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EX-32.2 - EXHIBIT 32.2 - REPUBLIC SERVICES, INC.rsgex32233115.htm
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EX-31.1 - EXHIBIT 31.1 - REPUBLIC SERVICES, INC.rsgex31133115.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________ 
FORM 10-Q
 _________________________________________________________
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015
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)
(I.R.S. 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 (§232.405 of this chapter) 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.
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
As of April 16, 2015, the registrant had outstanding 351,347,364 shares of Common Stock, par value $.01 per share (excluding treasury shares of 64,448,657).



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

2


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

REPUBLIC SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
 
March 31,
2015
 
December 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
134.3

 
$
75.2

Accounts receivable, less allowance for doubtful accounts and other of $48.2 and $38.9, respectively
930.4

 
930.4

Prepaid expenses and other current assets
156.6

 
263.4

Deferred tax assets
122.4

 
122.0

Total current assets
1,343.7

 
1,391.0

Restricted cash and marketable securities
112.7

 
115.6

Property and equipment, net
7,447.0

 
7,165.3

Goodwill
11,095.5

 
10,830.9

Other intangible assets, net
289.4

 
298.9

Other assets
305.4

 
292.3

Total assets
$
20,593.7

 
$
20,094.0

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
491.6

 
$
527.3

Notes payable and current maturities of long-term debt
10.1

 
10.4

Deferred revenue
314.6

 
306.3

Accrued landfill and environmental costs, current portion
165.3

 
164.3

Accrued interest
69.9

 
67.0

Other accrued liabilities
704.9

 
750.7

Total current liabilities
1,756.4

 
1,826.0

Long-term debt, net of current maturities
7,554.5

 
7,050.8

Accrued landfill and environmental costs, net of current portion
1,696.1

 
1,677.5

Deferred income taxes and other long-term tax liabilities
1,140.1

 
1,149.0

Insurance reserves, net of current portion
292.4

 
298.0

Other long-term liabilities
389.5

 
344.9

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.01 per share; 50 shares authorized; none issued

 

Common stock, par value $0.01 per share; 750 shares authorized; 415.6 and 414.4 issued
   including shares held in treasury, respectively
4.2

 
4.1

Additional paid-in capital
6,914.4

 
6,876.9

Retained earnings
2,868.3

 
2,795.0

Treasury stock, at cost (63.8 and 61.7 shares, respectively)
(1,997.0
)
 
(1,901.8
)
Accumulated other comprehensive loss, net of tax
(27.8
)
 
(28.9
)
Total Republic Services, Inc. stockholders’ equity
7,762.1

 
7,745.3

Noncontrolling interests
2.6

 
2.5

Total stockholders’ equity
7,764.7

 
7,747.8

Total liabilities and stockholders’ equity
$
20,593.7

 
$
20,094.0

The accompanying notes are an integral part of these statements.

3


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
 
 
Three Months Ended March 31,
 
2015
 
2014
Revenue
$
2,169.4

 
$
2,077.2

Expenses:
 
 
 
Cost of operations
1,304.3

 
1,324.7

Depreciation, amortization and depletion
233.4

 
213.1

Accretion
19.7

 
19.5

Selling, general and administrative
239.2

 
213.8

Operating income
372.8

 
306.1

Interest expense
(88.6
)
 
(87.0
)
Interest income
0.3

 
0.1

Other income, net

 
1.0

Income before income taxes
284.5

 
220.2

Provision for income taxes
112.0

 
87.6

Net income
172.5

 
132.6

Net income attributable to noncontrolling interests
(0.1
)
 
(0.1
)
Net income attributable to Republic Services, Inc.
$
172.4

 
$
132.5

Basic earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
Basic earnings per share
$
0.49

 
$
0.37

Weighted average common shares outstanding
353.3

 
359.8

Diluted earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
Diluted earnings per share
$
0.49

 
$
0.37

Weighted average common and common equivalent shares outstanding
354.8

 
361.0

Cash dividends per common share
$
0.28

 
$
0.26

The accompanying notes are an integral part of these statements.


4


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
 
Three Months Ended March 31,
 
2015
 
2014
Net income
$
172.5

 
$
132.6

Other comprehensive income (loss), net of tax
 
 
 
Hedging activity:
 
 
 
Settlements
(2.7
)
 
0.6

Realized loss (gain) reclassified into earnings
3.7

 
(0.3
)
Unrealized gain (loss)
0.2

 
(1.9
)
Pension activity:
 
 
 
Change in funded status of pension plan obligations
(0.1
)
 

Other comprehensive income (loss), net of tax
1.1

 
(1.6
)
Comprehensive income
173.6

 
131.0

Comprehensive income attributable to noncontrolling interests
(0.1
)
 
(0.1
)
Comprehensive income attributable to Republic Services, Inc.
$
173.5

 
$
130.9

The accompanying notes are an integral part of these statements.


5


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in millions)
 
 
Republic Services, Inc. Stockholders’ Equity
 
 
 
 
 
Common Stock
 
Additional Paid-In
 
Retained
 
Treasury Stock
 
Accumulated
Other
Comprehensive Loss,
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Shares
 
Amount
 
Net of Tax
 
Interests
 
Total
Balance as of December 31, 2014
414.4

 
$
4.1

 
$
6,876.9

 
$
2,795.0

 
(61.7
)
 
$
(1,901.8
)
 
$
(28.9
)
 
$
2.5

 
$
7,747.8

Net income

 

 

 
172.4

 

 

 

 
0.1

 
172.5

Other comprehensive income

 

 

 

 

 

 
1.1

 

 
1.1

Cash dividends declared

 

 

 
(98.5
)
 

 

 

 

 
(98.5
)
Issuances of common stock
1.2

 
0.1

 
29.9

 

 

 

 

 

 
30.0

Stock-based compensation

 

 
7.6

 
(0.6
)
 

 

 

 

 
7.0

Purchase of common stock for treasury

 

 

 

 
(2.1
)
 
(95.2
)
 

 

 
(95.2
)
Balance as of March 31, 2015
415.6

 
$
4.2

 
$
6,914.4

 
$
2,868.3

 
(63.8
)
 
$
(1,997.0
)
 
$
(27.8
)
 
$
2.6

 
$
7,764.7

The accompanying notes are an integral part of these statements.


6


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

 
Three Months Ended March 31,
 
2015
 
2014
Cash provided by operating activities:
 
 
 
Net income
$
172.5

 
$
132.6

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, amortization, depletion and accretion
253.1

 
232.6

Non-cash interest expense
11.0

 
11.2

Stock-based compensation
7.2

 
6.7

Deferred tax benefit
(11.4
)
 
(19.2
)
Provision for doubtful accounts, net of adjustments
4.9

 
3.4

Gain on disposition of assets, net and asset impairments
(1.4
)
 
(1.6
)
Environmental adjustments
(1.3
)
 
36.2

Excess income tax benefit from stock option exercises and other non-cash items
(4.1
)
 
0.4

Change in assets and liabilities, net of effects from business acquisitions and divestitures:
 
 
 
Accounts receivable
31.3

 
14.0

Prepaid expenses and other assets
12.3

 
(9.6
)
Accounts payable
(34.0
)
 
(22.1
)
Capping, closure and post-closure expenditures
(9.3
)
 
(8.7
)
Remediation expenditures
(15.3
)
 
(27.1
)
Other liabilities
80.6

 
47.6

Cash provided by operating activities
496.1

 
396.4

Cash used in investing activities:
 
 
 
Purchases of property and equipment
(269.6
)
 
(213.7
)
Proceeds from sales of property and equipment
3.2

 
2.5

Cash used in business acquisitions, net of cash acquired
(509.4
)
 
(6.2
)
Change in restricted cash and marketable securities
2.9

 
8.0

Other
(0.5
)
 
(0.7
)
Cash used in investing activities
(773.4
)
 
(210.1
)
Cash used in financing activities:
 
 
 
Proceeds from notes payable and long-term debt
658.0

 

Proceeds from issuance of senior notes, net of discount
497.9

 

Payments of notes payable and long-term debt
(660.8
)
 
(13.8
)
Fees paid to issue senior notes and retire certain hedging relationships
(3.3
)
 

Issuances of common stock
26.2

 
15.9

Excess income tax benefit from stock option exercises
3.6

 
0.2

Purchases of common stock for treasury
(86.1
)
 
(132.2
)
Cash dividends paid
(98.7
)
 
(93.7
)
Other
(0.4
)
 
(0.2
)
Cash provided by (used in) financing activities
336.4

 
(223.8
)
Increase (decrease) in cash and cash equivalents
59.1

 
(37.5
)
Cash and cash equivalents at beginning of year
75.2

 
213.3

Cash and cash equivalents at end of period
$
134.3

 
$
175.8

The accompanying notes are an integral part of these statements.


7


REPUBLIC SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION
Republic Services, Inc., a Delaware corporation, and its consolidated subsidiaries (also referred to collectively as Republic, the Company, we, us, or our), is the second largest provider of non-hazardous solid waste collection, transfer, recycling, disposal and oilfield exploration and production (E&P) waste services in the United States, as measured by revenue. We manage and evaluate our operations through three geographic regions — East, Central and West, which we have identified as our reportable segments.
The unaudited consolidated financial statements include the accounts of Republic and its wholly owned and majority owned subsidiaries in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We account for investments in entities in which we do not have a controlling financial interest under either the equity method or cost method of accounting, as appropriate. All material intercompany accounts and transactions have been eliminated in consolidation.
We have prepared these unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted. In the opinion of management, these financial statements include all adjustments that, unless otherwise disclosed, are of a normal recurring nature and necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of the results you can expect for a full year. You should read these financial statements in conjunction with our audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the year ended December 31, 2014.
For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation. All dollar amounts in tabular presentations are in millions, except per share amounts and unless otherwise noted.
Management’s Estimates and Assumptions
In preparing our financial statements, we make numerous estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. We must make these estimates and assumptions because certain information we use is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methodologies. In preparing our financial statements, the more critical and subjective areas that deal with the greatest amount of uncertainty relate to our accounting for our long-lived assets, including recoverability, landfill development costs, and final capping, closure and post-closure costs; our valuation allowances for accounts receivable and deferred tax assets; our liabilities for potential litigation, claims and assessments; our liabilities for environmental remediation, multiemployer pension plans, employee benefit plans, deferred taxes, uncertain tax positions, and insurance reserves; and our estimates of the fair values of assets acquired and liabilities assumed in any acquisition. Each of these items is discussed in more detail in our description of our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014. Our actual results may differ significantly from our estimates.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) amended the Accounting Standards Codification and created Topic 606, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue. This guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance as currently issued will be effective for Republic beginning January 1, 2017. On April 1, 2015, the FASB voted to propose a one-year deferral to the effective date, but to permit entities to adopt one year earlier if they choose (i.e., the original effective date). The proposal will be subject to the FASB's due process requirement, which includes a period for public comments. The new standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. We are currently assessing the method of adoption and the potential impact this guidance may have on our consolidated financial statements.


8

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

2. BUSINESS ACQUISITIONS
We acquired various waste businesses during the three months ended March 31, 2015 and 2014.  The purchase price paid for these acquisitions and the allocations of the purchase price follow:
 
2015
 
2014
Purchase price:
 
 
 
Cash used in acquisitions, net of cash acquired
$
509.4

 
$
6.2

Holdbacks
2.3

 
0.7

Total
$
511.7

 
$
6.9

Allocated as follows:
 
 
 
Accounts receivable
36.1

 
0.4

Landfill airspace
87.2

 

Property and equipment
141.7

 
2.1

Other assets
1.4

 

Accounts payable
(7.1
)
 

Environmental remediation liabilities
(2.8
)
 

Closure and post-closure liabilities
(8.1
)
 

Other liabilities
(9.8
)
 
(0.4
)
Fair value of tangible assets acquired and liabilities assumed
238.6

 
2.1

Excess purchase price to be allocated
$
273.1

 
$
4.8

Excess purchase price allocated as follows:
 
 
 
Other intangible assets
$
7.3

 
$
0.9

Goodwill
265.8

 
3.9

Total allocated
$
273.1

 
$
4.8

The purchase price allocations are preliminary and are based on information existing at the acquisition dates. Accordingly, the purchase price allocations are subject to change. Substantially all of the goodwill and intangible assets recorded for these acquisitions are deductible for tax purposes. These acquisitions are not material to the Company's results of operations, individually or in the aggregate. As a result, no pro forma financial information is provided.
In February 2015, we acquired all of the equity interests of Tervita, LLC (Tervita) in exchange for a cash payment of $479.6 million. Tervita is an environmental solutions provider serving oil and natural gas producers in the United States. Tervita provides E&P waste services to its diverse customer base and operates three types of waste management and disposal facilities: treatment, recovery and disposal facilities, engineered landfills and salt water disposal injection wells. Additionally, Tervita provides closed loop solids control systems and transportation services. Tervita's assets complement Republic's existing E&P waste services business, core competencies and expertise in waste handling, recovery and disposal. We retained an independent third-party appraiser to assist us in our valuations; however, the purchase price allocation is preliminary and subject to revision. Adjustments may be made to the carrying value of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date. The preliminary allocation of the purchase price is based on the best estimates of management and is subject to revision based on the final valuations. We expect these final valuations and assessments will be substantially completed in 2015.


9

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


3. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
A summary of the activity and balances in goodwill accounts by reporting segment follows:
 
 
Balance as of December 31, 2014
 
Acquisitions
 
Adjustments to
Acquisitions
 
Balance as of March 31, 2015
East
 
$
3,046.0

 
$

 
$
(0.1
)
 
$
3,045.9

Central
 
3,279.0

 
12.8

 
(0.2
)
 
3,291.6

West
 
4,505.9

 
253.0

 
(0.9
)
 
4,758.0

Total
 
$
10,830.9

 
$
265.8

 
$
(1.2
)
 
$
11,095.5

Adjustments to acquisitions during the three months ended March 31, 2015 primarily related to working capital adjustments and deferred tax asset adjustments resulting from the exercise of legacy Allied stock options, both of which were recorded to goodwill in purchase accounting.
Other Intangible Assets, Net
Other intangible assets, net, include values assigned to customer relationships, franchise agreements, trade names, other municipal agreements and non-compete agreements, and are amortized over periods ranging from 1 to 21 years. A summary of the activity and balances by intangible asset type follows:
 
Gross Intangible Assets
 
Accumulated Amortization
 
Other Intangible Assets, Net as of March 31, 2015
 
Balance as of December 31, 2014
 
Acquisitions and Other Additions
 
Balance as of March 31, 2015
 
Balance as of December 31, 2014
 
Additions
Charged to
Expense
 
Balance as of March 31, 2015
 
Customer relationships, franchise and other municipal agreements
$
641.2

 
$
4.3

 
$
645.5

 
$
(369.1
)
 
$
(15.4
)
 
$
(384.5
)
 
$
261.0

Non-compete agreements
26.8

 
2.2

 
29.0

 
(18.2
)
 
(1.0
)
 
(19.2
)
 
9.8

Other intangible assets
65.2

 
0.8

 
66.0

 
(47.0
)
 
(0.4
)
 
(47.4
)
 
18.6

Total
$
733.2

 
$
7.3

 
$
740.5

 
$
(434.3
)
 
$
(16.8
)
 
$
(451.1
)
 
$
289.4


4. OTHER ASSETS
Prepaid Expenses and Other Current Assets
A summary of prepaid expenses and other current assets as of March 31, 2015 and December 31, 2014 follows:
 
2015
 
2014
Inventories
$
37.0

 
$
35.9

Prepaid expenses
57.6

 
55.0

Other non-trade receivables
33.7

 
57.0

Reinsurance receivable
13.7

 
12.4

Income tax receivable
12.4

 
101.6

Other current assets
2.2

 
1.5

Total
$
156.6

 
$
263.4


10

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

Other Assets
A summary of other assets as of March 31, 2015 and December 31, 2014 follows:
 
2015
 
2014
Deferred financing costs
$
50.0

 
$
47.2

Deferred compensation plan
79.2

 
77.1

Notes and other receivables
45.0

 
38.9

Reinsurance receivable
52.2

 
48.4

Other
79.0

 
80.7

Total
$
305.4

 
$
292.3

Notes and other receivables includes the fair value of interest rate swaps of $19.9 million and $14.1 million as of March 31, 2015 and December 31, 2014, respectively.

5. OTHER LIABILITIES
Other Accrued Liabilities
A summary of other accrued liabilities as of March 31, 2015 and December 31, 2014 follows:
 
2015
 
2014
Accrued payroll and benefits
$
140.0

 
$
180.2

Accrued fees and taxes
117.4

 
125.6

Insurance reserves, current portion
120.2

 
118.6

Ceded insurance reserves, current portion
13.7

 
12.4

Accrued dividends
98.5

 
98.7

Current tax liabilities
47.3

 
16.3

Fuel hedge liabilities
36.4

 
35.3

Accrued professional fees and legal settlement reserves
27.9

 
61.2

Withdrawal liability - Central States Pension and Other Funds
15.9

 
15.9

Other
87.6

 
86.5

Total
$
704.9

 
$
750.7

Other Long-Term Liabilities
A summary of other long-term liabilities as of March 31, 2015 and December 31, 2014 follows:
 
2015
 
2014
Deferred compensation plan
$
83.4

 
$
76.3

Pension and other post-retirement liabilities
10.5

 
11.0

Legal settlement reserves
38.1

 
10.8

Ceded insurance reserves
52.2

 
48.4

Withdrawal liability - Central States Pension and Other Funds
135.7

 
139.6

Other
69.6

 
58.8

Total
$
389.5

 
$
344.9


11

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

Insurance Reserves
Our liabilities for unpaid and incurred but not reported claims as of March 31, 2015 and December 31, 2014 (which include claims for workers’ compensation, commercial general and auto liability, and employee-related health care benefits) were $412.6 million and $416.6 million, respectively, under our risk management program and are included in other accrued liabilities and insurance reserves, net of current portion, in our consolidated balance sheets. While the ultimate amount of claims incurred depends on future developments, we believe the recorded reserves are adequate to cover the future payment of claims; however, it is possible that these 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.

6. LANDFILL AND ENVIRONMENTAL COSTS
As of March 31, 2015, we owned or operated 193 active landfills with total available disposal capacity of approximately 4.8 billion in-place cubic yards. We also have post-closure responsibility for 125 closed landfills.
Accrued Landfill and Environmental Costs
A summary of accrued landfill and environmental liabilities as of March 31, 2015 and December 31, 2014 follows:
 
2015
 
2014
Landfill final capping, closure and post-closure liabilities
$
1,171.5

 
$
1,144.3

Environmental remediation liabilities
689.9

 
697.5

Total accrued landfill and environmental costs
1,861.4

 
1,841.8

Less: current portion
(165.3
)
 
(164.3
)
Long-term portion
$
1,696.1

 
$
1,677.5

Final Capping, Closure and Post-Closure Costs
The following table summarizes the activity in our asset retirement obligation liabilities, which include liabilities for landfill final capping, closure and post-closure, for the three months ended March 31, 2015 and 2014:
 
2015
 
2014
Asset retirement obligation liabilities, beginning of year
$
1,144.3

 
$
1,091.3

Non-cash additions
8.9

 
8.6

Acquisitions and other adjustments
8.2

 
0.2

Asset retirement obligation adjustments
(0.3
)
 
(12.3
)
Payments
(9.3
)
 
(8.7
)
Accretion expense
19.7

 
19.5

Asset retirement obligation liabilities, end of period
1,171.5

 
1,098.6

Less: current portion
(88.7
)
 
(93.1
)
Long-term portion
$
1,082.8

 
$
1,005.5

We review annually, in the fourth quarter, and update as necessary, our estimates of asset retirement obligation liabilities. However, if there are significant changes in the facts and circumstances related to a site during the year, we will update our assumptions prospectively in the period that we know all the relevant facts and circumstances and make adjustments as appropriate.
The fair value of assets that are legally restricted for purposes of settling final capping, closure and post-closure liabilities was $26.8 million and $26.7 million as of March 31, 2015 and December 31, 2014, respectively, and is included in restricted cash and marketable securities in our consolidated balance sheets.

12

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

Landfill Operating Expenses
In the normal course of business, we incur various operating costs associated with environmental compliance. These costs include, among other things, leachate treatment and disposal, methane gas and groundwater monitoring, systems maintenance, interim cap maintenance, costs associated with the application of daily cover materials, and the legal and administrative costs of ongoing environmental compliance. These costs are expensed as cost of operations in the periods in which they are incurred.
Environmental Remediation Liabilities
We accrue for remediation costs when they become probable and can be reasonably estimated. There can sometimes be a range of reasonable estimates of the costs associated with remediation of a site. In these cases, we use the amount within the range that constitutes our best estimate. If no amount within the range appears to be a better estimate than any other, we use the amount that is at the low end of the range. It is reasonably possible that we will need to adjust the liabilities recorded for remediation to reflect the effects of new or additional information, to the extent such information impacts the costs, timing or duration of the required actions. If we used the reasonably possible high ends of our ranges, our aggregate potential remediation liability as of March 31, 2015 would be approximately $360 million higher than the amount 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 or cash flows.
The following table summarizes the activity in our environmental remediation liabilities for the three months ended March 31, 2015 and 2014:
 
 
2015
 
2014
Environmental remediation liabilities, beginning of year
$
697.5

 
$
551.7

Net additions (credited) charged to expense
(1.3
)
 
36.2

Payments
(15.3
)
 
(27.1
)
Accretion expense (non-cash interest expense)
6.2

 
6.3

Acquisitions
2.8

 

Environmental remediation liabilities, end of period
689.9

 
567.1

Less: current portion
(76.6
)
 
(108.5
)
Long-term portion
$
613.3

 
$
458.6

The following is a discussion of certain of our significant remediation matters:
Bridgeton Landfill.  As of December 31, 2014, the remediation liability recorded for our closed Bridgeton Landfill in Missouri was $240.3 million. During the three months ended March 31, 2015, we paid $7.8 million related to management and monitoring of the remediation area. We continue to work with state and federal regulatory agencies on our remediation efforts.  From time to time, this may require us to modify our future operating timeline and procedures, which could result in changes to our expected liability.  As of March 31, 2015, the remediation liability recorded for this site is $232.5 million, of which $22.2 million is expected to be paid during the remainder of 2015. We believe the remaining reasonably possible high end of our range would be approximately $160 million higher than the amount recorded as of March 31, 2015.
Congress Landfill. In August 2010, Congress Development Co. 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 remedial activities at the Congress Landfill. The remediation liability recorded as of March 31, 2015 is $84.7 million, of which $4.4 million is expected to be paid during the remainder of 2015. We believe the remaining reasonably possible high end of our range would be approximately $70 million higher than the amount recorded as of March 31, 2015.



13

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

7. DEBT
The carrying value of our notes payable, capital leases and long-term debt as of March 31, 2015 and December 31, 2014 is listed in the following table in millions, and is adjusted for the fair value of interest rate swaps, unamortized discounts and the unamortized portion of adjustments to fair value recorded in purchase accounting. Original issue discounts and adjustments to fair value recorded in purchase accounting are amortized to interest expense over the term of the applicable instrument using the effective interest method.
 
 
 
 
March 31, 2015
 
December 31, 2014
Maturity
 
Interest Rate
 
Principal
 
Adjustments
 
Carrying  Value
 
Principal
 
Adjustments
 
Carrying Value
Credit facilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Uncommitted credit facility
 
Variable
 
$

 
$

 
$

 
$

 
$

 
$

Puerto Rico uncommitted facility
 
Variable
 

 

 

 

 

 

June 2019
 
Variable
 

 

 

 

 

 

May 2017
 
Variable
 

 

 

 

 

 

Senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 2018
 
3.800
 
700.0

 
(0.1
)
 
699.9

 
700.0

 
(0.1
)
 
699.9

September 2019
 
5.500
 
650.0

 
(2.4
)
 
647.6

 
650.0

 
(2.5
)
 
647.5

March 2020
 
5.000
 
850.0

 
(0.1
)
 
849.9

 
850.0

 
(0.1
)
 
849.9

November 2021
 
5.250
 
600.0

 

 
600.0

 
600.0

 

 
600.0

June 2022
 
3.550
 
850.0

 
(1.8
)
 
848.2

 
850.0

 
(1.8
)
 
848.2

May 2023
 
4.750
 
550.0

 
16.9

 
566.9

 
550.0

 
11.5

 
561.5

March 2025
 
3.200
 
500.0

 
(2.1
)
 
497.9

 

 

 

March 2035
 
6.086
 
275.7

 
(23.7
)
 
252.0

 
275.7

 
(23.9
)
 
251.8

March 2040
 
6.200
 
650.0

 
(0.5
)
 
649.5

 
650.0

 
(0.5
)
 
649.5

May 2041
 
5.700
 
600.0

 
(3.2
)
 
596.8

 
600.0

 
(3.2
)
 
596.8

Debentures:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 2021
 
9.250
 
35.3

 
(1.5
)
 
33.8

 
35.3

 
(1.6
)
 
33.7

September 2035
 
7.400
 
165.3

 
(40.3
)
 
125.0

 
165.3

 
(40.5
)
 
124.8

Tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 - 2044
 
0.300 - 5.625
 
1,083.8

 

 
1,083.8

 
1,083.8

 

 
1,083.8

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 - 2046
 
5.000 - 12.203
 
113.3

 

 
113.3

 
113.8

 

 
113.8

Total Debt
 
 
 
$
7,623.4

 
$
(58.8
)
 
7,564.6

 
$
7,123.9

 
$
(62.7
)
 
7,061.2

Less: current portion
 
 
 
 
 
 
 
(10.1
)
 
 
 
 
 
(10.4
)
Long-term portion
 
 
 
 
 
 
 
$
7,554.5

 
 
 
 
 
$
7,050.8

Credit Facilities
In June 2014, we entered into a $1.25 billion unsecured revolving credit facility (the Replacement Credit Facility), which replaced our $1.0 billion credit facility maturing in April 2016. The Replacement Credit Facility matures in June 2019 and includes a feature that allows us to increase availability, at our option, by an aggregate amount up to $500.0 million through increased commitments from existing lenders or the addition of new lenders. At our option, borrowings under the Replacement Credit Facility bear interest at a Base Rate, or a Eurodollar Rate, plus an applicable margin based on our Debt Ratings (all as defined in the agreements).
Contemporaneous with the execution of the Replacement Credit Facility, we entered into Amendment No. 3 to our existing $1.25 billion unsecured credit facility (the Existing Credit Facility and, together with the Replacement Credit Facility, the

14

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

Credit Facilities), to reduce the commitments under the Existing Credit Facility to $1.0 billion and conform certain terms of the Existing Credit Facility with those of the Replacement Credit Facility. Amendment No. 3 does not extend the maturity date of the Existing Credit Facility, which matures in May 2017. The Existing Credit Facility also maintains the feature that allows us to increase availability, at our option, by an aggregate amount of up to $500.0 million, through increased commitments from existing lenders or the addition of new lenders.
Our Credit Facilities are subject to facility fees based on applicable rates defined in the agreements and the aggregate commitments, regardless of usage. Availability under our Credit Facilities totaled $1,677.5 million and $1,615.4 million as of March 31, 2015 and December 31, 2014, respectively, and can be used for working capital, capital expenditures, acquisitions, letters of credit and other general corporate purposes.  The credit agreements require us to comply with financial and other covenants. We may pay dividends and repurchase common stock if we are in compliance with these covenants. As of March 31, 2015 and December 31, 2014, we had no borrowings under our Credit Facilities.  We had $553.0 million and $615.1 million of letters of credit outstanding under our Credit Facilities, as of March 31, 2015 and December 31, 2014, respectively.
We have a $125.0 million unsecured credit facility agreement (the Uncommitted Credit Facility) bearing interest at LIBOR, plus an applicable margin. Our Uncommitted Credit Facility is subject to facility fees defined in the agreement, regardless of usage. We can use borrowings under the Uncommitted Credit Facility for working capital and other general corporate purposes. The agreements governing our Uncommitted Credit Facility require us to comply with covenants. The Uncommitted Credit Facility may be terminated by either party at any time. As of March 31, 2015 and December 31, 2014, we had no borrowings under our Uncommitted Credit Facility.
In January 2015, we entered into a $20.0 million uncommitted credit facility agreement (the Puerto Rico Uncommitted Facility) that matures in 2016 and bears interest at LIBOR plus an applicable margin. We can use borrowings under the Puerto Rico Uncommitted Facility for working capital and other general corporate purposes. The agreements governing our Puerto Rico Uncommitted Facility require us to comply with covenants. The Puerto Rico Uncommitted Facility may be terminated by either party at any time. As of March 31, 2015, we had no borrowings under our Puerto Rico Uncommitted Facility.
Senior Notes and Debentures
During the three months ended March 31, 2015, we issued $500.0 million of 3.20% notes due 2025 (the 3.20% Notes). The 3.20% Notes are unsubordinated and unsecured obligations. We used the net proceeds from the 3.20% Notes to refinance debt incurred in connection with our acquisition of all of the equity interests of Tervita during the three months ended March 31, 2015.
Our senior notes are general unsecured obligations. Interest is payable semi-annually. These senior notes have a make-whole provision that is exercisable at any time prior to the respective maturity dates per the debt table above at a stated redemption price.
Tax-Exempt Financings
As of March 31, 2015, approximately 90% of our tax-exempt financings are remarketed quarterly by remarketing agents to effectively maintain a variable yield. The holders of the bonds can put them back to the remarketing agents at the end of each interest period. To date, the remarketing agents have been able to remarket our variable rate unsecured tax-exempt bonds. These bonds have been classified as long-term because of our ability and intent to refinance them using availability under our revolving Credit Facilities, if necessary.
Other Debt
Other debt includes capital lease liabilities of $113.3 million and $113.8 million as of March 31, 2015 and December 31, 2014, respectively, with maturities ranging from 2015 to 2046.
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. From time to time, we have also entered into interest rate swap and lock agreements to manage risk associated with interest rates, either to effectively convert specific fixed rate debt to a floating rate (fair value hedges), or to lock interest rates in anticipation of future debt issuances (cash flow hedges).

15

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

Fair Value Hedges
During the second half of 2013, we entered into various interest rate swap agreements relative to our 4.750% fixed rate senior notes due in May 2023. The goal was to reduce overall borrowing costs and rebalance our debt portfolio's ratio of fixed to floating interest rates. As of March 31, 2015, these swap agreements have a total notional value of $300.0 million and mature in May 2023, which is identical to the maturity of the hedged senior notes. We pay interest at floating rates based on changes in LIBOR and receive interest at a fixed rate of 4.750%. These transactions were designated as fair value hedges because the swaps hedge against the changes in fair value of the fixed rate senior notes resulting from changes in interest rates. The majority of these interest rate swaps do not contain credit-risk-related contingent features and we believe our exposure to such features, where applicable, is minimal.
As of March 31, 2015 and December 31, 2014, the interest rate swap agreements are reflected at their fair value of $19.9 million and $14.1 million, respectively, and are included in other assets. To the extent they are effective, these interest rate swap agreements are included as an adjustment to long-term debt in our consolidated balance sheets. We recognized net interest income of $1.9 million during each of the three months ended March 31, 2015 and 2014 related to net swap settlements for these interest rate swap agreements, which is included as an offset to interest expense in our unaudited consolidated statements of income.
For the three months ended March 31, 2015 and 2014, we recognized a loss of $5.4 million and $1.6 million on the change in fair value of the hedged senior notes attributable to changes in the benchmark interest rate, respectively, with an offsetting gain of $5.8 million and $2.1 million on the related interest rate swaps, respectively. The difference of these fair value changes represents hedge ineffectiveness, which is recorded directly in earnings as other income, net.
Cash Flow Hedges
During the three months ended March 31, 2015, we entered into a number of interest rate lock agreements having an aggregate notional amount of $200.0 million with fixed interest rates ranging from 2.155% to 2.270% to manage exposure to fluctuations in interest rates in anticipation of the planned issuance of notes. Upon issuance of the notes during the three months ended March 31, 2015, we terminated the interest rate locks and received $1.2 million from the counterparties. This transaction was accounted for as a cash flow hedge.
As of March 31, 2015 and 2014, no interest rate lock cash flow hedges were outstanding. As of March 31, 2015 and December 31, 2014, the effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive income, was $20.5 million and $21.6 million, respectively. The effective portion of the interest rate locks is amortized as an adjustment to interest expense over the life of the issued debt using the effective interest method. We expect to amortize $2.7 million of net expense over the next twelve months as a yield adjustment of our senior notes.
The effective portion of the interest rate locks amortized as a net increase to interest expense during each of the three months ended March 31, 2015 and 2014 was $0.7 million.

8. INCOME TAXES
Our effective tax rate, exclusive of noncontrolling interests, for the three months ended March 31, 2015 and 2014 was 39.4% and 39.8%, respectively.
We received net cash refunds of $2.3 million and $2.0 million for the three months ended March 31, 2015 and 2014, respectively. The net refunds for both years were a result of prior years' state income tax refunds received during the quarter.
We are subject to income tax in the United States and Puerto Rico, as well as in multiple state jurisdictions. We are currently under examination or administrative review by state and local taxing authorities for various tax years. We recognize interest and penalties as incurred within the provision for income taxes in the consolidated statements of income. As of March 31, 2015, we have accrued a liability for penalties of $0.5 million and a liability for interest (including interest on penalties) of $18.8 million related to our uncertain tax positions.
We believe the liabilities for uncertain tax positions recorded are adequate. However, a significant assessment against us in excess of the liabilities recorded could have a material adverse effect on our consolidated financial position, results of operations or cash flows. During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease. Gross unrecognized benefits we expect to settle in the next twelve months are in the range of $5 to $15 million.

16

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

We have deferred tax assets related to state net operating loss carryforwards. We provide a partial valuation allowance due to uncertainty surrounding the future utilization of these carryforwards in the taxing jurisdictions where the loss carryforwards exist. When determining the need for a valuation allowance, we consider all positive and negative evidence, including recent financial results, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. The weight given to the positive and negative evidence is commensurate with the extent such evidence can be objectively verified.
The realization of our deferred tax asset for state loss carryforwards ultimately depends upon the existence of sufficient taxable income in the appropriate state taxing jurisdictions in future periods. We continue to regularly monitor both positive and negative evidence in determining the ongoing need for a valuation allowance. As of March 31, 2015, the valuation allowance associated with our state loss carryforwards was approximately $71 million.

9. STOCK-BASED COMPENSATION
Available Shares
In March 2013, our board of directors approved the Republic Services, Inc. Amended and Restated 2007 Stock Incentive Plan (the Plan), and in May 2013 our shareholders ratified the Plan. We currently have approximately 15.5 million shares of common stock reserved for future grants under the Plan.
Stock Options
The following table summarizes stock option activity for the three months ended March 31, 2015:
 
Number of
Shares (in millions)
 
Weighted Average
Exercise
Price per Share
 
Weighted Average
Remaining
Contractual Term
(years)
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding as of December 31, 2014
7.6

 
$
29.49

 
 
 
 
Granted

 

 
 
 
 
Exercised
(1.0
)
 
28.68

 
 
 
$
11.9

Forfeited or expired

 

 
 
 
 
Outstanding as of March 31, 2015
6.6

 
$
29.61

 
3.7
 
$
70.1

Exercisable as of March 31, 2015
4.3

 
$
28.86

 
3.2
 
$
50.3

During the three months ended March 31, 2015 and 2014, compensation expense for stock options was $0.9 million and $2.2 million, respectively.
As of March 31, 2015, total unrecognized compensation expense related to outstanding stock options was $3.2 million, which will be recognized over a weighted average period of 1.5 years. The total fair value of stock options that vested during the three months ended March 31, 2015 was $8.6 million.
Restricted Stock Units
The following table summarizes restricted stock unit (RSU) activity for the three months ended March 31, 2015:
 
Number of
RSUs
(in thousands)
 
Weighted Average
Grant Date Fair
Value per Share
 
Weighted Average
Remaining
Contractual Term
(years)
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding as of December 31, 2014
1,456.2

 
$
24.07

 
 
 
 
Granted
644.7

 
38.67

 
 
 
 
Vested and issued
(244.8
)
 
31.22

 
 
 
 
Forfeited
(5.1
)
 
33.47

 
 
 
 
Outstanding as of March 31, 2015
1,851.0

 
$
29.70

 
1.4
 
$
75.1

Vested and unissued as of March 31, 2015
623.0

 
$
28.88

 
 
 
 

17

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

During the three months ended March 31, 2015, we awarded our non-employee directors 75,000 RSUs, which vested immediately. During the three months ended March 31, 2015, we awarded 558,965 RSUs to executives and employees that vest in four equal annual installments beginning on the anniversary date of the original grant or cliff vest after four years. In addition, 10,686 RSUs were earned as dividend equivalents. The RSUs do not carry any voting or dividend rights, except the right to receive additional RSUs in lieu of dividends.
The fair value of RSUs is based on the closing market price on the date of the grant. The compensation expense related to RSUs is amortized ratably over the vesting period, or to the employee's retirement eligible date, if earlier.
During the three months ended March 31, 2015 and 2014, compensation expense related to RSUs totaled $6.0 million and $4.5 million, respectively. As of March 31, 2015, total unrecognized compensation expense related to outstanding RSUs was $38.3 million, which will be recognized over a weighted average period of 3.3 years.
Performance Shares
During three months ended March 31, 2015, we awarded performance shares (PSUs) to our named executive officers. These awards are performance-based as the number of shares ultimately earned depends on performance against pre-determined targets, including return on invested capital (ROIC), cash flow value creation (CFVC), and total shareholder return relative to the S&P 500 index (RTSR). The PSUs are payable 50% in shares of common stock and 50% in cash after the end of a three-year performance period, when the Company's financial performance for the entire performance period is reported, typically in mid-to late February of the succeeding year. At the end of the performance period, the number of shares awarded can range from 0% to 150% of the targeted amount, depending on the performance against the pre-determined targets.
The following table summarizes PSU activity for the three months ended March 31, 2015:
 
Number of
PSUs
(in thousands)
 
Weighted Average
Grant Date Fair
Value per Share
Outstanding as of December 31, 2014

 
$

Granted
140.4

 
38.69

Vested and issued

 

Forfeited

 

Outstanding as of March 31, 2015
140.4

 
$
38.69

Compensation expense associated with our ROIC and CFVC PSUs that continue to vest based on future performance is measured based on the fair value of our common stock at the grant date for the stock settled, equity classified awards, and the fair value of our common stock at the end of each reporting period for the cash settled, liability classified awards. Compensation expense is recognized ratably over the performance period based on our estimated achievement of the established performance criteria. Compensation expense is only recognized for those awards that we expect to vest, which we estimate based on an assessment of the probability that the performance criteria will be achieved.
The grant date fair value of our RTSR PSUs is based on a Monte Carlo valuation and compensation expense is recognized on a straight-line basis over the vesting period for the stock settled, equity classified awards. For our cash settled, liability classified awards, compensation expense also incorporates the fair value of our RTSR PSUs at the end of each reporting period. Compensation expense is recognized for these awards whether or not the market conditions are achieved.
During the three months ended March 31, 2015, compensation expense related to PSUs totaled $0.3 million. As of March 31, 2015, total unrecognized compensation expense related to outstanding PSUs was $5.2 million, which will be recognized over a weighted average period of 2.9 years.



18

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

10. STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE
During the three months ended March 31, 2015, we repurchased 2.1 million shares of our stock for $86.1 million at a weighted average cost per share of $41.01. As of March 31, 2015, 0.2 million repurchased shares were pending settlement and $9.1 million were unpaid and included within other accrued liabilities.
In February 2015, our board of directors approved a quarterly dividend of $0.28 per share. Cash dividends declared were $98.5 million for the three months ended March 31, 2015. As of March 31, 2015, we recorded a quarterly dividend payable of $98.5 million to shareholders of record at the close of business on April 1, 2015.
Basic earnings per share is computed by dividing net income attributable to Republic Services, Inc. by the weighted average number of common shares (including vested but unissued RSUs) 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 RSUs, and unvested PSUs at the expected attainment levels. In computing diluted earnings per share, we use the treasury stock method.
Earnings per share for the three months ended March 31, 2015 and 2014 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Basic earnings per share:
 
 
 
Net income attributable to Republic Services, Inc.
$
172,400

 
$
132,500

Weighted average common shares outstanding
353,301

 
359,779

Basic earnings per share
$
0.49

 
$
0.37

Diluted earnings per share:
 
 
 
Net income attributable to Republic Services, Inc.
$
172,400

 
$
132,500

Weighted average common shares outstanding
353,301

 
359,779

Effect of dilutive securities:
 
 
 
Options to purchase common stock
1,381

 
1,154

Unvested RSU awards
126

 
35

Unvested PSU awards
2

 

Weighted average common and common equivalent shares outstanding
354,810

 
360,968

Diluted earnings per share
$
0.49

 
$
0.37

Antidilutive securities not included in the diluted earnings per share calculations:
 
 
 
Options to purchase common stock
14

 
1,365



19

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

11. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS (INCOME) BY COMPONENT
A summary of changes in accumulated other comprehensive loss (income), net of tax, by component, for the three months ended March 31, 2015 follows:
 
Gains and Losses on Cash Flow Hedges
 
Defined Benefit Pension Items
 
Total
Balance as of December 31, 2014
$
41.9

 
$
(13.0
)
 
$
28.9

Other comprehensive loss before reclassifications
2.5

 
0.1

 
2.6

Amounts reclassified from accumulated other comprehensive income
(3.7
)
 

 
(3.7
)
Net current period other comprehensive (income) loss
(1.2
)
 
0.1

 
(1.1
)
Balance as of March 31, 2015
$
40.7

 
$
(12.9
)
 
$
27.8

A summary of reclassifications out of accumulated other comprehensive loss (income) for the three months ended March 31, 2015 and 2014 follows:
 
 
Three Months Ended
 
 
 
 
March 31,
 
 
 
 
2015
 
2014
 
 
Details about Accumulated Other Comprehensive Loss (Income) Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss (Income)
 
Affected Line Item in the Statement Where Net Income is Presented
Gain (loss) on cash flow hedges:
 
 
 
 
 
 
Fuel hedges
 
$
(5.6
)
 
$
1.1

 
Cost of operations
Interest rate contracts
 
(0.7
)
 
(0.7
)
 
Interest expense
 
 
(6.3
)
 
0.4

 
Total before tax
 
 
2.6

 
(0.1
)
 
Tax benefit (expense)
Total (loss) gain reclassified into earnings
 
$
(3.7
)
 
$
0.3

 
Net of tax

12. FINANCIAL INSTRUMENTS
Fuel Hedges
We have entered into multiple swap agreements designated as cash flow hedges to mitigate some of our exposure related to changes in diesel fuel prices. These swaps qualified for, and were designated as, effective hedges of changes in the prices of forecasted diesel fuel purchases (fuel hedges).
The following table summarizes our outstanding fuel hedges as of March 31, 2015:
Year
 
Gallons Hedged
 
Weighted Average Contract 
Price per Gallon
2015
 
20,250,000
 
$3.76
2016
 
24,120,000
 
3.64
If the national U.S. on-highway average price for a gallon of diesel fuel as published by the Department of Energy exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional gallons) from the counterparty. If the average price is less than the contract price per gallon, we pay the difference to the counterparty.

20

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

The fair values of our fuel hedges are determined using standard option valuation models with assumptions about commodity prices based on those observed in underlying markets (Level 2 in the fair value hierarchy). The aggregate fair values of our outstanding fuel hedges as of March 31, 2015 and December 31, 2014 were current liabilities of $34.5 million and $34.4 million, respectively, and have been recorded in other accrued liabilities in our consolidated balance sheets. The ineffective portions of the changes in fair values resulted in a loss of $0.8 million and a gain of less than $0.1 million for the three months ended March 31, 2015 and 2014, respectively, and have been recorded in other income, net in our consolidated statements of income.
Total (gain) loss recognized in other comprehensive income for fuel hedges (the effective portion) was $(0.2) million and $1.9 million for the three months ended March 31, 2015 and 2014, respectively.
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.

The carrying value for certain of our financial instruments, including cash, accounts receivable, accounts payable and certain other accrued liabilities, approximates fair value because of their short-term nature.
As of March 31, 2015 and December 31, 2014, our assets and liabilities that are measured at fair value on a recurring basis include the following:
 
 
 
Fair Value Measurements Using
 
Carrying Amount
 
Total as of
March 31, 2015
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Money market mutual funds
$
57.3

 
$
57.3

 
$
57.3

 
$

 
$

Bonds - restricted cash and marketable securities
59.9

 
59.9

 

 
59.9

 

Interest rate swaps - other assets
19.9

 
19.9

 

 
19.9

 

Total assets
$
137.1

 
$
137.1

 
$
57.3

 
$
79.8

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
$
34.5

 
$
34.5

 
$

 
$
34.5

 
$

Total debt
7,564.6

 
8,562.4

 

 
8,562.4

 

Total liabilities
$
7,599.1

 
$
8,596.9

 
$

 
$
8,596.9

 
$


21

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

 
 
 
Fair Value Measurements Using
 
Carrying Amount
 
Total as of December 31, 2014
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Money market mutual funds
$
59.7

 
$
59.7

 
$
59.7

 
$

 
$

Bonds - restricted cash and marketable securities
56.8

 
56.8

 

 
56.8

 

Interest rate swaps - other assets
14.1

 
14.1

 

 
14.1

 

Total assets
$
130.6

 
$
130.6

 
$
59.7

 
$
70.9

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
$
34.4

 
$
34.4

 
$

 
$
34.4

 
$

Total debt
7,061.2

 
7,977.9

 

 
7,977.9

 

Total liabilities
$
7,095.6

 
$
8,012.3

 
$

 
$
8,012.3

 
$

The fair value of our fixed rate senior notes and debentures was $7.4 billion and $6.8 billion as of March 31, 2015 and December 31, 2014, respectively. The carrying value of these notes and debentures was $6.4 billion and $5.9 billion as of March 31, 2015 and December 31, 2014, 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. See Note 7, Debt, for further information related to our debt.

13. SEGMENT REPORTING
We manage and evaluate our operations through three regions: East, Central and West. These three regions are presented below as our reportable segments, which provide integrated waste management services consisting of collection, transfer, recycling, E&P waste services and disposal of non-hazardous solid waste.
Summarized financial information concerning our reportable segments for the three months ended March 31, 2015 and 2014 follows:
 
Gross
Revenue
 
Intercompany
Revenue
 
Net
Revenue
 
Depreciation,
Amortization,
Depletion and
Accretion
 
Operating
Income
(Loss)
 
Capital
Expenditures
 
Total Assets
Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
East
$
698.4

 
$
(93.6
)
 
$
604.8

 
$
66.1

 
$
122.2

 
$
29.8

 
$
4,481.4

Central
766.0

 
(137.6
)
 
628.4

 
79.3

 
125.3

 
42.8

 
5,765.9

West
1,098.7

 
(201.0
)
 
897.7

 
96.9

 
209.7

 
91.7

 
8,913.3

Corporate entities
41.4

 
(2.9
)
 
38.5

 
10.8

 
(84.4
)
 
105.3

 
1,433.1

Total
$
2,604.5

 
$
(435.1
)
 
$
2,169.4

 
$
253.1

 
$
372.8

 
$
269.6

 
$
20,593.7

Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
East
$
688.8

 
$
(93.4
)
 
$
595.4

 
$
64.8

 
$
102.0

 
$
32.4

 
$
4,783.5

Central
738.1

 
(133.4
)
 
604.7

 
76.3

 
99.8

 
36.6

 
5,763.3

West
1,020.1

 
(185.2
)
 
834.9

 
81.0

 
203.3

 
49.1

 
8,207.0

Corporate entities
45.4

 
(3.2
)
 
42.2

 
10.5

 
(99.0
)
 
95.6

 
1,088.7

Total
$
2,492.4

 
$
(415.2
)
 
$
2,077.2

 
$
232.6

 
$
306.1

 
$
213.7

 
$
19,842.5

Intercompany revenue reflects transactions within and between segments that generally are made on a basis intended to reflect the market value of such services. Capital expenditures for corporate entities primarily include vehicle inventory acquired but not yet assigned to operating locations and facilities. Corporate functions include legal, tax, treasury, information technology, risk management, human resources, corporate accounts, closed landfills and other administrative functions.

22

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

The following table shows our total reported revenue by service line for the three months ended March 31, 2015 and 2014 (in millions of dollars and as a percentage of revenue):
 
Three Months Ended March 31,
 
2015
 
2014
Collection:
 
 
 
 
 
 
 
Residential
$
551.7

 
25.4
%
 
$
537.9

 
25.9
%
Commercial
694.8

 
32.0

 
664.2

 
32.0

Industrial
435.0

 
20.1

 
402.4

 
19.4

Other
8.7

 
0.4

 
9.0

 
0.4

Total collection
1,690.2

 
77.9

 
1,613.5

 
77.7

Transfer
250.8

 
 
 
237.6

 
 
Less: intercompany
(157.5
)
 
 
 
(148.6
)
 
 
Transfer, net
93.3

 
4.3

 
89.0

 
4.3

Landfill
456.5

 
 
 
437.2

 
 
Less: intercompany
(217.6
)
 
 
 
(209.5
)
 
 
Landfill, net
238.9

 
11.0

 
227.7

 
11.0

E&P waste services
23.8

 
1.1

 
9.1

 
0.4

Other:
 
 
 
 
 
 
 
Sale of recycled commodities
85.7

 
4.0

 
99.0

 
4.7

Other non-core
37.5

 
1.7

 
38.9

 
1.9

Total other
123.2

 
5.7

 
137.9

 
6.6

Total revenue
$
2,169.4

 
100.0
%
 
$
2,077.2

 
100.0
%
Other non-core revenue consists primarily of revenue from National Accounts, which represents the portion of revenue generated from nationwide contracts in markets outside our operating areas where 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.

14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are subject to extensive and evolving laws and regulations and have implemented safeguards to respond to regulatory requirements. In the normal course of our business, we become involved in legal proceedings. Some 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, we do not believe the outcome of any of our pending legal proceedings will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
As used herein, the term legal proceedings refers to litigation and similar claims against us and our subsidiaries, excluding: (1) ordinary course accidents, general commercial liability and workers' compensation claims, which are covered by insurance programs, subject to customary deductibles, and which, together with insured employee health care costs, are discussed in Note 5, Other Liabilities; and (2) 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 $62 million relating to our outstanding legal proceedings as of March 31, 2015. 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 can reasonably estimate a range of losses we may incur regarding such a matter, we record an accrual for the amount within the range that constitutes our best estimate. If we can 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 be approximately $75 million higher than the amount recorded as of March 31, 2015.

23

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

Multiemployer Pension Plans
We contribute to 27 multiemployer pension plans under collective bargaining agreements (CBAs) covering union-represented employees. These plans generally provide retirement benefits to participants based on their service to contributing employers. We do not administer these plans.
Under current law regarding multiemployer pension plans, a plan’s termination, and any termination of an employer’s obligation to make contributions, including our voluntary withdrawal (which we consider from time to time) or the mass withdrawal of all contributing employers from any under-funded multiemployer pension plan (each, a Withdrawal Event) would require us to make payments to the plan for our proportionate share of the plan’s unfunded vested liabilities. During the course of operating our business, we incur Withdrawal Events regarding certain of our multiemployer pension plans. We accrue for such events when losses become probable and reasonably estimable.
Central States, Southeast and Southwest Areas Pension Fund
Before September 30, 2013, we had CBAs with local bargaining units of the Teamsters under which we contributed to the Central States, Southeast and Southwest Areas Pension Fund (the Fund). These CBAs were under negotiation during 2012 and 2013. As part of our CBA negotiations, we partially withdrew from participation in the Fund in 2012 and completely withdrew from the Fund in 2013. Accordingly, we will be required to make payments to the Fund for our allocated share of its unfunded vested liabilities.
As of March 31, 2015, our estimated liability recorded for our withdrawal from the Fund was $149.5 million. We anticipate this liability will be due in installments over a period of 20 years. Our estimated withdrawal liability is based on information provided to us by the Fund, our actuarial calculations and a number of other variable factors, including the number of 2013 contribution based units. As we obtain updated information from the Fund, the factors used in deriving our estimated withdrawal liability are subject to change. Future changes in our estimated withdrawal liability or timing of payments could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
In April 2014, we submitted to the Fund a request for review and an information request for supporting documentation surrounding the Fund’s calculation and assessment of withdrawal liability.  To date the Fund has not responded to our request.  In September 2014, we submitted a formal demand for arbitration.  The dispute is in arbitration with a hearing date set for July 2016. We cannot predict the outcome of arbitration or any additional future proceedings.  Should the Fund’s assessment of withdrawal liability be upheld, we could owe an additional $67 million in cash payments over the 20-year payment period. The pendency of arbitration does not relieve us of our obligation to make progress payments while we dispute the amounts. We make progress payments associated with the Fund's assessed withdrawal liability totaling approximately $4 million each quarter. To date, we have made progress payments totaling $19.8 million.
For additional discussion and detail regarding multiemployer pension plans, see Note 11, Employee Benefit Plans, to our consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Restricted Cash and Marketable Securities
Our restricted cash and marketable securities include, among other things, restricted cash and marketable securities held for capital expenditures under certain debt facilities, restricted cash pursuant to a holdback arrangement, and restricted cash and marketable securities pledged to regulatory agencies and governmental entities as financial guarantees of our performance related to our final capping, closure and post-closure obligations at our landfills. The following table summarizes our restricted cash and marketable securities as of March 31, 2015 and December 31, 2014:
 
2015
 
2014
Financing proceeds
$
34.7

 
$
37.7

Capping, closure and post-closure obligations
26.8

 
26.7

Insurance
50.2

 
50.4

Other
1.0

 
0.8

Total restricted cash and marketable securities
$
112.7

 
$
115.6


24

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

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

25



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion in conjunction with the unaudited consolidated financial statements and notes thereto included under Item 1. In addition, you should refer to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Overview
We are the second largest provider of services in the domestic non-hazardous solid waste industry, as measured by revenue. As of March 31, 2015, we operate facilities in 41 states and Puerto Rico. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 341 collection operations. We own or operate 198 transfer stations, 193 active landfills, 66 recycling centers, 4 treatment, recovery and disposal facilities, and 12 salt water disposal wells. We also operate 72 landfill gas and renewable energy projects.
Revenue for the three months ended March 31, 2015 increased by 4.4% to $2,169.4 million compared to $2,077.2 million for the same period in 2014. This change in revenue is due to increases in average yield of 2.1%, volume of 1.9%, and acquisitions, net of divestitures of 2.1%, partially offset by decreases in fuel recovery fees of 0.7% and recycled commodities of 1.0%.
The following table summarizes our revenue, costs and expenses for the three months ended March 31, 2015 and 2014 (in millions of dollars and as a percentage of revenue):
 
 
Three Months Ended March 31,
 
 
 
2015
 
 
2014
 
Revenue
 
$
2,169.4

 
100.0

%
 
$
2,077.2

 
100.0

%
Expenses:
 
 
 
 
 
 
 
 
 
 
Cost of operations
 
1,304.3

 
60.1

 
 
1,324.7

 
63.8

 
Depreciation, amortization and depletion of property and equipment
 
215.4

 
10.0

 
 
196.4

 
9.4

 
Amortization of other intangible assets and other assets
 
18.0

 
0.8

 
 
16.7

 
0.8

 
Accretion
 
19.7

 
0.9

 
 
19.5

 
1.0

 
Selling, general and administrative
 
239.2

 
11.0

 
 
213.8

 
10.3

 
Operating income
 
$
372.8

 
17.2

%
 
$
306.1

 
14.7

%
Our pre-tax income was $284.5 million for the three months ended March 31, 2015, compared to $220.2 million for the same period in 2014. Our net income attributable to Republic Services, Inc. was $172.4 million for the three months ended March 31, 2015, or $0.49 per diluted share, compared to $132.5 million, or $0.37 per diluted share for the same period in 2014.
During the three months ended March 31, 2014, we recorded a remediation charge that impacted our pre-tax income, net income attributable to Republic Services, Inc. (Net Income — Republic) and diluted earnings per share as noted in the following table (in millions, except per share data). Additionally, see our “Cost of Operations,” “Selling, General and Administrative Expenses” and “Income Taxes” discussions contained in the Results of Operations section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of other items that impacted our earnings.
 
 
Three Months Ended March 31, 2014