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EX-31.2 - EXHIBIT 31.2 - REPUBLIC SERVICES, INC.rsgex31293015.htm
EX-32.1 - EXHIBIT 32.1 - REPUBLIC SERVICES, INC.rsgex32193015.htm
EX-31.1 - EXHIBIT 31.1 - REPUBLIC SERVICES, INC.rsgex31193015.htm
EX-32.2 - EXHIBIT 32.2 - REPUBLIC SERVICES, INC.rsgex32293015.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 September 30, 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 October 22, 2015, the registrant had outstanding 347,238,344 shares of Common Stock, par value $0.01 per share (excluding treasury shares of 69,656,896).



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)
 
September 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
102.5

 
$
75.2

Accounts receivable, less allowance for doubtful accounts and other of $50.2 and $38.9, respectively
988.8

 
930.4

Prepaid expenses and other current assets
236.8

 
263.4

Deferred tax assets
116.2

 
122.0

Total current assets
1,444.3

 
1,391.0

Restricted cash and marketable securities
107.2

 
115.6

Property and equipment, net
7,553.2

 
7,165.3

Goodwill
11,128.3

 
10,830.9

Other intangible assets, net
258.6

 
298.9

Other assets
300.2

 
292.3

Total assets
$
20,791.8

 
$
20,094.0

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
560.8

 
$
527.3

Notes payable and current maturities of long-term debt
5.4

 
10.4

Deferred revenue
316.5

 
306.3

Accrued landfill and environmental costs, current portion
179.2

 
164.3

Accrued interest
69.4

 
67.0

Other accrued liabilities
769.2

 
750.7

Total current liabilities
1,900.5

 
1,826.0

Long-term debt, net of current maturities
7,555.6

 
7,050.8

Accrued landfill and environmental costs, net of current portion
1,676.9

 
1,677.5

Deferred income taxes
1,133.4

 
1,149.0

Insurance reserves, net of current portion
281.5

 
298.0

Other long-term liabilities
441.7

 
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; 416.7 and 414.4 issued
   including shares held in treasury, respectively
4.2

 
4.1

Additional paid-in capital
6,952.3

 
6,876.9

Retained earnings
3,070.3

 
2,795.0

Treasury stock, at cost (69.0 and 61.7 shares, respectively)
(2,200.4
)
 
(1,901.8
)
Accumulated other comprehensive loss, net of tax
(26.6
)
 
(28.9
)
Total Republic Services, Inc. stockholders’ equity
7,799.8

 
7,745.3

Noncontrolling interests
2.4

 
2.5

Total stockholders’ equity
7,802.2

 
7,747.8

Total liabilities and stockholders’ equity
$
20,791.8

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
2,344.0

 
$
2,267.9

 
$
6,824.8

 
$
6,574.2

Expenses:
 
 
 
 
 
 
 
Cost of operations
1,390.2

 
1,401.1

 
4,114.9

 
4,102.7

Depreciation, amortization and depletion
247.1

 
235.6

 
726.3

 
679.0

Accretion
19.7

 
19.5

 
59.2

 
58.4

Selling, general and administrative
244.1

 
229.0

 
719.5

 
663.8

Negotiation and withdrawal costs - Central States Pension and Other Funds

 
0.3

 

 
1.8

Restructuring charges

 

 

 
1.8

Operating income
442.9

 
382.4

 
1,204.9

 
1,066.7

Interest expense
(91.8
)
 
(87.0
)
 
(272.0
)
 
(260.8
)
Loss on extinguishment of debt

 

 

 
(1.4
)
Interest income
0.1

 
0.1

 
0.6

 
0.6

Other (expense) income, net
(0.4
)
 
(0.1
)
 
0.5

 
1.2

Income before income taxes
350.8

 
295.4

 
934.0

 
806.3

Provision for income taxes
135.6

 
109.6

 
356.0

 
308.9

Net income
215.2

 
185.8

 
578.0

 
497.4

Net income attributable to noncontrolling interests
(0.2
)
 

 
(0.3
)
 
(0.1
)
Net income attributable to Republic Services, Inc.
$
215.0

 
$
185.8

 
$
577.7

 
$
497.3

Basic earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
Basic earnings per share
$
0.62

 
$
0.52

 
$
1.65

 
$
1.39

Weighted average common shares outstanding
348.9

 
356.3

 
351.0

 
357.4

Diluted earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
Diluted earnings per share
$
0.61

 
$
0.52

 
$
1.64

 
$
1.39

Weighted average common and common equivalent shares outstanding
350.3

 
357.7

 
352.4

 
358.8

Cash dividends per common share
$
0.30

 
$
0.28

 
$
0.86

 
$
0.80

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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
215.2

 
$
185.8

 
$
578.0

 
$
497.4

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
Hedging activity:
 
 
 
 
 
 
 
Settlements
(4.6
)
 
0.2

 
(11.0
)
 
1.3

Realized loss (gain) reclassified into earnings
5.0

 
0.3

 
12.9

 
(0.1
)
Unrealized (loss) gain
(5.3
)
 
(7.2
)
 
0.5

 
(6.4
)
Pension activity:
 
 
 
 
 
 
 
Change in funded status of pension plan obligations

 

 
(0.1
)
 

Other comprehensive (loss) income, net of tax
(4.9
)
 
(6.7
)
 
2.3

 
(5.2
)
Comprehensive income
210.3

 
179.1

 
580.3

 
492.2

Comprehensive income attributable to noncontrolling interests
(0.2
)
 

 
(0.3
)
 
(0.1
)
Comprehensive income attributable to Republic Services, Inc.
$
210.1

 
$
179.1

 
$
580.0

 
$
492.1

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 Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated
Other
Comprehensive Loss,
Net of Tax
 
Noncontrolling
Interests
 
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
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

 

 

 
577.7

 

 

 

 
0.3

 
578.0

Other comprehensive income

 

 

 

 

 

 
2.3

 

 
2.3

Cash dividends declared

 

 

 
(300.6
)
 

 

 

 

 
(300.6
)
Issuances of common stock
2.3

 
0.1

 
58.5

 

 

 

 

 

 
58.6

Stock-based compensation

 

 
16.9

 
(1.8
)
 

 

 

 

 
15.1

Purchase of common stock for treasury

 

 

 

 
(7.3
)
 
(298.6
)
 

 

 
(298.6
)
Distributions paid to noncontrolling interests

 

 

 

 

 

 

 
(0.4
)

(0.4
)
Balance as of September 30, 2015
416.7

 
$
4.2

 
$
6,952.3

 
$
3,070.3

 
(69.0
)
 
$
(2,200.4
)
 
$
(26.6
)
 
$
2.4

 
$
7,802.2

The accompanying notes are an integral part of these statements.


6


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

 
Nine Months Ended September 30,
 
2015
 
2014
Cash provided by operating activities:
 
 
 
Net income
$
578.0

 
$
497.4

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, amortization, depletion and accretion
785.5

 
737.4

Non-cash interest expense
35.2

 
33.6

Restructuring related charges

 
1.8

Stock-based compensation
15.1

 
14.2

Deferred tax benefit
(12.3
)
 
(4.7
)
Provision for doubtful accounts, net of adjustments
17.3

 
16.3

Loss on extinguishment of debt

 
1.4

Gain on disposition of assets, net and asset impairments
(1.6
)
 
(4.7
)
Environmental adjustments
(1.3
)
 
36.2

Excess income tax benefit from stock-based compensation activity and other non-cash items
(7.0
)
 
(3.3
)
Change in assets and liabilities, net of effects from business acquisitions and divestitures:
 
 
 
Accounts receivable
(39.8
)
 
(77.8
)
Prepaid expenses and other assets
(64.2
)
 
(28.0
)
Accounts payable
11.7

 
(2.3
)
Restructuring expenditures

 
(1.0
)
Capping, closure and post-closure expenditures
(50.4
)
 
(36.5
)
Remediation expenditures
(50.1
)
 
(75.0
)
Other liabilities
108.4

 
(3.4
)
Cash provided by operating activities
1,324.5

 
1,101.6

Cash used in investing activities:
 
 
 
Purchases of property and equipment
(732.0
)
 
(683.1
)
Proceeds from sales of property and equipment
17.1

 
13.9

Cash used in business acquisitions, net of cash acquired
(535.9
)
 
(73.5
)
Change in restricted cash and marketable securities
8.4

 
36.2

Other
(0.8
)
 
(4.5
)
Cash used in investing activities
(1,243.2
)
 
(711.0
)
Cash used in financing activities:
 
 
 
Proceeds from notes payable and long-term debt
895.4

 
939.8

Proceeds from issuance of senior notes, net of discount
497.9

 

Payments of notes payable and long-term debt
(908.9
)
 
(951.0
)
Fees paid to issue senior notes and retire certain hedging relationships
(3.2
)
 
(4.0
)
Issuances of common stock
52.3

 
79.5

Excess income tax benefit from stock-based compensation activity
6.2

 
3.6

Purchases of common stock for treasury
(293.3
)
 
(277.5
)
Cash dividends paid
(295.0
)
 
(279.1
)
Distributions paid to noncontrolling interests
(0.4
)
 
(0.4
)
Other
(5.0
)
 
(1.8
)
Cash used in financing activities
(54.0
)
 
(490.9
)
Increase (decrease) in cash and cash equivalents
27.3

 
(100.3
)
Cash and cash equivalents at beginning of year
75.2

 
213.3

Cash and cash equivalents at end of period
$
102.5

 
$
113.0

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 (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. In July 2015, the FASB voted to amend the guidance by approving a one-year deferral of the effective date and providing the option to early adopt the standard on the original effective date of 2017. Republic will adopt the standard beginning January 1, 2018. 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.
In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, which simplifies the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. The standard is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted for

8


financial statements that have not been previously issued. The balance sheet presentation of Republic's debt issuance costs and related debt liabilities will be affected beginning January 1, 2016.

2. BUSINESS ACQUISITIONS
We acquired various waste businesses during the nine months ended September 30, 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
$
535.9

 
$
73.5

Contingent consideration
75.8

 

Holdbacks
2.6

 
8.2

Fair value, future minimum lease payments
1.5

 

Fair value, future guaranteed payments

 
6.8

Total
$
615.8

 
$
88.5

Allocated as follows:
 
 
 
Accounts receivable
36.1

 
3.2

Landfill airspace
159.7

 
26.6

Property and equipment
144.9

 
21.0

Other assets
1.8

 
4.7

Accounts payable
(7.1
)
 

Future service obligations

 
(11.0
)
Environmental remediation liabilities
(2.8
)
 

Closure and post-closure liabilities
(11.3
)
 
(3.2
)
Other liabilities
(9.5
)
 
(2.6
)
Fair value of tangible assets acquired and liabilities assumed
311.8

 
38.7

Excess purchase price to be allocated
$
304.0

 
$
49.8

Excess purchase price allocated as follows:
 
 
 
Other intangible assets
$
10.1

 
$
11.2

Goodwill
293.9

 
38.6

Total allocated
$
304.0

 
$
49.8

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 April 2015, we entered into a waste management contract with the County of Sonoma, California (Sonoma). Under the agreement, Sonoma grants us the exclusive right to use and operate the county's waste management facilities. We will operate and manage the Sonoma County Landfill for the remaining life of the site, which we estimate to be approximately 30 years. We also have assumed all closure and post-closure obligations for the site. In addition to the landfill, we will operate five transfer stations and a gas-to-energy plant. By entering this agreement, we have effectively obtained control of the business through contract. In exchange, we have agreed to pay a contingent concession fee per ton of waste disposed at the landfill. The potential undiscounted amount of all future contingent payments that we could be required to make under the agreement is estimated to be between approximately $100 million and $214 million. The fair value of contingent consideration was estimated by applying the income approach and was recorded as a $75.3 million liability as of the acquisition date. That measure is based on significant inputs that are not observable in the market. Key assumptions include volume of annual tons disposed at the landfill and discount rates that represent the best estimates of management and are subject to remeasurement at each reporting date. The contingent consideration and purchase price allocation are preliminary and are subject to revision. We expect these final valuations and assessments will be substantially completed in 2015.
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

9

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

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. Based on valuation work performed through September 30, 2015, the carrying value of property and equipment decreased $12.8 million from the amount recorded as of March 31, 2015. The purchase price allocation is still preliminary and remains 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.
In August 2014, we entered into a life-of-site operating agreement for the City of San Angelo Landfill located in Texas, which we have recorded as the acquisition of a business.  Previously, we operated the site on behalf of the City of San Angelo under an agreement that expired in July 2014. Consideration transferred included cash of $10.3 million and future guaranteed payments of $6.8 million. We assumed future service obligations of $11.0 million and closure and post-closure obligations of $3.2 million.  We allocated $26.6 million of purchase price to landfill airspace and no purchase price was allocated to goodwill.

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 September 30, 2015
East
 
$
3,046.0

 
$
8.1

 
$
(0.4
)
 
$
3,053.7

Central
 
3,279.0

 
14.7

 
(0.4
)
 
3,293.3

West
 
4,505.9

 
271.1

 
4.3

 
4,781.3

Total
 
$
10,830.9

 
$
293.9

 
$
3.5

 
$
11,128.3

Adjustments to acquisitions during the nine months ended September 30, 2015 primarily related to working capital and deferred taxes, 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, other municipal agreements, non-compete agreements and trade names, 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 September 30, 2015
 
Balance as of December 31, 2014
 
Acquisitions and Other Additions
 
Balance as of September 30, 2015
 
Balance as of December 31, 2014
 
Additions
Charged to
Expense
 
Balance as of September 30, 2015
 
Customer relationships, franchise and other municipal agreements
$
641.2

 
$
7.4

 
$
648.6

 
$
(369.1
)
 
$
(46.4
)
 
$
(415.5
)
 
$
233.1

Non-compete agreements
26.8

 
2.3

 
29.1

 
(18.2
)
 
(2.9
)
 
(21.1
)
 
8.0

Other intangible assets
65.2

 
0.4

 
65.6

 
(47.0
)
 
(1.1
)
 
(48.1
)
 
17.5

Total
$
733.2

 
$
10.1

 
$
743.3

 
$
(434.3
)
 
$
(50.4
)
 
$
(484.7
)
 
$
258.6




10

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


4. OTHER ASSETS
Prepaid Expenses and Other Current Assets
A summary of prepaid expenses and other current assets as of September 30, 2015 and December 31, 2014 follows:
 
2015
 
2014
Inventories
$
37.7

 
$
35.9

Prepaid expenses
76.6

 
55.0

Other non-trade receivables
88.9

 
57.0

Reinsurance receivable
12.9

 
12.4

Income tax receivable
14.9

 
101.6

Other current assets
5.8

 
1.5

Total
$
236.8

 
$
263.4

Other Assets
A summary of other assets as of September 30, 2015 and December 31, 2014 follows:
 
2015
 
2014
Deferred financing costs
$
46.4

 
$
47.2

Deferred compensation plan
80.0

 
77.1

Amounts recoverable for capping, closure and post-closure obligations
26.2

 
24.3

Reinsurance receivable
45.7

 
48.4

Interest rate swaps
21.5

 
14.1

Other
80.4

 
81.2

Total
$
300.2

 
$
292.3


5. OTHER LIABILITIES
Other Accrued Liabilities
A summary of other accrued liabilities as of September 30, 2015 and December 31, 2014 follows:
 
2015
 
2014
Accrued payroll and benefits
$
193.1

 
$
180.2

Accrued fees and taxes
131.4

 
125.6

Insurance reserves, current portion
133.1

 
118.6

Ceded insurance reserves, current portion
12.9

 
12.4

Accrued dividends
104.3

 
98.7

Current tax liabilities
30.7

 
16.3

Fuel hedge liabilities
36.3

 
35.3

Accrued professional fees and legal settlement reserves
31.0

 
61.2

Withdrawal liability - Central States Pension and Other Funds
15.9

 
15.9

Other
80.5

 
86.5

Total
$
769.2

 
$
750.7


11

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

Other Long-Term Liabilities
A summary of other long-term liabilities as of September 30, 2015 and December 31, 2014 follows:
 
2015
 
2014
Deferred compensation plan
$
81.6

 
$
76.3

Pension and other post-retirement liabilities
9.8

 
11.0

Legal settlement reserves
35.9

 
10.8

Ceded insurance reserves
45.7

 
48.4

Withdrawal liability - Central States Pension and Other Funds
127.7

 
139.6

Contingent consideration and acquisition holdbacks
83.3

 

Other
57.7

 
58.8

Total
$
441.7

 
$
344.9

Insurance Reserves
Our liabilities for unpaid and incurred but not reported claims as of September 30, 2015 and December 31, 2014 (which include claims for workers’ compensation, commercial general and auto liability, and employee-related health care benefits) were $414.6 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 September 30, 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 September 30, 2015 and December 31, 2014 follows:
 
2015
 
2014
Landfill final capping, closure and post-closure liabilities
$
1,188.5

 
$
1,144.3

Environmental remediation liabilities
667.6

 
697.5

Total accrued landfill and environmental costs
1,856.1

 
1,841.8

Less: current portion
(179.2
)
 
(164.3
)
Long-term portion
$
1,676.9

 
$
1,677.5


12

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

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 nine months ended September 30, 2015 and 2014:
 
2015
 
2014
Asset retirement obligation liabilities, beginning of year
$
1,144.3

 
$
1,091.3

Non-cash additions
29.9

 
29.1

Acquisitions and other adjustments
11.4

 
3.7

Asset retirement obligation adjustments
(5.9
)
 
(17.7
)
Payments
(50.4
)
 
(36.5
)
Accretion expense
59.2

 
58.4

Asset retirement obligation liabilities, end of period
1,188.5

 
1,128.3

Less: current portion
(103.1
)
 
(90.1
)
Long-term portion
$
1,085.4

 
$
1,038.2

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 $27.2 million and $26.7 million as of September 30, 2015 and December 31, 2014, respectively, and is included in restricted cash and marketable securities in our consolidated balance sheets.
Landfill Operating Expenses
In the normal course of business, we incur various operating costs associated with environmental compliance. These costs include, among other things, leachate treatment and disposal, methane gas and groundwater monitoring, 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 September 30, 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.

13

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

The following table summarizes the activity in our environmental remediation liabilities for the nine months ended September 30, 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
(50.1
)
 
(75.0
)
Accretion expense (non-cash interest expense)
18.7

 
19.0

Acquisitions
2.8

 

Environmental remediation liabilities, end of period
667.6

 
531.9

Less: current portion
(76.1
)
 
(74.8
)
Long-term portion
$
591.5

 
$
457.1

The following is a discussion of certain of our significant remediation matters:
Bridgeton Landfill.  During the nine months ended September 30, 2015, we paid $22.5 million related to management and monitoring of the remediation area for our closed Bridgeton Landfill in Missouri. 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 September 30, 2015, the remediation liability recorded for this site is $217.8 million, of which $7.5 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 September 30, 2015.
In September 2015, we entered into an agreement with respect to an insurance recovery of $50.0 million related to our Bridgeton Landfill. As such, we recorded a reduction of remediation expenses included in our cost of operations for the three and nine months ended September 30, 2015. In October 2015, we collected the proceeds from the insurance recovery.
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 September 30, 2015 is $86.5 million, of which $2.4 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 September 30, 2015.



14

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 September 30, 2015 and December 31, 2014 is listed in the following table, 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.
 
 
 
 
September 30, 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
 

 

 

 

 

 

May 2017
 
Variable
 

 

 

 

 

 

June 2019
 
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

 
(2.1
)
 
647.9

 
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

 
(1.6
)
 
848.4

 
850.0

 
(1.8
)
 
848.2

May 2023
 
4.750
 
550.0

 
17.9

 
567.9

 
550.0

 
11.5

 
561.5

March 2025
 
3.200
 
500.0

 
(2.0
)
 
498.0

 

 

 

March 2035
 
6.086
 
275.7

 
(23.5
)
 
252.2

 
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

 
(1.4
)
 
33.9

 
35.3

 
(1.6
)
 
33.7

September 2035
 
7.400
 
165.2

 
(40.0
)
 
125.2

 
165.3

 
(40.5
)
 
124.8

Tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 - 2044
 
0.430 - 5.625
 
1,079.1

 

 
1,079.1

 
1,083.8

 

 
1,083.8

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 - 2046
 
4.000 - 12.203
 
112.3

 

 
112.3

 
113.8

 

 
113.8

Total Debt
 
 
 
$
7,617.6

 
$
(56.6
)
 
7,561.0

 
$
7,123.9

 
$
(62.7
)
 
7,061.2

Less: current portion
 
 
 
 
 
 
 
(5.4
)
 
 
 
 
 
(10.4
)
Long-term portion
 
 
 
 
 
 
 
$
7,555.6

 
 
 
 
 
$
7,050.8

Loss on Extinguishment of Debt
During the nine months ended September 30, 2014, we completed the refinancing of our Credit Facilities and certain of our tax-exempt financings, which resulted in non-cash charges for deferred issuance costs of $1.4 million.
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

15

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

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 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 $1,726.4 million and $1,615.4 million as of September 30, 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 September 30, 2015 and December 31, 2014, we had no borrowings under our Credit Facilities.  We had $504.6 million and $615.1 million of letters of credit outstanding under our Credit Facilities as of September 30, 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 September 30, 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 September 30, 2015, we had no borrowings under our Puerto Rico Uncommitted Facility.
Senior Notes and Debentures
During the nine months ended September 30, 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 nine months ended September 30, 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 September 30, 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 $112.3 million and $113.8 million as of September 30, 2015 and December 31, 2014, respectively, with maturities ranging from 2015 to 2046.



16

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

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).
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 September 30, 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.
As of September 30, 2015 and December 31, 2014, the interest rate swap agreements are reflected at their fair value of $21.5 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 and $5.7 million during the three and nine months ended September 30, 2015, respectively, and $1.9 million and $5.8 million during the three and nine months ended September 30, 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 September 30, 2015 and 2014, we recognized a loss of $9.2 million and a gain of $1.5 million, respectively, on the change in fair value of the hedged senior notes attributable to changes in the benchmark interest rate, with an offsetting gain of $9.6 million and loss of $1.2 million, respectively, on the related interest rate swaps. For the nine months ended September 30, 2015 and 2014, we recognized a loss of $6.3 million and $10.0 million, respectively, on the change in fair value of the hedged senior notes attributable to changes in the benchmark interest rate, with an offsetting gain of $7.3 million and $11.0 million, respectively, on the related interest rate swaps. The difference of these fair value changes represents hedge ineffectiveness, which is recorded directly in earnings as other (expense) income, net.
Cash Flow Hedges
During the nine months ended September 30, 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 the 3.20% Notes. Upon issuance of the 3.20% Notes, 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 September 30, 2015 and 2014, no interest rate lock cash flow hedges were outstanding. As of September 30, 2015 and December 31, 2014, the effective portion of the interest rate locks, recorded as a component of accumulated other comprehensive loss, net of tax, was $19.7 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 was $0.7 million during each of the three months ended September 30, 2015 and 2014 and $2.0 million during each of the nine months ended September 30, 2015 and 2014.


17

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


8. INCOME TAXES
Our effective tax rate, exclusive of noncontrolling interests, for the three and nine months ended September 30, 2015 was 38.7% and 38.1%, respectively. The effective tax rate for the nine months ended September 30, 2015 was favorably affected by the second quarter resolution of a Puerto Rican tax matter in addition to tax refunds received during the year as a result of filing various state amended tax returns.
Our effective tax rate, exclusive of noncontrolling interests, for the three and nine months ended September 30, 2014 was 37.1% and 38.3%, respectively. The effective tax rate for the three and nine months ended September 30, 2014 was favorably affected by the realization of additional federal and state benefits on our 2013 tax returns, lower state rates due to changes in estimates and adjustments to deferred taxes.
Income taxes paid, net of refunds received, were $256.8 million and $280.3 million for the nine months ended September 30, 2015 and 2014, respectively.
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 September 30, 2015, we have accrued a liability for penalties of $0.5 million and a liability for interest (including interest on penalties) of $10.2 million related to our uncertain tax positions.
We believe that our recorded liabilities for uncertain tax positions are adequate. However, a significant assessment against us in excess of the liabilities recorded could have a material adverse effect on our consolidated financial position, results of operations or cash flows. During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease. Gross unrecognized benefits we expect to settle in the next twelve months are in the range of zero to $10 million.
We have deferred tax assets related to state net operating loss carryforwards. 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 September 30, 2015, the valuation allowance associated with our state loss carryforwards was approximately $61 million.



18

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


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 nine months ended September 30, 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
(1.8
)
 
28.49

 
 
 
$
23.2

Forfeited or expired
(0.1
)
 
30.51

 
 
 
 
Outstanding as of September 30, 2015
5.7

 
$
29.80

 
3.3
 
$
63.0

Exercisable as of September 30, 2015
3.6

 
$
29.06

 
2.7
 
$
43.2

During the nine months ended September 30, 2015 and 2014, compensation expense for stock options was $2.1 million and $5.2 million, respectively.
As of September 30, 2015, total unrecognized compensation expense related to outstanding stock options was $1.9 million, which will be recognized over a weighted average period of 1.2 years. The total fair value of stock options that vested during the nine months ended September 30, 2015 was $8.9 million.
Restricted Stock Units
The following table summarizes restricted stock unit (RSU) activity for the nine months ended September 30, 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
707.0

 
38.61

 
 
 
 
Vested and issued
(364.3
)
 
30.04

 
 
 
 
Forfeited
(33.0
)
 
36.40

 
 
 
 
Outstanding as of September 30, 2015
1,765.9

 
$
25.51

 
1.2
 
$
72.8

Vested and unissued as of September 30, 2015
557.6

 
$
29.79

 
 
 
 
During the nine months ended September 30, 2015, we awarded our non-employee directors 75,000 RSUs, which vested immediately. During the nine months ended September 30, 2015, we awarded 596,210 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, 35,811 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 nine months ended September 30, 2015 and 2014, compensation expense related to RSUs totaled $12.4 million and $9.0 million, respectively. As of September 30, 2015, total unrecognized compensation expense related to outstanding RSUs was $32.3 million, which will be recognized over a weighted average period of 2.9 years.

19

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

Performance Shares
During the nine months ended September 30, 2015, we awarded 140,443 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 for 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 PSUs 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 nine months ended September 30, 2015:
 
Number of
PSUs
(in thousands)
 
Weighted Average
Grant Date Fair
Value per Share
Outstanding as of December 31, 2014

 
$

Granted
142.4

 
38.69

Vested and issued

 

Forfeited

 

Outstanding as of September 30, 2015
142.4

 
$
38.69

During the nine months ended September 30, 2015, 1,952 PSUs were earned as dividend equivalents. The PSUs do not carry any voting or dividend rights, except the right to receive additional PSUs in lieu of dividends.
Compensation expense associated with our PSUs that vest based on future ROIC and CFVC performance is measured using 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 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 nine months ended September 30, 2015, compensation expense related to PSUs totaled $1.2 million. As of September 30, 2015, total unrecognized compensation expense related to outstanding PSUs was $4.3 million, which will be recognized over a weighted average period of 2.4 years.

10. STOCK REPURCHASES, DIVIDENDS AND EARNINGS PER SHARE
Stock Repurchases
During the three months ended September 30, 2015, we repurchased 2.3 million shares of our stock for $93.8 million at a weighted average cost per share of $40.89. During the nine months ended September 30, 2015, we repurchased 7.3 million shares of our stock for $293.3 million at a weighted average cost per share of $40.66. In addition, as of September 30, 2015, 0.1 million repurchased shares were pending settlement and $5.3 million were unpaid and included within other accrued liabilities.
In October 2015, our board of directors added $900.0 million to the existing share repurchase authorization. Before this, $67.0 million remained under the prior authorization. The total authorization is now $967.0 million through December 31, 2017. Share repurchases under the program may be made through open market purchases or privately negotiated transactions in accordance with applicable federal securities laws. While the board of directors has approved the share repurchase program, the timing of any purchases, the prices and the number of shares of common stock to be purchased will be determined by our management, at its discretion, and will depend upon market conditions and other factors. The program may be extended, suspended or discontinued at any time.


20

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

Dividends
In July 2015, our board of directors approved a quarterly dividend of $0.30 per share. Cash dividends declared were $300.6 million for the nine months ended September 30, 2015. As of September 30, 2015, we recorded a quarterly dividend payable of $104.3 million to shareholders of record at the close of business on October 1, 2015.
Earnings per Share
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. We use the treasury stock method in computing diluted earnings per share.
Earnings per share for the three and nine months ended September 30, 2015 and 2014 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Basic earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
215,000

 
$
185,800

 
$
577,700

 
$
497,300

Weighted average common shares outstanding
348,935

 
356,252

 
350,966

 
357,432

Basic earnings per share
$
0.62

 
$
0.52

 
$
1.65

 
$
1.39

Diluted earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
215,000

 
$
185,800

 
$
577,700

 
$
497,300

Weighted average common shares outstanding
348,935

 
356,252

 
350,966

 
357,432

Effect of dilutive securities:
 
 
 
 
 
 

Options to purchase common stock
1,196

 
1,377

 
1,271

 
1,313

Unvested RSU awards
136

 
111

 
127

 
72

Unvested PSU awards
14

 

 
8

 

Weighted average common and common equivalent shares outstanding
350,281

 
357,740

 
352,372

 
358,817

Diluted earnings per share
$
0.61

 
$
0.52

 
$
1.64

 
$
1.39

Antidilutive securities not included in the diluted earnings per share calculations:
 
 
 
 
 
 
 
Options to purchase common stock
9

 
28

 
14

 
369


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 nine months ended September 30, 2015 follows:
 
Gain (Loss) 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
10.5

 
0.1

 
10.6

Amounts reclassified from accumulated other comprehensive income
(12.9
)
 

 
(12.9
)
Net current period other comprehensive (income) loss
(2.4
)
 
0.1

 
(2.3
)
Balance as of September 30, 2015
$
39.5

 
$
(12.9
)
 
$
26.6


21

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

A summary of reclassifications out of accumulated other comprehensive loss (income) for the three and nine months ended September 30, 2015 and 2014 follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
 
September 30,
 
September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
Details about Accumulated Other Comprehensive Loss (Income) Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss (Income)
 
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
 
$
(7.5
)
 
$
0.2

 
$
(19.4
)
 
$
2.2

 
Cost of operations
Interest rate contracts
 
(0.7
)
 
(0.7
)
 
(2.0
)
 
(2.0
)
 
Interest expense
 
 
(8.2
)
 
(0.5
)
 
(21.4
)
 
0.2

 
Total before tax
 
 
3.2

 
0.2

 
8.5

 
(0.1
)
 
Tax benefit (expense)
Total (loss) gain reclassified into earnings
 
$
(5.0
)
 
$
(0.3
)
 
$
(12.9
)
 
$
0.1

 
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 September 30, 2015:
Year
 
Gallons Hedged
 
Weighted Average Contract 
Price per Gallon
2015
 
6,750,000
 
$3.76
2016
 
27,000,000
 
3.57
2017
 
12,000,000
 
2.92
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.
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 September 30, 2015 and December 31, 2014 were current liabilities of $33.5 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 $0.2 million and $0.3 million for the three and nine months ended September 30, 2015, respectively, and a loss of $0.1 million for each of the three and nine months ended September 30, 2014, and have been recorded in other (expense) income, net in our consolidated statements of income.
Total (loss) gain recognized in other comprehensive (loss) income for fuel hedges (the effective portion) was $(5.3) million and $(7.1) million for the three months ended September 30, 2015 and 2014, respectively, and $0.5 million and $(6.6) million for the nine months ended September 30, 2015 and 2014, respectively. We classify cash inflows and outflows from our fuel hedges within operating activities in the Consolidated Statements of Cash Flows.

22

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

Recycling Commodity Hedges
Revenue from the sale of recycled commodities is primarily from sales of old corrugated cardboard and old newspaper. From time to time 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 had no outstanding recycling commodity hedges as of September 30, 2015 and December 31, 2014. No amounts were recognized in other income, net in our consolidated statements of income for the ineffective portion of the changes in fair values during the three and nine months ended September 30, 2015 and 2014. Total (loss) gain recognized in other comprehensive income for recycling commodity hedges (the effective portion) was less than $(0.1) million and $0.2 million for the three and nine months ended September 30, 2014, respectively.
Fair Value Measurements
In measuring the 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 September 30, 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
September 30, 2015
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Money market mutual funds
$
49.3

 
$
49.3

 
$
49.3

 
$

 
$

Bonds - restricted cash and marketable securities and other assets
58.9

 
58.9

 

 
58.9

 

Interest rate swaps - other assets
21.5

 
21.5

 

 
21.5

 

Total assets
$
129.7

 
$
129.7

 
$
49.3

 
$
80.4

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
$
33.5

 
$
33.5

 
$

 
$
33.5

 
$

Total debt
7,561.0

 
8,240.5

 

 
8,240.5

 

Contingent consideration - other long-term liabilities
75.3

 
75.3

 

 

 
75.3

Total liabilities
$
7,669.8

 
$
8,349.3

 
$

 
$
8,274.0

 
$
75.3


23

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 and other assets
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

 
$

Total Debt
The fair value of our fixed rate senior notes and debentures was $7.0 billion and $6.8 billion as of September 30, 2015 and December 31, 2014, respectively, and is based on quoted market prices. The carrying value of these notes and debentures was $6.4 billion and $5.9 billion as of September 30, 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.
Contingent Consideration
In April 2015, we entered into a waste management contract with Sonoma to operate the county's waste management facilities. See Note 2, Business Acquisitions, for further information related to our acquisition. The fair value of contingent consideration was estimated by applying the income approach and was recorded as a $75.3 million liability as of the acquisition date. That measure is based on significant inputs that are not observable in the market. Key assumptions include volume of annual tons disposed at the landfill and discount rates that represent the best estimates of management, which are subject to remeasurement at each reporting date.



24

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

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 and nine months ended September 30, 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 September 30, 2015
 
 
 
 
 
 
 
 
 
 
East
$
752.0

 
$
(105.4
)
 
$
646.6

 
$
68.3

 
$
116.4

 
$
53.2

 
$
4,477.6

Central
864.7

 
(166.2
)
 
698.5

 
86.8

 
137.4

 
73.6

 
5,780.4

West
1,171.7

 
(214.9
)
 
956.8

 
101.9

 
209.8

 
87.4

 
8,997.8

Corporate entities
45.5

 
(3.4
)
 
42.1

 
9.8

 
(20.7
)
 
18.5

 
1,536.0

Total
$
2,833.9

 
$
(489.9
)
 
$
2,344.0

 
$
266.8

 
$
442.9

 
$
232.7

 
$
20,791.8

Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
East
$
748.1

 
$
(105.2
)