XFRA:RPU Republic Services Inc Class A Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 30, 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 July 17, 2012, the registrant had outstanding 365,276,656 shares of Common Stock, par value $.01 per share (excluding treasury shares of 38,641,934).



REPUBLIC SERVICES, INC.
INDEX
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

REPUBLIC SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
 
June 30,
2012
 
December 31,
2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
69.3

 
$
66.3

Accounts receivable, less allowance for doubtful accounts of $45.2 and $48.1, respectively
845.3

 
825.8

Prepaid expenses and other current assets
191.6

 
215.9

Deferred tax assets
128.1

 
157.7

Total current assets
1,234.3

 
1,265.7

Restricted cash and marketable securities
138.9

 
189.6

Property and equipment, net
6,882.7

 
6,792.3

Goodwill
10,677.6

 
10,647.0

Other intangible assets, net
388.6

 
409.6

Other assets
268.2

 
247.3

Total assets
$
19,590.3

 
$
19,551.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
529.5

 
$
563.6

Notes payable and current maturities of long-term debt
34.0

 
34.8

Deferred revenue
323.5

 
290.2

Accrued landfill and environmental costs, current portion
181.3

 
184.2

Accrued interest
68.6

 
72.2

Other accrued liabilities
615.4

 
752.5

Total current liabilities
1,752.3

 
1,897.5

Long-term debt, net of current maturities
7,079.4

 
6,887.0

Accrued landfill and environmental costs, net of current portion
1,407.0

 
1,396.5

Deferred income taxes and other long-term tax liabilities
1,151.9

 
1,161.1

Self-insurance reserves, net of current portion
294.9

 
303.9

Other long-term liabilities
222.1

 
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; 403.8 and 402.1 issued
   including shares held in treasury, respectively
4.0

 
4.0

Additional paid-in capital
6,547.6

 
6,495.6

Retained earnings
2,294.5

 
2,164.7

Treasury stock, at cost (38.5 and 32.2 shares, respectively)
(1,133.9
)
 
(961.5
)
Accumulated other comprehensive loss, net of tax
(31.8
)
 
(21.5
)
Total Republic Services, Inc. stockholders’ equity
7,680.4

 
7,681.3

Noncontrolling interests
2.3

 
2.1

Total stockholders’ equity
7,682.7

 
7,683.4

Total liabilities and stockholders’ equity
$
19,590.3

 
$
19,551.5


The accompanying notes are an integral part of these statements.

3


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Revenue
$
2,060.6

 
$
2,086.6

 
$
4,043.0

 
$
4,051.5

Expenses:
 
 
 
 
 
 
 
Cost of operations
1,241.0

 
1,237.8

 
2,444.2

 
2,397.5

Depreciation, amortization and depletion
214.9

 
208.6

 
428.6

 
414.4

Accretion
19.7

 
19.5

 
39.4

 
39.2

Selling, general and administrative
198.0

 
200.1

 
420.5

 
404.0

Loss (gain) on disposition of assets and impairments, net

 
19.4

 
(3.6
)
 
19.0

Operating income
387.0

 
401.2

 
713.9

 
777.4

Interest expense
(98.8
)
 
(111.4
)
 
(203.1
)
 
(227.1
)
Loss on extinguishment of debt
(110.3
)
 
(199.5
)
 
(110.3
)
 
(201.3
)
Interest income
0.2

 
0.1

 
0.5

 
0.3

Other income, net
0.5

 
0.9

 
0.7

 
2.0

Income before income taxes
178.6

 
91.3

 
401.7

 
351.3

Provision for income taxes
29.1

 
45.1

 
109.4

 
147.0

Net income
149.5

 
46.2

 
292.3

 
204.3

Net (income) loss attributable to noncontrolling
    interests
(0.3
)
 
0.3

 
(0.2
)
 
0.4

Net income attributable to Republic Services, Inc.
$
149.2

 
$
46.5

 
$
292.1

 
$
204.7

Basic earnings per share attributable to Republic Services,
    Inc. stockholders:
 
 
 
 
 
 
 
Basic earnings per share
$
0.41

 
$
0.12

 
$
0.79

 
$
0.54

Weighted average common shares outstanding
367.9

 
378.2

 
369.4

 
380.2

Diluted earnings per share attributable to Republic
    Services, Inc. stockholders:
 
 
 
 
 
 
 
Diluted earnings per share
$
0.40

 
$
0.12

 
$
0.79

 
$
0.54

Weighted average common and common equivalent
    shares outstanding
368.9

 
380.2

 
370.7

 
382.1

Cash dividends per common share
$
0.22

 
$
0.20

 
$
0.44

 
$
0.40


The accompanying notes are an integral part of these statements.


4


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
149.5

 
$
46.2

 
$
292.3

 
$
204.3

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Hedging related activity
(14.5
)
 
(15.5
)
 
(6.8
)
 
(19.8
)
Pension related activity

 
1.7

 
(3.5
)
 
1.7

Other comprehensive loss, net of tax
(14.5
)
 
(13.8
)
 
(10.3
)
 
(18.1
)
Comprehensive income
135.0

 
32.4

 
282.0

 
186.2

Comprehensive (income) loss attributable to noncontrolling
   interests
(0.3
)
 
0.3

 
(0.2
)
 
0.4

Comprehensive income attributable to Republic Services, Inc.
$
134.7

 
$
32.7

 
$
281.8

 
$
186.6


The accompanying notes are an integral part of these statements.


5


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in millions)
 
 
Republic Services, Inc. Stockholders’ Equity
 
 
 
Common Stock
 
Additional Paid-In
 
Retained
 
Treasury Stock
 
Accumulated
Other
Comprehensive 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

 

 

 
292.1

 

 

 

 
0.2

Other comprehensive loss

 

 

 

 

 

 
(10.3
)
 

Cash dividends declared

 

 

 
(161.9
)
 

 

 

 

Issuances of common stock
1.7

 

 
38.9

 

 

 

 

 

Stock-based compensation

 

 
13.1

 
(0.4
)
 

 

 

 

Purchase of common stock for treasury

 

 

 

 
(6.3
)
 
(172.4
)
 

 

Balance as of June 30, 2012
403.8

 
$
4.0

 
$
6,547.6

 
$
2,294.5

 
(38.5
)
 
$
(1,133.9
)
 
$
(31.8
)
 
$
2.3


The accompanying notes are an integral part of these statements.


6


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

 
Six Months Ended June 30,
 
2012
 
2011
Cash provided by operating activities:
 
 
 
Net income
$
292.3

 
$
204.3

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization of property and equipment
257.6

 
256.0

Landfill depletion and amortization
135.5

 
120.8

Amortization of intangible and other assets
35.5

 
37.6

Accretion
39.4

 
39.2

Non-cash interest expense - debt
8.7

 
16.1

Non-cash interest expense - other
23.8

 
24.5

Stock-based compensation
12.7

 
12.1

Deferred tax benefit
(25.7
)
 
(58.3
)
Provision for doubtful accounts, net of adjustments
12.8

 
6.1

Excess income tax benefit from stock option exercises
(1.4
)
 
(2.1
)
Asset impairments
0.2

 
39.4

Loss on extinguishment of debt
110.3

 
201.3

Gain on disposition of assets, net
(11.1
)
 
(29.8
)
Other non-cash items
0.8

 
(5.1
)
Change in assets and liabilities, net of effects from business acquisitions and divestitures:
 
 
 
Accounts receivable
(30.5
)
 
(47.6
)
Prepaid expenses and other assets
11.5

 
60.6

Accounts payable
(28.3
)
 
(33.1
)
Restructuring and synergy related expenditures
(68.1
)
 
(2.7
)
Capping, closure and post-closure expenditures
(31.3
)
 
(35.2
)
Remediation expenditures
(30.6
)
 
(16.2
)
Other liabilities
(19.1
)
 
7.7

Cash provided by operating activities
695.0

 
795.6

Cash used in investing activities:
 
 
 
Purchases of property and equipment
(462.5
)
 
(481.7
)
Proceeds from sales of property and equipment
21.4

 
16.3

Cash used in business acquisitions and development projects, net of cash acquired
(71.8
)
 
(28.0
)
Cash proceeds from divestitures, net of cash divested
9.6

 
10.4

Change in restricted cash and marketable securities
50.7

 
12.7

Other
(0.3
)
 
(1.9
)
Cash used in investing activities
(452.9
)
 
(472.2
)
Cash used in financing activities:
 
 
 
Proceeds from notes payable and long-term debt
1,368.1

 
819.5

Proceeds from issuance of senior notes, net of discount
847.6

 
1,844.9

Payments of notes payable and long-term debt
(2,116.3
)
 
(2,228.3
)
Premiums paid on extinguishment of debt
(25.8
)
 
(86.8
)
Fees paid to issue and retire senior notes and certain hedging relationships
(16.2
)
 
(58.6
)
Issuances of common stock
37.5

 
31.4

Excess income tax benefit from stock option exercises
1.4

 
2.1

Purchases of common stock for treasury
(172.4
)
 
(262.9
)
Cash dividends paid
(163.0
)
 
(152.5
)
Cash used in financing activities
(239.1
)
 
(91.2
)
Increase in cash and cash equivalents
3.0

 
232.2

Cash and cash equivalents at beginning of period
66.3

 
88.3

Cash and cash equivalents at end of period
$
69.3

 
$
320.5


The accompanying notes are an integral part of these statements.


7


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.

2. BUSINESS ACQUISITIONS

We acquired various solid waste businesses during the six months ended June 30, 2012 and 2011. The purchase price paid for these acquisitions during those periods and the preliminary allocation of the purchase price as of June 30 are as follows:


8

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
2012
 
2011
Purchase price:
 
 
 
Cash used in acquisitions, net of cash acquired
$
71.8

 
$
28.0

Fair value of operations surrendered

 
47.8

Holdbacks
0.2

 
1.0

Total
72.0

 
76.8

Allocated as follows:
 
 
 
Working capital
2.3

 
6.4

Property and equipment
22.7

 
41.6

Other liabilities, net
(2.7
)
 
(6.5
)
Value of assets acquired and liabilities assumed
22.3

 
41.5

Excess purchase price to be allocated
$
49.7

 
$
35.3

Excess purchase price to be allocated as follows:
 
 
 
Other intangible assets
$
13.7

 
$
24.5

Goodwill
36.0

 
10.8

Total allocated
$
49.7

 
$
35.3


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 June 30, 2012
Eastern
$
2,798.0

 
$
14.0

 
$
(3.9
)
 
$
(0.3
)
 
$
2,807.8

Midwestern
2,135.5

 
0.6

 

 
(0.6
)
 
2,135.5

Southern
2,705.0

 

 

 
(0.3
)
 
2,704.7

Western
3,008.5

 
21.4

 

 
(0.3
)
 
3,029.6

Total
$
10,647.0

 
$
36.0

 
$
(3.9
)
 
$
(1.5
)
 
$
10,677.6

 
Balance at December 31, 2010
 
Acquisitions
 
Divestitures
 
Adjustments 
to
Acquisitions
 
Balance at June 30, 2011
Eastern
$
2,791.9

 
$
3.6

 
$
(0.7
)
 
$
(0.5
)
 
$
2,794.3

Midwestern
2,129.6

 
4.8

 

 

 
2,134.4

Southern
2,721.8

 
2.4

 
(19.5
)
 
(0.4
)
 
2,704.3

Western
3,012.0

 

 
(4.3
)
 
(0.5
)
 
3,007.2

Total
$
10,655.3

 
$
10.8

 
$
(24.5
)
 
$
(1.4
)
 
$
10,640.2


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:
 

9

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
Gross Intangible Assets
 
Accumulated Amortization
 
Net Intangibles at June 30, 2012
 
Balance at December 31, 2011
 
Acquisitions
 
Balance at June 30, 2012
 
Balance at December 31, 2011
 
Additions
Charged
to
Expense
 
Balance at June 30, 2012
 
Customer relationships, franchise and other municipal agreements
$
566.2

 
$
10.5

 
$
576.7

 
$
(194.4
)
 
$
(29.6
)
 
$
(224.0
)
 
$
352.7

Trade names
30.0

 

 
30.0

 
(18.5
)
 
(3.1
)
 
(21.6
)
 
8.4

Non-compete agreements
16.9

 
2.5

 
19.4

 
(9.3
)
 
(1.3
)
 
(10.6
)
 
8.8

Other intangible assets
62.9

 
0.7

 
63.6

 
(44.2
)
 
(0.7
)
 
(44.9
)
 
18.7

Total
$
676.0

 
$
13.7

 
$
689.7

 
$
(266.4
)
 
$
(34.7
)
 
$
(301.1
)
 
$
388.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Intangible Assets
 
Accumulated Amortization
 
Net Intangibles at June 30, 2011
 
Balance at December 31, 2010
 
Acquisitions
 
Balance at June 30, 2011
 
Balance at December 31, 2010
 
Additions
Charged
to
Expense
 
Balance at June 30, 2011
 
Customer relationships, franchise and other municipal agreements
$
537.1

 
$
21.6

 
$
558.7

 
$
(130.7
)
 
$
(31.2
)
 
$
(161.9
)
 
$
396.8

Trade names
30.0

 

 
30.0

 
(12.5
)
 
(3.0
)
 
(15.5
)
 
14.5

Non-compete agreements
12.9

 
2.9

 
15.8

 
(7.2
)
 
(0.9
)
 
(8.1
)
 
7.7

Other intangibles assets
62.9

 

 
62.9

 
(41.2
)
 
(1.5
)
 
(42.7
)
 
20.2

Total
$
642.9

 
$
24.5

 
$
667.4

 
$
(191.6
)
 
$
(36.6
)
 
$
(228.2
)
 
$
439.2


4. OTHER ASSETS
Prepaid Expenses and Other Current Assets
A summary of prepaid expenses and other current assets as of June 30, 2012 and December 31, 2011 is as follows:
 
 
2012
 
2011
Inventories
$
34.1

 
$
35.2

Prepaid expenses
53.4

 
53.4

Other non-trade receivables
41.4

 
54.5

Income tax receivable
53.0

 
68.4

Commodity and fuel hedge asset
2.1

 
3.0

Other current assets
7.6

 
1.4

Total
$
191.6

 
$
215.9


Other Assets
A summary of other assets as of June 30, 2012 and December 31, 2011 is as follows:
 
 
2012
 
2011
Deferred financing costs
$
61.2

 
$
54.6

Deferred compensation plan
47.2

 
34.5

Notes and other receivables
32.9

 
31.6

Reinsurance receivable
61.2

 
58.0

Other
65.7

 
68.6

Total
$
268.2

 
$
247.3




10

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5. OTHER LIABILITIES
Other Accrued Liabilities
A summary of other accrued liabilities as of June 30, 2012 and December 31, 2011 is as follows:
 
 
2012
 
2011
Accrued payroll and benefits
$
139.2

 
$
168.9

Accrued fees and taxes
120.1

 
115.3

Self-insurance reserves, current portion
128.2

 
114.4

Accrued dividends
80.4

 
81.4

Synergy incentive plan

 
68.1

Current tax liabilities
10.2

 
29.4

Accrued professional fees and legal settlement reserves
44.0

 
80.3

Other
93.3

 
94.7

Total
$
615.4

 
$
752.5


Other accrued liabilities include the fair value of fuel and commodity hedges of $12.2 million and $5.4 million as of June 30, 2012 and December 31, 2011, respectively.
Other Long-Term Liabilities
A summary of other long-term liabilities as of June 30, 2012 and December 31, 2011 is as follows:
 
 
2012
 
2011
Deferred compensation liability
$
48.1

 
$
31.4

Pension and other postretirement liabilities
46.1

 
46.8

Legal settlement reserves
31.6

 
59.3

Ceded insurance reserves
61.2

 
58.0

Other
35.1

 
26.6

Total
$
222.1

 
$
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 June 30, 2012 (which includes claims for workers’ compensation, general liability, vehicle liability and employee health care benefits) were $423.1 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 June 30, 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 June 30, 2012 and December 31, 2011 is as follows:

11

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
 
2012
 
2011
Landfill final capping, closure and post-closure liabilities
$
1,068.3

 
$
1,037.0

Remediation
520.0

 
543.7

 
1,588.3

 
1,580.7

Less: Current portion
(181.3
)
 
(184.2
)
Long-term portion
$
1,407.0

 
$
1,396.5


Final Capping, Closure and Post-Closure Costs
The following table summarizes the activity in our asset retirement obligation liabilities, which include liabilities for final capping, closure and post-closure, for the six months ended June 30:
 
 
2012
 
2011
Asset retirement obligation liabilities, beginning of year
$
1,037.0

 
$
1,046.5

Non-cash additions
17.1

 
16.4

Acquisitions/divestitures and other adjustments
(1.9
)
 
14.4

Asset retirement obligation adjustments
8.0

 
(15.0
)
Payments
(31.3
)
 
(35.2
)
Accretion expense
39.4

 
39.2

Asset retirement obligation liabilities, end of period
1,068.3

 
1,066.3

Less: Current portion
(94.5
)
 
(96.7
)
Long-term portion
$
973.8

 
$
969.6


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 $55.8 million and $54.9 million as of June 30, 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 the 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 June 30, 2012 would be approximately $198 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 six months ended June 30:
 

12

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
2012
 
2011
Remediation liabilities, beginning of year
$
543.7

 
$
552.1

Remediation adjustments
(9.2
)
 
3.0

Payments
(30.6
)
 
(16.2
)
Accretion expense (non-cash interest expense)
16.1

 
16.5

Remediation liabilities, end of period
520.0

 
555.4

Less: Current portion
(86.8
)
 
(91.2
)
Long-term portion
$
433.2

 
$
464.2


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 June 30, 2012 is $54.3 million, of which $4.9 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $51 million to $73 million.

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 the Congress Landfill recorded as of June 30, 2012 is $83.9 million, of which $7.8 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $53 million to $154 million.

7. DEBT
Our notes payable, capital leases and long-term debt as of June 30, 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.
 

13

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
 
 
 
June 30, 2012
 
December 31, 2011
Maturity
 
Interest Rate
 
Principal
 
Discount
 
Carry Value
 
Principal
 
Discount
 
Carry Value
Credit facilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Uncommitted revolver
 
Variable
 
$
68.7

 
$

 
$
68.7

 
$

 
$

 
$

September 2013
 
Variable
 

 

 

 
17.2

 

 
17.2

April 2016
 
Variable
 
51.5

 

 
51.5

 
17.2

 

 
17.2

May 2017
 
Variable
 

 

 

 

 

 

Senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 2017
 
6.875
 

 

 

 
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

 
(3.6
)
 
646.4

 
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

June 2022
 
3.550
 
850.0

 
(2.3
)
 
847.7

 

 

 

May 2023
 
4.750
 
550.0

 
(1.3
)
 
548.7

 
550.0

 
(1.4
)
 
548.6

March 2035
 
6.086
 
275.7

 
(25.2
)
 
250.5

 
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

 
(1.9
)
 
33.4

 
35.3

 
(2.0
)
 
33.3

September 2035
 
7.400
 
165.2

 
(41.7
)
 
123.5

 
165.2

 
(41.9
)
 
123.3

Tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012 - 2035
 
0.170 - 5.625
 
1,063.3

 
(3.1
)
 
1,060.2

 
1,142.2

 
(15.8
)
 
1,126.4

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012 - 2042
 
5.000 - 11.900
 
87.0

 

 
87.0

 
89.4

 

 
89.4

Total Debt
 
 
 
$
7,196.7

 
$
(83.3
)
 
7,113.4

 
$
7,092.2

 
$
(170.4
)
 
6,921.8

Less: Current portion
 
 
 
 
 
 
 
(34.0
)
 
 
 
 
 
(34.8
)
Long-term portion
 
 
 
 
 
 
 
$
7,079.4

 
 
 
 
 
$
6,887.0


Loss on Extinguishment of Debt

The following table summarizes the refinancing transactions that resulted in cash paid for premiums and professional fees to repurchase outstanding debt as well as the non-cash write-off of unamortized debt discounts and deferred issuance costs during the three and six months ended June 30, 2012 and 2011:


14

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
 
Quarter
 
Principal Repaid
 
Cash Paid in Loss on Extinguishment of Debt
 
Non-cash Loss on Extinguishment of Debt
 
Total Loss on Extinguishment of Debt
2012:
 
 
 
 
 
 
 
 
 
 
Credit Facilities
 
Second
 
$

 
$

 
$
1.5

 
$
1.5

$750.0 million 6.875% senior notes due June 2017
 
Second
 
750.0

 
25.8

 
71.0

 
96.8

Tax-exempt financings
 
Second
 

 

 
11.9

 
11.9

Ineffective portion of interest rate lock settlements
 
Second
 

 
0.1

 

 
0.1

Loss on extinguishment of debt for the six months ended
   June 30, 2012
 
 
 

 
$
25.9

 
$
84.4

 
$
110.3

 
 
 
 
 
 
 
 
 
 
 
2011:
 
 
 
 
 
 
 
 
 
 
$99.5 million 9.250% debentures due May 2021
 
First
 
$
5.0

 
$
1.5

 
$
0.3

 
$
1.8

Credit Facilities
 
Second
 

 

 
1.7

 
1.7

$600.0 million 7.125% senior notes due May 2016
 
Second
 
600.0

 
21.4

 
61.3

 
82.7

$99.5 million 9.250% debentures due May 2021
 
Second
 
59.2

 
22.7

 
3.5

 
26.2

$360.0 million 7.400% debentures due September 2035
 
Second
 
182.7

 
41.9

 
46.7

 
88.6

Ineffective portion of interest rate lock settlements
 
Second
 

 
0.3

 

 
0.3

Loss on extinguishment of debt for the six months ended
   June 30, 2011
 
 
 

 
$
87.8

 
$
113.5

 
$
201.3


Credit Facilities

In May 2012, we amended and restated our $1.25 billion unsecured revolving credit facility due September 2013 (the Amended and Restated Credit Facility) to extend the maturity to May 2017. The Amended and Restated 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).

Contemporaneous with the execution of the Amended and Restated Credit Facility, we entered into Amendment No. 1 to our existing $1.25 billion unsecured 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 $1.0 billion and conform certain terms of the Existing Credit Facility to those of the Amended and Restated Credit Facility. Amendment No. 1 does not extend the maturity date under the Existing Credit Facility, which matures in April 2016.

In connection with entering into the Amended and Restated Credit Facility and Amendment No. 1 to the Existing Facility, the guarantees by our subsidiary guarantors with respect to the Amended and Restated Credit Facility and the Existing Credit Facility were released. As a result, the guarantees by our subsidiary guarantors with respect to all of Republic's outstanding senior notes were automatically released. In addition, the guarantees by all of our subsidiary guarantors (other than Allied Waste Industries, Inc. and Allied Waste North America, Inc.) with respect to the 9.250% debentures and the 7.400% debentures issued by our subsidiary Browning-Ferris Industries, LLC (successor to Browning-Ferris Industries, Inc.) also were automatically released.

As of June 30, 2012 and December 31, 2011, the interest rate for our borrowings under our Credit Facilities was 1.34% and 3.25%, respectively. 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 June 30, 2012 and December 31, 2011, we had $51.5 million and $34.4 million of Eurodollar Rate borrowings. We had $919.5 million and $950.2 million of letters of credit using availability under our Credit Facilities, leaving $1,279.0 million and $1,515.4 million of availability under our Credit Facilities, at June 30, 2012 and

15

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

December 31, 2011, respectively. We were in compliance with the covenants under our Credit Facilities at June 30, 2012.

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 June 30, 2012, the interest rate for our borrowings under our Uncommitted Credit Facility was 1.20%. 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 June 30, 2012, we had $68.7 million of LIBOR borrowings. The Uncommitted Credit Facility may be terminated by either party at any time.
Senior Notes and Debentures
During the three months ended June 30, 2012, we issued $850.0 million of 3.550% senior notes due 2022 (the 3.550% Notes). The 3.550% Notes are our unsubordinated and unsecured obligations. We used the net proceeds from the 3.550% Notes to fund the redemption of our subsidiary's, Allied Waste North America, Inc., $750.0 million 6.875% senior notes maturing in 2017 and the remainder for general corporate purposes.
Tax-Exempt Financings
As of June 30, 2012, approximately 80% 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 June 30, 2012, we had $138.9 million of restricted cash and marketable securities, of which $2.2 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 $86.6 million and $88.3 million as of June 30, 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 was $6.7 billion and $6.3 billion at June 30, 2012 and December 31, 2011, respectively. The carrying value of our fixed rate senior notes was $5.8 billion and $5.7 billion at June 30, 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, using significant observable market inputs (Level 2), is determined as of the balance sheet date and is subject to change.
Guarantees
We have guaranteed some of the tax-exempt financings 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

16

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 and $4.4 million due to periodic settlements of active swap agreements during the three and six months ended June 30, 2011.

From time to time, we enter into treasury and interest rate locks to manage exposure to fluctuations in interest rates in anticipation of future debt issuances. During the three months ended June 30, 2012, we entered into a number of interest rate lock agreements having an aggregate notional amount of $200.0 million with fixed interest rates approximating 2.20% to manage exposure to fluctuations in interest rates in anticipation of the planned issuance of the 3.550% Notes. Upon issuance of the 3.550% Notes in the second quarter of 2012, we terminated the interest rate locks and paid $4.8 million to the counterparties. The effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive income, was $4.7 million, or $2.7 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. This transaction was accounted for as a cash flow hedge. As of June 30, 2012, no interest rate lock cash flow hedges were outstanding.
As of June 30, 2012 and December 31, 2011, the effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive income, was $25.3 million and $23.2 million, respectively. The effective portion of the interest rate locks will be amortized as an adjustment to interest expense over the life of the issued debt using the effective interest rate method. We expect to amortize $2.4 million over the next twelve months as a yield adjustment of our senior notes.
The effective portion of the interest rate locks amortized as an adjustment to interest expense during the three months ended June 30, 2012 and 2011 was $0.5 million and $0.3 million, respectively, and for the six months ended June 30, 2012 and 2011 was $1.0 million and $0.4 million, respectively.

8. INCOME TAXES
Our effective tax rate, exclusive of noncontrolling interests, for the three and six months ended June 30, 2012 was 16.3% and 27.2%, respectively. The effective tax rate for the three and six months ended June 30, 2012 was favorably affected by the second quarter resolution of Allied's 2004 - 2008 tax years at the IRS appeals division, which reduced our second quarter tax provision by approximately $34 million, legal entity restructuring completed during the second quarter and a change in estimated non-deductible penalties relating to certain legal settlements. We record interim income tax expense based upon our anticipated full year effective income tax rate.
Income taxes paid, net of refunds received, were $87.7 million and $107.4 million for the six months ended June 30, 2012 and 2011, respectively.
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 state and local taxing authorities for various tax years. In addition, we are under federal income tax examination for calendar years 2009 and 2010.
We recognize interest and penalties as incurred within the provision for income taxes in the consolidated statements of income. As of June 30, 2012, we have accrued a liability for penalties of $0.8 million and a liability for interest (including interest on penalties) of $19.7 million related to our uncertain tax positions. The decrease in accrued interest from the prior quarter is attributed to the second quarter resolution of Allied's 2004 - 2008 tax years with the IRS appeals division.
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 zero - $5 million.
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 impacted Allied's 2004 - 2008 tax years, which were settled with the IRS appeals

17

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

division during the three months ended June 30, 2012.
Methane Gas
As part of its examination of Allied's 2000 - 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 had 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 was that 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 was sold or otherwise disposed.
In December 2011, we resolved all tax matters related to Allied's 2000 - 2003 tax years. Our treatment of costs was sustained and, therefore, no adjustment was made to those tax years. In the second quarter, Allied's 2004 - 2008 tax years were resolved and, again, our position was sustained. This matter is now settled for all past and present tax years.

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 19.2 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 six months ended June 30, 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

 
29.70

 
 
 
 
Exercised
(1.6
)
 
22.59

 
 
 
$
11.6

Forfeited or expired
(0.2
)
 
29.37

 
 
 
 
Outstanding at June 30, 2012
15.4

 
$
27.13

 
4.4

 
$
18.3

Exercisable at June 30, 2012
8.3

 
$
25.87

 
3.4

 
$
15.9


During the six months ended June 30, 2012 and 2011, compensation expense for stock options was $7.9 million and $7.1 million, respectively.
As of June 30, 2012, total unrecognized compensation expense related to outstanding stock options was $15.6 million, which will be recognized over a weighted average period of 1.9 years.
Other Stock Awards
The following table summarizes the restricted stock unit and restricted stock activity for the six months ended June 30, 2012:
 

18

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
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
Other stock awards at December 31, 2011
770.0

 
$
27.17

 
 
 
 
Granted
280.9

 
27.71

 
 
 
 
Vested and issued
(142.7
)
 
26.84

 
 
 
 
Forfeited
(1.3
)
 
29.79

 
 
 
 
Other stock awards at June 30, 2012
906.9

 
$
27.39

 
0.7

 
$
24.0

Vested and unissued at June 30, 2012
523.1

 
$
26.91

 
 
 
 

During the six months ended June 30, 2012, we awarded our non-employee directors 75,000 restricted stock units, which vested immediately. During the six months ended June 30, 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, 13,155 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. Also, we granted 22,805 shares of restricted stock to an executive that will vest in February 2013.
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 six months ended June 30, 2012 and 2011, compensation expense related to restricted stock units and restricted stock totaled $4.8 million and $5.0 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 June 30, 2012, we repurchased 23.5 million shares of our stock for $672.6 million at a weighted average cost per share of $28.67. During the three months ended June 30, 2012, we repurchased 6.0 million shares of our stock for $163.2 million at a weighted average cost per share of $27.06.
We initiated a quarterly cash dividend in July 2003 and have increased it from time to time thereafter. In July 2012, the board of directors approved an increase in the quarterly dividend to $0.235 per share. Cash dividends declared were $161.9 million and $151.1 million for the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012, we recorded a quarterly dividend payable of $80.4 million to stockholders of record at the close of business on July 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.
Earnings per share for the three and six months ended June 30, 2012 and 2011 are calculated as follows (in thousands, except per share amounts):
 

19

REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Basic earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
149,200

 
$
46,500

 
$
292,100

 
$
204,700

Weighted average common shares outstanding
367,886

 
378,197

 
369,442

 
380,185

Basic earnings per share
$
0.41

 
$
0.12

 
$
0.79

 
$
0.54

Diluted earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
149,200

 
$
46,500

 
$
292,100

 
$
204,700

Weighted average common shares outstanding
367,886

 
378,197

 
369,442

 
380,185

Effect of dilutive securities:
 
 
 
 
 
 

Options to purchase common stock
887

 
1,826

 
1,151

 
1,766

Unvested restricted stock awards
98

 
143

 
88

 
122

Weighted average common and common equivalent
    shares outstanding
368,871

 
380,166

 
370,681

 
382,073

Diluted earnings per share
$
0.40

 
$
0.12

 
$
0.79

 
$
0.54

Antidilutive securities not included in the diluted earnings
    per share calculations:
 
 
 
 
 
 
 
Options to purchase common stock
8,416

 
3,660

 
7,811

 
3,202


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 June 30, 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


If the national U.S. on-highway average price for a gallon of diesel fuel (average price) as published by the Department of

20


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 June 30, 2012 and December 31, 2011 were current assets of $0.7 million and $1.6 million, respectively, and current liabilities of $10.8 million and $4.7 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively. The ineffective portions of the changes in fair values resulted in (losses) gains of less than $0.1 million for the three and six months ended June 30, 2012 and 2011, respectively, and have been recorded in other income (expense), net in our consolidated statements of income.
The following table summarizes the impact of our fuel hedges on our results of operations and comprehensive income for the three and six months ended June 30, 2012 and 2011:
 
Derivatives in Cash
Flow Hedging
Relationships
 
Amount of (Loss)
Gain Recognized in OCI on
Derivatives
(Effective Portion)
 
Statement of
Income
Classification
 
Amount of
Realized Gain
 
 
Three Months Ended June 30,
 
 
 
Three Months Ended June 30,
 
 
2012
 
2011
 
 
 
2012
 
2011
Fuel hedges
 
$
(11.9
)
 
$
(0.9
)
 
Cost of operations
 
$
0.4

 
$
0.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
2012
 
2011
 
 
 
2012
 
2011
Fuel hedges
 
$
(4.2
)
 
$
1.6

 
Cost of operations
 
$
0.8

 
$
0.4


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).

As of June 30, 2012, we had one OCC swap outstanding for 1,500 short tons per month at a contract price of $115.00. We entered into this swap on October 11, 2010, having a commencement date of January 1, 2011 and a termination date of December 31, 2012.
 
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 OCC and ONP. The agreements involve combining a purchased put option giving us the right to sell OCC and ONP at an established floor strike price with a written call option obligating us to deliver OCC and ONP 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.


21


The following costless collar hedges were outstanding as of June 30, 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