XFRA:RPU Republic Services Inc Class A Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2012

OR

 

¨ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                  to                     

Commission File Number: 1-14267

 

 

REPUBLIC SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   65-0716904

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

18500 NORTH ALLIED WAY

PHOENIX, ARIZONA

  85054
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: (480) 627-2700

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   þ    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

On April 17, 2012, the registrant had outstanding 370,231,465 shares of Common Stock, par value $.01 per share (excluding treasury shares of 33,228,427).

 

 

 


Table of Contents

REPUBLIC SERVICES, INC.

INDEX

 

PART I — FINANCIAL INFORMATION

 

Item 1.

  Financial Statements     3   
  Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011     3   
  Unaudited Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011     4   
  Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011     5   
  Unaudited Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2012     6   
  Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011     7   
  Notes to Unaudited Consolidated Financial Statements     8   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations     33   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk     49   

Item 4.

  Controls and Procedures     50   

PART II — OTHER INFORMATION

 

Item 1.

  Legal Proceedings     51   

Item 1A.

  Risk Factors     54   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds     54   

Item 3.

  Defaults upon Senior Securities     55   

Item 4.

  Mine Safety Disclosures     55   

Item 5.

  Other Information     55   

Item 6.

  Exhibits     56   
  Signatures     57   

 

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

REPUBLIC SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

 

     March 31,
2012
    December 31,
2011
 
     (Unaudited)        
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 73.5      $ 66.3   

Accounts receivable, less allowance for doubtful accounts of $45.8 and $48.1, respectively

     808.4        825.8   

Prepaid expenses and other current assets

     152.9        215.9   

Deferred tax assets

     144.4        157.7   
  

 

 

   

 

 

 

Total current assets

     1,179.2        1,265.7   

Restricted cash and marketable securities

     151.4        189.6   

Property and equipment, net

     6,813.0        6,792.3   

Goodwill

     10,653.1        10,647.0   

Other intangible assets, net

     398.1        409.6   

Other assets

     261.1        247.3   
  

 

 

   

 

 

 

Total assets

   $ 19,455.9      $ 19,551.5   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 451.0      $ 563.6   

Notes payable and current maturities of long-term debt

     34.2        34.8   

Deferred revenue

     309.0        290.2   

Accrued landfill and environmental costs, current portion

     182.6        184.2   

Accrued interest

     80.3        72.2   

Other accrued liabilities

     658.7        752.5   
  

 

 

   

 

 

 

Total current liabilities

     1,715.8        1,897.5   

Long-term debt, net of current maturities

     6,870.3        6,887.0   

Accrued landfill and environmental costs, net of current portion

     1,402.6        1,396.5   

Deferred income taxes and other long-term tax liabilities

     1,165.0        1,161.1   

Self-insurance reserves, net of current portion

     307.5        303.9   

Other long-term liabilities

     241.0        222.1   

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, par value $0.01 per share; 50 shares authorized; none issued

     —          —     

Common stock, par value $0.01 per share; 750 shares authorized; 403.3 and 402.1 issued including shares held in treasury, respectively

     4.0        4.0   

Additional paid-in capital

     6,532.0        6,495.6   

Retained earnings

     2,225.8        2,164.7   

Treasury stock, at cost (32.5 and 32.2 shares, respectively)

     (992.8     (961.5

Accumulated other comprehensive loss, net of tax

     (17.3     (21.5
  

 

 

   

 

 

 

Total Republic Services, Inc. stockholders’ equity

     7,751.7        7,681.3   

Noncontrolling interests

     2.0        2.1   
  

 

 

   

 

 

 

Total stockholders’ equity

     7,753.7        7,683.4   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 19,455.9      $ 19,551.5   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data)

 

     Three Months Ended March 31,  
     2012     2011  

Revenue

   $ 1,982.4      $ 1,964.9   

Expenses:

    

Cost of operations

     1,203.2        1,159.7   

Depreciation, amortization and depletion

     213.7        205.8   

Accretion

     19.7        19.7   

Selling, general and administrative

     222.5        203.9   

Gain on disposition of assets and impairments, net

     (3.6     (0.4
  

 

 

   

 

 

 

Operating income

     326.9        376.2   

Interest expense

     (104.3     (115.7

Loss on extinguishment of debt

     —          (1.8

Interest income

     0.3        0.2   

Other income, net

     0.2        1.1   
  

 

 

   

 

 

 

Income before income taxes

     223.1        260.0   

Provision for income taxes

     80.3        101.9   
  

 

 

   

 

 

 

Net income

     142.8        158.1   

Net loss attributable to noncontrolling interests

     0.1        0.1   
  

 

 

   

 

 

 

Net income attributable to Republic Services, Inc.

   $ 142.9      $ 158.2   
  

 

 

   

 

 

 

Basic earnings per share attributable to Republic Services, Inc. stockholders:

    

Basic earnings per share

   $ 0.39      $ 0.41   
  

 

 

   

 

 

 

Weighted average common shares outstanding

     371.0        382.2   
  

 

 

   

 

 

 

Diluted earnings per share attributable to Republic Services, Inc. stockholders:

    

Diluted earnings per share

   $ 0.38      $ 0.41   
  

 

 

   

 

 

 

Weighted average common and common equivalent shares outstanding

     372.5        384.0   
  

 

 

   

 

 

 

Cash dividends per common share

   $ 0.22      $ 0.20   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

 

     Three Months Ended March 31,  
     2012     2011  

Net income

   $ 142.8      $ 158.1   

Other comprehensive income (loss), net of tax

    

Hedging related activity

     7.7        (4.3

Pension related activity

     (3.5     —     
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     4.2        (4.3
  

 

 

   

 

 

 

Comprehensive income

     147.0        153.8   

Comprehensive loss attributable to noncontrolling interests

     0.1        0.1   
  

 

 

   

 

 

 

Comprehensive income attributable to Republic Services, Inc.

   $ 147.1      $ 153.9   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in millions)

 

     Republic Services, Inc. Stockholders’ Equity        
                                            Accumulated        
                                            Other        
                   Additional                        Comprehensive        
     Common Stock      Paid-In      Retained     Treasury Stock     Loss,     Noncontrolling  
     Shares      Amount      Capital      Earnings     Shares     Amount     Net of Tax     Interests  

Balance as of December 31, 2011

     402.1       $ 4.0       $ 6,495.6       $ 2,164.7        (32.2   $ (961.5   $ (21.5   $ 2.1   

Net income

     —           —           —           142.9        —          —          —          (0.1

Other comprehensive income

     —           —           —           —          —          —          4.2        —     

Cash dividends declared

     —           —           —           (81.5     —          —          —          —     

Issuances of common stock

     1.2         —           28.1         —          —          —          —          —     

Stock-based compensation

     —           —           8.3         (0.3     —          —          —          —     

Purchase of common stock for treasury

     —           —           —           —          (0.3     (31.3     —          —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of March 31, 2012

     403.3       $ 4.0       $ 6,532.0       $ 2,225.8        (32.5   $ (992.8   $ (17.3   $ 2.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

     Three Months Ended March 31,  
     2012     2011  

Cash provided by operating activities:

    

Net income

   $ 142.8      $ 158.1   

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation and amortization of property and equipment

     129.3        127.5   

Landfill depletion and amortization

     66.7        59.6   

Amortization of intangible and other assets

     17.7        18.7   

Accretion

     19.7        19.7   

Non-cash interest expense - debt

     4.9        10.1   

Non-cash interest expense - other

     12.3        12.1   

Stock-based compensation

     8.0        7.6   

Deferred tax provision

     2.9        13.3   

Provision for doubtful accounts, net of adjustments

     7.2        0.4   

Excess income tax benefit from stock option exercises

     (1.1     (0.7

Asset impairments

     0.1        0.4   

Loss on extinguishment of debt

     —          1.8   

Gain on disposition of assets, net

     (7.9     (5.3

Other non-cash items

     0.8        (0.2

Change in assets and liabilities, net of effects from business acquisitions and divestitures:

    

Accounts receivable

     10.5        (11.4

Prepaid expenses and other assets

     56.9        23.9   

Accounts payable

     (44.1     (45.9

Restructuring and synergy related expenditures

     (68.1     (2.0

Capping, closure and post-closure expenditures

     (11.8     (13.2

Remediation expenditures

     (14.5     (8.5

Other liabilities

     1.9        67.7   
  

 

 

   

 

 

 

Cash provided by operating activities

     334.2        433.7   
  

 

 

   

 

 

 

Cash used in investing activities:

    

Purchases of property and equipment

     (274.2     (297.2

Proceeds from sales of property and equipment

     4.8        6.9   

Cash used in business acquisitions and development projects, net of cash acquired

     (19.7     (16.5

Cash proceeds from divestitures, net of cash divested

     9.5        4.9   

Change in restricted cash and marketable securities

     37.4        7.9   

Other

     (0.1     (0.3
  

 

 

   

 

 

 

Cash used in investing activities

     (242.3     (294.3
  

 

 

   

 

 

 

Cash used in financing activities:

    

Proceeds from notes payable and long-term debt

     564.3        486.5   

Payments of notes payable and long-term debt

     (586.7     (431.1

Premiums paid on extinguishment of debt

     —          (1.5

Fees paid to issue and retire senior notes and certain hedging relationships

     —          (0.1

Issuances of common stock

     27.0        10.3   

Excess income tax benefit from stock option exercises

     1.1        0.7   

Purchases of common stock for treasury

     (9.0     (147.9

Cash dividends paid

     (81.4     (76.7
  

 

 

   

 

 

 

Cash used in financing activities

     (84.7     (159.8
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     7.2        (20.4

Cash and cash equivalents at beginning of period

     66.3        88.3   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 73.5      $ 67.9   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

7


Table of Contents

REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Republic Services, Inc. (a Delaware corporation) and its subsidiaries (also referred to collectively as Republic, we, us, our, or the company) is the second largest provider of non-hazardous solid waste collection, transfer, recycling and disposal services in the United States, as measured by revenue. We manage and evaluate our operations through four geographic regions — Eastern, Midwestern, Southern, and Western, which we have identified as our reportable segments.

The accompanying unaudited consolidated financial statements include the accounts of Republic and its wholly owned and majority owned subsidiaries in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We account for investments in entities in which we do not have a controlling financial interest under either the equity method or cost method of accounting, as appropriate. All material intercompany accounts and transactions have been eliminated in consolidation.

We have prepared these unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted. In the opinion of management, these financial statements include all adjustments that, unless otherwise disclosed, are of a normal recurring nature and necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. You should read these interim financial statements in conjunction with our audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the year ended December 31, 2011.

For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation. All dollar amounts in the tabular presentations are in millions, except per share amounts and unless otherwise noted.

Management’s Estimates and Assumptions

In preparing our financial statements, we make numerous estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. We must make these estimates and assumptions because certain information that we use 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 our financial statements, the more critical and subjective areas that deal with the greatest amount of uncertainty relate to our accounting for our long-lived assets, including recoverability, landfill development costs, and final capping, closure and post-closure costs; our valuation allowances for accounts receivable and deferred tax assets; our liabilities for potential litigation, claims and assessments; our liabilities for environmental remediation, employee benefit plans, deferred taxes, uncertain tax positions; our self-insurance reserves; and our estimates of the fair values of assets acquired and liabilities assumed in any acquisition. Each of these items is discussed in more detail in our description of our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011. Our actual results may differ significantly from our estimates.

 

8


Table of Contents

2. BUSINESS ACQUISITIONS

We acquired various solid waste businesses during the three months ended March 31, 2012 and 2011. The purchase price paid for these acquisitions during the three months ended March 31 and the preliminary allocation of the purchase price as of March 31 are as follows:

 

     2012     2011  

Purchase price:

    

Cash used in acquisitions, net of cash acquired

   $ 19.7      $ 16.5   

Allocated as follows:

    

Working capital

     (0.9     (0.6

Property and equipment

     4.4        14.5   

Other liabilities, net

     —          (3.5
  

 

 

   

 

 

 

Value of assets acquired and liabilities assumed

     3.5        10.4   
  

 

 

   

 

 

 

Excess purchase price to be allocated

   $ 16.2      $ 6.1   
  

 

 

   

 

 

 

Excess purchase price to be allocated as follows:

    

Other intangible assets

   $ 5.8      $ 1.8   

Goodwill

     10.4        4.3   
  

 

 

   

 

 

 

Total allocated

   $ 16.2      $ 6.1   
  

 

 

   

 

 

 

Substantially all of the goodwill and intangible assets recorded for these acquisitions are deductible for tax purposes.

3. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

A summary of the activity and balances in goodwill accounts by reporting segment is as follows:

 

     Balance at
December 31,
2011
     Acquisitions     Divestitures     Adjustments to
Acquisitions
    Balance
at
March 31,
2012
 

Eastern

   $ 2,798.0       $ 9.9      $ (3.9   $ (0.1   $ 2,803.9   

Midwestern

     2,135.5         0.5        —          (0.1     2,135.9   

Southern

     2,705.0         —          —          (0.1     2,704.9   

Western

     3,008.5         —          —          (0.1     3,008.4   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 10,647.0       $ 10.4      $ (3.9   $ (0.4   $ 10,653.1   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Balance at
December 31,
2010
     Acquisitions     Divestitures     Adjustments to
Acquisitions
    Balance
at
March 31,
2011
 

Eastern

   $ 2,791.9       $ (0.1   $ —        $ (0.1   $ 2,791.7   

Midwestern

     2,129.6         4.4        —          —          2,134.0   

Southern

     2,721.8         —          —          (0.1     2,721.7   

Western

     3,012.0         —          (2.1     (0.1     3,009.8   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 10,655.3       $ 4.3      $ (2.1   $ (0.3   $ 10,657.2   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Other Intangible Assets, Net

Other intangible assets, net, include values assigned to customer relationships, franchise agreements, other municipal agreements, non-compete agreements and trade names, and are amortized over periods ranging from 1 to 24 years. A summary of the activity and balances by intangible asset type is as follows:

 

     Gross Intangible Assets      Accumulated Amortization     Net
Intangibles
at
March  31,
2012
 
     Balance at
December 31,
2011
     Acquisitions      Balance at
March 31,
2012
     Balance at
December 31,
2011
    Additions
Charged
to
Expense
    Balance at
March 31,
2012
   

Customer relationships, franchise and other municipal agreements

   $ 566.2       $ 5.0       $ 571.2       $ (194.4   $ (14.7   $ (209.1   $ 362.1   

Trade names

     30.0         —           30.0         (18.5     (1.5     (20.0     10.0   

Non-compete agreements

     16.9         0.8         17.7         (9.3     (0.7     (10.0     7.7   

Other intangible assets

     62.9         —           62.9         (44.2     (0.4     (44.6     18.3   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 676.0       $ 5.8       $ 681.8       $ (266.4   $ (17.3   $ (283.7   $ 398.1   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Gross Intangible Assets      Accumulated Amortization     Net
Intangibles
at
March  31,
2011
 
     Balance at
December 31,
2010
     Acquisitions      Balance at
March 31,
2011
     Balance at
December 31,
2010
    Additions
Charged
to
Expense
    Balance at
March 31,
2011
   

Customer relationships, franchise and other municipal agreements

   $ 537.1       $ 0.7       $ 537.8       $ (130.7   $ (15.4   $ (146.1   $ 391.7   

Trade names

     30.0         —           30.0         (12.5     (1.5     (14.0     16.0   

Non-compete agreements

     12.9         1.1         14.0         (7.2     (0.4     (7.6     6.4   

Other intangibles assets

     62.9         —           62.9         (41.2     (0.8     (42.0     20.9   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 642.9       $ 1.8       $ 644.7       $ (191.6   $ (18.1   $ (209.7   $ 435.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

4. OTHER ASSETS

Prepaid Expenses and Other Current Assets

A summary of prepaid expenses and other current assets as of March 31, 2012 and December 31, 2011 is as follows:

 

     2012      2011  

Inventories

   $ 35.3       $ 35.2   

Prepaid expenses

     57.0         53.4   

Other non-trade receivables

     44.0         54.5   

Income tax receivable

     —           68.4   

Commodity and fuel hedge asset

     11.3         3.0   

Other current assets

     5.3         1.4   
  

 

 

    

 

 

 

Total

   $ 152.9       $ 215.9   
  

 

 

    

 

 

 

Other Assets

A summary of other assets as of March 31, 2012 and December 31, 2011 is as follows:

 

     2012      2011  

Deferred financing costs

   $ 53.0       $ 54.6   

Deferred compensation plan

     49.0         34.5   

Notes and other receivables

     32.0         31.6   

Reinsurance receivable

     58.6         58.0   

Other

     68.5         68.6   
  

 

 

    

 

 

 

Total

   $ 261.1       $ 247.3   
  

 

 

    

 

 

 

 

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5. OTHER LIABILITIES

Other Accrued Liabilities

A summary of other accrued liabilities as of March 31, 2012 and December 31, 2011 is as follows:

 

     2012      2011  

Accrued payroll and benefits

   $ 118.3       $ 168.9   

Accrued fees and taxes

     115.2         115.3   

Self-insurance reserves, current portion

     110.3         114.4   

Accrued dividends

     81.5         81.4   

Synergy incentive plan

     —           68.1   

Current tax liabilities

     75.4         29.4   

Accrued professional fees and legal settlement reserves

     40.1         81.3   

Other

     117.9         93.7   
  

 

 

    

 

 

 

Total

   $ 658.7       $ 752.5   
  

 

 

    

 

 

 

Other accrued liabilities include the fair value of fuel and commodity hedges of $0.9 million and $5.4 million as of March 31, 2012 and December 31, 2011, respectively.

Other Long-Term Liabilities

A summary of other long-term liabilities as of March 31, 2012 and December 31, 2011 is as follows:

 

     2012      2011  

Deferred compensation liability

   $ 51.7       $ 31.4   

Pension and other postretirement liabilities

     46.4         46.8   

Contingent legal liabilities

     58.3         59.3   

Ceded insurance reserves

     58.6         58.0   

Other

     26.0         26.6   
  

 

 

    

 

 

 

Total

   $ 241.0       $ 222.1   
  

 

 

    

 

 

 

Self-Insurance Reserves

In general, our self-insurance reserves are recorded on an undiscounted basis. However, the self-insurance liabilities we acquired in the acquisition of Allied Waste Industries, Inc. (Allied) have been recorded at our estimate of fair value, and, therefore, have been discounted to present value using a rate of 9.75%. Discounted reserves are accreted to non-cash interest expense through the period they are paid.

Our liabilities for unpaid and incurred but not reported claims at March 31, 2012 (which includes claims for workers’ compensation, general liability, vehicle liability and employee health care benefits) were $417.8 million under our current risk management program and are included in other accrued liabilities and self-insurance reserves in our consolidated balance sheets. While the ultimate amount of claims incurred depends on future developments, we believe recorded reserves are adequate to cover the future payment of claims. However, it is possible that recorded reserves may not be adequate to cover the future payment of claims. Adjustments, if any, to estimates recorded resulting from ultimate claim payments are recorded currently in earnings in the periods in which such adjustments are known.

6. LANDFILL AND ENVIRONMENTAL COSTS

As of March 31, 2012, we owned or operated 191 active solid waste landfills with total available disposal capacity of approximately 4.8 billion in-place cubic yards. Additionally, we currently have post-closure responsibility for 130 closed landfills.

Accrued Landfill and Environmental Costs

A summary of landfill and environmental liabilities as of March 31, 2012 and December 31, 2011 is as follows:

 

     2012     2011  

Landfill final capping, closure and post-closure liabilities

   $ 1,055.2      $ 1,037.0   

Remediation

     530.0        543.7   
  

 

 

   

 

 

 
     1,585.2        1,580.7   

Less: Current portion

     (182.6     (184.2
  

 

 

   

 

 

 

Long-term portion

   $ 1,402.6      $ 1,396.5   
  

 

 

   

 

 

 

 

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Final Capping, Closure and Post-Closure Costs

The following table summarizes the activity in our asset retirement obligation liabilities, which includes liabilities for final capping, closure and post-closure, for the three months ended March 31:

 

     2012     2011  

Asset retirement obligation liabilities, beginning of year

   $ 1,037.0      $ 1,046.5   

Non-cash additions

     8.2        7.6   

Acquisitions/divestitures and other adjustments

     (2.5     2.7   

Asset retirement obligation adjustments

     4.6        (1.6

Payments

     (11.8     (13.2

Accretion expense

     19.7        19.7   
  

 

 

   

 

 

 

Asset retirement obligation liabilities, end of period

     1,055.2        1,061.7   

Less: Current portion

     (89.0     (92.9
  

 

 

   

 

 

 

Long-term portion

   $ 966.2      $ 968.8   
  

 

 

   

 

 

 

Annually, in the fourth quarter, we review our calculations for asset retirement obligations. However, if there are significant changes in the facts and circumstances related to a site during the year, we will update our assumptions prospectively in the period that all the relevant facts and circumstances are known.

The fair value of assets that are legally restricted for purposes of collateralizing certain of our final capping, closure and post-closure obligations was $55.3 million and $54.9 million as of March 31, 2012 and December 31, 2011, respectively. Such assets are included in restricted cash and marketable securities in our consolidated balance sheets.

Landfill Operating Expenses

In the normal course of business, we incur various operating costs associated with environmental compliance. These costs include, among other things, leachate treatment and disposal, methane gas and groundwater monitoring and systems maintenance, interim cap maintenance, costs associated with the application of daily cover materials, and the legal and administrative costs of ongoing environmental compliance. These costs are expensed as costs of operations in the periods in which they are incurred.

Environmental Remediation Liabilities

We accrue for remediation costs when they become probable and can be reasonably estimated. We believe that the amounts accrued for remediation costs are adequate. When there is a range of reasonable estimates of the costs associated with remediation of a site, we use the amount within the range that constitutes our best estimate. If no amount within the range appears to be a better estimate than any other, we use the amount that is at the low end of such range. It is reasonably possible that we will need to adjust the liabilities recorded for remediation to reflect the effects of new or additional information, to the extent such information impacts the costs, timing or duration of the required actions. If we used the reasonably possible high ends of our ranges, our aggregate potential remediation liability at March 31, 2012 would be approximately $197 million higher than the amounts recorded. Future changes in our estimates of the cost, timing or duration of the required actions could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

The following table summarizes the activity in our environmental remediation liabilities for the three months ended March 31:

 

     2012     2011  

Remediation liabilities, beginning of year

   $ 543.7      $ 552.1   

Remediation adjustments

     (7.6     —     

Payments

     (14.5     (8.5

Accretion expense (non-cash interest expense)

     8.4        8.3   
  

 

 

   

 

 

 

Remediation liabilities, end of period

     530.0        551.9   

Less: Current portion

     (93.6     (87.1
  

 

 

   

 

 

 

Long-term portion

   $ 436.4      $ 464.8   
  

 

 

   

 

 

 

The following is a discussion of certain of our significant remediation matters:

Countywide Landfill. In September 2009, Republic Services of Ohio II, LLC entered into Final Findings and Orders with the Ohio Environmental Protection Agency that require us to implement a comprehensive operation and maintenance program to manage the remediation area at the Countywide Recycling and Disposal Facility (Countywide). The remediation liability for Countywide recorded as of March 31, 2012 is $56.1 million, of which $5.1 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $52 million to $74 million.

 

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Congress Landfill. In August 2010, Congress Development Company agreed with the State of Illinois to have a Final Consent Order (Final Order) entered by the Circuit Court of Illinois, Cook County. Pursuant to the Final Order, we have agreed to continue to implement certain remedial activities at the Congress Landfill. The remediation liability for Congress recorded as of March 31, 2012 is $84.2 million, of which $7.4 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $54 million to $154 million.

7. DEBT

Our notes payable, capital leases and long-term debt as of March 31, 2012 and December 31, 2011 are listed in the following table in millions, and are presented net of unamortized discounts and the unamortized portion of adjustments to fair value recorded in purchase accounting. Original issue discounts and adjustments to fair value recorded in purchase accounting are amortized to interest expense over the term of the applicable instrument using the effective interest method.

 

           2012     2011  

Maturity

   Interest Rate     Principal      Discount     Carry Value     Principal      Discount     Carry Value  

Credit facilities:

                

Uncommitted revolver

     Variable   $ 15.9       $ —        $ 15.9      $ —         $ —        $ —     

September 2013

     Variable        —           —          —          17.2         —          17.2   

April 2016

     Variable        —           —          —          17.2         —          17.2   

Senior notes:

                

June 2017

     6.875        750.0         (72.9     677.1        750.0         (75.8     674.2   

May 2018

     3.800        700.0         (0.2     699.8        700.0         (0.2     699.8   

September 2019

     5.500        650.0         (3.7     646.3        650.0         (3.8     646.2   

March 2020

     5.000        850.0         (0.1     849.9        850.0         (0.1     849.9   

November 2021

     5.250        600.0         —          600.0        600.0         —          600.0   

May 2023

     4.750        550.0         (1.4     548.6        550.0         (1.4     548.6   

March 2035

     6.086        275.7         (25.3     250.4        275.7         (25.5     250.2   

March 2040

     6.200        650.0         (0.5     649.5        650.0         (0.5     649.5   

May 2041

     5.700        600.0         (3.4     596.6        600.0         (3.4     596.6   

Debentures:

                

May 2021

     9.250        35.3         (2.0     33.3        35.3         (2.0     33.3   

September 2035

     7.400        165.2         (41.8     123.4        165.2         (41.9     123.3   

Tax-exempt:

                

2012 - 2035

     0.200 - 8.250        1,141.1         (15.2     1,125.9        1,142.2         (15.8     1,126.4   

Other:

                

2012 - 2042

     5.000 - 11.900        87.8         —          87.8        89.4         —          89.4   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total Debt

     $ 7,071.0       $ (166.5     6,904.5      $ 7,092.2       $ (170.4     6,921.8   
    

 

 

    

 

 

     

 

 

    

 

 

   

Less: Current portion

            (34.2          (34.8
         

 

 

        

 

 

 

Long-term portion

          $ 6,870.3           $ 6,887.0   
         

 

 

        

 

 

 

Credit Facilities

In March 2012, we entered into a new $75.0 million uncommitted, unsecured credit facility agreement (the Uncommitted Credit Facility) bearing interest at LIBOR, plus an applicable margin. As of March 31, 2012, the interest rate for our borrowings under our Uncommitted Credit Facility was 1.26%. Our Uncommitted Credit Facility also is subject to facility fees defined in the agreement, regardless of usage. We can use borrowings under the Uncommitted Credit Facility for working capital and other general corporate purposes. The agreements governing our Uncommitted Credit Facility require us to comply with certain covenants. As of March 31, 2012, we had $15.9 million of LIBOR borrowings. The Uncommitted Credit Facility may be terminated at any time.

In April 2011, we amended and restated our $1.0 billion revolving credit facility due April 2012 (the Amended and Restated Credit Facility) to increase the borrowing capacity to $1.25 billion and to extend the maturity to April 2016. The Amended and Restated

 

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Credit Facility includes a feature that allows us to increase availability, at our option, by an aggregate amount up to $500 million through increased commitments from existing lenders or the addition of new lenders. At our option, borrowings under the Amended and Restated Credit Facility bear interest at a Base Rate, or a Eurodollar Rate, plus an applicable margin based on our Debt Ratings (all as defined in the agreements). Substantially all of our subsidiaries guarantee all obligations under the Amended and Restated Credit Facility.

Contemporaneous with the execution of the Amended and Restated Credit Facility, we entered into Amendment No. 2 to our existing $1.75 billion credit facility (the Existing Credit Facility and, together with the Amended and Restated Credit Facility, the Credit Facilities), to reduce the commitments under the Existing Credit Facility to $1.25 billion and conform certain terms of the Existing Credit Facility to those of the Amended and Restated Credit Facility. Amendment No. 2 does not extend the maturity date under the Existing Credit Facility, which matures in September 2013. Substantially all of our subsidiaries continue to guarantee all obligations under the Existing Credit Facility.

As of December 31, 2011, the interest rate for our borrowings under our Credit Facilities was 3.25%. Our Credit Facilities also are subject to facility fees based on applicable rates defined in the agreements and the aggregate commitments, regardless of usage. Availability under our Credit Facilities can be used for working capital, capital expenditures, letters of credit and other general corporate purposes. The agreements governing our Credit Facilities require us to comply with certain financial and other covenants. We may pay dividends and repurchase common stock if we are in compliance with these covenants. As of December 31, 2011, we had $34.4 million of Eurodollar Rate borrowings. We had $947.4 million and $950.2 million of letters of credit using availability under our Credit Facilities, leaving $1,552.6 million and $1,515.4 million of availability under our Credit Facilities, at March 31, 2012 and December 31, 2011, respectively. We were in compliance with the covenants under our Credit Facilities at March 31, 2012.

Senior Notes and Debentures

During the three months ended March 31, 2011, our 5.750% senior notes matured. We used cash on hand and incremental borrowings under our Credit Facilities to repay $262.9 million of principal due on these notes. Additionally, we repurchased $5.0 million of our 9.250% Debentures due 2021 in the secondary market. We incurred a loss on extinguishment of debt of $1.8 million for premiums paid to repurchase debt and to write-off unamortized debt discounts.

Tax-Exempt Financings

As of March 31, 2012 and December 31, 2011, approximately 75% of our tax-exempt financings are remarketed quarterly, weekly or daily by remarketing agents to effectively maintain a variable yield. Certain of these variable rate tax-exempt financings are credit enhanced with letters of credit having terms in excess of one year issued by banks with investment grade credit ratings. The holders of the bonds can put them back to the remarketing agents at the end of each interest period. To date, the remarketing agents have been able to remarket our variable rate unsecured tax-exempt bonds. These bonds have been classified as long term because of our ability and intent to refinance them using availability under our revolving Credit Facilities, if necessary.

As of March 31, 2012, we had $151.4 million of restricted cash and marketable securities, of which $17.3 million represented proceeds from the issuance of tax-exempt bonds and other tax-exempt financings and will be used to fund capital expenditures under the terms of the agreements. Restricted cash also includes amounts held in trust as a financial guarantee of our performance.

Other Debt

Other debt includes capital lease liabilities of $87.5 million and $88.3 million as of March 31, 2012 and December 31, 2011, respectively, with maturities ranging from 2012 to 2042.

Fair Value of Debt

The fair value of our fixed rate senior notes using significant observable market inputs (Level 2) was $6.6 billion and $6.3 billion at March 31, 2012 and December 31, 2011, respectively. The carrying value of our fixed rate senior notes was $5.7 billion at March 31, 2012 and December 31, 2011, respectively. The carrying amounts of our remaining notes payable and tax-exempt financings approximate fair value because interest rates are variable and, accordingly, approximate current market rates for instruments with similar risk and maturities. The fair value of our debt is determined as of the balance sheet date and is subject to change.

Guarantees

Substantially all of our subsidiaries have guaranteed our obligations under the Credit Facilities.

Substantially all of our subsidiaries guarantee each series of senior notes issued by our parent company, Republic Services, Inc. Our parent company and substantially all of our subsidiaries guarantee each series of senior notes issued by our subsidiary Allied Waste North America, Inc. (AWNA Notes) and each series of senior notes issued by our subsidiary Browning-Ferris Industries, LLC

 

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(successor to Browning-Ferris Industries, Inc.) (BFI Notes). All of these guarantees would be automatically released upon the release of our subsidiaries from their guarantee obligations under the Credit Facilities, except the guarantee of Allied in the case of the AWNA Notes, and the guarantees of Allied and Allied Waste North America, Inc. in the case of the BFI Notes.

We have guaranteed some of the tax-exempt bonds of our subsidiaries. If a subsidiary fails to meet its obligations associated with tax-exempt bonds as they come due, we will be required to perform under the related guarantee agreement.

No additional liability has been recorded for these guarantees because the underlying obligations are reflected in our consolidated balance sheets.

Interest Rate Swap and Lock Agreements

Our ability to obtain financing through the capital markets is a key component of our financial strategy. Historically, we have managed risk associated with executing this strategy, particularly as it relates to fluctuations in interest rates, by using a combination of fixed and floating rate debt. We also entered into interest rate swap agreements to manage risk associated with fluctuations in interest rates. The swap agreements, with a total notional value of $210.0 million, matured in August 2011. This maturity was identical to our unsecured notes that also matured in August 2011. Under the swap agreements, we paid interest at floating rates based on changes in LIBOR and received interest at a fixed rate of 6.75%. We reduced interest expense by $2.2 million due to periodic settlements of active swap agreements during the three months ended March 31, 2011.

From time to time, we enter into treasury and interest rate locks for the purpose of managing exposure to fluctuations in interest rates in anticipation of future debt issuances. During the first and second quarters of 2011, we entered into a number of interest rate lock agreements having an aggregate notional amount of $725.0 million with fixed interest rates ranging from 3.10% to 4.61% to manage exposure to fluctuations in interest rates in anticipation of the planned issuance of senior notes. Upon issuance of the notes in the second quarter of 2011, we terminated the interest rate locks and paid $36.5 million to the counterparties. The effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive income, was $36.2 million, or $21.2 million net of tax. The effective portion of the interest rate locks will be amortized as an increase to interest expense over the life of the issued debt using the effective interest rate method. We expect to amortize $1.5 million over the next twelve months as a yield adjustment of the notes. This transaction was accounted for as a cash flow hedge. As of March 31, 2012, no interest rate lock cash flow hedges were outstanding.

The gain (loss) on our interest rate locks (settlement and amortization) included in other comprehensive income for the three months ended March 31, 2012 and 2011, net of tax, was $0.3 million and $(7.4) million, respectively.

8. INCOME TAXES

Our effective tax rate, exclusive of noncontrolling interests, for the three months ended March 31, 2012 and 2011 was 36.0% and 39.2%, respectively. The effective tax rate for the three months ended March 31, 2012 was favorably affected by a change in estimated non-deductible penalties relating to certain legal settlements, and adjustments resulting from the filings of amended state returns related to the December 2011 settlement of Allied’s 2000 – 2003 tax years. We record interim income tax expense based upon our anticipated full year effective income tax rate.

Cash for income taxes was a net refund of $43.8 million and $49.8 million for the three months ended March 31, 2012 and 2011, respectively. We received a $50.0 million refund in each of February 2012 and 2011 related to tax law changes for bonus depreciation.

We are subject to income tax in the United States and Puerto Rico, as well as income tax in multiple state jurisdictions. We also have acquired Allied’s open tax periods as a result of the 2008 merger. Consequently, we are currently under examination or administrative review by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 2004 through 2010.

We recognize interest and penalties as incurred within the provision for income taxes in the consolidated statements of income. As of March 31, 2012, we have accrued a liability for penalties of $0.7 million and a liability for interest (including interest on penalties) of $45.4 million related to our uncertain tax positions.

We believe that the liabilities for uncertain tax positions recorded are adequate. However, a significant assessment against us in excess of the liabilities recorded could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease. Gross unrecognized benefits that we expect to settle in the next twelve months are in the range of $15 - $30 million.

 

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Exchange of Partnership Interests

In 2002, Allied exchanged minority partnership interests in four waste-to-energy facilities for majority partnership interests in equipment purchasing businesses, which are now wholly owned subsidiaries. In 2008, the IRS issued a formal disallowance to Allied contending that the exchange was instead a sale on which a corresponding gain should have been recognized.

In December 2011 we reached an agreement with the IRS appeals division to settle this issue and all other matters related to Allied’s 2000 – 2003 tax years. This issue also impacts Allied’s 2004 – 2008 tax years, which are still before the IRS appeals division. We anticipate these subsequent tax periods will be resolved sometime during 2012.

Methane Gas

As part of its examination of Allied’s 2000 through 2008 federal income tax returns, the IRS reviewed Allied’s treatment of costs associated with its landfill operations. As a result of this review, the IRS has proposed that certain landfill costs be allocated to the collection and control of methane gas that is naturally produced within the landfill. The IRS’ position is that the methane gas produced by a landfill is a joint product resulting from operation of the landfill and, therefore, these costs should not be expensed until the methane gas is sold or otherwise disposed.

In December 2011, we resolved all tax matters related to Allied’s 2000 – 2003 tax years. The company’s treatment of costs was sustained and, therefore, no adjustment was made to the 2000 – 2003 tax years. Currently, Allied’s 2004 – 2008 tax years remain at the IRS appeals division. We believe we have several meritorious defenses, including the fact that methane gas is not actively produced for sale by us but rather arises naturally in the context of providing disposal services. Therefore, we continue to believe that the resolution of this issue will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. We anticipate this issue will be resolved for Allied’s 2004 – 2008 tax years sometime during 2012.

9. STOCK BASED COMPENSATION

Available Shares

In March 2011, our board of directors approved the Amended and Restated Republic Services, Inc. 2007 Stock Incentive Plan (the Amended and Restated Plan). The Amended and Restated Plan was ratified by the company’s stockholders in May 2011. We currently have 19.1 million shares of common stock reserved for future grants under our Amended and Restated Plan.

Stock Options

The following table summarizes the stock option activity for the three months ended March 31, 2012:

 

     Number of
Shares
    Weighted Average
Exercise

Price per Share
     Weighted Average
Remaining
Contractual Term
(years)
     Aggregate
Intrinsic
Value
 

Outstanding at December 31, 2011

     14.3      $ 26.13         

Granted

     2.9        29.75         

Exercised

     (1.2     22.40          $ 9.0   
          

 

 

 

Forfeited or expired

     (0.1     29.79         
  

 

 

         

Outstanding at March 31, 2012

     15.9      $ 27.05         4.6       $ 56.3   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at March 31, 2012

     8.7      $ 25.74         3.6       $ 42.5   
  

 

 

   

 

 

    

 

 

    

 

 

 

During the three months ended March 31, 2012 and 2011, compensation expense for stock options was $4.6 million and $3.8 million, respectively.

As of March 31, 2012, total unrecognized compensation expense related to outstanding stock options was $18.9 million, which will be recognized over a weighted average period of 2.0 years.

 

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Other Stock Awards

The following table summarizes the restricted stock unit and restricted stock activity for the three months ended March 31, 2012:

 

     Number of
Restricted Stock
Units and Shares of
Restricted Stock
(in thousands)
    Weighted Average
Grant Date

Fair Value per
Share
     Weighted  Average
Remaining
Contractual

Term (years)
     Aggregate
Intrinsic
Value
 

Unissued at December 31, 2011

     770.0      $ 27.17         

Granted

     251.8        28.57         

Vested and issued

     (69.9     26.06         

Forfeited

     —          —           
  

 

 

         

Unissued at March 31, 2012

     951.9      $ 27.62         0.7       $ 29.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and unissued at March 31, 2012

     575.6      $ 26.86         
  

 

 

   

 

 

       

During the three months ended March 31, 2012, our non-employee directors were awarded 75,000 restricted stock units, which vested immediately. During the three months ended March 31, 2012, we awarded 169,914 restricted stock units to executives that vest in four equal annual installments beginning on the anniversary date of the original grant. In addition, 6,905 restricted stock units were earned as dividend equivalents. The restricted stock units do not carry any voting or dividend rights, except the right to receive additional restricted stock units in lieu of dividends.

The fair value of restricted stock units and restricted stock is based on the closing market price on the date of the grant. The compensation expense related to restricted stock units and restricted stock is amortized ratably over the vesting period.

During the three months ended March 31, 2012 and 2011, compensation expense related to restricted stock units and restricted stock totaled $3.4 million and $3.8 million, respectively.

10. STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

In August 2011, our board of directors approved a share repurchase program pursuant to which we may repurchase up to $750.0 million of our outstanding shares of common stock through December 31, 2013. This authorization is in addition to the $400.0 million repurchase program authorized in November 2010. From November 2010 to March 31, 2012, we repurchased 17.4 million shares of our stock for $509.3 million at a weighted average cost per share of $29.22. During the three months ended March 31, 2012, we repurchased 0.3 million shares of our stock for $9.0 million at a weighted average cost per share of $29.89. As of March 31, 2012, 0.7 million repurchased shares were pending settlement and $22.3 million was unpaid and included within other accrued liabilities.

We initiated a quarterly cash dividend in July 2003 and have increased it from time to time thereafter. In July 2011, the board of directors approved an increase in the quarterly dividend to $0.22 per share. Cash dividends declared were $81.5 million and $75.8 million for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, we recorded a quarterly dividend payable of $81.5 million to stockholders of record at the close of business on April 2, 2012.

Basic earnings per share is computed by dividing net income attributable to Republic Services, Inc. by the weighted average number of common shares (including restricted stock and vested but unissued restricted stock units) outstanding during the period. Diluted earnings per share is based on the combined weighted average number of common shares and common share equivalents outstanding, which include, where appropriate, the assumed exercise of employee stock options, unvested restricted stock and unvested restricted stock units. In computing diluted earnings per share, we use the treasury stock method.

 

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Earnings per share for the three months ended March 31 are calculated as follows (in thousands, except per share amounts):

 

     Three Months Ended
March 31,
 
     2012      2011  

Basic earnings per share:

     

Net income attributable to Republic Services, Inc.

   $ 142,900       $ 158,200   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     370,997         382,172   
  

 

 

    

 

 

 

Basic earnings per share

   $ 0.39       $ 0.41   
  

 

 

    

 

 

 

Diluted earnings per share:

     

Net income attributable to Republic Services, Inc.

   $ 142,900       $ 158,200   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     370,997         382,172   

Effect of dilutive securities:

     

Options to purchase common stock

     1,415         1,706   

Unvested restricted stock awards

     78         102   
  

 

 

    

 

 

 

Weighted average common and common equivalent shares outstanding

     372,490         383,980   
  

 

 

    

 

 

 

Diluted earnings per share

   $ 0.38       $ 0.41   
  

 

 

    

 

 

 

Antidilutive securities not included in the diluted earnings per share calculations:

     

Options to purchase common stock

     5,673         3,238   

11. FINANCIAL INSTRUMENTS

Fuel Hedges

We have entered into multiple swap agreements designated as cash flow hedges to mitigate some of our exposure related to changes in diesel fuel prices. The swaps qualified for, and were designated as, effective hedges of changes in the prices of forecasted diesel fuel purchases (fuel hedges).

The following table summarizes our outstanding fuel hedges as of March 31, 2012:

 

Inception Date

 

Commencement

Date

 

Termination Date

 

Notional Amount
(in Gallons per

Month)

  Contract Price per Gallon  

November 5, 2007

  January 5, 2009   December 30, 2013   60,000   $ 3.28   

March 17, 2008

  January 5, 2009   December 31, 2012   50,000     3.72   

March 17, 2008

  January 5, 2009   December 31, 2012   50,000     3.74   

July 10, 2009

  January 1, 2012   December 31, 2012   100,000     3.20   

August 8, 2011

  July 1, 2012   December 31, 2012   500,000     3.84   

August 8, 2011

  January 1, 2013   December 31, 2013   500,000     3.83   

August 8, 2011

  January 1, 2014   December 31, 2014   500,000     3.82   

August 8, 2011

  July 2, 2012   December 31, 2012   500,000     3.84   

August 8, 2011

  January 7, 2013   December 30, 2013   500,000     3.82   

August 9, 2011

  July 1, 2012   December 31, 2012   250,000     3.80   

August 9, 2011

  January 1, 2013   December 31, 2013   250,000     3.83   

August 9, 2011

  January 1, 2014   December 31, 2014   250,000     3.82   

August 9, 2011

  January 6, 2014   December 29, 2014   500,000     3.83   

September 30, 2011

  January 6, 2014   December 29, 2014   250,000     3.69   

September 30, 2011

  January 7, 2013   December 30, 2013   250,000     3.70   

October 3, 2011

  January 5, 2015   December 28, 2015   250,000     3.68   

 

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If the national U.S. on-highway average price for a gallon of diesel fuel (average price) as published by the Department of Energy exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional gallons) from the counter-party. If the national U.S. on-highway average price for a gallon of diesel fuel is less than the contract price per gallon, we pay the difference to the counter-party.

The fair values of our fuel hedges are determined using standard option valuation models with assumptions about commodity prices being based on those observed in underlying markets (Level 2 in the fair value hierarchy). The aggregated fair values of our outstanding fuel hedges at March 31, 2012 and December 31, 2011 were current assets of $10.1 million and $1.6 million, respectively, and current liabilities of $4.7 million at December 31, 2011, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively.

The following table summarizes the impact of our fuel hedges on our results of operations and comprehensive income for the three months ended March 31:

 

Derivatives in

Cash Flow

Hedging

Relationships

   Amount of Gain
Recognized in
OCI on
Derivatives
(Effective Portion)
     Statement of
Income
Classification
     Amount of
Realized Gain or

(Loss)
    Location of Gain
Recognized

in  Income on Derivative
(Ineffective Portion

and Amount
Excluded from
Effectiveness

Testing)
     Amount of Gain
Recognized in
Income on Derivative
(Ineffective Portion and
Amount Excluded from

Effectiveness
Testing)
 
     2012      2011             2012      2011            2012      2011  

Fuel hedges

   $ 7.7       $ 2.5         Cost of operations       $ 0.4       $ (0.1     Other income, net       $ 0.1       $ 0.1   

Recycling Commodity Hedges

Our revenue from sales of recycling commodities is primarily from sales of old corrugated cardboard (OCC) and old newspaper (ONP). We use derivative instruments such as swaps and costless collars designated as cash flow hedges to manage our exposure to changes in prices of these commodities. We have entered into multiple agreements related to forecasted OCC and ONP sales. The agreements qualified for, and were designated as, effective hedges of changes in the prices of certain forecasted recycling commodity sales (commodity hedges).

The following table summarizes our outstanding commodity swap as of March 31, 2012:

 

Inception Date

   Commencement Date      Termination Date      Transaction
Hedged
   Notional
Amount
(in

Short
Tons

per
Month)
     Contract
Price
Per
Short
Ton
 

October 11, 2010

     January 1, 2011         December 31, 2012       OCC      1,500       $ 115.00   

If the price per short ton of the hedging instrument (average price) as reported on the Official Board Market is less than the contract price per short ton, we receive the difference between the average price and the contract price (multiplied by the notional short tons) from the counter-party. If the price of the commodity exceeds the contract price per short ton, we pay the difference to the counter-party.

The fair values of our commodity swaps are determined using standard option valuation models with assumptions about commodity prices being based on those observed in underlying markets (Level 2 in the fair value hierarchy).

We entered into costless collar agreements on forecasted sales of up to 40,000 short tons of OCC and ONP a month. The agreements involve combining a purchased put option giving us the right to sell up to 40,000 short tons of OCC and ONP monthly at an established floor strike price with a written call option obligating us to deliver up to 40,000 short tons of OCC and ONP monthly at an established cap strike price. The puts and calls have the same settlement dates, are net settled in cash on such dates and have the same terms to expiration. The contemporaneous combination of options resulted in no net premium for us and represent costless collars. Under the agreements, no payments will be made or received by us, as long as the settlement price is between the floor price and cap price. However, if the settlement price is above the cap, we will be required to pay the counterparty an amount equal to the excess of the settlement price over the cap times the monthly volumes hedged. Also, if the settlement price is below the floor, the counterparty will be required to pay us the deficit of the settlement price below the floor times the monthly volumes hedged. The objective of these agreements is to reduce the variability of the cash flows of the forecasted sales of OCC and ONP between two designated strike prices.

 

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The following costless collar hedges were outstanding as of March 31, 2012:

 

Inception Date

   Commencement Date    Termination Date    Transaction
Hedged
     Notional Amount
(in Short Tons
per Month)
     Floor
Strike Price
Per Short
Ton
     Cap
Strike Price
Per Short
Ton
 

December 8, 2010

   January 1, 2011    December 31, 2012      OCC         2,000       $ 80.00       $ 180.00   

December 8, 2010

   January 1, 2011    December 31, 2012      OCC         2,000         86.00         210.00   

December 8, 2010

   January 1, 2011    December 31, 2012      OCC         2,000         81.00         190.00   

December 8, 2010

   January 1, 2011    December 31, 2012      OCC         2,000         85.00         195.00   

December 8, 2010

   January 1, 2011    December 31, 2012      OCC         2,000         87.00         195.00   

January 19, 2011

   February 1, 2011    December 31, 2012      OCC         2,500         90.00         155.00   

January 19, 2011

   February 1, 2011    December 31, 2012      OCC         2,500         90.00         155.00   

April 15, 2011

   July 1, 2011    December 31, 2012      OCC         2,000         90.00         155.00   

April 15, 2011

   July 1, 2011    December 31, 2012      OCC         2,000         90.00         155.00   

January 11, 2012

   February 1, 2012    December 31, 2012      OCC         1,000         85.00         135.00   

January 11, 2012

   February 1, 2012    December 31, 2012      OCC         1,000         85.00         135.00   

January 11, 2012

   February 1, 2012    December 31, 2012      OCC         1,000         80.00         125.00   

January 31, 2012

   April 1, 2012    March 31, 2013      OCC         2,000         85.00         136.00   

January 31, 2012

   April 1, 2012    March 31, 2013      OCC         2,000         85.00         165.00   

January 31, 2012

   April 1, 2012    March 31, 2013      OCC         2,000         85.00         156.00   

April 26, 2011

   July 1, 2011    December 31, 2012      ONP         1,000         90.00         165.00   

April 26, 2011

   July 1, 2011    December 31, 2012      ONP         1,000         90.00         165.00   

August 1, 2011

   January 1, 2012    December 31, 2012      ONP         2,000         85.00         135.00   

August 1, 2011

   January 1, 2012    December 31, 2012      ONP         2,000         85.00         135.00   

January 31, 2012

   April 1, 2012    March 31, 2013      ONP         2,000         80.00         106.00   

January 31, 2012

   April 1, 2012    March 31, 2013      ONP         2,000         80.00         110.00   

January 31, 2012

   April 1, 2012    March 31, 2013      ONP         2,000         80.00         110.00   

The costless collar hedges are recorded on the balance sheet at fair value. The fair values of the costless collars are determined using standard option valuation models with assumptions about commodity prices based upon forward commodity price curves in underlying markets (Level 2 in the fair value hierarchy).

The aggregated fair values of the outstanding recycling commodity hedges at March 31, 2012 and December 31, 2011 were current assets of $1.2 million and $1.4 million, respectively, and current liabilities of $0.9 million and $0.7 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively.

The following table summarizes the impact of our recycling commodity hedges on our results of operations and comprehensive income for the three months ended March 31:

 

Derivatives in

Cash Flow

Hedging

Relationships

   Amount of Gain
or (Loss)
Recognized in
OCI on
Derivatives
(Effective Portion)
     Statement of
Income
Classification
     Amount of
Realized Gain or
(Loss)
    Location of Gain
(Loss) Recognized
in Income on Derivative
(Ineffective Portion

and Amount
Excluded from
Effectiveness

Testing)
   Amount of Gain or (Loss)
Recognized in

Income on Derivative
(Ineffective Portion and
Amount Excluded

from
Effectiveness
Testing)
 
     2012     2011             2012      2011          2012      2011  

Recycling commodity hedges

   $ (0.3   $ 0.6         Revenue       $ 0.1       $ (1.9   Other income, net    $ —         $ —     

Fair Value Measurements

In measuring fair values of assets and liabilities, we use valuation techniques that maximize the use of observable inputs (Level 1) and minimize the use of unobservable inputs (Level 3). We also use market data or assumptions that we believe market participants would use in pricing an asset or liability, including assumptions about risk when appropriate.

 

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As of March 31, 2012 and December 31, 2011, our assets and liabilities that are measured at fair value on a recurring basis include the following:

 

     Fair Value Measurements Using  
     Total as of
March 31, 2012
     Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets:

           

Money market mutual funds

   $ 60.9       $ 60.9       $ —         $ —     

Bonds

     36.3         —           36.3         —     

Fuel hedges - other current assets

     10.1         —           10.1         —     

Commodity hedges - other current assets

     1.2         —           1.2         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 108.5       $ 60.9       $ 47.6       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Commodity hedges - other accrued liabilities

   $ 0.9       $ —         $ 0.9       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
           
     Fair Value Measurements Using  
     Total as of
December 31, 2011
     Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets:

           

Money market mutual funds

   $ 100.8       $ 100.8       $ —         $ —     

Bonds

     34.6         —           34.6         —     

Fuel hedges - other current assets

     1.6         —           1.6         —     

Commodity hedges - other current assets

     1.4         —           1.4         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 138.4       $ 100.8       $ 37.6       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Fuel hedges - other accrued liabilities

   $ 4.7       $ —         $ 4.7       $ —     

Commodity hedges - other accrued liabilities

     0.7         —           0.7         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 5.4       $ —         $ 5.4       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

12. SEGMENT REPORTING

Our operations are managed and evaluated through four regions: Eastern, Midwestern, Southern and Western. These four regions are presented below as our reportable segments. These reportable segments provide integrated waste management services consisting of collection, transfer station, recycling and disposal of domestic non-hazardous solid waste.

 

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Summarized financial information concerning our reportable segments for the three months ended March 31, 2012 and 2011 is shown in the following tables:

 

     Gross
Revenue
     Intercompany
Revenue
    Net
Revenue
     Depreciation,
Amortization,
Depletion and
Accretion
     Operating
Income
(Loss)
    Capital
Expenditures
     Total Assets  

Three Months Ended March 31, 2012:

                  

Eastern

   $ 591.7       $ (85.7   $ 506.0       $ 51.1       $ 110.5      $ 44.4       $ 4,447.3   

Midwestern

     519.6         (93.8     425.8         52.0         74.5        34.5         3,771.4   

Southern

     591.3         (82.3     509.0         57.3         104.7        47.2         4,893.9   

Western

     631.4         (115.0     516.4         53.8         100.8        78.7         5,545.3   

Corporate entities

     28.6         (3.4     25.2         19.2         (63.6     69.4         798.0   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 2,362.6       $ (380.2   $ 1,982.4       $ 233.4       $ 326.9      $ 274.2       $ 19,455.9   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Three Months Ended March 31, 2011:

                  

Eastern

   $ 584.0       $ (82.6   $ 501.4       $ 51.4       $ 117.7      $ 48.5       $ 4,423.9   

Midwestern

     505.3         (86.4     418.9         51.5         80.4        37.9         3,708.6   

Southern

     570.8         (76.1     494.7         54.8         119.4        55.4         4,869.8   

Western

     642.0         (113.2     528.8         55.3         123.0        57.3         5,494.9   

Corporate entities

     25.1         (4.0     21.1         12.5         (64.3     98.1         899.5   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 2,327.2       $ (362.3   $ 1,964.9       $ 225.5       $ 376.2      $ 297.2       $ 19,396.7   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Intercompany revenue reflects transactions within and between segments that are generally made on a basis intended to reflect the market value of such services.

Corporate functions include legal, tax, treasury, information technology, risk management, human resources, corporate accounts, closed landfills and other typical administrative functions. Capital expenditures for corporate entities primarily include vehicle inventory acquired but not yet assigned to operating locations and facilities.

The following table shows our total reported revenue by service line for the three months ended March 31 (in millions of dollars or as a percentage of revenue):

 

     Three Months Ended March 31,  
     2012     2011  

Collection:

        

Residential

   $ 530.9        26.8   $ 525.7        26.7

Commercial

     621.1        31.3        618.1        31.5   

Industrial

     367.7        18.5        353.6        18.0   

Other

     7.9        0.4        7.9        0.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total collection

     1,527.6        77.0        1,505.3        76.6   

Transfer

     220.6          226.7     

Less: Intercompany

     (130.0       (131.9  
  

 

 

     

 

 

   

Transfer, net

     90.6        4.6        94.8        4.8   

Landfill

     447.7          422.2     

Less: Intercompany

     (207.6       (195.2  
  

 

 

     

 

 

   

Landfill, net

     240.1        12.1        227.0        11.6   

Sale of recyclable materials

     91.2        4.6        105.3        5.4   

Other non-core

     32.9        1.7        32.5        1.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other

     124.1        6.3        137.8        7.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 1,982.4        100.0   $ 1,964.9        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Other revenue consists primarily of revenue from National Accounts. National Accounts revenue included in other revenue 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.

 

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13. COMMITMENTS AND CONTINGENCIES

General Legal Proceedings

We are subject to extensive and evolving laws and regulations and have implemented our own safeguards to respond to regulatory requirements. In the normal course of conducting our operations, we become involved in legal proceedings. Some of these actions may result in fines, penalties or judgments against us, which may impact earnings and cash flows for a particular period. Although we cannot predict the ultimate outcome of any legal matter with certainty, except as described below, we do not believe that the outcome of our pending legal proceedings will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

As used herein, the term legal proceedings refers to litigation and similar claims against us and our subsidiaries, excluding: (i) ordinary course accidents, general commercial liability and workers compensation claims, which are covered by insurance programs, subject to customary deductibles, and which, together with self-insured employee health care costs, are discussed in Note 5 Other Liabilities; (ii) environmental remediation liabilities, which are discussed in Note 6, Landfill and Environmental Costs; and (iii) tax-related matters, which are discussed in Note 8, Income Taxes.

We accrue for legal proceedings when losses become probable and reasonably estimable. We have recorded an aggregate accrual of approximately $75 million relating to our outstanding legal proceedings as of March 31, 2012, including those described herein and others not specifically identified herein. As of the end of each applicable reporting period, we review each of our legal proceedings and, where it is probable that a liability has been incurred, we accrue, as a charge currently in expense, for all probable and reasonably estimable losses. Where we are able to reasonably estimate a range of losses we may incur with respect to such a matter, we record an accrual, as a charge currently in expense, for the amount within the range that constitutes our best estimate. If we are able to reasonably estimate a range but no amount within the range appears to be a better estimate than any other, we use the amount that is the low end of such range. If we used the high ends of such ranges, our aggregate potential liability would have been approximately $107 million higher than the amount recorded as of March 31, 2012.

Countywide Matters

In September 2009, Republic Services of Ohio II, LLC (Republic-Ohio) entered into Final Findings and Orders with the Ohio Environmental Protection Agency that require us to implement a comprehensive operation and maintenance program to manage the remediation area at the Countywide Recycling and Disposal Facility (Countywide). The remediation liability for Countywide recorded as of March 31, 2012 is $56.1 million, of which $5.1 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $52 million to $74 million.

In a suit filed on October 8, 2008 in the Tuscarawas County Ohio Court of Common Pleas, approximately 700 individuals and businesses located in the area around the Countywide Recycling and Disposal Facility (Countywide) sued Republic Services, Inc. and Republic-Ohio for alleged negligence and nuisance. Republic-Ohio has owned and operated Countywide since February 1, 1999. Waste Management, Inc. and Waste Management Ohio, Inc., previous owners and operators of Countywide, were named as defendants as well. Plaintiffs allege that due to the acceptance of a specific waste stream and operational issues and conditions, the landfill has generated odors and other unsafe emissions that have impaired the use and value of their property and may have adverse health effects. A second almost identical lawsuit was filed by approximately 82 plaintiffs on October 13, 2009 in the Tuscarawas County Ohio Court of Common Pleas against Republic Services, Inc., Republic-Ohio, Waste Management, Inc., and Waste Management Ohio, Inc. The court has consolidated the two actions. We have assumed both the defense and the liability of the Waste Management entities in the consolidated action. The relief requested on behalf of each plaintiff in the consolidated action is: (1) an award of compensatory damages according to proof in an amount in excess of $25,000 for each of the three counts of the amended complaint; (2) an award of punitive damages in the amount of two times compensatory damages, pursuant to applicable statute, or in such amount as may be awarded at trial for each of the three counts of the amended complaint; (3) costs for medical screening and monitoring of each plaintiff; (4) interest on the damages according to law; (5) costs and disbursements of the lawsuit; (6) reasonable fees for attorneys and expert witnesses; and (7) any other and further relief as the court deems just, proper and equitable. Plaintiffs filed an amended consolidated complaint on September 9, 2010, which no longer asserts a claim for medical monitoring. As a result of various dismissals of plaintiffs, this case presently consists of approximately 600 plaintiffs. Discovery is ongoing. In February 2011, the court granted our motion to dismiss plaintiffs’ qualified statutory nuisance claims. Republic Services, Inc., Waste Management, Inc. and Waste Management of Ohio, Inc. have been dismissed from the litigation. We will continue to vigorously defend against the plaintiffs’ allegations in the consolidated action.

Luri Matter

On August 17, 2007, a former employee, Ronald Luri, sued Republic Services, Inc., Republic Services of Ohio Hauling LLC, Republic Services of Ohio I LLC, Jim Bowen and Ron Krall in the Cuyahoga County Common Pleas Court in Ohio. Plaintiff alleges that he was unlawfully fired in retaliation for refusing to discharge or demote three employees who were all over 50 years old. On July 3, 2008, a jury verdict was awarded against us in the amount of $46.6 million, including $43.1 million in punitive damages. On

 

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September 24, 2008, the Court awarded pre-judgment interest of $0.3 million and attorney fees and litigation costs of $1.1 million. Post-judgment interest accrued or will accrue at a rate of 8% for 2008, 5% for 2009, 4% for 2010 and 2011, and 3% for 2012. Management anticipates that post-judgment interest could accrue through the end of 2012 for a total of up to $9.5 million. We appealed to the Court of Appeals, and on May 19, 2011 the court reduced the punitive damages award to $7.0 million. The Ohio Supreme Court has granted plaintiff’s and defendants’ petitions for review of the appellate decision. It is reasonably possible that following all appeals a final judgment of liability for compensatory and punitive damages may be assessed against us related to this matter.

Chicago Contracting Matter

We discovered actions of non-compliance by one of our subsidiaries with the subcontracting provisions of certain government contracts in our Chicago market. These contracts included contracts with the City of Chicago (the City) and with certain other municipal agencies in the Chicago area. We reported the discovery to, and have had further discussions with, law enforcement and other authorities.

On December 29, 2011, we signed a settlement agreement with the City under which we have: (1) paid the City $11 million in January 2012; (2) agreed to convert 79 positions at our Chicago transfer station and materials recovery facilities from temporary to full-time employee positions; and (3) released any claims we might have due to alleged shortfalls in the amount of waste delivered by the City under one of our contracts. In exchange, the City released all claims against us and has agreed that we may continue to perform our existing contracts and that we will remain eligible to bid on future City contracts.

Although we have settled with the City, the matter remains ongoing with law enforcement authorities and other municipal agencies. Our non-compliance could result in additional payments by us in the form of restitution, damages, or penalties, or the loss of future business in the affected market or other markets.

Congress Development Landfill Matters

Congress Development Co. (CDC) is a general partnership that owns and operates the Congress Landfill. The general partners in CDC are our subsidiary, Allied Waste Transportation, Inc. (Allied Transportation), and an unaffiliated entity, John Sexton Sand & Gravel Corporation (Sexton). Sexton was the operator of the landfill through early 2007, when Allied Transportation took over as the operator. The general partners likely will be jointly and severally liable for the costs associated with the following matters relating to the Congress Landfill.

In August 2010, Congress Development Company agreed with the State of Illinois to have a Final Consent Order (Final Order) entered by the Circuit Court of Illinois, Cook County. Pursuant to the Final Order, we have agreed to continue to implement certain remedial activities at the Congress Landfill. The remediation liability for Congress recorded as of March 31, 2012 is $84.2 million, of which $7.4 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $54 million to $154 million.

In a suit originally filed on December 23, 2009 in the Circuit Court of Cook County, Illinois and subsequently amended to add additional plaintiffs, approximately 2,550 plaintiffs sued our subsidiaries Allied Transportation and Allied Waste Industries, Inc., CDC and Sexton. The court entered an order dismissing Allied Waste Industries, Inc. without prejudice on October 26, 2010. The plaintiffs allege bodily injury, property damage and inability to have normal use and enjoyment of property arising from, among other things, odors and other damages arising from landfill gas leaking, and they base their claims on negligence, trespass, and nuisance. On January 6, 2012, the court took plaintiffs’ motion for leave to amend their complaint to seek punitive damages under advisement, to be considered on a plaintiff-by-plaintiff basis. The court also granted plaintiffs leave to serve discovery on the punitive damages issue. Following the court’s order in our favor striking the plaintiffs’ allegations requesting actual damages in excess of $50 million and punitive damages in excess of $50 million, the amount of damages being sought is unspecified. Discovery is ongoing. We intend to vigorously defend against the plaintiffs’ allegations in this action.

Livingston Matter

On October 13, 2009, the Twenty-First Judicial District Court, Parish of Livingston, State of Louisiana, issued its Post Class Certification Findings of Fact and Conclusions of Law in a lawsuit alleging nuisance from the activities of the former hazardous waste facility owned by our subsidiary CECOS International, Inc. (CECOS) located in Livingston Parish, Louisiana. The court granted class certification for all those living within a six mile radius of the CECOS site between the years 1977 and 1990. We appealed the class certification order. On August 17, 2011, the court of appeals granted a joint motion to remand the case to the trial court for the parties to finalize a proposed settlement. The parties executed a settlement agreement on September 15, 2011, which was approved by the trial court at a fairness hearing on December 8, 2011. The settlement agreement, which provides for payment of $29.5 million to settle the claims of the class, became final upon the expiration of the appeal period on February 23, 2012, at which time we made the $29.5 million payment.

 

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Multiemployer Pension Plans

We contribute to 27 multiemployer pension plans under collective bargaining agreements covering union-represented employees. Approximately 20% of our total current employees are participants in such multiemployer plans. These plans generally provide retirement benefits to participants based on their service to contributing employers. We do not administer these multiemployer plans. In general, these plans are managed by a board of trustees with the unions appointing certain trustees and other contributing employers of the plan appointing certain members. We generally are not represented on the board of trustees.

Further, under current law regarding multiemployer pension plans, a plan’s termination, and any termination of an employer’s obligation to make contributions, including our voluntary withdrawal (which we consider from time to time), or the mass withdrawal of all contributing employers from any under-funded multiemployer pension plan (each, a “Withdrawal Event”) would require us to make payments to the plan for our proportionate share of the multiemployer pension plan’s unfunded vested liabilities. We cannot assure you that there will not be a Withdrawal Event with respect to any of the multiemployer pension plans to which we contribute or that, in the event of such a Withdrawal Event, the amounts we would be required to contribute would not have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

We have 14 collective bargaining agreements (“CBAs”) with local bargaining units of the Teamsters under which we have obligations to contribute to the Central States, Southeast and Southwest Areas Pension Fund (the “Fund”). All 14 of these CBAs are or will be under negotiation in 2012 and 2013. As part of these negotiations, we have proposed or intend to propose to withdraw from the Fund. Withdrawal is only one of the issues in these negotiations, and we do not know what the ultimate outcome of the negotiations in any locale will be. With respect to each CBA, if we do withdraw, this will constitute a Withdrawal Event and will require us to make payments to the Fund for a proportionate share of its unfunded vested liabilities. If we do have a Withdrawal Event or Events with respect to one or more bargaining units, the amount ultimately payable would depend upon a number of variable factors involving valuations and actuarial calculations. We do not presently know what the result of those calculations and valuations would be. The Fund has estimated that, as of November 15, 2011, our liability upon a complete withdrawal with respect to all bargaining units related to the Fund would be approximately $109 million. Based on information received from the 27 multiemployer pension plans to which we contribute, we believe that our potential liability in the event of a complete withdrawal from the Fund is (a) much greater than our potential liability in the event of a complete withdrawal from any of the 26 other multiemployer pension plans in which we participate and (b) greater than our potential aggregate liability in the event of complete withdrawal from all the 20 other multiemployer pension plans to which we contribute and that are either “critical” or “endangered” as those terms are defined in the Pension Protection Act.

Although one or more potential Withdrawal Events from the Fund are reasonably possible, at this time such a Withdrawal Event with respect to any bargaining unit is not probable and we cannot reasonably estimate a loss or range of loss. In the future, a loss may become probable and we may be able to reasonably estimate a range of loss, at which time or times we will incur an expense or expenses that will reduce earnings. Any such expense may be material to our results of operations in the period or periods incurred. The liability associated with any such expense or expenses ordinarily would be paid over a period of 20 years and is unlikely to be material to our cash flow in any period.

For additional discussion and detail regarding multiemployer pension plans, see Note 11, Employee Benefit Plans, to our consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Restricted Cash and Marketable Securities

Our restricted cash and marketable securities deposits include, among other things, restricted cash and marketable securities held for capital expenditures under certain debt facilities, and restricted cash and marketable securities pledged to regulatory agencies and governmental entities as financial guarantees of our performance related to our final capping, closure and post-closure obligations at our landfills. The following table summarizes our restricted cash and marketable securities:

 

     March 31,
2012
     December 31,
2011
 

Financing proceeds

   $ 17.3       $ 22.5   

Capping, closure and post-closure obligations

     55.3         54.9   

Self-insurance

     76.3         75.2   

Other

     2.5         37.0   
  

 

 

    

 

 

 

Total restricted cash and marketable securities

   $ 151.4       $ 189.6   
  

 

 

    

 

 

 

Off-Balance Sheet Arrangements

We have no off-balance sheet debt or similar obligations, other than operating leases and the financial assurances, which are not classified as debt. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported financial position or results of operations. We have not guaranteed any third-party debt.

 

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14. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

We are the primary obligor under certain of the Senior Notes. However, we have no independent assets or operations, and therefore substantially all of our subsidiaries have jointly and severally guaranteed these notes. All of the subsidiary guarantors are 100% direct or indirect wholly owned subsidiaries of the parent, and all guarantees are full, unconditional and joint and several, except for certain customary circumstances as provided by the indenture. Thus, we present condensed consolidating balance sheets as of March 31, 2012 (unaudited) and December 31, 2011, and unaudited condensed consolidating statements of income, comprehensive income and cash flows for the three months ended March 31, 2012 and 2011 for each of Republic Services, Inc. (Parent), guarantor subsidiaries and the other non-guarantor subsidiaries with any consolidating adjustments based upon the guarantor and non-guarantor subsidiaries as of March 31, 2012.

 

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Unaudited Condensed Consolidating Balance Sheets

 

     March 31, 2012  
     Parent      Guarantors      Non -Guarantors     Eliminations     Consolidated  
ASSETS             

Current assets:

            

Cash and cash equivalents

   $ 13.4       $ 55.4       $ 4.7      $ —        $ 73.5   

Accounts receivable, net

     —           749.8         58.6        —          808.4   

Prepaid expenses and other current assets

     41.2         88.5         23.2        —          152.9   

Deferred tax assets

     134.1         —           10.3        —          144.4   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     188.7         893.7         96.8        —          1,179.2   

Restricted cash and marketable securities

     17.3         44.8         89.3        —          151.4   

Property and equipment, net

     58.0         6,259.5         495.5        —          6,813.0   

Goodwill

     —           10,653.1         —          —          10,653.1   

Other intangible assets, net

     13.7         384.4         —          —          398.1   

Investment and net advances to affiliate

     15,195.8         81.3         154.3        (15,431.4     —     

Other assets

     119.1         82.7         59.3        —          261.1   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 15,592.6       $ 18,399.5       $ 895.2      $ (15,431.4   $ 19,455.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY             

Current liabilities:

            

Accounts payable

   $ 280.7       $ 152.4       $ 17.9      $ —        $ 451.0   

Notes payable and current maturities of long-term debt

     25.0         7.6         1.6        —          34.2   

Deferred revenue

     —           307.2         1.8        —          309.0   

Accrued landfill and environmental costs, current portion

     —           182.6         —          —          182.6   

Accrued interest

     59.0         21.3         —          —          80.3   

Other accrued liabilities

     341.5         153.1         164.1        —          658.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     706.2         824.2         185.4        —          1,715.8   

Long-term debt, net of current maturities

     5,852.9         1,004.4         13.0        —          6,870.3   

Accrued landfill and environmental costs, net of current portion

     —           1,126.9         275.7        —          1,402.6   

Deferred income taxes and other long-term tax liabilities

     1,173.5         —           (8.5     —          1,165.0   

Self-insurance reserves, net of current portion

     —           73.3         234.2        —          307.5   

Other long-term liabilities

     108.3         74.3         58.4        —          241.0   

Commitments and contingencies

            

Stockholders’ equity:

            

Common stock

     4.0         —           —          —          4.0   

Other equity

     7,747.7         15,296.4         135.0        (15,431.4     7,747.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Republic Services, Inc. stockholders’ equity

     7,751.7         15,296.4         135.0        (15,431.4     7,751.7   

Noncontrolling interests

     —           —           2.0        —          2.0   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     7,751.7         15,296.4         137.0        (15,431.4     7,753.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 15,592.6       $ 18,399.5       $ 895.2      $ (15,431.4   $ 19,455.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Balance Sheets

 

     December 31, 2011  
     Parent      Guarantors      Non-Guarantors     Eliminations     Consolidated  
ASSETS             

Current assets:

            

Cash and cash equivalents

   $ 9.6       $ 53.9       $ 2.8      $ —        $ 66.3   

Accounts receivable, net

     —           765.2         60.6        —          825.8   

Prepaid expenses and other current assets

     100.3         92.6         23.0        —          215.9   

Deferred tax assets

     147.5         —           10.2        —          157.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     257.4         911.7         96.6        —          1,265.7   

Restricted cash and marketable securities

     51.9         49.5         88.2        —          189.6   

Property and equipment, net

     55.8         6,234.0         502.5        —          6,792.3   

Goodwill

     —           10,647.0         —          —          10,647.0   

Other intangible assets, net

     15.3         394.3         —          —          409.6   

Investment and net advances to affiliate

     15,044.0         70.2         152.5        (15,266.7     —     

Other assets

     105.7         82.9         58.7        —          247.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 15,530.1       $ 18,389.6       $ 898.5      $ (15,266.7   $ 19,551.5   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY             

Current liabilities:

            

Accounts payable

   $ 239.3       $ 305.5       $ 18.8      $ —        $ 563.6   

Notes payable and current maturities of long-term debt

     25.6         7.6         1.6        —          34.8   

Deferred revenue

     —           288.5         1.7        —          290.2   

Accrued landfill and environmental costs, current portion

     —           184.2         —          —          184.2   

Accrued interest

     61.8         10.4         —          —          72.2   

Other accrued liabilities

     393.1         187.0         172.4        —          752.5   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     719.8         983.2         194.5        —          1,897.5   

Long-term debt, net of current maturities

     5,871.1         1,002.8         13.1        —          6,887.0   

Accrued landfill and environmental costs, net of current portion

     —           1,123.1         273.4        —          1,396.5   

Deferred income taxes and other long-term tax liabilities

     1,169.6         —           (8.5     —          1,161.1   

Self-insurance reserves, net of current portion

     —           72.6         231.3        —          303.9   

Other long-term liabilities

     88.3         75.8         58.0        —          222.1   

Commitments and contingencies

            

Stockholders’ equity:

            

Common stock

     4.0         —           —          —          4.0   

Other equity

     7,677.3         15,132.1         134.6        (15,266.7     7,677.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Republic Services, Inc. stockholders’ equity

     7,681.3         15,132.1         134.6        (15,266.7     7,681.3   

Noncontrolling interests

     —           —           2.1        —          2.1   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     7,681.3         15,132.1         136.7        (15,266.7     7,683.4   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 15,530.1       $ 18,389.6       $ 898.5      $ (15,266.7   $ 19,551.5   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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Unaudited Condensed Consolidating Statements of Income

 

     Three Months Ended March 31, 2012  
     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Revenue

   $ —        $ 1,903.0      $ 96.4      $ (17.0   $ 1,982.4   

Expenses:

          

Cost of operations

     1.2        1,134.5        84.5        (17.0     1,203.2   

Depreciation, amortization and depletion

     5.8        196.9        11.0        —          213.7   

Accretion

     —          19.5        0.2        —          19.7   

Selling, general and administrative

     42.8        170.5        9.2        —          222.5   

Loss on disposition of assets and impairments, net

     —          (3.6     —          —          (3.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (49.8     385.2        (8.5     —          326.9   

Interest expense

     (72.0     (32.5     0.2        —          (104.3

Interest income

     (1.5     (1.0     2.8        —          0.3   

Other (expense) income, net

     (4.0     4.2        —          —          0.2   

Equity in earnings of subsidiaries

     202.4        5.6        1.8        (209.8     —     

Intercompany interest income (expense)

     25.9        (48.3     22.4        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     101.0        313.2        18.7        (209.8     223.1   

Provision (benefit) for income taxes

     (41.9     115.3        6.9        —          80.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     142.9        197.9        11.8        (209.8     142.8   

Net loss attributable to noncontrolling interests

     —          —          0.1        —          0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Republic Services, Inc.

   $ 142.9      $ 197.9      $ 11.9      $ (209.8   $ 142.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

     Unaudited Condensed Consolidating Statements of Comprehensive Income  
     Three Months Ended March 31, 2012  
     Parent      Guarantors     Non-Guarantors      Eliminations     Consolidated  

Net income

   $ 142.9       $ 197.9      $ 11.8       $ (209.8   $ 142.8   

Other comprehensive income (loss), net of tax

            

Hedging related activity

     7.7         —          —           —          7.7   

Pension related activity

     —           (3.5     —           —          (3.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax

     7.7         (3.5     —           —          4.2   

Comprehensive income

     150.6         194.4        11.8         (209.8     147.0   

Comprehensive loss attributable to noncontrolling interests

     —           —          0.1         —          0.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to Republic Services, Inc.

   $ 150.6       $ 194.4      $ 11.9       $ (209.8   $ 147.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Unaudited Condensed Consolidating Statements of Income

 

     Three Months Ended March 31, 2011  
     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Revenue

   $ —        $ 1,891.1      $ 89.1      $ (15.3   $ 1,964.9   

Expenses:

          

Cost of operations

     2.3        1,097.1        75.6        (15.3     1,159.7   

Depreciation, amortization and depletion

     5.4        189.8        10.6        —          205.8   

Accretion

     —          19.5        0.2        —          19.7   

Selling, general and administrative

     39.6        153.5        10.8        —          203.9   

Loss on disposition of assets and impairments, net

     (0.4     —          —          —          (0.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (46.9     431.2        (8.1     —          376.2   

Interest expense

     (56.4     (59.8     0.5        —          (115.7

Loss on extinguishment of debt

     —          (1.8     —          —          (1.8

Interest income

     (1.8     (1.3     3.3        —          0.2   

Other (expense) income, net

     (3.1     2.8        1.4        —          1.1   

Equity in earnings of subsidiaries

     338.2        3.4        0.8        (342.4     —     

Intercompany interest income (expense)

     (199.5     183.8        15.7        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     30.5        558.3        13.6        (342.4     260.0   

(Benefit) provision for income taxes

     (127.7     224.6        5.0        —          101.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     158.2        333.7        8.6        (342.4     158.1   

Net loss attributable to noncontrolling interests

     —          —          0.1        —          0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Republic Services, Inc.

   $ 158.2      $ 333.7      $ 8.7      $ (342.4   $ 158.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

     Unaudited Condensed Consolidating Statements of Comprehensive Income  
     Three Months Ended March 31, 2011  
     Parent     Guarantors      Non-Guarantors      Eliminations     Consolidated  

Net income

   $ 158.2      $ 333.7       $ 8.6       $ (342.4   $ 158.1   

Other comprehensive loss, net of tax

            

Hedging related activity

     (4.3     —           —           —          (4.3
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive loss, net of tax

     (4.3     —           —           —          (4.3

Comprehensive income

     153.9        333.7         8.6         (342.4     153.8   

Comprehensive loss attributable to noncontrolling interests

     —          —           0.1         —          0.1   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to Republic Services, Inc.

   $ 153.9      $ 333.7       $ 8.7       $ (342.4   $ 153.9   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Unaudited Condensed Consolidating Statements of Cash Flows

 

     Three Months Ended March 31, 2012  
     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Cash (used in) provided by operating activities:

          

Net income

   $ 142.9      $ 197.9      $ 11.8      $ (209.8   $ 142.8   

Equity in earnings of subsidiaries, net of taxes

     (202.4     (5.6     (1.8     209.8        —     

Other adjustments

     64.1        130.7        (3.4     —          191.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash (used in) provided by operating activities

     4.6        323.0        6.6        —          334.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash (used in) provided by investing activities:

          

Purchases of property and equipment

     (4.0     (267.0     (3.2