Form 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 September 30, 2011

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 October 17, 2011, the registrant had outstanding 370,363,917 shares of Common Stock, par value $.01 per share (excluding treasury shares of 31,604,909).

 

 

 


Table of Contents

REPUBLIC SERVICES, INC.

INDEX

 

PART I — FINANCIAL INFORMATION

  

Item 1.

  

Financial Statements

     3   
   Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010      3   
   Unaudited Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2011 and 2010      4   
   Unaudited Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2011      5   
   Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010      6   
   Notes to Unaudited Consolidated Financial Statements      7   

Item 2.

  

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

     37   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     59   

Item 4.

  

Controls and Procedures

     59   

PART II — OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

     60   

Item 1A.

  

Risk Factors

     63   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     64   

Item 3.

  

Defaults upon Senior Securities

     64   

Item 4.

  

(Removed and Reserved)

     64   

Item 5.

  

Other Information

     64   

Item 6.

  

Exhibits

     64   
   Signatures      66   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

REPUBLIC SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

 

     September 30,
2011
    December 31,
2010
 
     (Unaudited)        
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 72.6      $ 88.3   

Accounts receivable, less allowance for doubtful accounts of $46.1 and $50.9, respectively

     901.3        828.9   

Prepaid expenses and other current assets

     175.9        207.4   

Deferred tax assets

     104.6        121.5   
  

 

 

   

 

 

 

Total current assets

     1,254.4        1,246.1   

Restricted cash and marketable securities

     160.5        172.8   

Property and equipment, net

     6,708.9        6,698.5   

Goodwill

     10,646.7        10,655.3   

Other intangible assets, net

     427.6        451.3   

Other assets

     258.1        237.9   
  

 

 

   

 

 

 

Total assets

   $ 19,456.2      $ 19,461.9   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 515.2      $ 606.5   

Notes payable and current maturities of long-term debt

     9.7        878.5   

Deferred revenue

     306.8        295.1   

Accrued landfill and environmental costs, current portion

     190.2        182.0   

Accrued interest

     82.8        93.1   

Other accrued liabilities

     752.8        621.3   
  

 

 

   

 

 

 

Total current liabilities

     1,857.5        2,676.5   

Long-term debt, net of current maturities

     7,021.6        5,865.1   

Accrued landfill and environmental costs, net of current portion

     1,413.5        1,416.6   

Deferred income taxes and other long-term tax liabilities

     1,069.7        1,044.8   

Self-insurance reserves, net of current portion

     301.1        304.5   

Other long-term liabilities

     178.3        305.5   

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; 401.9 and 400.2 issued including shares held in treasury, respectively

     4.0        4.0   

Additional paid-in capital

     6,486.0        6,431.1   

Retained earnings

     2,055.3        1,890.3   

Treasury stock, at cost (31.1 and 16.5 shares, respectively)

     (930.7     (500.8

Accumulated other comprehensive (loss) income, net of tax

     (2.2     21.9   
  

 

 

   

 

 

 

Total Republic Services, Inc. stockholders’ equity

     7,612.4        7,846.5   

Noncontrolling interests

     2.1        2.4   
  

 

 

   

 

 

 

Total stockholders’ equity

     7,614.5        7,848.9   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 19,456.2      $ 19,461.9   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Revenue

   $ 2,116.2      $ 2,061.7      $ 6,167.7      $ 6,085.8   

Expenses:

        

Cost of operations

     1,260.0        1,224.9        3,657.5        3,580.0   

Depreciation, amortization and depletion

     215.0        211.6        629.4        628.4   

Accretion

     19.4        20.1        58.6        60.5   

Selling, general and administrative

     207.5        209.4        611.5        630.5   

Loss on disposition of assets and impairments, net

     5.8        25.5        24.8        27.1   

Restructuring charges

     —          2.6        —          9.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     408.5        367.6        1,185.9        1,149.7   

Interest expense

     (108.3     (122.0     (335.4     (387.0

Loss on extinguishment of debt

     (6.0     (19.4     (207.3     (151.7

Interest income

     —          0.4        0.3        0.5   

Other income, net

     1.8        3.1        3.8        4.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     296.0        229.7        647.3        616.2   

Provision for income taxes

     102.4        95.2        249.4        256.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     193.6        134.5        397.9        359.6   

Net (income) loss attributable to noncontrolling interests

     (0.1     (0.3     0.3        (0.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Republic Services, Inc.

   $ 193.5      $ 134.2      $ 398.2      $ 358.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic earnings per share

   $ 0.52      $ 0.35      $ 1.05      $ 0.94   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     373.2        384.0        377.9        382.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Diluted earnings per share

   $ 0.52      $ 0.35      $ 1.05      $ 0.93   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common and common equivalent shares outstanding

     374.7        386.1        379.6        384.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends per common share

   $ 0.22      $ 0.20      $ 0.62      $ 0.58   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in millions)

 

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

Balance as of December 31, 2010

   $ 7,848.9        400.2       $ 4.0       $ 6,431.1       $ 1,890.3        (16.5   $ (500.8   $ 21.9      $ 2.4   

Net income (loss)

     397.9        —           —           —           398.2        —          —          —          (0.3

Other comprehensive loss

     (24.1     —           —           —           —          —          —          (24.1     —     

Cash dividends declared

     (232.7     —           —           —           (232.7     —          —          —          —     

Issuances of common stock

     38.0        1.7         —           38.0         —          —          —          —          —     

Stock-based compensation

     16.4        —           —           16.9         (0.5     —          —          —          —     

Purchase of common stock for treasury

     (429.9     —           —           —           —          (14.6     (429.9     —          —     
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2011

   $ 7,614.5        401.9       $ 4.0       $ 6,486.0       $ 2,055.3        (31.1   $ (930.7   $ (2.2   $ 2.1   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

     Nine Months Ended September 30,  
     2011     2010  

Cash provided by operating activities:

    

Net income

   $ 397.9      $ 359.6   

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

    

Depreciation and amortization of property and equipment

     384.3        384.0   

Landfill depletion and amortization

     188.0        191.5   

Amortization of intangible and other assets

     57.1        52.9   

Accretion

     58.6        60.5   

Non-cash interest expense - debt

     20.9        40.9   

Non-cash interest expense - other

     37.2        36.2   

Stock-based compensation

     16.4        18.3   

Deferred tax benefit

     (18.9     (1.7

Provision for doubtful accounts, net of adjustments

     10.9        14.4   

Excess income tax benefit from stock option exercises

     (2.4     (2.9

Asset impairments

     45.9        11.5   

Loss on extinguishment of debt

     207.3        151.7   

(Gain) loss on disposition of assets, net

     (34.8     5.8   

Other non-cash items

     (6.7     0.9   

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

    

Accounts receivable

     (80.7     (48.6

Prepaid expenses and other assets

     24.5        (36.9

Accounts payable

     6.3        (81.1

Restructuring and synergy related expenditures

     (2.9     (15.8

Capping, closure and post-closure expenditures

     (73.3     (62.2

Remediation expenditures

     (26.7     (32.2

Other liabilities

     77.9        (83.1
  

 

 

   

 

 

 

Cash provided by operating activities

     1,286.8        963.7   
  

 

 

   

 

 

 

Cash used in investing activities:

    

Purchases of property and equipment

     (696.1     (571.4

Proceeds from sales of property and equipment

     23.4        17.4   

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

     (40.8     (21.4

Cash proceeds from divestitures, net of cash divested

     14.2        50.6   

Change in restricted cash and marketable securities

     12.3        33.0   

Other

     (2.2     (0.6
  

 

 

   

 

 

 

Cash used in investing activities

     (689.2     (492.4
  

 

 

   

 

 

 

Cash used in financing activities:

    

Proceeds from notes payable and long-term debt

     1,137.5        1,069.5   

Proceeds from issuance of senior notes, net of discount

     1,844.9        1,499.4   

Payments of notes payable and long-term debt

     (2,827.6     (2,763.3

Premiums paid on extinguishment of debt

     (89.6     (30.4

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

     (58.8     (23.7

Issuances of common stock

     35.6        67.1   

Excess income tax benefit from stock option exercises

     2.4        2.9   

Purchases of common stock for treasury

     (429.9     (1.4

Cash dividends paid

     (227.8     (217.7

Distributions paid to noncontrolling interests

     —          (1.2
  

 

 

   

 

 

 

Cash used in financing activities

     (613.3     (398.8
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

     (15.7     72.5   

Cash and cash equivalents at beginning of period

     88.3        48.0   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 72.6      $ 120.5   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Republic Services, Inc. (a Delaware corporation) and its subsidiaries (also referred to collectively as Republic, we, us, our, or the company in this report) 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. Our investments in variable interest entities are not material to our consolidated financial statements.

We have prepared these unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). All significant intercompany accounts and transactions have been eliminated. 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, 2010.

For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation.

Management’s Estimates and Assumptions

In preparing our financial statements, we include numerous estimates and assumptions that affect the accounting, recognition and disclosure of assets, liabilities, stockholders’ equity, revenue and expenses. 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 some cases, these estimates are particularly difficult to determine and we must exercise significant judgment. In preparing our financial statements, the most difficult, subjective and complex estimates and assumptions that deal with the greatest amount of uncertainty relate to our accounting for our long-lived assets, landfill development costs, final capping, closure and post-closure costs, and the recoverability of goodwill; our valuation allowances for accounts receivable and deferred tax assets; our liabilities for potential litigation, claims and assessments; and our liabilities for environmental remediation, employee benefit plans, stock-based compensation, deferred taxes, uncertain tax positions and self-insurance. 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, 2010. Our actual results may differ significantly from our estimates.

New Accounting Pronouncements

Goodwill Impairment Test

In December 2010, the Financial Accounting Standards Board (FASB) issued authoritative guidance that modifies the requirements of the Step 1 goodwill impairment test for reporting units with zero or negative carrying amounts. We adopted this guidance effective January 1, 2011, and it did not have a material impact on our consolidated financial position or results of operations.

In September 2011, the FASB issued a new accounting standard update to allow the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step goodwill impairment test. The adoption of this standard will not impact our consolidated financial position or results of operations.

 

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Table of Contents

REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Other Comprehensive Income

In June 2011, the FASB issued a new accounting standard update on the presentation of comprehensive income. The updated standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. We will adopt this presentation standard as of the beginning of 2012, or when applicable. It will only impact the presentation of our financial statements and will not impact our consolidated financial position or results of operations.

Multi-employer Pension Plans

In September 2011, the FASB issued a new accounting standard update requiring companies participating in multi-employer pension plans to disclose more information about their involvement in those plans. Retrospective application of the disclosures is required. This guidance is effective for fiscal years ending after December 15, 2011. The Company is currently evaluating the impact of this guidance on its multi-employer pension plan disclosures.

2. BUSINESS ACQUISITIONS, DISPOSITION OF ASSETS AND ASSET IMPAIRMENTS

Acquisitions

We acquired various solid waste businesses during the nine months ended September 30, 2011 and 2010. The aggregate cash used in these acquisitions, net of cash acquired, was $40.8 million and $21.4 million, respectively.  The purchase price paid for these acquisitions during the nine months ended September 30 and the preliminary allocation of the purchase price as of September 30 are as follows (in millions):

 

     2011     2010  

Purchase price:

    

Cash used in acquisitions, net of cash acquired

   $ 40.8      $ 21.4   

Fair value of operations surrendered

     47.8        —     

Holdbacks

     0.8        0.6   
  

 

 

   

 

 

 

Total

     89.4        22.0   
  

 

 

   

 

 

 

Allocated as follows:

    

Working capital

     7.0        0.5   

Property and equipment

     43.9        9.3   

Other liabilities, net

     (8.5     (0.9
  

 

 

   

 

 

 

Value of assets acquired and liabilities assumed

     42.4        8.9   
  

 

 

   

 

 

 

Excess purchase price to be allocated

   $ 47.0      $ 13.1   
  

 

 

   

 

 

 

Excess purchase price to be allocated as follows:

    

Other intangible assets

     32.0        3.0   

Goodwill

     15.0        10.1   
  

 

 

   

 

 

 

Total allocated

   $ 47.0      $ 13.1   
  

 

 

   

 

 

 

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

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Disposition of Assets and Asset Impairments

The components of the loss on disposition of assets and impairments, net during the three and nine months ended September 30, 2011 are as follows (in millions):

 

     Three Months Ended
September 30, 2011
    Nine Months Ended
September 30, 2011
 

Eastern Region asset impairment

   $ 5.9      $ 5.9   

Gain on the disposition of businesses

     —          (17.1

Southern Region landfill asset impairment

     0.3        28.8   

Western Region asset impairment

     —          7.2   

All other, net

     (0.4     —     
  

 

 

   

 

 

 

Loss on disposition of assets and impairments, net

   $ 5.8      $ 24.8   
  

 

 

   

 

 

 

During the nine months ended September 30, 2011, we disposed of businesses in three markets in our Southern Region, resulting in a gain of $17.1 million. In connection with these dispositions, we closed a landfill site, resulting in an asset impairment charge of $28.8 million for the remaining landfill assets and the acceleration of capping, closure and post-closure obligations. Additionally, we recorded asset impairments of $7.2 million for expected losses on the divestiture of certain businesses and related goodwill in our Western Region. These assets were subsequently sold in the third quarter of 2011 resulting in no further loss. Proceeds from dispositions of solid waste assets were $14.2 million for the nine months ended September 30, 2011.

During the three and nine months ended September 30, 2010, we recorded a net loss on the disposition of assets and impairments of $25.5 million and $27.1 million, respectively. In August 2010, we divested hauling operations and two transfer stations in our Eastern Region for aggregate proceeds of approximately $50 million and recognized a loss on disposition of $14.7 million. Additionally, we recorded an impairment loss of $11.5 million related to certain long lived assets that are held and used.

3. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

A summary of the activity and balances in goodwill accounts by operating segment is as follows (in millions):

 

     Balance at
December 31,
2010
     Acquisitions      Divestitures     Adjustments to
Acquisitions
    Balance at
September 30,
2011
 

Eastern

   $ 2,791.9       $ 7.0       $ (0.7   $ (0.2   $ 2,798.0   

Midwestern

     2,129.6         4.8         —          0.7        2,135.1   

Southern

     2,721.8         2.8         (19.5     (0.1     2,705.0   

Western

     3,012.0         0.4         (3.6     (0.2     3,008.6   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 10,655.3       $ 15.0       $ (23.8   $ 0.2      $ 10,646.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     Balance at
December 31,
2009
     Acquisitions      Divestitures     Adjustments to
Acquisitions
    Balance at
September 30,
2010
 

Eastern

   $ 2,818.5       $ —         $ (20.5   $ (2.5   $ 2,795.5   

Midwestern

     2,118.2         0.9         —          (1.9     2,117.2   

Southern

     2,724.7         —           —          (2.6     2,722.1   

Western

     3,005.7         9.2         —          (2.9     3,012.0   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 10,667.1       $ 10.1       $ (20.5   $ (9.9   $ 10,646.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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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 2 to 23 years. A summary of the activity and balances by intangible asset type is as follows (in millions):

 

     Gross Intangible Assets      Accumulated Amortization     Net
Intangibles at
September 30,
2011
 
     Balance at
December 31,
2010
     Acquisitions      Balance at
September 30,
2011
     Balance at
December 31,
2010
    Additions
Charged
to
Expense
    Balance at
September 30,
2011
   

Customer relationships, franchise and other municipal agreements

   $ 537.1       $ 28.3       $ 565.4       $ (130.7   $ (47.4   $ (178.1   $ 387.3   

Trade names

     30.0         —           30.0         (12.5     (4.5     (17.0     13.0   

Non-compete agreements

     12.9         3.7         16.6         (7.2     (1.5     (8.7     7.9   

Other intangible assets

     62.9         —           62.9         (41.2     (2.3     (43.5     19.4   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 642.9       $ 32.0       $ 674.9       $ (191.6   $ (55.7   $ (247.3   $ 427.6   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Gross Intangible Assets      Accumulated Amortization     Net
Intangibles at
September 30,
2010
 
     Balance at
December 31,
2009
     Acquisitions      Balance at
September 30,
2010
     Balance at
December 31,
2009
    Additions
Charged
to
Expense
    Balance at
September 30,
2010
   

Customer relationships, franchise and other municipal agreements

   $ 521.1       $ 0.9       $ 522.0       $ (70.5   $ (44.8   $ (115.3   $ 406.7   

Trade names

     30.0         —           30.0         (6.5     (4.5     (11.0     19.0   

Non-compete agreements

     7.4         2.1         9.5         (6.5     (0.5     (7.0     2.5   

Other intangibles assets

     62.9         —           62.9         (37.9     (2.5     (40.4     22.5   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 621.4       $ 3.0       $ 624.4       $ (121.4   $ (52.3   $ (173.7   $ 450.7   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

4. OTHER ASSETS

Prepaid Expenses and Other Current Assets

A summary of prepaid expenses and other current assets as of September 30, 2011 and December 31, 2010 is as follows (in millions):

 

     2011      2010  

Inventories

   $ 37.8       $ 31.3   

Prepaid expenses

     62.6         55.9   

Other non-trade receivables

     38.6         45.4   

Income tax receivable

     32.8         69.8   

Other current assets

     4.1         5.0   
  

 

 

    

 

 

 

Total

   $ 175.9       $ 207.4   
  

 

 

    

 

 

 

The fair value of our interest rate swaps, which matured in August 2011, of $5.2 million is included in other non-trade receivables as of December 31, 2010. Other current assets include the fair value of fuel and commodity hedges of $2.2 million and $3.5 million as of September 30, 2011 and December 31, 2010, respectively.

Other Assets

A summary of other assets as of September 30, 2011 and December 31, 2010 is as follows (in millions):

 

     2011      2010  

Deferred financing costs

   $ 56.3       $ 41.1   

Deferred compensation plan

     33.9         27.4   

Notes and other receivables

     34.5         34.0   

Reinsurance receivable

     53.8         54.5   

Other

     79.6         80.9   
  

 

 

    

 

 

 

Total

   $ 258.1       $ 237.9   
  

 

 

    

 

 

 

 

10


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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

5. OTHER LIABILITIES

Other Accrued Liabilities

A summary of other accrued liabilities as of September 30, 2011 and December 31, 2010 is as follows (in millions):

 

     2011      2010  

Accrued payroll and benefits

   $ 147.3       $ 158.4   

Accrued fees and taxes

     127.5         111.8   

Self-insurance reserves, current portion

     119.1         112.7   

Accrued dividends

     81.6         76.7   

Synergy incentive plan

     68.1         —     

Current tax liabilities

     18.6         —     

Restructuring liabilities

     0.4         3.9   

Accrued professional fees and legal settlement reserves

     81.8         53.1   

Other

     108.4         104.7   
  

 

 

    

 

 

 

Total

   $ 752.8       $ 621.3   
  

 

 

    

 

 

 

Other accrued liabilities include the fair value of fuel and commodity hedges of $14.2 million and $8.4 million as of September 30, 2011 and December 31, 2010, respectively.

We expect to pay amounts earned under the synergy incentive plan during the first quarter of 2012. The synergy incentive plan was fully accrued and was included in other long-term liabilities as of December 31, 2010.

Other Long-Term Liabilities

A summary of other long-term liabilities as of September 30, 2011 and December 31, 2010 is as follows (in millions):

 

     2011      2010  

Deferred compensation liability

   $ 31.4       $ 27.7   

Pension and other postretirement liabilities

     5.2         14.4   

Contingent legal liabilities

     61.6         105.8   

Ceded insurance reserves

     53.8         54.5   

Synergy incentive plan

     —           68.1   

Other

     26.3         35.0   
  

 

 

    

 

 

 

Total

   $ 178.3       $ 305.5   
  

 

 

    

 

 

 

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 September 30, 2011 (which includes claims for workers’ compensation, general liability, vehicle liability and employee health care benefits) were $420.2 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 will be reflected in our consolidated statements of income in the periods in which such adjustments are known.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Accrued Liabilities Associated with the Allied Acquisition

We evaluated our operating contracts and leases acquired from Allied and recorded liabilities for unfavorable contract and lease exit costs. The underlying lease agreements and contracts have remaining non-cancellable terms ranging from 1 to 21 years. The following tables reflect activity during the nine months ended September 30, 2011 and 2010 associated with unfavorable contracts and lease exit liabilities included in other accrued and other long-term liabilities (in millions):

 

     Balance at
December 31,
2010
     Payments /
Amortization
    Adjustments     Balance at
September 30,
2011
 

Unfavorable contracts

   $ 37.6       $ (7.2   $ (5.3   $ 25.1   

Lease exit costs

     5.0         (1.3     (0.6     3.1   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 42.6       $ (8.5   $ (5.9   $ 28.2   
  

 

 

    

 

 

   

 

 

   

 

 

 
     Balance at
December 31,
2009
     Payments /
Amortization
    Adjustments     Balance at
September 30,
2010
 

Unfavorable contracts

   $ 49.0       $ (7.7   $ (1.3   $ 40.0   

Lease exit costs

     6.4         (1.2     —          5.2   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 55.4       $ (8.9   $ (1.3   $ 45.2   
  

 

 

    

 

 

   

 

 

   

 

 

 

6. LANDFILL AND ENVIRONMENTAL COSTS

As of September 30, 2011, we owned or operated 192 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 129 closed landfills.

Accrued Landfill and Environmental Costs

A summary of landfill and environmental liabilities as of September 30, 2011 and December 31, 2010 is as follows (in millions):

 

     2011     2010  

Landfill final capping, closure and post-closure liabilities

   $ 1,048.8      $ 1,046.5   

Remediation

     554.9        552.1   
  

 

 

   

 

 

 
     1,603.7        1,598.6   

Less: Current portion

     (190.2     (182.0
  

 

 

   

 

 

 

Long-term portion

   $ 1,413.5      $ 1,416.6   
  

 

 

   

 

 

 

Final Capping, Closure and Post-Closure Costs

The following table summarizes the activity in our asset retirement obligation liabilities, which includes liabilities for final capping, closure and post-closure, for the nine months ended September 30 (in millions):

 

     2011     2010  

Asset retirement obligation liabilities, beginning of year

   $ 1,046.5      $ 1,074.5   

Non-cash additions

     25.5        23.8   

Acquisitions and other adjustments

     15.1        1.7   

Asset retirement obligation adjustments

     (23.6     (10.6

Payments

     (73.3     (62.2

Accretion expense

     58.6        60.5   
  

 

 

   

 

 

 

Asset retirement obligation liabilities, end of period

     1,048.8        1,087.7   

Less: Current portion

     (104.1     (113.3
  

 

 

   

 

 

 

Long-term portion

   $ 944.7      $ 974.4   
  

 

 

   

 

 

 

 

12


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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

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 $54.5 million and $61.8 million as of September 30, 2011 and December 31, 2010, respectively. Such assets are included in restricted cash and marketable securities in our consolidated balance sheets.

Environmental Remediation Liabilities

We accrue for remediation costs when they become probable and can be reasonably estimated. We believe that the amounts accrued for remediation costs are adequate. When there is a range of reasonable estimates of the costs associated with remediation of a site, we use the amount within the range that constitutes our best estimate. If no amount within the range appears to be a better estimate than any other, we use the amount that is at the low end of such range. It is reasonably possible that we will need to adjust the liabilities recorded for remediation to reflect the effects of new or additional information, to the extent such information impacts the costs, timing or duration of the required actions. If we used the reasonably possible high ends of our ranges, our aggregate potential remediation liability at September 30, 2011 would be approximately $131 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 nine months ended September 30 (in millions):

 

     2011     2010  

Remediation liabilities, beginning of year

   $ 552.1      $ 554.1   

Acquisitions and other adjustments

     —          1.5   

Additions charged to expense

     4.7        4.6   

Payments

     (26.7     (32.2

Accretion expense (non-cash interest expense)

     24.8        21.8   
  

 

 

   

 

 

 

Remediation liabilities, end of period

     554.9        549.8   

Less: Current portion

     (86.1     (100.4
  

 

 

   

 

 

 

Long-term portion

   $ 468.8      $ 449.4   
  

 

 

   

 

 

 

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 September 30, 2011 is $63.0 million, of which $5.1 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $54 million to $75 million.

West Contra Costa County Landfill. In 2006, we were issued an Enforcement Order by the California Department of Toxic Substance Control (DTSC) for the Class 1 Hazardous waste cell at the West Contra Costa County Landfill (West County). Subsequently, we entered into a Consent Agreement with DTSC in 2007 in which we agreed to undertake certain remedial actions. The remediation liability for West County recorded as of September 30, 2011 is $45.1 million, of which $1.2 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $35 million to $62 million.

Sunrise Landfill. In August 2008, Republic Services of Southern Nevada (RSSN), signed a Consent Decree with the EPA, the Bureau of Land Management and Clark County, Nevada related to the Sunrise Landfill. Under the Consent Decree, RSSN has agreed to perform certain remedial actions at the Sunrise Landfill for which RSSN and Clark County were otherwise jointly and severally liable. The remediation liability for Sunrise recorded as of September 30, 2011 is $37.0 million, of which $25.5 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $27 million to $42 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 Congress recorded as of September 30, 2011 is $84.0 million, of which $7.6 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $43 million to $143 million.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Environmental Operating Costs

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 period in which they are incurred.

7. DEBT

Our notes payable, capital leases and long-term debt as of September 30, 2011 and December 31, 2010 are listed in the following table in millions, and are presented net of unamortized discounts, adjustments to fair value related to hedging transactions and the unamortized portion of adjustments to fair value recorded in purchase accounting.

 

     September 30, 2011     December 31, 2010  

$1.75 billion revolver due 2013, amended to $1.25 billion due 2013

   $ 35.0      $ 25.0   

$1.0 billion revolver due 2012, amended to $1.25 billion due 2016

     85.0        50.0   

Senior notes, fixed interest rate of 5.750%, due February 2011

     —          261.7   

Senior notes, fixed interest rate of 6.375%, due April 2011

     —          215.1   

Senior notes, fixed interest rate of 6.750%, due August 2011

     —          392.0   

Senior notes, fixed interest rate of 7.125%, due May 2016

     —          535.5   

Senior notes, fixed interest rate of 6.875%, due June 2017

     671.7        663.9   

Senior notes, fixed interest rate of 3.800%, due May 2018

     699.8        —     

Senior notes, fixed interest rate of 5.500%, due September 2019

     646.1        645.8   

Senior notes, fixed interest rate of 5.000%, due March 2020

     849.9        849.9   

Senior notes, fixed interest rate of 5.250%, due November 2021

     600.0        600.0   

Debentures, fixed interest rate of 9.250%, due May 2021

     33.3        93.4   

Senior notes, fixed interest rate of 4.750%, due May 2023

     548.6        —     

Senior notes, fixed interest rate of 6.086%, due March 2035

     250.2        249.8   

Debentures, fixed interest rate of 7.400%, due September 2035

     123.2        267.6   

Senior notes, fixed interest rate of 6.200%, due March 2040

     649.5        649.5   

Senior notes, fixed interest rate of 5.700%, due May 2041

     596.6        —     

Tax-exempt bonds and other tax-exempt financings; fixed and floating interest rates ranging from 0.13% to 8.25%; maturities ranging from 2012 to 2035

     1,152.3        1,151.8   

Other debt unsecured and secured by real property, equipment and other assets; interest rates ranging from 5.00% to 11.90%; maturing through 2042

     90.1        92.6   
  

 

 

   

 

 

 

Total debt

     7,031.3        6,743.6   

Less: Current portion

     (9.7     (878.5
  

 

 

   

 

 

 

Long-term portion

   $ 7,021.6      $ 5,865.1   
  

 

 

   

 

 

 

 

14


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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Loss on Extinguishment of Debt

During the three and nine months ended September 30, 2011 and 2010, we completed financing 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:

 

     Quarter    Principal
Repaid
     Cash Paid in
Loss on
Extinguishment
of Debt
     Non-cash Loss
on
Extinguishment
of Debt
     Total Loss on
Extinguishment
of Debt
 

2011:

              

$99.5 million 9.250% debentures due May 2021

   First    $ 5.0       $ 1.5       $ 0.3       $ 1.8   

Amendments to 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   

$360.0 million 7.400% debentures due September 2035

   Third      12.0         2.8         3.2         6.0   
        

 

 

    

 

 

    

 

 

 

Loss on extinguishment of debt for the nine months ended September 30, 2011

         $ 90.6       $ 116.7       $ 207.3   
        

 

 

    

 

 

    

 

 

 

2010:

              

Accounts receivable securitization program

   First    $ 300.0       $ —         $ 0.2       $ 0.2   

$425.0 million 6.125% senior notes due February 2014

   First      425.0         8.7         44.1         52.8   

$600.0 million 7.250% senior notes due March 2015

   First      600.0         21.8         57.5         79.3   

Refinancing and retirement of various industrial revenue bonds

   Third      20.8         —           19.4         19.4   
        

 

 

    

 

 

    

 

 

 

Loss on extinguishment of debt for the nine months ended September 30, 2010

         $ 30.5       $ 121.2       $ 151.7   
        

 

 

    

 

 

    

 

 

 

Credit Facilities

In April 2011, we amended and restated our $1.0 billion revolving credit facility due April 2012 (the Amended and Restated Credit Facility) to increase the borrowing capacity to $1.25 billion and to extend the maturity to April 2016. The Amended and Restated Credit Facility includes a feature that will allow us to increase availability, at our option, by an aggregate amount up to $500 million through increased commitments from existing lenders or the addition of new lenders. At our option, borrowings under the Amended and Restated Credit Facility bear interest at a Base Rate, or a Eurodollar Rate, plus an applicable margin based on our Debt Ratings (all as defined in the agreements). Substantially all of our subsidiaries guarantee all obligations under the Amended and Restated Credit Facility.

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

As of September 30, 2011 and December 31, 2010, the interest rate for our borrowings under our Credit Facilities was 1.51% and 1.56%, 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 September 30, 2011 and December 31, 2010, we had $120.0 million and $75.0 million of Eurodollar Rate borrowings, respectively. We had $919.6 million and $1,037.5 million of letters of credit utilizing availability under our Credit Facilities, leaving $1,460.4 million and $1,637.5 million of availability under our Credit Facilities, at September 30, 2011 and December 31, 2010, respectively. We were in compliance with the covenants under our Credit Facilities at September 30, 2011.

Senior Notes and Debentures

During the three months ended September 30, 2011, our 6.750% senior notes matured. We used cash on hand and incremental borrowings under our Credit Facilities to repay $387.0 million of principal due on these notes.

During the three months ended June 30, 2011, we issued $700.0 million of 3.800% senior notes due 2018 (the 3.800% Notes), $550.0 million of 4.750% senior notes due 2023 (the 4.750% Notes) and $600.0 million of 5.700% senior notes due 2041 (the 5.700% Notes, and together with the 3.800% Notes and the 4.750% Notes, the Notes). The Notes are unsecured and unsubordinated obligations and are guaranteed by each of our subsidiaries that also guarantees the Credit Facilities. These guarantees are general senior unsecured obligations of our subsidiary guarantors. We used the net proceeds from the Notes as follows (i) $621.4 million to fund the redemption of our $600.0 million 7.125%

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

senior notes maturing in 2016; (ii) $81.6 million to purchase $59.2 million of our subsidiary Browning-Ferris Industries, LLC’s 9.250% debentures maturing in 2021; (iii) $221.8 million to purchase $180.7 million of our subsidiary Browning-Ferris Industries, LLC’s 7.400% debentures maturing in 2035; (iv) $619.0 million to repay borrowings under our revolving credit facilities; and (v) the remainder for general corporate purposes.

During the three months ended June 30, 2011, our 6.375% senior notes matured. We used cash on hand and incremental borrowings under our Credit Facilities to repay $216.9 million of principal due on these notes.

During the three months ended March 31, 2011, our 5.750% senior notes matured. We used cash on hand and incremental borrowings under our Credit Facilities to repay $262.9 million of principal due on these notes.

In March 2010, we issued $850.0 million of 5.00% senior notes due 2020 and $650.0 million of 6.20% senior notes due 2040. We used the net proceeds to retire certain outstanding debt and to reduce amounts outstanding under our Credit Facilities and for general corporate purposes.

As of September 30, 2011 and December 31, 2010, our senior notes and debentures totaled $5,668.9 million and $5,424.2 million, respectively, net of unamortized discounts and adjustments to fair value recorded in purchase accounting for the debt assumed from Allied of $157.5 million and $282.9 million, respectively, which is being amortized over the remaining term of the notes, and adjustments to fair value related to our interest rate swap agreements of $5.2 million at December 31, 2010.

Tax-Exempt Financings

As of September 30, 2011 and December 31, 2010, we had $1,152.3 million and $1,151.8 million, respectively, of fixed and variable rate tax-exempt financings outstanding with maturities ranging from 2012 to 2035. As of September 30, 2011 and December 31, 2010, the total of the unamortized adjustment to fair value recorded in purchase accounting for the tax-exempt financings assumed from Allied was $19.9 million and $21.9 million, respectively, which is being amortized to interest expense over the remaining terms of the debt.

Approximately 75% of our tax-exempt financings are remarketed quarterly, weekly or daily by a remarketing agent 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 agent 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 these bonds using availability under our revolving Credit Facilities, if necessary.

As of September 30, 2011, we had $160.5 million of restricted cash and marketable securities, of which $25.4 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 $89.2 million and $91.8 million as of September 30, 2011 and December 31, 2010, respectively, with maturities ranging from 2013 to 2042.

Fair Value of Debt

The fair value of our fixed rate senior notes using quoted market rates was $6.4 billion and $6.0 billion at September 30, 2011 and December 31, 2010, respectively. The carrying value of our fixed rate senior notes was $5.7 billion and $5.4 billion at September 30, 2011 and December 31, 2010, respectively. The carrying amounts of our remaining notes payable and tax-exempt financings approximate fair value because interest rates are variable and, accordingly, approximate current market rates for instruments with similar risk and maturities. The fair value of our debt is determined as of the balance sheet date and is subject to change.

Guarantees

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

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Substantially all of our subsidiaries guarantee each series of senior notes issued by our parent company, Republic Services, Inc. Our parent company and substantially all of our subsidiaries guarantee each series of senior notes issued by our subsidiary Allied Waste North America, Inc. (AWNA Notes) and each series of senior notes issued by our subsidiary Browning-Ferris Industries, LLC (successor to Browning-Ferris Industries, Inc.) (BFI Notes). All of these guarantees would be automatically released upon the release of our subsidiaries from their guarantee obligations under the Credit Facilities, except the guarantee of Allied in the case of the AWNA Notes, and the guarantees of Allied and Allied Waste North America, Inc. in the case of the BFI Notes.

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

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

Interest Rate Swap and Lock Agreements

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

The following table summarizes the reduction to interest expense due to periodic settlements of active swap agreements for the three and nine months ended September 30 (in millions):

 

Consolidated Statement of Income Classification

   Reduction to interest  expense
due to periodic settlements
of active swap agreements
Three Months Ended September 30,
 
     2011      2010  

Interest expense

   $ 1.0       $ 2.1   
     Nine Months Ended September 30,  
     2011      2010  

Interest expense

   $ 5.4       $ 6.4   

From time to time, we enter into treasury and interest rate locks for the purpose of managing exposure to fluctuations in interest rates in anticipation of future debt issuances. During the first and second quarters of 2011, we entered into a number of interest rate lock agreements having an aggregate notional amount of $725.0 million with fixed interest rates ranging from 3.10% to 4.61% to manage exposure to fluctuations in interest rates in anticipation of the planned issuance of the Notes. Upon issuance of the Notes in the second quarter of 2011, we terminated the interest rate locks and paid $36.5 million to the counterparties. The effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive income, was $36.2 million, or $21.2 million net of tax. The effective portion of the interest rate locks will be amortized as an increase to interest expense over the life of the issued debt. We expect to amortize $1.4 million over the next twelve months as a yield adjustment of the Notes. This transaction was accounted for as a cash flow hedge. As of September 30, 2011, no interest rate lock cash flow hedges were outstanding.

During the first quarter of 2010, we entered into interest rate lock agreements having an aggregate notional amount of $500.0 million to hedge interest rates in connection with the issuance of the 2020 and 2040 Notes. Upon issuance of these notes, we terminated the interest rate locks and paid approximately $7.0 million to the counterparties. The effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive income, was $6.4 million or $3.7 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, of which $0.3 million is scheduled to be amortized over the next twelve months as a yield adjustment to the 2020 and 2040 Notes.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

The following table summarizes the gain (loss) on our interest rate locks (settlement and amortization) included in comprehensive income for the three and nine months ended September 30, net of tax (in millions):

 

     Amount of Gain or (Loss)
Recognized in OCI on
Derivatives  (Effective Portion)
Three Months Ended September 30,
 
     2011     2010  

Interest rate locks

   $ 0.3      $ 0.1   
     Nine Months Ended September 30,  
     2011     2010  

Interest rate locks

   $ (20.7   $ (3.5

8. INCOME TAXES

Our effective tax rate, exclusive of noncontrolling interests, for the three and nine months ended September 30, 2011 was 34.6% and 38.5%, respectively. The effective tax rate for the three months ended September 30, 2011 was lower than anticipated primarily due to the realization of approximately $19 million of tax credits and lower state rates due to changes in estimates, of which approximately $4 million related to our disposition of assets. For the three and nine months ended September 30, 2010 our effective tax rate was 41.5% and 41.7%, respectively. We record income tax expense based upon our anticipated full year effective income tax rate.

Income taxes paid, net of refunds, were $131.8 million and $330.6 million for the nine months ended September 30, 2011 and 2010, respectively.

We are subject to income tax in the United States and Puerto Rico, as well as income tax in multiple state jurisdictions. We have also acquired Allied’s open tax periods as a result of the 2008 merger. Consequently, we are currently under examination or administrative review by various state and federal taxing authorities for certain tax years, including federal income tax audits for calendar years 2000 through 2010.

We recognize interest and penalties as incurred within the provision for income taxes in the consolidated statements of income. As of September 30, 2011, we have accrued a liability for penalties of $0.7 million and interest (including interest on penalties) of $110.4 million related to our uncertain tax positions.

We believe that the liabilities for uncertain tax positions recorded are adequate. However, during the next twelve months we believe it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease. We are unable to estimate a range at this time. 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 and cash flows.

Exchange of Partnership Interests

In April 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 November 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. This issue is currently before the Appeals Division of the IRS. We believe our position is supported by relevant technical authorities and strong business purpose. Although we intend to vigorously defend our position on this matter, if the exchange is treated as a sale, we estimate it could have a potential federal and state cash tax impact of $156.2 million plus accrued interest through September 30, 2011 of approximately $80.7 million. In addition, the IRS has asserted a penalty of 20% of the additional income tax due. At September 30, 2011, the amount of the asserted penalty and penalty-related interest was approximately $50.6 million. The potential tax and interest (but not penalty or penalty-related interest) for this matter have been fully reserved in our consolidated balance sheets. The successful assertion by the IRS of penalty and penalty-related interest in connection with this matter could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

Methane Gas

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

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

We are contesting this issue at the Appeals Division of the IRS. We believe we have several meritorious defenses, including the fact that methane gas is not actively produced for sale by us but rather arises naturally in the context of providing disposal services. Therefore, we believe that the resolution of this issue will not have a material adverse impact on our consolidated financial position, results of operations or cash flows.

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 22.1 million shares of common stock reserved for future grants under our Amended and Restated Plan.

Stock Options

We use a binomial option-pricing model to fair value our stock option grants. We recognize compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, or to the employee’s retirement eligible date, if earlier. Expected volatility is based on the weighted average of the most recent one-year volatility and a historical rolling average volatility of our stock over the expected life of the option. The risk-free interest rate is based on Federal Reserve rates in effect for bonds with maturity dates equal to the expected term of the option. We use historical data to estimate future option exercises, forfeitures and expected life of the options. When appropriate, separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. During the nine months ended September 30, 2011 and 2010, the weighted-average estimated fair values of stock options granted were $5.35 and $5.27 per option, respectively, which were calculated using the following weighted-average assumptions:

 

     Nine Months Ended
September 30,
 
     2011     2010  

Expected volatility

     27.3     28.6

Risk-free interest rate

     1.7     2.4

Dividend yield

     2.7     2.9

Expected life (in years)

     4.4        4.3   

Contractual life (in years)

     7        7   

Expected forfeiture rate

     3.0     3.0

The following table summarizes the stock option activity for the nine months ended September 30, 2011:

 

     Number of
Shares
(in millions)
    Weighted Average
Exercise
Price per Share
     Weighted Average
Remaining
Contractual Term
(years)
     Aggregate
Intrinsic
Value
(in millions)
 

Outstanding at December 31, 2010

     13.6      $ 24.97         

Granted

     2.9      $ 29.86         

Exercised

     (1.5   $ 22.43          $ 13.2   
          

 

 

 

Forfeited or expired

     (0.4   $ 28.79         
  

 

 

         

Outstanding at September 30, 2011

     14.6      $ 26.10         4.4       $ 38.6   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2011

     8.2      $ 25.02         3.5       $ 29.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

During the nine months ended September 30, 2011 and 2010, compensation expense for stock options was $10.2 million and $9.6 million, respectively.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

As of September 30, 2011, total unrecognized compensation expense related to outstanding stock options was $13.2 million, which will be recognized over a weighted average period of 1.8 years.

Other Stock Awards

The following table summarizes the restricted stock unit and restricted stock activity for the nine months ended September 30, 2011:

 

     Number of
Restricted Stock
Units and Shares of
Restricted  Stock
(in thousands)
    Weighted Average
Grant Date
Fair Value per
Share
     Weighted  Average
Remaining
Contractual

Term (years)
     Aggregate
Intrinsic
Value
 

Unissued at December 31, 2010

     849.3      $ 26.39         

Granted

     174.3      $ 30.01         

Vested and Issued

     (226.0   $ 26.95         

Forfeited

     (8.1   $ 24.97         
  

 

 

         

Unissued at September 30, 2011

     789.5      $ 27.04         0.5       $ 22.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and unissued at September 30, 2011

     389.8      $ 26.87         
  

 

 

   

 

 

       

During the nine months ended September 30, 2011, our non-employee directors were awarded 82,500 restricted stock units, which vested immediately. During the nine months ended September 30, 2011, we awarded 76,699 restricted stock units to executives that vest in four equal annual installments beginning on the anniversary date of the original grant. In addition, 15,119 restricted stock units were earned as dividend equivalents. The restricted stock units do not carry any voting or dividend rights, except the right to receive additional restricted stock units in lieu of dividends.

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

During the nine months ended September 30, 2011 and 2010, compensation expense related to restricted stock units and restricted stock totaled $6.2 million and $8.7 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 million repurchase program authorized in November 2010. From November 2010 to September 30, 2011, we repurchased 16.0 million shares of our stock for $470.2 million at a weighted average cost per share of $29.30.

We initiated a quarterly cash dividend in July 2003. The dividend has been increased from time to time thereafter. In July 2011, the board of directors approved an increase in the quarterly dividend to $0.22 per share. Cash dividends declared were $232.7 million and $222.1 million for the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011, we recorded a quarterly dividend payable of $81.6 million to stockholders of record at the close of business on October 3, 2011.

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 utilize the treasury stock method.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Earnings per share for the three and nine months ended September 30 are calculated as follows (in thousands, except per share amounts):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

Basic earnings per share:

           

Net income attributable to Republic Services, Inc.

   $ 193,500       $ 134,200       $ 398,200       $ 358,900   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     373,182         384,007         377,850         382,648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.52       $ 0.35       $ 1.05       $ 0.94   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share:

           

Net income attributable to Republic Services, Inc.

   $ 193,500       $ 134,200       $ 398,200       $ 358,900   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     373,182         384,007         377,850         382,648   

Effect of dilutive securities:

           

Options to purchase common stock

     1,351         2,018         1,628         1,951   

Unvested restricted stock awards

     162         53         136         91   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common and common equivalent shares outstanding

     374,695         386,078         379,614         384,690   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 0.52       $ 0.35       $ 1.05       $ 0.93   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

           

Options to purchase common stock

     5,215         2,294         3,462         3,112   

11. OTHER COMPREHENSIVE INCOME AND FINANCIAL INSTRUMENTS

A summary of comprehensive income for the three and nine months ended September 30 is as follows (in millions):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Net Income

   $ 193.6      $ 134.5      $ 397.9      $ 359.6   

Change in value, settlements and amortization of interest rate locks, net of tax

     0.3        0.1        (20.7     (3.5

Change in value of commodity hedges, net of tax

     0.6        (1.0     0.2        (3.1

Change in value of fuel hedges, net of tax

     (6.1     1.2        (4.5     (0.2

Employee benefit plan liability adjustments, net of tax

     (0.8     2.4        0.9        2.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     187.6        137.2        373.8        355.3   

Comprehensive (income) loss attributable to noncontrolling interests

     (0.1     (0.3     0.3        (0.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Republic Services, Inc.

   $ 187.5      $ 136.9      $ 374.1      $ 354.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

The effective tax rates used to calculate the changes in other comprehensive income shown in the table above were 41.3% and 42.0% for 2011 and 2010, respectively.

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).

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

The following table summarizes our outstanding fuel hedges at September 30, 2011:

 

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   

September 22, 2008

   January 1, 2009    December 31, 2011      150,000         4.16 - 4.17   

July 10, 2009

   January 1, 2011    December 31, 2011      100,000         3.05   

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   

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

The fair values of our fuel hedges are obtained from counter-parties and 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 September 30, 2011 and December 31, 2010 were current assets of $1.2 million and $1.6 million, respectively, and current liabilities of $9.1 million and $1.9 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively.

The following table summarizes the impact of our fuel hedges on our results of operations and comprehensive income for the three and nine months ended September 30 (in millions):

 

Derivatives in

Cash Flow

Hedging

Relationships

   Amount of Gain
or  (Loss)

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

(Loss)
    Location of Gain
(Loss) Recognized
in Income on Derivative
(Ineffective  Portion

and Amount
Excluded from
Effectiveness
Testing)
   Amount of Gain or  (Loss)
Recognized in
Income on Derivative

(Ineffective Portion and
Amount Excluded
from
Effectiveness
Testing)
 
     Three Months Ended
September 30,
         Three Months Ended
September 30,
         Three Months Ended
September 30,
 
     2011     2010          2011      2010          2011     2010  

Fuel hedges

   $ (6.1   $ 1.2      Cost of
operations
   $ 0.3       $ (0.6   Other expense, net    $ (0.1   $ 0.1   
     Nine Months Ended
September 30,
         Nine Months Ended
September 30,
         Nine Months Ended
September 30,
 
     2011     2010          2011      2010          2011     2010  

Fuel hedges

   $ (4.5   $ (0.2   Cost of
operations
   $ 0.7       $ (1.9   Other income, net    $ —        $ —     

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Recycling Commodity Hedges

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

The following table summarizes our outstanding commodity swaps at September 30, 2011:

 

Inception Date

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

December 8, 2009

   January 1, 2010    December 31, 2011    ONP      2,000       $ 76.00   

December 10, 2009

   January 1, 2010    December 31, 2011    OCC      2,000         82.00   

December 11, 2009

   January 1, 2010    December 31, 2011    OCC      2,000         82.00   

January 5, 2010

   January 1, 2010    December 31, 2011    ONP      2,000         84.00   

January 6, 2010

   January 1, 2010    December 31, 2011    OCC      1,000         90.00   

January 27, 2010

   February 1, 2010    January 31, 2012    OCC      1,000         90.00   

September 23, 2010

   January 1, 2011    December 31, 2011    ONP      1,000         95.00   

September 28, 2010

   January 1, 2011    December 31, 2011    ONP      1,000         95.00   

October 11, 2010

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

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

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

We entered into costless collar agreements on forecasted sales of up to 25,000 short tons of OCC and ONP a month. The agreements involve combining a purchased put option giving us the right to sell up to 25,000 short tons of OCC and ONP monthly at an established floor strike price with a written call option obligating us to deliver up to 25,000 short tons of OCC and ONP monthly at an established cap strike price. The puts and calls have the same settlement dates, are net settled in cash on such dates and have the same terms to expiration. The contemporaneous combination of options resulted in no net premium for us and represent costless collars. Under the agreements, no payments will be made or received by us, as long as the settlement price is between the floor price and cap price. However, if the settlement price is above the cap, we will be required to pay the counterparty an amount equal to the excess of the settlement price over the cap times the monthly volumes hedged. Also, if the settlement price is below the floor, the counterparty will be required to pay us the deficit of the settlement price below the floor times the monthly volumes hedged. The objective of these agreements is to reduce the variability of the cash flows of the forecasted sales of OCC and ONP between two designated strike prices.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

The following costless collar hedges were outstanding at September 30, 2011:

 

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   
April 26, 2011   July 1, 2011   December 31, 2012     ONP        1,000        90.00        165.00   
April 26, 2011   July 1, 2011   December 31, 2012     ONP        1,000        90.00        165.00   
August 1, 2011   January 1, 2012   December 31, 2012     ONP        2,000        85.00        135.00   
August 1, 2011   January 1, 2012   December 31, 2012     ONP        2,000        85.00        135.00   

The costless collar hedges are recorded on the balance sheet at fair value. The fair values of the costless collars are obtained from the counter party and 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 commodity hedges at September 30, 2011 and December 31, 2010 were current assets of $1.0 million and $1.9 million, respectively, and current liabilities of $5.1 million and $6.5 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively.

The following table summarizes the impact of our commodity hedges on our results of operations and comprehensive income for the three and nine months ended September 30 (in millions):

 

Derivatives in

Cash Flow

Hedging

Relationships

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

(Loss)
    Location of Gain
(Loss) Recognized
in Income on  Derivative
(Ineffective Portion

and Amount
Excluded from
Effectiveness
Testing)
     Amount of Gain or  (Loss)
Recognized in
Income on Derivative

(Ineffective Portion and
Amount Excluded
from
Effectiveness
Testing)
 
     Three Months Ended
September 30,
           Three Months Ended
September 30,
           Three Months Ended
September 30,
 
     2011      2010            2011     2010            2011      2010  

Recycling commodity hedges

   $ 0.6       $ (1.0     Revenue       $ (2.8   $ (0.2     Other income, net       $ —         $ (0.1
     Nine Months Ended
September 30,
           Nine Months Ended
September 30,
           Nine Months Ended
September 30,
 
     2011      2010            2011     2010            2011      2010  

Recycling commodity hedges

   $ 0.2       $ (3.1     Revenue       $ (6.8   $ (2.0     Other income, net       $ —         $ (0.2

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

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 September 30, 2011 and December 31, 2010, our assets and liabilities that are measured at fair value on a recurring basis include the following (in millions):

 

     Fair Value Measurements Using  
     Total as of
September 30,  2011
     Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Assets:

           

Restricted cash and marketable securities

   $ 160.5       $ 160.5       $ —         $ —     

Fuel hedges - other current assets

     1.2         —           1.2         —     

Commodity hedges - other current assets

     1.0         —           1.0         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 162.7       $ 160.5       $ 2.2       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Fuel hedges - other accrued liabilities

   $ 9.1       $ —         $ 9.1       $ —     

Commodity hedges - other accrued liabilities

     5.1         —           5.1         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 14.2       $ —         $ 14.2       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements Using  
     Total as of
December 31, 2010
     Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets:

           

Restricted cash and marketable securities

   $ 172.8       $ 172.8       $ —         $ —     

Fuel hedges - other current assets

     1.6         —           1.6         —     

Commodity hedges - other current assets

     1.9         —           1.9         —     

Interest rate swaps - other assets

     5.2         —           5.2         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 181.5       $ 172.8       $ 8.7       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Fuel hedges - other accrued liabilities

   $ 1.9       $ —         $ 1.9       $ —     

Commodity hedges - other accrued liabilities

     6.5         —           6.5         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 8.4       $ —         $ 8.4       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

12. SEGMENT REPORTING

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

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Summarized financial information concerning our reportable segments for the three and nine months ended September 30, 2011 and 2010 is shown in the following tables (in millions):

 

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

Three Months Ended September 30, 2011:

                 

Eastern

   $ 638.6       $ (95.6   $ 543.0       $ 52.7       $ 121.3      $ 56.8      $ 4,472.2   

Midwestern

     578.0         (103.2     474.8         54.6         101.2        55.3        3,812.7   

Southern

     598.8         (80.0     518.8         57.6         118.6        57.2        4,892.5   

Western

     670.7         (117.1     553.6         56.7         125.7        60.1        5,520.9   

Corporate entities

     30.1         (4.1     26.0         12.8         (58.3     (15.0     757.9   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 2,516.2       $ (400.0   $ 2,116.2       $ 234.4       $ 408.5      $ 214.4      $ 19,456.2   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Three Months Ended September 30, 2010:

                 

Eastern

   $ 618.8       $ (90.3   $ 528.5       $ 52.4       $ 107.3      $ 40.1      $ 4,429.7   

Midwestern

     562.6         (107.3     455.3         54.3         95.3        41.8        3,661.1   

Southern

     576.5         (79.6     496.9         55.3         115.9        57.0        4,860.7   

Western

     684.1         (127.2     556.9         56.6         125.3        62.1        5,521.1   

Corporate entities

     28.4         (4.3     24.1         13.1         (76.2     (15.0     985.4   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 2,470.4       $ (408.7   $ 2,061.7       $ 231.7       $ 367.6      $ 186.0      $ 19,458.0   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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

Nine Months Ended September 30, 2011:

                 

Eastern

   $ 1,856.0       $ (274.5   $ 1,581.5       $ 151.7       $ 375.7      $ 172.0      $ 4,472.2   

Midwestern

     1,654.6         (294.2     1,360.4         161.0         278.0        171.1        3,812.7   

Southern

     1,764.0         (236.4     1,527.6         169.6         348.5        164.4        4,892.5   

Western

     1,976.8         (350.5     1,626.3         167.7         366.6        184.8        5,520.9   

Corporate entities

     84.2         (12.3     71.9         38.0         (182.9     3.8        757.9   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 7,335.6       $ (1,167.9   $ 6,167.7       $ 688.0       $ 1,185.9      $ 696.1      $ 19,456.2   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2010:

                 

Eastern

   $ 1,830.7       $ (267.9   $ 1,562.8       $ 156.9       $ 358.0      $ 124.9      $ 4,429.7   

Midwestern

     1,633.3         (305.5     1,327.8         160.8         284.9        160.0        3,661.1   

Southern

     1,726.9         (237.2     1,489.7         170.3         356.1        144.9        4,860.7   

Western

     1,999.8         (370.8     1,629.0         162.2         387.3        158.6        5,521.1   

Corporate entities

     90.3         (13.8     76.5         38.7         (236.6     (17.0     985.4   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 7,281.0       $ (1,195.2   $ 6,085.8       $ 688.9       $ 1,149.7      $ 571.4      $ 19,458.0   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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

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

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

The following table shows our total reported revenue by service line for the three and nine months ended September 30 (in millions of dollars or as a percentage of revenue):

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Collection:

                

Residential

   $ 538.3        25.4   $ 548.4        26.6   $ 1,601.6        26.0   $ 1,629.2        26.8

Commercial

     625.9        29.6        624.6        30.3        1,871.5        30.3        1,868.8        30.7   

Industrial

     397.5        18.8        387.4        18.8        1,141.7        18.5        1,118.8        18.4   

Other

     8.5        0.4        7.3        0.4        24.4        0.4        21.1        0.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total collection

     1,570.2        74.2        1,567.7        76.1        4,639.2        75.2        4,637.9        76.2   

Transfer and disposal

     778.5          778.2          2,219.0          2,262.0     

Less: Intercompany

     (380.8       (394.5       (1,112.8       (1,152.4  
  

 

 

     

 

 

     

 

 

     

 

 

   

Transfer and disposal, net

     397.7        18.8        383.7        18.6        1,106.2        17.9        1,109.6        18.2   

Sale of recycling materials

     111.4        5.3        72.2        3.5        317.0        5.2        221.0        3.6   

Other non-core

     36.9        1.7        38.1        1.8        105.3        1.7        117.3        2.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other

     148.3        7.0        110.3        5.3        422.3        6.9        338.3        5.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,116.2        100.0   $ 2,061.7        100.0   $ 6,167.7        100.0   $ 6,085.8        100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other revenue consists primarily of sales of recycled materials and revenue from National Accounts. National Accounts revenue included in other revenue represents the portion of revenue generated from nationwide contracts in markets outside our operating areas, and, as such, the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs which are recorded in cost of operations.

13. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are subject to extensive and evolving laws and regulations and have implemented our own safeguards to respond to regulatory requirements. In the normal course of conducting our operations, we become involved in legal proceedings. Some of these actions may result in fines, penalties or judgments against us, which may impact earnings and cash flows for a particular period. Although we cannot predict the ultimate outcome of any legal matter with certainty, except as described below or in Note 8, Income Taxes, in the discussion of our outstanding tax dispute with the IRS, we do not believe that the outcome of our pending legal proceedings will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

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

We accrue for legal proceedings when losses become probable and reasonably estimable. We have recorded an aggregate accrual of approximately $113 million relating to our outstanding legal proceedings as of September 30, 2011, including those described herein and others not specifically identified herein. As of the end of each applicable reporting period, we review each of our legal proceedings and, where it is probable that a liability has been incurred, we accrue for all probable and reasonably estimable losses. Where we are able to reasonably estimate a range of losses we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate. If we are able to reasonably estimate a range but no amount within the range appears to be a better estimate than any other, we use the amount that is the low end of such range. If we used the high ends of such ranges, our aggregate potential liability would have been approximately $107 million higher than the amount recorded as of September 30, 2011.

Countywide Matters

In September 2009, Republic Services of Ohio II, LLC (Republic-Ohio) entered into Final Findings and Orders with the Ohio Environmental Protection Agency that require us to implement a comprehensive operation and maintenance program to manage the remediation area at the Countywide Recycling and Disposal Facility (Countywide). The remediation liability for Countywide recorded as of September 30, 2011 is $63.0 million, of which $5.1 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $54 million to $75 million.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

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

Luri Matter

On August 17, 2007, a former employee, Ronald Luri, sued Republic Services, Inc., Republic Services of Ohio Hauling LLC, Republic Services of Ohio I LLC, Jim Bowen and Ron Krall in the Cuyahoga County Common Pleas Court in Ohio. Plaintiff alleges that he was unlawfully fired in retaliation for refusing to discharge or demote three employees who were all over 50 years old. On July 3, 2008, a jury verdict was awarded against us in the amount of $46.6 million, including $43.1 million in punitive damages. On September 24, 2008, the Court awarded pre-judgment interest of $0.3 million and attorney fees and litigation costs of $1.1 million. Post-judgment interest accrued at a rate of 8% for 2008 and 5% for 2009, and is accruing at a rate of 4% thereafter. Management anticipates that post-judgment interest could accrue through the middle of 2012 for a total of up to $9.0 million. We appealed to the Court of Appeals, and on May 19, 2011 the court reduced the punitive damages award to $7.0 million. The Ohio Supreme Court has granted plaintiff’s and defendants’ petitions for review of the appellate decision. It is reasonably possible that following all appeals a final judgment of liability for compensatory and punitive damages may be assessed against us related to this matter.

Litigation Related to Fuel and Administrative Fees

On November 20, 2009, Klingler’s European Bake Shop & Deli, Inc., filed a complaint against BFI Waste Services, LLC in the Circuit Court of Jefferson County, Alabama, in which plaintiff complains about fuel recovery fees and administrative fees charged. The complaint purports to be filed on behalf of a class of similarly situated plaintiffs in Alabama. This complaint asserts various legal and equitable theories of recovery and alleges in essence that the fees were not properly disclosed, were unfair, and were contrary to contract. Class-certification-related discovery is underway. Plaintiff’s deadline for moving for class certification is November 10, 2011. Plaintiff has not specified the amount of damages sought. Although the range of reasonably possible loss cannot be estimated, we do not believe that this matter will have a material impact on our consolidated financial positions, results of operations or cash flows. We will continue to vigorously defend the claims in this lawsuit.

Contracting Matter

We discovered actions of non-compliance by one of our subsidiaries with the subcontracting provisions of certain government contracts in one of our markets. We reported the discovery to, and expect further discussions with, law enforcement authorities and other authorities. Such non-compliance could result in payments by us in the form of restitution, damages, or penalties, or the loss of future business in the affected market or markets. Based on the information currently available to us, including our expectation that our self-disclosure will be viewed favorably by the applicable authorities, we presently believe that the resolution of the matter, while it may have a material impact on our results of operations or cash flows in the period in which it is recognized or paid, will not have a material adverse effect on our consolidated financial position.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Congress Development Landfill Matters

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

In August 2010, Congress Development Company agreed with the State of Illinois to have a Final Consent Order (Final Order) entered by the Circuit Court of Illinois, Cook County. Pursuant to the Final Order, we have agreed to continue to implement certain remedial activities at the Congress Landfill. The remediation liability for Congress recorded as of September 30, 2011 is $84.0 million, of which $7.6 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $43 million to $143 million.

In a suit originally filed on December 23, 2009 in the Circuit Court of Cook County, Illinois and subsequently amended to add additional plaintiffs, approximately 2,550 plaintiffs sued our subsidiaries Allied Transportation and Allied Waste Industries, Inc., CDC and Sexton. The plaintiffs allege bodily injury, property damage and inability to have normal use and enjoyment of property arising from, among other things, odors and other damages arising from landfill gas leaking, and they base their claims on negligence, trespass, and nuisance. On April 29, 2011, plaintiffs filed a motion for leave to amend their complaint to seek punitive damages, and that motion is fully briefed.

Following the court’s order in our favor striking the plaintiffs’ allegations requesting actual damages in excess of $50 million and punitive damages in excess of $50 million, the amount of damages being sought is unspecified. The court entered an order dismissing Allied Waste Industries, Inc. without prejudice on October 26, 2010. Discovery is ongoing. We intend to vigorously defend against the plaintiffs’ allegations in this action.

Livingston Matter

On October 13, 2009, the Twenty-First Judicial District Court, Parish of Livingston, State of Louisiana, issued its Post Class Certification Findings of Fact and Conclusions of Law in a lawsuit alleging nuisance from the activities of the CECOS hazardous waste facility located in Livingston Parish, Louisiana. The court granted class certification for all those living within a six mile radius of the CECOS site between the years 1977 and 1990. We appealed the class certification order. On August 17, 2011, the court of appeals granted a joint motion to remand the case to the trial court for the parties to finalize a proposed settlement. The parties executed a proposed settlement agreement on September 15, 2011. The Court preliminarily approved the agreement on September 26, 2011 and will conduct a fairness hearing on December 8, 2011.

Multi-Employer Pension Plans

We contribute to 28 multi-employer pension plans under collective bargaining agreements covering union-represented employees. Approximately 20% of our total current employees are participants in such multi-employer plans. These plans generally provide retirement benefits to participants based on their service to contributing employers. We do not administer these multi-employer plans. In general, these plans are managed by boards of trustees with the unions appointing certain trustees and other contributing employers of the plan appointing certain trustees. We generally are not represented on the boards of trustees.

Under current law regarding multi-employer benefit plans, a plan’s termination, our voluntary withdrawal (which we consider from time to time), or the mass withdrawal of all contributing employers from any under-funded, multi-employer pension plan would require us to make payments to the plan for our proportionate share of the multi-employer plan’s unfunded vested liabilities. In the near future, as to any one or more of these plans, we may voluntarily withdraw from the plan, there may be a mass withdrawal of employees contributing to the plan or the plan may terminate. We could have adjustments to our estimates for these matters in the near term that could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Restricted Cash and Marketable Securities

Our restricted cash deposits and marketable securities include, among other things, restricted cash held for capital expenditures under certain debt facilities, restricted cash and marketable securities used to settle claims related to our self insurance programs, and restricted cash and marketable securities pledged to regulatory agencies and governmental entities as financial guarantees of our performance related to our final capping, closure and post-closure obligations at our landfills are as follows (in millions):

 

     September 30,
2011
     December 31,
2010
 

Financing proceeds

   $ 25.4       $ 39.8   

Capping, closure and post-closure obligations

     54.5         61.8   

Self-insurance

     73.4         63.8   

Other

     7.2         7.4   
  

 

 

    

 

 

 

Total restricted cash and marketable securities

   $ 160.5       $ 172.8   
  

 

 

    

 

 

 

Off-Balance Sheet Arrangements

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

14. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

We are the primary obligor under certain of the Senior Notes issued by us. Substantially all of our subsidiaries have jointly and severally guaranteed these notes. All of the subsidiary guarantors are 100% wholly owned direct or indirect subsidiaries of the parent, and all guarantees are full, unconditional and joint and several with respect to principal, interest and liquidated damages, if any. As such, we present condensed consolidating balance sheets as of September 30, 2011 and December 31, 2010, condensed consolidating statements of income for the three and nine months ended September 30, 2011 and 2010, and cash flows for the nine months ended September 30, 2011 and 2010 for each of Republic Services, Inc. (Parent), guarantor subsidiaries and the other non-guarantor subsidiaries with any consolidating adjustments.

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Condensed Consolidating Balance Sheets

(in millions)

 

     September 30, 2011  
     Parent      Guarantors      Non-Guarantors     Eliminations     Consolidated  
ASSETS             

Current assets:

            

Cash and cash equivalents

   $ 11.5       $ 58.1       $ 3.0      $ —        $ 72.6   

Accounts receivable, net

     —           835.1         66.2        —          901.3   

Prepaid expenses and other current assets

     68.3         84.2         23.4        —          175.9   

Deferred tax assets

     94.4         —           10.2        —          104.6   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     174.2         977.4         102.8        —          1,254.4   

Restricted cash and marketable securities

     25.4         48.8         86.3        —          160.5   

Property and equipment, net

     52.4         6,155.8         500.7        —          6,708.9   

Goodwill

     —           10,646.7         —          —          10,646.7   

Other intangible assets, net

     16.9         410.7         —          —          427.6   

Investment and net advances to affiliate

     14,962.9         68.0         151.4        (15,182.3     —     

Other assets

     107.1         96.6         54.4        —          258.1   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 15,338.9       $ 18,404.0       $ 895.6      $ (15,182.3   $ 19,456.2   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY             

Current liabilities:

            

Accounts payable

   $ 195.4       $ 297.4       $ 22.4      $ —        $ 515.2   

Notes payable and current maturities of long-term debt

     0.6         7.5         1.6        —          9.7   

Deferred revenue

     —           304.8         2.0        —          306.8   

Accrued landfill and environmental costs, current portion

     —           190.2         —          —          190.2   

Accrued interest

     60.5         22.3         —          —          82.8   

Other accrued liabilities

     363.3         203.8         185.7        —          752.8   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     619.8         1,026.0         211.7        —          1,857.5   

Long-term debt, net of current maturities

     5,981.5         1,026.9         13.2        —          7,021.6   

Accrued landfill and environmental costs, net of current portion

     —           1,142.5         271.0        —          1,413.5   

Deferred income taxes and other long-term tax liabilities

     1,078.3         —           (8.6     —          1,069.7   

Self-insurance reserves, net of current portion

     —           76.9         224.2        —          301.1   

Other long-term liabilities

     46.9         77.7         53.7        —          178.3   

Commitments and contingencies

            

Stockholders’ equity:

            

Common stock

     4.0         —           —          —          4.0   

Other equity

     7,608.4         15,054.0         128.3        (15,182.3     7,608.4   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Republic Services, Inc. stockholders’ equity

     7,612.4         15,054.0         128.3        (15,182.3     7,612.4   

Noncontrolling interests

     —           —           2.1        —          2.1   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     7,612.4         15,054.0         130.4        (15,182.3     7,614.5   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 15,338.9       $ 18,404.0       $ 895.6      $ (15,182.3   $ 19,456.2   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Condensed Consolidating Balance Sheets

(in millions)

 

     December 31, 2010  
     Parent      Guarantors      Non-Guarantors     Eliminations     Consolidated  
ASSETS             

Current assets:

            

Cash and cash equivalents

   $ 14.5       $ 71.1       $ 2.7      $ —        $ 88.3   

Accounts receivable, net

     —           800.6         28.3        —          828.9   

Prepaid expenses and other current assets

     112.0         74.8         20.6        —          207.4   

Deferred tax assets

     111.2         —           10.3        —          121.5   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     237.7         946.5         61.9        —          1,246.1   

Restricted cash and marketable securities

     39.8         47.0         86.0        —          172.8   

Property and equipment, net

     47.2         6,280.6         370.7        —          6,698.5   

Goodwill

     —           10,655.3         —          —          10,655.3   

Other intangible assets, net

     21.8         429.5         —          —          451.3   

Investment and net advances to affiliate

     13,513.9         40.9         149.1        (13,703.9     —     

Other assets

     88.2         94.7         55.0        —          237.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 13,948.6       $ 18,494.5       $ 722.7      $ (13,703.9   $ 19,461.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY             

Current liabilities:

            

Accounts payable

   $ 89.7       $ 500.2       $ 16.6      $ —        $ 606.5   

Notes payable and current maturities of long-term debt

     392.2         484.5         1.8        —          878.5   

Deferred revenue

     —           291.6         3.5        —          295.1   

Accrued landfill and environmental costs, current portion

     —           182.0         —          —          182.0   

Accrued interest

     61.4         31.7         —          —          93.1   

Other accrued liabilities

     222.3         200.5         198.5        —          621.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     765.6         1,690.5         220.4        —          2,676.5   

Long-term debt, net of current maturities

     4,090.8         1,760.0         14.3        —          5,865.1   

Accrued landfill and environmental costs, net of current portion

     —           1,148.1         268.5        —          1,416.6   

Deferred income taxes and other long-term tax liabilities

     1,053.3         —           (8.5     —          1,044.8   

Self-insurance reserves, net of current portion

     —           97.7         206.8        —          304.5   

Other long-term liabilities

     192.4         58.6         54.5        —          305.5   

Commitments and contingencies

            

Stockholders’ equity:

            

Common stock

     4.0         —           —          —          4.0   

Other equity

     7,842.5         13,739.6         (35.7     (13,703.9     7,842.5   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Republic Services, Inc. stockholders’ equity

     7,846.5         13,739.6         (35.7     (13,703.9     7,846.5   

Noncontrolling interests

     —           —           2.4        —          2.4   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     7,846.5         13,739.6         (33.3     (13,703.9     7,848.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 13,948.6       $ 18,494.5       $ 722.7      $ (13,703.9   $ 19,461.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 

Condensed Consolidating Statements of Income

(in millions)

 

     Three Months Ended September 30, 2011  
     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Revenue

   $ —        $ 2,028.3      $ 107.7      $ (19.8   $ 2,116.2   

Expenses:

          

Cost of operations

     1.5        1,185.8        92.5        (19.8     1,260.0   

Depreciation, amortization and depletion

     5.7        198.3        11.0        —          215.0