease expense and supplemental cash flow information related to leases for the periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
Lease cost
|
|
|
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
3.9
|
|
|
$
|
7.9
|
|
Interest on lease liabilities
|
|
0.8
|
|
|
1.6
|
|
Operating lease cost
|
|
1.6
|
|
|
2.9
|
|
Short-term lease cost
|
|
1.6
|
|
|
3.1
|
|
Total lease cost
|
|
$
|
7.9
|
|
|
$
|
15.5
|
|
|
|
|
|
|
Other information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
0.8
|
|
|
$
|
1.6
|
|
Operating cash flows from operating leases
|
|
$
|
1.5
|
|
|
$
|
2.9
|
|
Financing cash flows from finance leases
|
|
$
|
8.3
|
|
|
$
|
17.9
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
$
|
9.0
|
|
|
$
|
17.5
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
$
|
2.3
|
|
|
$
|
2.8
|
|
The weighted average lease terms as of the end of period are as follows:
|
|
|
|
|
|
June 30, 2019
|
Weighted average remaining lease terms
|
|
|
Weighted-average remaining lease term (in years) - finance leases
|
|
2.3
|
Weighted-average remaining lease term (in years) - operating leases
|
|
16.8
|
The weighted average discount rates for the periods are as follows:
|
|
|
|
|
|
|
June 30, 2019
|
Discount rates
|
|
|
Weighted-average discount rate - finance leases
|
|
4.7
|
%
|
Weighted-average discount rate - operating leases
|
|
4.9
|
%
|