RSG 6.30.2013 10-Q
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 June 30, 2013
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 18, 2013, the registrant had outstanding 362,022,894 shares of Common Stock, par value $.01 per share (excluding treasury shares of 48,232,686).


Table of Contents

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

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

REPUBLIC SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
 
June 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
96.7

 
$
67.6

Accounts receivable, less allowance for doubtful accounts of $43.0 and $45.3, respectively
876.5

 
836.6

Prepaid expenses and other current assets
170.0

 
209.3

Deferred tax assets
125.6

 
117.8

Total current assets
1,268.8

 
1,231.3

Restricted cash and marketable securities
183.8

 
164.2

Property and equipment, net
7,017.7

 
6,910.3

Goodwill
10,707.2

 
10,690.0

Other intangible assets, net
330.1

 
358.7

Other assets
266.6

 
262.4

Total assets
$
19,774.2

 
$
19,616.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
527.6

 
$
474.5

Notes payable and current maturities of long-term debt
15.3

 
19.4

Deferred revenue
298.7

 
313.2

Accrued landfill and environmental costs, current portion
234.0

 
195.5

Accrued interest
66.9

 
68.8

Other accrued liabilities
608.3

 
623.6

Total current liabilities
1,750.8

 
1,695.0

Long-term debt, net of current maturities
7,013.3

 
7,051.1

Accrued landfill and environmental costs, net of current portion
1,471.9

 
1,420.6

Deferred income taxes and other long-term tax liabilities
1,171.9

 
1,232.7

Self-insurance reserves, net of current portion
299.1

 
290.9

Other long-term liabilities
354.0

 
220.9

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; 410.1 and 405.2 issued
   including shares held in treasury, respectively
4.1

 
4.1

Additional paid-in capital
6,723.4

 
6,588.9

Retained earnings
2,413.0

 
2,403.2

Treasury stock, at cost (48.2 and 44.1 shares, respectively)
(1,422.7
)
 
(1,287.1
)
Accumulated other comprehensive loss, net of tax
(7.4
)
 
(5.8
)
Total Republic Services, Inc. stockholders’ equity
7,710.4

 
7,703.3

Noncontrolling interests
2.8

 
2.4

Total stockholders’ equity
7,713.2

 
7,705.7

Total liabilities and stockholders’ equity
$
19,774.2

 
$
19,616.9


The accompanying notes are an integral part of these statements.

3

Table of Contents

REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
2,111.7

 
$
2,060.6

 
$
4,110.3

 
$
4,043.0

Expenses:
 
 
 
 
 
 
 
Cost of operations
1,410.0

 
1,238.5

 
2,633.1

 
2,441.7

Depreciation, amortization and depletion
217.0

 
214.9

 
426.6

 
428.6

Accretion
19.2

 
19.7

 
38.4

 
39.4

Selling, general and administrative
228.2

 
197.3

 
434.7

 
419.7

Negotiation and withdrawal costs - Central States Pension Fund
53.9

 
3.2

 
116.1

 
3.3

Gain on disposition of assets and impairments, net
(0.8
)
 

 
(1.9
)
 
(3.6
)
Restructuring charges
3.0

 

 
7.9

 

Operating income
181.2

 
387.0

 
455.4

 
713.9

Interest expense
(90.2
)
 
(98.8
)
 
(179.8
)
 
(203.1
)
Loss on extinguishment of debt
(0.3
)
 
(110.3
)
 
(2.1
)
 
(110.3
)
Interest income
0.1

 
0.2

 
0.4

 
0.5

Other income, net
0.3

 
0.5

 
0.5

 
0.7

Income before income taxes
91.1

 
178.6

 
274.4

 
401.7

Provision for income taxes
34.7

 
29.1

 
93.1

 
109.4

Net income
56.4

 
149.5

 
181.3

 
292.3

Net income attributable to noncontrolling interests
(0.1
)
 
(0.3
)
 
(0.4
)
 
(0.2
)
Net income attributable to Republic Services, Inc.
$
56.3

 
$
149.2

 
$
180.9

 
$
292.1

Basic earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
Basic earnings per share
$
0.16

 
$
0.41

 
$
0.50

 
$
0.79

Weighted average common shares outstanding
362.9

 
367.9

 
362.8

 
369.4

Diluted earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
Diluted earnings per share
$
0.15

 
$
0.40

 
$
0.50

 
$
0.79

Weighted average common and common equivalent shares outstanding
364.4

 
368.9

 
364.2

 
370.7

Cash dividends declared per common share
$
0.235

 
$
0.220

 
$
0.470

 
$
0.440


The accompanying notes are an integral part of these statements.


4

Table of Contents

REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
56.4

 
$
149.5

 
$
181.3

 
$
292.3

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Hedging activity:
 
 
 
 
 
 
 
   Settlements
0.3

 
(2.4
)
 
1.2

 
(2.1
)
   Realized losses (gains) reclassified into earnings
0.1

 

 
(0.4
)
 

   Unrealized losses
(3.1
)
 
(12.1
)
 
(2.4
)
 
(4.7
)
Pension activity:
 
 
 
 
 
 
 
   Change in funded status of pension plan obligations

 

 

 
(3.5
)
Other comprehensive loss, net of tax
(2.7
)
 
(14.5
)
 
(1.6
)
 
(10.3
)
Comprehensive income
53.7

 
135.0

 
179.7

 
282.0

Comprehensive income attributable to noncontrolling interests
(0.1
)
 
(0.3
)
 
(0.4
)
 
(0.2
)
Comprehensive income attributable to Republic Services, Inc.
$
53.6

 
$
134.7

 
$
179.3

 
$
281.8


The accompanying notes are an integral part of these statements.


5

Table of Contents

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, 2012
405.2

 
$
4.1

 
$
6,588.9

 
$
2,403.2

 
(44.1
)
 
$
(1,287.1
)
 
$
(5.8
)
 
$
2.4

Net income

 

 

 
180.9

 

 

 

 
0.4

Other comprehensive income

 

 

 

 

 

 
(1.6
)
 

Cash dividends declared

 

 

 
(170.0
)
 

 

 

 

Issuances of common stock
4.9

 

 
125.0

 

 

 

 

 

Stock-based compensation

 

 
9.5

 
(1.1
)
 

 

 

 

Purchase of common stock for treasury

 

 

 

 
(4.1
)
 
(135.6
)
 

 

Balance as of June 30, 2013
410.1

 
$
4.1

 
$
6,723.4

 
$
2,413.0

 
(48.2
)
 
$
(1,422.7
)
 
$
(7.4
)
 
$
2.8


The accompanying notes are an integral part of these statements.


6

Table of Contents

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

 
Six Months Ended June 30,
 
2013
 
2012
Cash provided by operating activities:
 
 
 
Net income
$
181.3

 
$
292.3

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, amortization, depletion and accretion
465.0

 
468.0

Non-cash interest expense
23.7

 
32.5

Restructuring related charges
7.9

 

Stock-based compensation
12.1

 
12.7

Deferred tax benefit
(54.5
)
 
(25.7
)
Provision for doubtful accounts, net of adjustments
7.5

 
12.8

Loss on extinguishment of debt
2.1

 
110.3

Gain on disposition of assets, net and asset impairments
(5.8
)
 
(10.9
)
Withdrawal liability - Central States Pension Fund
99.9

 

Remediation adjustments
113.9

 
(11.3
)
Excess income tax benefit from stock option exercises and other non-cash items
(1.6
)
 
(0.6
)
Change in assets and liabilities, net of effects from business acquisitions and divestitures:
 
 
 
Accounts receivable
(40.1
)
 
(30.5
)
Prepaid expenses and other assets
(4.2
)
 
(3.9
)
Accounts payable
40.1

 
(28.3
)
Restructuring and synergy related expenditures
(12.6
)
 
(68.1
)
Capping, closure and post-closure expenditures
(41.8
)
 
(31.3
)
Remediation expenditures
(51.3
)
 
(28.5
)
Other liabilities
19.9

 
5.5

Cash provided by operating activities
761.5

 
695.0

Cash used in investing activities:
 
 
 
Purchases of property and equipment
(461.8
)
 
(462.5
)
Proceeds from sales of property and equipment
7.4

 
21.4

Cash used in business acquisitions and development projects, net of cash acquired
(28.5
)
 
(71.8
)
Cash proceeds from divestitures, net of cash divested
2.7

 
9.6

Change in restricted cash and marketable securities
(19.6
)
 
50.7

Other
(1.9
)
 
(0.3
)
Cash used in investing activities
(501.7
)
 
(452.9
)
Cash used in financing activities:
 
 
 
Proceeds from notes payable and long-term debt
771.7

 
1,368.1

Proceeds from issuance of senior notes, net of discount

 
847.6

Payments of notes payable and long-term debt
(820.5
)
 
(2,116.3
)
Premiums paid on extinguishment of debt

 
(25.8
)
Fees paid to issue and retire notes and certain hedging relationships
(1.5
)
 
(16.2
)
Issuances of common stock
122.9

 
37.5

Excess income tax benefit from stock option exercises
2.1

 
1.4

Purchases of common stock for treasury
(135.6
)
 
(172.4
)
Cash dividends paid
(169.8
)
 
(163.0
)
Cash used in financing activities
(230.7
)
 
(239.1
)
Increase in cash and cash equivalents
29.1

 
3.0

Cash and cash equivalents at beginning of period
67.6

 
66.3

Cash and cash equivalents at end of period
$
96.7

 
$
69.3


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 (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 three geographic regions — East, Central, and West, 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 you can expect for a full year. You should read these 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, 2012.
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 and 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 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, 2012. Our actual results may differ significantly from our estimates.
New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board issued an Accounting Standards Update to the Comprehensive Income Topic in the Accounting Standards Codifications. This update requires separate presentation of the components that are reclassified out of accumulated other comprehensive income either on the face of the financial statements or in the notes to the financial statements. This update also requires companies to disclose the income statement line items impacted by any significant reclassifications, such as the gains and losses on cash flow hedges and defined benefit pension adjustments. These items are required for both interim and annual reporting for public companies and became effective for Republic beginning with the first quarter 2013 Form 10-Q filing.



8

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

2. BUSINESS ACQUISITIONS AND RESTRUCTURING CHARGES

Acquisitions
We acquired various solid waste businesses during the six months ended June 30, 2013 and 2012. 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:
 
2013
 
2012
Purchase price:
 
 
 
Cash used in acquisitions, net of cash acquired
$
28.5

 
$
71.8

Holdbacks
3.4

 
0.2

Total
31.9

 
72.0

Allocated as follows:
 
 
 
Working capital
0.9

 
2.3

Property and equipment
8.1

 
22.7

Other liabilities, net
(1.8
)
 
(2.7
)
Value of assets acquired and liabilities assumed
7.2

 
22.3

Excess purchase price to be allocated
$
24.7

 
$
49.7

Excess purchase price allocated as follows:
 
 
 
Other intangible assets
$
4.1

 
$
13.7

Goodwill
20.6

 
36.0

Total allocated
$
24.7

 
$
49.7


Substantially all of the goodwill and intangible assets recorded for these acquisitions are deductible for tax purposes. The pro forma effect of these acquisitions, individually and collectively, was not material.

Restructuring Charges
During 2012, we restructured our field and corporate operations to create a more efficient and competitive company. These changes included consolidating our field regions from four to three and our areas from 28 to 20, relocating office space, and reducing administrative staffing levels. During the six months ended June 30, 2013, we incurred $7.9 million of restructuring charges, which consisted of severance and other employee termination benefits, relocation benefits, and the closure of offices with lease agreements with non-cancellable terms. During the six months ended June 30, 2013, we paid $12.6 million related to these restructuring charges. As of June 30, 2013, $4.3 million remains accrued for severance and other employee termination benefits and lease exit costs. We expect to incur approximately $3.9 million of additional expense during the remainder of 2013 to complete such activities. Substantially all of these charges were or will be recorded in our corporate segment, and we expect the charges will be paid primarily during 2013.

3. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
A summary of the activity and balances in goodwill accounts by reporting segment follows:
 
 
 
Balance at December 31, 2012
 
Acquisitions
 
Divestitures
 
Adjustments to
Acquisitions
 
Balance at June 30, 2013
East
 
$
3,014.9

 
$
0.1

 
$

 
$
(1.2
)
 
$
3,013.8

Central
 
3,242.7

 
16.7

 

 
(0.6
)
 
3,258.8

West
 
4,432.4

 
3.8

 
(0.7
)
 
(0.9
)
 
4,434.6

Total
 
$
10,690.0

 
$
20.6

 
$
(0.7
)
 
$
(2.7
)
 
$
10,707.2



9

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

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 23 years. A summary of the activity and balances by intangible asset type follows:
 
 
Gross Intangible Assets
 
Accumulated Amortization
 
Net Intangibles at June 30, 2013
 
Balance at December 31, 2012
 
Acquisitions
 
Balance at June 30, 2013
 
Balance at December 31, 2012
 
Additions
Charged
to
Expense
 
Balance at June 30, 2013
 
Customer relationships,
   franchise and other
   municipal agreements
$
579.0

 
$
2.2

 
$
581.2

 
$
(252.4
)
 
$
(28.4
)
 
$
(280.8
)
 
$
300.4

Trade names
30.0

 

 
30.0

 
(24.5
)
 
(3.0
)
 
(27.5
)
 
2.5

Non-compete agreements
20.4

 
1.9

 
22.3

 
(12.0
)
 
(1.4
)
 
(13.4
)
 
8.9

Other intangible assets
63.5

 
0.5

 
64.0

 
(45.3
)
 
(0.4
)
 
(45.7
)
 
18.3

Total
$
692.9

 
$
4.6

 
$
697.5

 
$
(334.2
)
 
$
(33.2
)
 
$
(367.4
)
 
$
330.1


4. OTHER ASSETS
Prepaid Expenses and Other Current Assets
A summary of prepaid expenses and other current assets as of June 30, 2013 and December 31, 2012 follows:
 
 
2013
 
2012
Inventories
$
36.0

 
$
34.5

Prepaid expenses
50.6

 
54.4

Other non-trade receivables
32.4

 
39.6

Income tax receivable
46.6

 
69.0

Commodity and fuel hedge asset
1.7

 
4.1

Other current assets
2.7

 
7.7

Total
$
170.0

 
$
209.3


Other Assets
A summary of other assets as of June 30, 2013 and December 31, 2012 follows:
 
 
2013
 
2012
Deferred financing costs
$
54.7

 
$
58.8

Deferred compensation plan
61.0

 
49.9

Notes and other receivables
18.7

 
17.9

Reinsurance receivable
47.7

 
59.7

Other
84.5

 
76.1

Total
$
266.6

 
$
262.4




10

Table of Contents
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, 2013 and December 31, 2012 follows:
 
 
2013
 
2012
Accrued payroll and benefits
$
140.6

 
$
157.1

Accrued fees and taxes
113.8

 
124.2

Self-insurance reserves, current portion
138.9

 
135.5

Accrued dividends
85.1

 
84.9

Current tax liabilities
12.4

 
2.1

Accrued professional fees and legal settlement reserves
31.9

 
34.6

Restructuring liabilities
4.3

 
9.0

Other
81.3

 
76.2

Total
$
608.3

 
$
623.6


Other accrued liabilities include the fair value of fuel and commodity hedges of $3.1 million and $1.6 million as of June 30, 2013 and December 31, 2012, respectively.
Other Long-Term Liabilities
A summary of other long-term liabilities as of June 30, 2013 and December 31, 2012 follows:
 
 
2013
 
2012
Deferred compensation liability
$
60.2

 
$
50.0

Pension and other post-retirement liabilities
11.3

 
12.7

Legal settlement reserves
49.8

 
36.4

Ceded insurance reserves
47.7

 
59.7

Withdrawal liability - Central States Pension Fund
130.6

 
30.7

Other
54.4

 
31.4

Total
$
354.0

 
$
220.9


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 acquisition date estimate of fair value and, therefore, have been discounted to present value. 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, 2013 (which include claims for workers’ compensation, general liability, vehicle liability and employee health care benefits) were $438.0 million 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.



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

6. LANDFILL AND ENVIRONMENTAL COSTS
As of June 30, 2013, we owned or operated 192 active solid waste landfills with total available disposal capacity of approximately 4.9 billion in-place cubic yards. Additionally, we have post-closure responsibility for 128 closed landfills.
Accrued Landfill and Environmental Costs
A summary of landfill and environmental liabilities as of June 30, 2013 and December 31, 2012 follows:
 
 
2013
 
2012
Final capping, closure and post-closure liabilities
$
1,066.3

 
$
1,052.4

Remediation
639.6

 
563.7

Total accrued landfill and environmental costs
1,705.9

 
1,616.1

Less: Current portion
(234.0
)
 
(195.5
)
Long-term portion
$
1,471.9

 
$
1,420.6


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:
 
 
2013
 
2012
Asset retirement obligation liabilities, beginning of year
$
1,052.4

 
$
1,037.0

Non-cash additions
17.6

 
17.1

Acquisitions/divestitures and other adjustments
0.1

 
(1.9
)
Asset retirement obligation adjustments
(0.4
)
 
8.0

Payments
(41.8
)
 
(31.3
)
Accretion expense
38.4

 
39.4

Asset retirement obligation liabilities, end of period
1,066.3

 
1,068.3

Less: Current portion
(105.4
)
 
(94.5
)
Long-term portion
$
960.9

 
$
973.8


Annually, in the fourth quarter, we review, and update as necessary, our estimates of 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 we know all the relevant facts and circumstances.
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 $54.8 million as of June 30, 2013 and December 31, 2012, 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 cost 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. 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

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

actions. If we used the reasonably possible high ends of our ranges, our aggregate potential remediation liability at June 30, 2013 would be approximately $561 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:
 
 
2013
 
2012
Remediation liabilities, beginning of year
$
563.7

 
$
543.7

Remediation adjustments
113.9

 
(11.3
)
Payments
(51.3
)
 
(28.5
)
Accretion expense (non-cash interest expense)
13.3

 
16.1

Remediation liabilities, end of period
639.6

 
520.0

Less: Current portion
(128.6
)
 
(86.8
)
Long-term portion
$
511.0

 
$
433.2


The following is a discussion of certain of our significant remediation matters:
Bridgeton Landfill.  In June 2013, we recorded an environmental remediation charge at our closed Bridgeton Landfill in Missouri in the amount of $108.7 million to manage the remediation area and monitor the site. As of June 30, 2013, the remediation liability recorded for this site is $143.4 million, of which $64.5 million is expected to be paid during the next twelve months. We believe the remaining reasonably possible range of loss for remediation costs is $112 million to $392 million.       
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. The remediation liability for this site recorded as of June 30, 2013 is $51.0 million, of which $4.0 million is expected to be paid during the next twelve months. We believe the remaining reasonably possible range of loss for remediation costs is $48 million to $70 million.

Congress Landfill. In August 2010, Congress Development Company agreed with the State of Illinois to have a Final Consent Order entered by the Circuit Court of Illinois, Cook County. Pursuant to the this order, we have agreed to continue to implement certain remedial activities at this site. The remediation liability for this site recorded as of June 30, 2013 is $83.8 million, of which $8.6 million is expected to be paid during the next twelve months. We believe the remaining reasonably possible range of loss for remediation costs is $54 million to $154 million.



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

7. DEBT
Our notes payable, capital leases and long-term debt as of June 30, 2013 and December 31, 2012 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.
 
 
 
 
 
June 30, 2013
 
December 31, 2012
Maturity
 
Interest Rate
 
Principal
 
Discount
 
Carry Value
 
Principal
 
Discount
 
Carry Value
Credit facilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Uncommitted revolver
 
Variable
 
$

 
$

 
$

 
$
13.9

 
$

 
$
13.9

April 2016
 
Variable
 

 

 

 
25.0

 

 
25.0

May 2017
 
Variable
 

 

 

 

 

 

Senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 2018
 
3.800
 
700.0

 
(0.2
)
 
699.8

 
700.0

 
(0.2
)
 
699.8

September 2019
 
5.500
 
650.0

 
(3.2
)
 
646.8

 
650.0

 
(3.4
)
 
646.6

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

 
(2.1
)
 
847.9

 
850.0

 
(2.2
)
 
847.8

May 2023
 
4.750
 
550.0

 
(1.2
)
 
548.8

 
550.0

 
(1.3
)
 
548.7

March 2035
 
6.086
 
275.7

 
(24.7
)
 
251.0

 
275.7

 
(24.9
)
 
250.8

March 2040
 
6.200
 
650.0

 
(0.5
)
 
649.5

 
650.0

 
(0.5
)
 
649.5

May 2041
 
5.700
 
600.0

 
(3.3
)
 
596.7

 
600.0

 
(3.4
)
 
596.6

Debentures:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 2021
 
9.250
 
35.3

 
(1.8
)
 
33.5

 
35.3

 
(1.9
)
 
33.4

September 2035
 
7.400
 
165.3

 
(41.3
)
 
124.0

 
165.2

 
(41.4
)
 
123.8

Tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 - 2038
 
0.250 - 5.625
 
1,092.8

 
(0.2
)
 
1,092.6

 
1,097.9

 
(0.4
)
 
1,097.5

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013 - 2046
 
5.000 - 11.900
 
88.1

 

 
88.1

 
87.2

 

 
87.2

Total Debt
 
 
 
$
7,107.2

 
$
(78.6
)
 
7,028.6

 
$
7,150.2

 
$
(79.7
)
 
7,070.5

Less: Current portion
 
 
 
 
 
 
 
(15.3
)
 
 
 
 
 
(19.4
)
Long-term portion
 
 
 
 
 
 
 
$
7,013.3

 
 
 
 
 
$
7,051.1


Loss on Extinguishment of Debt
During the six months ended June 30, 2013, we refinanced certain of our tax-exempt financings, resulting in a $2.1 million non-cash write-off of deferred issuance costs.

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

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

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 of the Amended and Restated Credit Facility and the Existing Credit Facility were released. As a result, the guarantees by our subsidiary guarantors of 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.) of 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.
Our Credit Facilities 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, 2013, we had no borrowings under our Credit Facilities. As of December 31, 2012, we had $25.0 million of Eurodollar Rate borrowings at an interest rate of 1.32%. We had $701.7 million and $909.4 million of letters of credit using availability under our Credit Facilities, leaving $1,548.3 million and $1,315.6 million of availability under our Credit Facilities at June 30, 2013 and December 31, 2012, respectively.
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. In July 2012, we amended the Uncommitted Credit Facility to increase the size to $125.0 million, with all other terms remaining unchanged. 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. The Uncommitted Credit Facility may be terminated by either party at any time. As of June 30, 2013, we had no borrowings under our Uncommitted Credit Facility. As of December 31, 2012, we had $13.9 million of LIBOR borrowings.
Tax-Exempt Financings
As of June 30, 2013, approximately 85% 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.
Other Debt
Other debt includes capital lease liabilities of $87.9 million and $87.0 million as of June 30, 2013 and December 31, 2012, respectively, with maturities ranging from 2013 to 2046.
Fair Value of Debt
The fair value of our fixed rate senior notes was $6.5 billion and $6.9 billion at June 30, 2013 and December 31, 2012, respectively. The carrying value of our fixed rate senior notes was $5.8 billion and $5.8 billion at June 30, 2013 and December 31, 2012, 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. No additional liability has been recorded for these guarantees because the underlying obligations are reflected in our consolidated balance sheets.

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

Interest Rate Swap and Lock Agreements
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. These transactions are accounted for as cash flow hedges. As of June 30, 2013 and 2012, no interest rate lock cash flow hedges were outstanding.
As of June 30, 2013 and December 31, 2012, the effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive income, was $23.9 million and $24.6 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 $2.5 million over the next twelve months as a yield adjustment of our senior notes.
The effective portion of the interest rate locks amortized as a net increase to interest expense during the three months ended June 30, 2013 and 2012 was $0.6 million and $0.5 million, respectively, and for the six months ended June 30, 2013 and 2012 was $1.2 million and $1.0 million, respectively.

8. INCOME TAXES
We record interim income tax expense based upon our anticipated full year effective income tax rate. Our effective tax rate, exclusive of noncontrolling interests, for the three and six months ended June 30, 2013 was 38.1% and 34.0%, respectively. The 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 six months ended June 30, 2013 was favorably affected by the January 2013 resolution of our 2009-2010 tax years with the IRS appeals division and Congressional Joint Committee on Taxation. The effective tax rate for the three and six months ended June 30, 2012 was favorably affected by a change in estimated non-deductible penalties relating to certain legal settlements and the settlement of Allied's 2004-2008 tax years at the IRS appeals division.
Cash paid for income taxes was $116.8 million and $87.7 million for the six months ended June 30, 2013 and 2012, respectively.
We recognize interest and penalties as incurred within the provision for income taxes in the consolidated statements of income. As of June 30, 2013, we have accrued a liability for penalties of $0.5 million and a liability for interest (including interest on penalties) of $16.0 million related to our uncertain tax positions.
We believe that our recorded liabilities for uncertain tax positions 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 to $10 million.
We have deferred tax assets related to state net operating loss carryforwards of a specific Allied subsidiary for which we provide a valuation allowance due to uncertainty surrounding the future utilization of these carryforwards in taxing jurisdictions where the loss carryforwards exist. Prior to the 2008 merger, this subsidiary never reported positive earnings. At June 30, 2013, we have a deferred tax asset for state loss carryforwards of $130.7 million offset by a valuation allowance of $113.8 million.
As of June 30, 2013, this subsidiary remains in a cumulative pre-tax loss position. However, this cumulative loss has steadily decreased over the past several quarters. If current trends continue, we expect this entity will no longer be in a cumulative loss position by the end of 2013.
When determining the need for a valuation allowance, we consider all positive and negative evidence including recent financial results, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. The weight given to the positive and negative evidence is commensurate with the extent such evidence can be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary differences, to outweigh objective negative evidence of recent financial reporting losses.
The realization of the company's deferred tax asset for state loss carryforwards ultimately depends upon the existence of sufficient taxable income in the appropriate state taxing jurisdiction in future periods. We continue to analyze the positive and negative evidence in determining the need for a valuation allowance. The valuation allowance could be reduced in a future period if there is sufficient evidence to support a conclusion that it is more likely than not that certain of the state net operating

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

loss carryforwards will be realized. Future changes in our valuation allowance for certain state net operating loss carryforwards could have a material effect on our results of operations in the period recorded.

9. STOCK-BASED COMPENSATION
Available Shares
In March 2013, our board of directors approved the Amended and Restated Republic Services, Inc. 2007 Stock Incentive Plan. The plan was ratified by our stockholders in May 2013. We currently have 16.7 million shares of common stock reserved for future grants under the plan.
Stock Options
The following table summarizes the stock option activity for the six months ended June 30, 2013:
 
 
Number of
Shares
 
Weighted Average
Exercise
Price per Share
 
Weighted Average
Remaining
Contractual Term
(years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2012
13.7

 
$
27.51

 
 
 
 
Granted
3.0

 
31.19

 
 
 
 
Exercised
(4.6
)
 
26.24

 
 
 
$
29.3

Forfeited or expired
(0.3
)
 
29.49

 
 
 
 
Outstanding at June 30, 2013
11.8

 
$
28.86

 
4.7
 
$
59.9

Exercisable at June 30, 2013
5.2

 
$
27.17

 
3.4
 
$
35.0


During the six months ended June 30, 2013 and 2012, compensation expense for stock options was $7.9 million.
As of June 30, 2013, total unrecognized compensation expense related to outstanding stock options was $15.7 million, which will be recognized over a weighted average period of 2.0 years.
Other Stock Awards
The following table summarizes the restricted stock unit and restricted stock activity for the six months ended June 30, 2013: 
 
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, 2012
905.3

 
$
27.51

 
 
 
 
Granted
320.2

 
30.39

 
 
 
 
Vested and issued
(99.1
)
 
27.42

 
 
 
 
Forfeited
(6.1
)
 
30.65

 
 
 
 
Other stock awards at June 30, 2013
1,120.3

 
$
28.34

 
0.8
 
$
38.0

Vested and unissued at June 30, 2013
723.3

 
$
27.52

 
 
 
 

During the six months ended June 30, 2013, we awarded our non-employee directors 67,500 restricted stock units, which vested immediately. During the six months ended June 30, 2013, we awarded 237,721 restricted stock units to executives. In addition, 14,953 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.

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

During the six months ended June 30, 2013 and 2012, compensation expense related to restricted stock units and restricted stock totaled $4.2 million and $4.8 million, respectively.

10. STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE
We have had a share repurchase program since November 2010. From November 2010 to June 30, 2013, we repurchased 33.1 million shares of our stock for $960.6 million at a weighted average cost per share of $29.00. During the three months ended June 30, 2013, we repurchased 2.0 million shares of our stock for $68.1 million at a weighted average cost per share of $33.86.
We initiated a quarterly cash dividend in July 2003 and have increased it from time to time thereafter. In July 2013, the board of directors approved the quarterly dividend of $0.26 per share. Cash dividends declared were $170.0 million and $161.9 million for the six months ended June 30, 2013 and 2012, respectively. As of June 30, 2013, we recorded a quarterly dividend payable of $85.1 million to stockholders of record as of July 1, 2013.
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, 2013 and 2012 are calculated as follows (in thousands, except per share amounts): 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Basic earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
56,300

 
$
149,200

 
$
180,900

 
$
292,100

Weighted average common shares outstanding
362,948

 
367,886

 
362,808

 
369,442

Basic earnings per share
$
0.16

 
$
0.41

 
$
0.50

 
$
0.79

Diluted earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
56,300

 
$
149,200

 
$
180,900

 
$
292,100

Weighted average common shares outstanding
362,948

 
367,886

 
362,808

 
369,442

Effect of dilutive securities:
 
 
 
 
 
 

Options to purchase common stock
1,400

 
887

 
1,387

 
1,151

Unvested restricted stock awards
39

 
98

 
28

 
88

Weighted average common and common equivalent
    shares outstanding
364,387

 
368,871

 
364,223

 
370,681

Diluted earnings per share
$
0.15

 
$
0.40

 
$
0.50

 
$
0.79

Antidilutive securities not included in the diluted earnings
    per share calculations:
 
 
 
 
 
 
 
Options to purchase common stock
2,523

 
8,416

 
2,393

 
7,811



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

11. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BY COMPONENT
A summary of changes in accumulated other comprehensive income by component for the six months ended June 30, 2013 follows:
 
Gains and Losses on Cash Flow Hedges
 
Defined Benefit Pension Items
 
Total
Beginning balance, December 31, 2012
$
23.1

 
$
(17.3
)
 
$
5.8

Other comprehensive loss before reclassifications
1.2

 

 
1.2

Amounts reclassified from accumulated other
   comprehensive income
0.4

 

 
0.4

Net current-period other comprehensive loss
1.6

 

 
1.6

Ending balance, June 30, 2013
$
24.7

 
$
(17.3
)
 
$
7.4


A summary of reclassifications out of accumulated other comprehensive income for the three and six months ended June 30, 2013 and 2012 follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income is Presented
Gains (losses) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Recycling commodity hedges
 
$

 
$
0.1

 
$
0.1

 
$
0.2

 
Revenue
Fuel hedges
 
0.5

 
0.4

 
1.8

 
0.8

 
Cost of operations
Interest rate contracts
 
(0.6
)
 
(0.5
)
 
(1.2
)
 
(1.0
)
 
Interest expense
 
 
(0.1
)
 

 
0.7

 

 
Total before tax
 
 

 

 
(0.3
)
 

 
Tax expense
 
 
$
(0.1
)
 
$

 
$
0.4

 
$

 
Net of tax

12. 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, 2013:
 
Year
 
Remaining Gallons Hedged
 
Weighted Average Contract Price per Gallon
2013
 
15,060,000
 
$3.81
2014
 
27,000,000
 
3.81
2015
 
15,000,000
 
3.73
2016
 
9,000,000
 
3.69

If the national U.S. on-highway average price for a gallon of diesel fuel 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 counterparty. If the average price is less than the contract price per gallon, we pay the difference to the counter-party.

19

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

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, 2013 and December 31, 2012 were current assets of $1.3 million and $3.1 million and current liabilities of $2.2 million and $0.4 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, 2013 and 2012, 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 comprehensive income for the three and six months ended June 30, 2013 and 2012:
 
Derivatives in Cash Flow Hedging Relationships
 
Amount of Loss
Recognized in OCI on Derivatives
(Effective Portion)
 
 
Three Months Ended June 30,
 
 
2013
 
2012
Fuel hedges
 
$
(3.5
)
 
$
(11.9
)
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2013
 
2012
Fuel hedges
 
$
(2.2
)
 
$
(4.2
)

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).
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, we will make or receive no payments 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 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 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.

The following costless collar hedges were outstanding as of June 30, 2013:
 
 
 
 
 
 
 
Weighted Average
Year
 
Transaction
Hedged
 
Remaining Tons Hedged
 
Floor
Strike Price
Per Short
Ton
 
Cap
Strike Price
Per Short
Ton
2013
 
OCC
 
129,000
 
$85
 
$129
2013
 
ONP
 
12,000
 
65
 
90
2014
 
OCC
 
18,000
 
85
 
116


20

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

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 June 30, 2013 and December 31, 2012 were current assets of $0.4 million and $1.0 million, respectively, and current liabilities of $0.9 million and $1.2 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, 2013 and 2012, respectively, and have been recorded in other income (expense), net in our consolidated statements of income.
The following table summarizes the impact of our recycling commodity hedges on our comprehensive income for the three and six months ended June 30, 2013 and 2012:
 
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain (Loss)
Recognized in OCI on Derivatives
(Effective Portion)
 
 
Three Months Ended June 30,
 
 
2013
 
2012
Recycling commodity hedges
 
$
0.4

 
$
(0.2
)
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2013
 
2012
Recycling commodity hedges
 
$
(0.2
)
 
$
(0.5
)

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.

As of June 30, 2013 and December 31, 2012, our assets and liabilities that are measured at fair value on a recurring basis include the following:
 
 
Fair Value Measurements Using
 
Total as of
June 30, 2013
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market mutual funds
$
81.1

 
$
81.1

 
$

 
$

Bonds
42.3

 

 
42.3

 

Fuel hedges - other current assets
1.3

 

 
1.3

 

Commodity hedges - other current assets
0.4

 

 
0.4

 

Total assets
$
125.1

 
$
81.1

 
$
44.0

 
$

Liabilities:
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
2.2

 

 
2.2

 

Commodity hedges - other accrued liabilities
0.9

 

 
0.9

 

Total liabilities
$
3.1

 
$

 
$
3.1

 
$


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

 
Fair Value Measurements Using
 
Total as of December 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
$
62.8

 
$
62.8

 
$

 
$

Bonds
40.1

 

 
40.1

 

Fuel hedges - other current assets
3.1

 

 
3.1

 

Commodity hedges - other current assets
1.0

 

 
1.0

 

Total assets
$
107.0

 
$
62.8

 
$
44.2

 
$

Liabilities:
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
$
0.4

 
$

 
$
0.4

 
$

Commodity hedges - other accrued liabilities
1.2

 

 
1.2

 

Total liabilities
$
1.6

 
$

 
$
1.6

 
$



13. SEGMENT REPORTING
Our operations are managed and evaluated through three regions: East, Central and West. These three regions are presented below as our reportable segments. The historical results, discussion and presentation of our reportable segments as set forth in our consolidated financial statements for all periods presented reflect the impact of the restructuring of our operations in the fourth quarter of 2012. These reportable segments provide integrated waste management services consisting of collection, transfer, recycling and disposal of non-hazardous solid waste.
Summarized financial information concerning our reportable segments for the three and six months ended June 30, 2013 and 2012 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 June 30, 2013
 
 
 
 
 
 
 
 
 
 
East
$
725.0

 
$
(103.6
)
 
$
621.4

 
$
62.6

 
$
113.7

 
$
38.2

 
$
4,882.0

Central
795.2

 
(156.9
)
 
638.3

 
77.0

 
113.3

 
87.0

 
5,718.2

West
1,008.9

 
(183.9
)
 
825.0

 
85.0

 
188.6

 
107.5

 
8,263.0

Corporate entities
30.7

 
(3.7
)
 
27.0

 
11.6

 
(234.4
)
 
14.3

 
911.0

Total
$
2,559.8

 
$
(448.1
)
 
$
2,111.7

 
$
236.2

 
$
181.2

 
$
247.0

 
$
19,774.2

Three Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
East
$
722.7

 
$
(101.8
)
 
$
620.9

 
$
61.9

 
$
125.6

 
$
39.1

 
$
4,918.7

Central
763.3

 
(141.7
)
 
621.6

 
73.3

 
119.6

 
61.9

 
5,600.1

West
964.4

 
(169.2
)
 
795.2

 
83.1

 
177.4

 
70.3

 
8,241.4

Corporate entities
26.5

 
(3.6
)
 
22.9

 
16.3

 
(35.6
)
 
17.0

 
830.1

Total
$
2,476.9

 
$
(416.3
)
 
$
2,060.6

 
$
234.6

 
$
387.0

 
$
188.3

 
$
19,590.3



22

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

 
Gross
Revenue
 
Intercompany
Revenue
 
Net
Revenue
 
Depreciation,
Amortization,
Depletion and
Accretion
 
Operating
Income
(Loss)
 
Capital
Expenditures
 
Total Assets
Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
East
$
1,418.7

 
$
(199.0
)
 
$
1,219.7

 
$
124.0

 
$
229.3

 
$
70.4

 
$
4,882.0

Central
1,506.4

 
(285.6
)
 
1,220.8

 
149.5

 
225.8

 
131.6

 
5,718.2

West
1,976.0

 
(355.4
)
 
1,620.6

 
167.8

 
359.9

 
162.9

 
8,263.0

Corporate entities
56.1

 
(6.9
)
 
49.2

 
23.7

 
(359.6
)
 
96.9

 
911.0

Total
$
4,957.2

 
$
(846.9
)
 
$
4,110.3

 
$
465.0

 
$
455.4

 
$
461.8

 
$
19,774.2

Six Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
East
$
1,421.8

 
$
(196.6
)
 
$
1,225.2