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EX-32.2 - EXHIBIT 32.2 - REPUBLIC SERVICES, INC.rsgex32293017.htm
EX-32.1 - EXHIBIT 32.1 - REPUBLIC SERVICES, INC.rsgex32193017.htm
EX-31.2 - EXHIBIT 31.2 - REPUBLIC SERVICES, INC.rsgex31293017.htm
EX-31.1 - EXHIBIT 31.1 - REPUBLIC SERVICES, INC.rsgex31193017.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, 2017
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
¨
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨

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 26, 2017, the registrant had outstanding 334,224,518 shares of Common Stock, par value $0.01 per share (excluding treasury shares of 15,721,744).



REPUBLIC SERVICES, INC.
INDEX
 
 
Item 1.
 
Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016
 
Unaudited Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016
 
Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016
 
Unaudited Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2017
 
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016
 
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,
2017
 
December 31,
2016
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
63.9

 
$
67.8

Accounts receivable, less allowance for doubtful accounts and other of $36.7 and $44.0, respectively
1,126.9

 
994.8

Prepaid expenses and other current assets
205.9

 
221.9

Total current assets
1,396.7

 
1,284.5

Restricted cash and marketable securities
96.4

 
90.5

Property and equipment, net
7,750.1

 
7,588.6

Goodwill
11,233.6

 
11,163.2

Other intangible assets, net
152.1

 
182.3

Other assets
319.7

 
320.5

Total assets
$
20,948.6

 
$
20,629.6

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
599.3

 
$
553.8

Notes payable and current maturities of long-term debt
705.7

 
5.8

Deferred revenue
329.3

 
312.9

Accrued landfill and environmental costs, current portion
157.7

 
142.7

Accrued interest
69.0

 
71.8

Other accrued liabilities
730.5

 
725.0

Total current liabilities
2,591.5

 
1,812.0

Long-term debt, net of current maturities
7,152.0

 
7,653.1

Accrued landfill and environmental costs, net of current portion
1,669.5

 
1,684.8

Deferred income taxes and other long-term tax liabilities, net
1,267.5

 
1,210.2

Insurance reserves, net of current portion
276.5

 
274.6

Other long-term liabilities
317.4

 
301.2

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; 349.8 and 348.2 issued including shares held in treasury, respectively
3.5

 
3.5

Additional paid-in capital
4,821.2

 
4,764.5

Retained earnings
3,603.4

 
3,324.0

Treasury stock, at cost; 14.4 and 8.8 shares, respectively
(771.5
)
 
(414.9
)
Accumulated other comprehensive income, net of tax
15.4

 
14.2

Total Republic Services, Inc. stockholders’ equity
7,672.0

 
7,691.3

Noncontrolling interests in consolidated subsidiary
2.2

 
2.4

Total stockholders’ equity
7,674.2

 
7,693.7

Total liabilities and stockholders’ equity
$
20,948.6

 
$
20,629.6

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,
 
2017
 
2016
 
2017
 
2016
Revenue
$
2,562.0

 
$
2,409.3

 
$
7,481.5

 
$
7,008.5

Expenses:
 
 
 
 
 
 
 
Cost of operations
1,580.1

 
1,476.7

 
4,621.6

 
4,298.7

Depreciation, amortization and depletion
260.8

 
252.4

 
769.0

 
745.7

Accretion
20.0

 
19.7

 
59.9

 
59.3

Selling, general and administrative
266.7

 
235.4

 
783.2

 
720.1

Withdrawal costs - multiemployer pension funds

 

 
1.1

 
5.6

Gain on disposition of assets and asset impairments, net
(17.4
)
 

 
(27.2
)
 

Restructuring charges
3.7

 
7.2

 
12.2

 
33.5

Operating income
448.1

 
417.9

 
1,261.7

 
1,145.6

Interest expense
(90.0
)
 
(96.3
)
 
(269.0
)
 
(281.3
)
Loss from unconsolidated equity method investment
(2.2
)
 

 
(8.2
)
 

Loss on extinguishment of debt

 
(196.2
)
 

 
(196.2
)
Interest income
0.3

 
0.2

 
1.0

 
0.9

Other income, net
0.5

 
1.3

 
0.9

 
2.2

Income before income taxes
356.7

 
126.9

 
986.4

 
671.2

Provision for income taxes
133.4

 
41.2

 
371.9

 
247.6

Net income
223.3

 
85.7

 
614.5

 
423.6

Net income attributable to noncontrolling interests in consolidated subsidiary
(0.1
)
 
(0.1
)
 
(0.5
)
 
(0.5
)
Net income attributable to Republic Services, Inc.
$
223.2

 
$
85.6

 
$
614.0

 
$
423.1

Basic earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
Basic earnings per share
$
0.66

 
$
0.25

 
$
1.82

 
$
1.23

Weighted average common shares outstanding
336.5

 
342.6

 
338.2

 
344.0

Diluted earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
Diluted earnings per share
$
0.66

 
$
0.25

 
$
1.81

 
$
1.23

Weighted average common and common equivalent shares outstanding
338.5

 
344.0

 
340.1

 
345.3

Cash dividends per common share
$
0.345

 
$
0.320

 
$
0.985

 
$
0.920

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,
 
2017
 
2016
 
2017
 
2016
Net income
$
223.3

 
$
85.7

 
$
614.5

 
$
423.6

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Hedging activity:
 
 
 
 
 
 
 
Settlements
(1.3
)
 
(4.8
)
 
(3.6
)
 
(16.2
)
Realized loss reclassified into earnings
1.7

 
9.5

 
4.8

 
21.6

Unrealized gain
3.9

 
3.2

 

 
2.1

Other comprehensive income, net of tax
4.3

 
7.9

 
1.2

 
7.5

Comprehensive income
227.6

 
93.6

 
615.7

 
431.1

Comprehensive income attributable to noncontrolling interests
(0.1
)
 
(0.1
)
 
(0.5
)
 
(0.5
)
Comprehensive income attributable to Republic Services, Inc.
$
227.5

 
$
93.5

 
$
615.2

 
$
430.6

The accompanying notes are an integral part of these statements.


5


REPUBLIC SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in millions)
 
 
Republic Services, Inc. Stockholders’ Equity
 
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Income, Net of Tax
 
Noncontrolling
Interests In Consolidated Subsidiary
 
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
Total
Balance as of December 31, 2016
348.2

 
$
3.5

 
$
4,764.5

 
$
3,324.0

 
(8.8
)
 
$
(414.9
)
 
$
14.2

 
$
2.4

 
$
7,693.7

Net income

 

 

 
614.0

 

 

 

 
0.5

 
614.5

Other comprehensive income

 

 

 

 

 

 
1.2

 

 
1.2

Cash dividends declared

 

 

 
(331.9
)
 

 

 

 

 
(331.9
)
Issuances of common stock
1.6

 

 
26.7

 

 

 

 

 

 
26.7

Stock-based compensation

 

 
30.0

 
(2.7
)
 

 

 

 

 
27.3

Purchase of common stock for treasury

 

 

 

 
(5.6
)
 
(356.6
)
 

 

 
(356.6
)
Distributions paid

 

 

 

 

 

 

 
(0.7
)

(0.7
)
Balance as of September 30, 2017
349.8

 
$
3.5

 
$
4,821.2

 
$
3,603.4

 
(14.4
)
 
$
(771.5
)
 
$
15.4

 
$
2.2

 
$
7,674.2

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,
 
2017
 
2016
Cash provided by operating activities:
 
 
 
Net income
$
614.5

 
$
423.6

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, amortization, depletion and accretion
828.9

 
805.0

Non-cash interest expense
32.6

 
41.9

Restructuring related charges
12.2

 
33.5

Stock-based compensation
27.3

 
17.7

Deferred tax provision
60.5

 
58.2

Provision for doubtful accounts, net of adjustments
22.8

 
17.5

Loss on extinguishment of debt

 
196.2

Gain on disposition of assets and asset impairments, net
(26.5
)
 
(0.3
)
Withdrawal costs - multiemployer pension funds
1.1

 
5.6

Environmental adjustments

 
0.3

Loss from unconsolidated equity method investment
8.2

 

Excess income tax benefit from stock-based compensation activity

 
(8.4
)
Other non-cash items
3.0

 
(12.1
)
Change in assets and liabilities, net of effects from business acquisitions and divestitures:
 
 
 
Accounts receivable
(149.0
)
 
(70.8
)
Prepaid expenses and other assets
(1.4
)
 
(52.0
)
Accounts payable
30.3

 
(19.5
)
Restructuring expenditures
(14.6
)
 
(24.2
)
Capping, closure and post-closure expenditures
(44.5
)
 
(56.7
)
Remediation expenditures
(37.7
)
 
(50.7
)
Other liabilities
13.8

 
54.8

Cash provided by operating activities
1,381.5

 
1,359.6

Cash used in investing activities:
 
 
 
Purchases of property and equipment
(769.0
)
 
(738.7
)
Proceeds from sales of property and equipment
4.2

 
7.4

Cash used in business acquisitions and investments, net of cash acquired
(136.4
)
 
(30.7
)
Cash used in business divestitures
(10.6
)
 

Change in restricted cash and marketable securities
(5.9
)
 
10.0

Other
(0.2
)
 
(0.4
)
Cash used in investing activities
(917.9
)
 
(752.4
)
Cash used in financing activities:
 
 
 
Proceeds from notes payable and long-term debt
3,428.1

 
3,068.6

Proceeds from issuance of senior notes, net of discount

 
498.9

Payments of notes payable and long-term debt
(3,238.9
)
 
(3,388.4
)
Premiums paid on extinguishment of debt

 
(176.9
)
Fees paid to issue senior notes and retire certain hedging relationships

 
(9.5
)
Issuances of common stock
26.7

 
35.4

Excess income tax benefit from stock-based compensation activity

 
8.4

Purchases of common stock for treasury
(353.3
)
 
(306.6
)
Cash dividends paid
(324.8
)
 
(309.9
)
Distributions paid to noncontrolling interests in consolidated subsidiary
(0.7
)
 
(0.7
)
Other
(4.6
)
 
(3.9
)
Cash used in financing activities
(467.5
)
 
(584.6
)
(Decrease) increase in cash and cash equivalents
(3.9
)
 
22.6

Cash and cash equivalents at beginning of year
67.8

 
32.4

Cash and cash equivalents at end of period
$
63.9

 
$
55.0

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 (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 energy services in the United States, as measured by revenue. We manage and evaluate our operations through two field groups, Group 1 and Group 2, 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 fiscal year ended December 31, 2016.
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 funds, 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 fiscal year ended December 31, 2016. Our actual results may differ significantly from our estimates.
New Accounting Pronouncements
Accounting Standards Adopted
Stock Compensation
On January 1, 2017, Republic adopted the Financial Accounting Standards Board's ("FASB") Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). Under ASU 2016-09, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. We have elected to recognize forfeitures as they occur. The impact of this change in accounting policy was determined to be insignificant and resulted in no cumulative-effect change to our retained earnings.
ASU 2016-09 also requires that all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense (benefit), net. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits reported in earnings during the award's vesting period. The requirement to report the income tax effects in earnings has been applied on a prospective basis to settlements occurring on or after January 1, 2017, which resulted in a $15.6 million reduction to the current tax provision in the consolidated financial statements for the nine months ended September 30, 2017.

8

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

ASU 2016-09 also requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. Republic has elected to apply that change in cash flow classification on a prospective basis, leaving previously reported net cash provided by operating activities and net cash used in financing activities in the accompanying Unaudited Consolidated Statement of Cash Flows for the period ended September 30, 2016 unchanged. The remaining provisions of ASU 2016-09 did not have a material impact on the accompanying consolidated financial statements.
Accounting Standards Issued but not yet Adopted
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40) ("ASU 2014-09"). ASU 2014-09 requires the use of a five step methodology to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures regarding revenue recognition. Due to the complexity of the new standard, the FASB subsequently issued several amendments intended to clarify ASU 2014-09. In July 2015, the FASB voted to amend the guidance by approving a one-year deferral of the effective date. As such, Republic will adopt the standard beginning January 1, 2018. As we progress toward the adoption of the standard, we continually monitor clarifying interpretations.
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 currently plan to adopt the standard using the modified retrospective approach and recognize a cumulative effect adjustment to Retained Earnings as of the date of adoption. Under ASU 2014-09, we will record revenue when control is transferred to the customer, generally at the time we provide waste collection services. We are adopting the standard through the application of the portfolio approach. We selected a sample of customer contracts to assess under the guidance of the new standard that are characteristically representative of each portfolio. We have completed our review of the sample contracts, and we do not anticipate a significant change to the pattern or timing of revenue recognition as a result of adopting the new standard.
While we do not expect a significant change to the timing or pattern of revenue recognition, we identified certain consideration payable to our customers that will be recorded as a reduction of revenue in accordance with Topic 606. These costs are currently recorded as a component of cost of operations. We estimate these costs to total between approximately $30 million and $40 million per quarter.
We have historically recognized certain costs to obtain and fulfill our contracts as a component of selling, general and administrative expenses as they are incurred. We are currently quantifying the incremental contract costs that may be recognized as an asset under the new standard. In addition, we historically recognized certain upfront payments to acquire customer contracts as an asset in our consolidated balance sheet and amortized the asset as a component of depreciation, amortization and depletion over the respective contract life. We estimate the amortization expense recognized on a quarterly basis to total approximately $1 million. In accordance with Topic 606, we expect to amortize the asset as a reduction of revenue.
During our review of the sample contracts, we identified certain contracts with customers in our collection and recycling lines of business that contain commodity rebates. We continue to assess the presentation of the rebates to be paid to the customer in accordance with Topic 606. We do not anticipate a change to the timing or pattern of recognizing the rebates.
We also assessed the disclosure requirements under ASU 2014-09 and we anticipate disclosing additional information, as necessary, to supplement our disaggregated revenue disclosure, as currently presented in our table showing total reported revenue by service line, and our discussion regarding the nature of our customer contracts included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 requires lessees to recognize lease assets and liabilities for most leases classified as operating leases under previous U.S. GAAP. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As such, Republic will adopt the standard beginning January 1, 2019. We are currently assessing the potential effect this guidance may have on our consolidated financial statements.

9

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

Statement of Cash flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 provides guidance on debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and will be applied using a retrospective transition method to each period presented. As such, Republic will adopt the standard beginning January 1, 2018. We are currently assessing the potential effect this guidance may have on our consolidated financial statements. However, at this time we do not expect significant changes to our reported cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash ("ASU 2016-18"), which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years, and will be applied using a retrospective transition method to each period presented. As such, Republic will adopt the standard beginning January 1, 2018. We are currently assessing the potential effect this guidance may have on our consolidated financial statements.
Business Combinations
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of Business ("ASU 2017-01"), which assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 provides a screen that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years, and will be applied prospectively to any transactions occurring within the period of adoption. As such, Republic will adopt the standard beginning January 1, 2018. We are currently assessing the potential effect this guidance may have on our consolidated financial statements.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment ("ASU 2017-14"). Under this guidance, entities should perform their annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Entities should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-14 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years, and will be applied prospectively. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017.
In conjunction with our annual goodwill impairment assessment, we early adopted this standard effective October 1, 2017. We do not expect the adoption to have a material impact on the accompanying consolidated financial statements. Additional information regarding the results of our annual goodwill impairment assessment will be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"), which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. ASU 2017-07 also allows only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset).

10

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

ASU 2017-07 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. The ASU will be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Republic will adopt the standard beginning January 1, 2018. We are currently assessing the effect this guidance may have on our consolidated financial statements.
Stock Compensation
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"), which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. ASU 2017-09 does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including at an interim period. ASU 2017-09 is to be applied on a prospective basis to an award modified on or after the adoption date. As such, Republic will adopt the standard beginning January 1, 2018. We do not expect the adoption of ASU 2017-09 to have a material impact on our condensed consolidated financial statements.
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). ASU 2017-12 intends to address concerns through changes to hedge accounting guidance which will accomplish the following: a) Expand hedge accounting for nonfinancial and financial risk components and amend measurement methodologies to more closely align hedge accounting with a company's risk management activities; b) Decrease the complexity of preparing and understanding hedge results through eliminating the separate measurement and reporting of hedge ineffectiveness; c) Enhance transparency, comparability and understandability of hedge results through enhanced disclosures and changing the presentation of hedge results to align the effects of the hedging instrument and the hedged item; and d) Reduce the cost and complexity of applying hedge accounting by simplifying the manner in which assessments of hedge effectiveness may be performed. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted in any interim period following the issuance date. We are currently assessing the effect this guidance may have on our consolidated financial statements.

11

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

2. BUSINESS ACQUISITIONS AND RESTRUCTURING CHARGES
Acquisitions
We acquired various waste businesses during the nine months ended September 30, 2017 and 2016.  The purchase price for these acquisitions and the allocations of the purchase price follow:
 
2017
 
2016
Purchase price:
 
 
 
Cash used in acquisitions, net of cash acquired
$
136.0

 
$
30.7

Contingent consideration
5.2

 

Holdbacks
7.7

 
3.3

Fair value of operations surrendered
70.1

 

Total
219.0

 
34.0

Allocated as follows:
 
 
 
Accounts receivable
10.6

 
0.5

Landfill airspace
28.0

 

Property and equipment
76.3

 
11.8

Other assets
0.1

 
0.1

Inventory
0.7

 

Environmental remediation liabilities
(0.1
)
 
(0.1
)
Closure and post-closure liabilities
(5.4
)
 
(0.1
)
Other liabilities
(6.5
)
 
(0.7
)
Fair value of tangible assets acquired and liabilities assumed
103.7

 
11.5

Excess purchase price to be allocated
$
115.3

 
$
22.5

Excess purchase price allocated as follows:
 
 
 
Other intangible assets
$
20.1

 
$
5.3

Goodwill
95.2

 
17.2

Total allocated
$
115.3

 
$
22.5

One of our third quarter 2017 acquisitions included certain hauling, recycling and landfill operations, the effects of which impacted both of our operating segments. On a preliminary basis, we recorded $34.8 million of property and equipment, $8.8 million of intangible assets and $26.4 million goodwill. Contemporaneous with this acquisition, we divested certain hauling operations in our Group 1 operating segment with a fair value of approximately $70 million, resulting in a gain on disposition of $17.1 million.
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.
ReCommunity Acquisition - Subsequent Event
In October 2017, we acquired all of the issued and outstanding shares of RE Community Holdings II, Inc. ("ReCommunity") for approximately $165 million, net of cash acquired, plus the assumption of certain capital leases. Prior to the acquisition, ReCommunity was the largest independent recycling-processing company in the United States, with 26 recycling centers in 14 states, operating primarily in locations where Republic maintains a leading market presence.
Restructuring Charges
In January 2016, we realigned our field support functions by combining our three regions into two field groups, consolidating our areas and streamlining select operational support roles at our Phoenix headquarters. These changes included reducing administrative staffing levels, relocating office space and closing certain office locations.  Additionally during 2016, we began the redesign of our back-office functions as well as the consolidation of over 100 customer service locations into three Customer Resource Centers. The savings realized from these restructuring efforts have been reinvested in our customer-focused programs and initiatives. We expect our consolidation efforts to continue through 2017 and 2018.

12

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

We incurred restructuring charges of $3.7 million and $12.2 million during the three and nine months ended September 30, 2017, respectively, and $7.2 million and $33.5 million during the three and nine months ended September 30, 2016, respectively, that consisted of severance and other employee termination benefits, transition costs, relocation benefits, and the closure of offices with lease agreements with non-cancelable terms. We paid $3.7 million and $14.6 million during the three and nine months ended September 30, 2017, respectively, and $9.7 million and $24.2 million during the three and nine months ended September 30, 2016, respectively, related to these restructuring efforts. We expect to incur additional charges of between approximately $1 million to $2 million for the remainder of 2017 related to our field realignment, the consolidation of our customer service locations, and the redesign of our back-office functions. Substantially all of these restructuring charges will be recorded in our corporate segment.
3. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Our senior management evaluates, oversees and manages the financial performance of our operations through two field groups, referred to as Group 1 and Group 2.
Goodwill
A summary of the activity and balances in goodwill accounts by reporting segment follows:
 
 
Balance as of December 31, 2016
 
Acquisitions
 
Divestitures
 
Adjustments to
Acquisitions and Other
 
Balance as of September 30, 2017
Group 1
 
$
5,258.2

 
$
27.7

 
$
(23.5
)
 
$
(6.1
)
 
$
5,256.3

Group 2
 
5,905.0

 
67.5

 
(1.1
)
 
5.9

 
5,977.3

Total
 
$
11,163.2

 
$
95.2

 
$
(24.6
)
 
$
(0.2
)
 
$
11,233.6

Adjustments to acquisitions during the nine months ended September 30, 2017 primarily related to deferred taxes.
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 20 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, 2017
 
Balance as of December 31, 2016
 
Acquisitions
 
Balance as of September 30, 2017
 
Balance as of December 31, 2016
 
Additions
Charged to
Expense
 
Balance as of September 30, 2017
 
Customer relationships, franchise and other municipal agreements
$
650.8

 
$
11.3

 
$
662.1

 
$
(492.5
)
 
$
(47.0
)
 
$
(539.5
)
 
$
122.6

Non-compete agreements
32.1

 
3.1

 
35.2

 
(25.3
)
 
(2.4
)
 
(27.7
)
 
7.5

Other intangible assets
67.0

 
5.7

 
72.7

 
(49.8
)
 
(0.9
)
 
(50.7
)
 
22.0

Total
$
749.9

 
$
20.1

 
$
770.0

 
$
(567.6
)
 
$
(50.3
)
 
$
(617.9
)
 
$
152.1


13

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, 2017 and December 31, 2016 follows:
 
2017
 
2016
Prepaid expenses
$
86.2

 
$
74.5

Inventories
47.8

 
44.0

Other non-trade receivables
30.3

 
31.4

Reinsurance receivable
21.8

 
15.0

Income tax receivable
14.9

 
51.5

Commodity and fuel hedge assets
1.2

 

Other current assets
3.7

 
5.5

Total
$
205.9

 
$
221.9

Other Assets
A summary of other assets as of September 30, 2017 and December 31, 2016 follows:
 
2017
 
2016
Deferred compensation plan
$
95.7

 
$
87.9

Reinsurance receivable
70.1

 
69.7

Amounts recoverable for capping, closure and post-closure obligations
29.9

 
27.7

Interest rate swaps
28.7

 
32.4

Investments
16.4

 
24.8

Other
78.9

 
78.0

Total
$
319.7

 
$
320.5

5. OTHER LIABILITIES
Other Accrued Liabilities
A summary of other accrued liabilities as of September 30, 2017 and December 31, 2016 follows:
 
2017
 
2016
Accrued payroll and benefits
$
189.4

 
$
195.4

Insurance reserves, current portion
140.4

 
143.9

Accrued fees and taxes
133.6

 
131.2

Accrued dividends
115.7

 
108.6

Accrued professional fees and legal settlement reserves
35.3

 
49.2

Ceded insurance reserves, current portion
21.8

 
15.0

Current tax liabilities
9.6

 
1.4

Commodity and fuel hedge liabilities
1.6

 
5.9

Other
83.1

 
74.4

Total
$
730.5

 
$
725.0


14

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, 2017 and December 31, 2016 follows:
 
2017
 
2016
Deferred compensation plan
$
94.6

 
$
88.3

Contingent consideration and acquisition holdbacks
71.6

 
66.0

Ceded insurance reserves
70.1

 
69.7

Withdrawal liability - multiemployer pension funds
12.6

 
11.7

Legal settlement reserves
10.0

 
1.7

Pension and other post-retirement liabilities
6.2

 
6.7

Other
52.3

 
57.1

Total
$
317.4

 
$
301.2

Insurance Reserves
Our liabilities for unpaid and incurred but not reported claims as of September 30, 2017 and December 31, 2016 (which include claims for workers’ compensation, commercial general and auto liability, and employee-related health care benefits) were $416.9 million and $418.5 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, 2017, we owned or operated 193 active landfills with total available disposal capacity of approximately 5.0 billion in-place cubic yards. We also have post-closure responsibility for 124 closed landfills.
Accrued Landfill and Environmental Costs
A summary of accrued landfill and environmental liabilities as of September 30, 2017 and December 31, 2016 follows:
 
2017
 
2016
Landfill final capping, closure and post-closure liabilities
$
1,252.4

 
$
1,224.6

Environmental remediation liabilities
574.8

 
602.9

Total accrued landfill and environmental costs
1,827.2

 
1,827.5

Less: current portion
(157.7
)
 
(142.7
)
Long-term portion
$
1,669.5

 
$
1,684.8


15

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, 2017 and 2016:
 
2017
 
2016
Asset retirement obligation liabilities, beginning of year
$
1,224.6

 
$
1,181.6

Non-cash additions
34.1

 
30.4

Acquisitions, net of divestitures and other adjustments
(19.6
)
 
0.5

Asset retirement obligation adjustments
(2.1
)
 
(3.2
)
Payments
(44.5
)
 
(56.7
)
Accretion expense
59.9

 
59.3

Asset retirement obligation liabilities, end of period
1,252.4

 
1,211.9

Less: current portion
(84.5
)
 
(94.3
)
Long-term portion
$
1,167.9

 
$
1,117.6

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. During the nine months ended September 30, 2017, we transferred our ownership of the landfill gas collection and control system and the remaining post-closure and environmental liabilities of $24.8 million and $6.3 million, respectively, associated with one of our divested landfills.
The fair value of assets that are legally restricted for purposes of settling final capping, closure and post-closure liabilities was $28.4 million and $27.9 million as of September 30, 2017 and December 31, 2016, 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, 2017 would be approximately $377 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 and cash flows.

16

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, 2017 and 2016:
 
 
2017
 
2016
Environmental remediation liabilities, beginning of year
$
602.9

 
$
646.1

Net additions charged to expense

 
0.3

Payments
(37.7
)
 
(50.7
)
Accretion expense (non-cash interest expense)
15.7

 
17.6

Acquisitions, net of divestitures and other adjustments
(6.1
)
 
1.8

Environmental remediation liabilities, end of period
574.8

 
615.1

Less: current portion
(73.2
)
 
(82.7
)
Long-term portion
$
501.6

 
$
532.4

Bridgeton Landfill.  During the nine months ended September 30, 2017, we paid $13.9 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 remediation liability.  As of September 30, 2017, the remediation liability recorded for this site was $183.3 million, of which approximately $13 million is expected to be paid during the remainder of 2017. We believe the remaining reasonably possible high end of our range would be approximately $156 million higher than the amount recorded as of September 30, 2017.


17

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, 2017 and December 31, 2016 is listed in the following table, and is adjusted for the fair value of interest rate swaps, unamortized discounts, deferred issuance costs 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, 2017
 
December 31, 2016
Maturity
 
Interest Rate
 
Principal
 
Adjustments
 
Carrying  Value
 
Principal
 
Adjustments
 
Carrying Value
Credit facilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Uncommitted Credit Facility
 
Variable
 
$
43.0

 
$

 
$
43.0

 
$

 
$

 
$

June 2019
 
Variable
 

 

 

 
140.0

 

 
140.0

May 2021
 
Variable
 
365.0

 

 
365.0

 
70.0

 

 
70.0

Senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 2018
 
3.800
 
700.0

 
(0.5
)
 
699.5

 
700.0

 
(1.2
)
 
698.8

September 2019
 
5.500
 
650.0

 
(2.4
)
 
647.6

 
650.0

 
(3.3
)
 
646.7

March 2020
 
5.000
 
850.0

 
(2.0
)
 
848.0

 
850.0

 
(2.6
)
 
847.4

November 2021
 
5.250
 
600.0

 
(1.7
)
 
598.3

 
600.0

 
(1.9
)
 
598.1

June 2022
 
3.550
 
850.0

 
(4.8
)
 
845.2

 
850.0

 
(5.6
)
 
844.4

May 2023
 
4.750
 
550.0

 
2.6

 
552.6

 
550.0

 
3.5

 
553.5

March 2025
 
3.200
 
500.0

 
(5.0
)
 
495.0

 
500.0

 
(5.4
)
 
494.6

June 2026
 
2.900
 
500.0

 
(5.1
)
 
494.9

 
500.0

 
(5.5
)
 
494.5

March 2035
 
6.086
 
181.9

 
(15.0
)
 
166.9

 
181.9

 
(15.4
)
 
166.5

March 2040
 
6.200
 
399.9

 
(3.9
)
 
396.0

 
399.9

 
(3.9
)
 
396.0

May 2041
 
5.700
 
385.7

 
(5.5
)
 
380.2

 
385.7

 
(5.6
)
 
380.1

Debentures:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 2021
 
9.250
 
35.3

 
(1.0
)
 
34.3

 
35.3

 
(1.1
)
 
34.2

September 2035
 
7.400
 
148.1

 
(34.7
)
 
113.4

 
148.1

 
(35.2
)
 
112.9

Tax-exempt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 - 2044
 
0.950 - 5.625
 
1,079.1

 
(5.9
)
 
1,073.2

 
1,079.1

 
(6.4
)
 
1,072.7

Capital leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017 - 2046
 
3.980 - 12.203
 
104.6

 

 
104.6

 
108.5

 

 
108.5

Total Debt
 
 
 
$
7,942.6

 
$
(84.9
)
 
7,857.7

 
$
7,748.5

 
$
(89.6
)
 
7,658.9

Less: current portion
 
 
 
 
 
 
 
(705.7
)
 
 
 
 
 
(5.8
)
Long-term portion
 
 
 
 
 
 
 
$
7,152.0

 
 
 
 
 
$
7,653.1

Credit Facilities
In 2016, we entered into a $1.0 billion unsecured revolving credit facility (the "Replacement Credit Facility"), which replaced our $1.0 billion credit facility maturing in May 2017. The Replacement Credit Facility matures in May 2021 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 Replacement Credit Facility).
Contemporaneous with the execution of the Replacement Credit Facility, we entered into Amendment No. 1 to our existing $1.25 billion unsecured credit facility (the "Existing Credit Facility" and, together with the Replacement Credit Facility, the "Credit Facilities"), to conform certain terms of the Existing Credit Facility with those of the Replacement Credit Facility. Amendment No. 1 does not extend the maturity date of the Existing Credit Facility, which matures in June 2019. 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.

18

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

Our Credit Facilities are subject to facility fees based on applicable rates defined in the credit facility agreements and the aggregate commitments, regardless of usage. Availability under our Credit Facilities totaled $1,405.3 million and $1,543.1 million as of September 30, 2017 and December 31, 2016, 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, 2017, we had $365.0 million of borrowings under our Credit Facilities and $210.0 million of borrowings as of December 31, 2016.  We had $461.5 million and $478.4 million of letters of credit outstanding under our Credit Facilities as of September 30, 2017 and December 31, 2016, respectively.
During 2016, we increased the size of our existing unsecured credit facility (the "Uncommitted Credit Facility") to $135.0 million, with all other terms of the agreement remaining unchanged. Our Uncommitted Credit Facility bears interest at LIBOR, plus an applicable margin and 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 agreement governing our Uncommitted Credit Facility requires us to comply with certain covenants. The Uncommitted Credit Facility may be terminated by either party at any time. As of September 30, 2017 we had $43.0 million of borrowings and no borrowings as of December 31, 2016, under our Uncommitted Credit Facility.
Senior Notes and Debentures
During 2016 we issued $500.0 million of 2.90% senior notes due 2026 (the "2.90% Notes"). We used the net proceeds from the 2.90% Notes to purchase outstanding notes and debentures with coupons ranging from 5.70% to 7.40%.
Our senior notes and debentures are general unsecured obligations. Interest is payable semi-annually. The senior notes have a make-whole provision that is exercisable at any time prior to their respective maturity dates at a stated redemption price.
Tax-Exempt Financings
As of September 30, 2017 and December 31, 2016, we had $1,073.2 million and $1,072.7 million, respectively, of fixed and variable rate tax-exempt financings outstanding with maturities ranging from 2019 to 2044. 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.
Capital Leases
We had capital lease liabilities of $104.6 million and $108.5 million as of September 30, 2017 and December 31, 2016, respectively, with maturities ranging from 2017 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).
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, 2017, these swap agreements had 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, 2017 and December 31, 2016, the interest rate swap agreements are reflected at their fair value of $11.6 million and $12.2 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 $1.1 million and $3.8 million during the three and nine months ended September 30, 2017, respectively, and $1.5 million and $4.9 million during the three and nine months ended September 30, 2016, respectively, 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.

19

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

For the three months ended September 30, 2017 and 2016, we recognized gains of $1.0 million and $4.5 million, respectively, on the change in fair value of the hedged senior notes attributable to changes in the benchmark interest rate, and (losses) of $(0.8) million and $(3.8) million, respectively, on the related interest rate swaps. For the nine months ended September 30, 2017 and 2016, we recognized a gain (loss) of $1.3 million and $(9.6) million, respectively, on the change in fair value of the hedged senior notes attributable to changes in the benchmark interest rate, and a (loss) gain of $(0.6) million and $11.4 million, respectively, on the related interest rate swaps. The net amount of these fair value changes represents hedge ineffectiveness, which is recorded directly in earnings as other income, net.
Cash Flow Hedges
During the nine months ended September 30, 2017, we entered into interest rate lock agreements having an aggregate notional amount of $300.0 million with fixed interest rates ranging from 2.170% to 2.418%. During 2016, we also entered into a number of interest rate lock agreements having an aggregate notional amount of $525.0 million with fixed interest rates ranging from 1.900% to 2.280%. Upon the expected issuance of the senior notes, we will terminate the interest rate locks and settle with our counterparties. These transactions were accounted for as cash flow hedges. The fair value of our interest rate locks as of September 30, 2017 was determined using standard valuation models with assumptions about interest rates being based on those observed in underlying markets (Level 2 in the fair value hierarchy). The aggregate fair values of the outstanding interest rate locks as of September 30, 2017 and December 31, 2016 were $17.1 million and $20.2 million, respectively, and were recorded in other assets in our consolidated balance sheet. As of September 30, 2017 and December 31, 2016, the effective portion of the interest rate locks recorded as a component of accumulated other comprehensive income, net of tax, was $10.3 million and $12.2 million, respectively.
As of September 30, 2017 and December 31, 2016, the effective portion of our previously terminated interest rate locks, recorded as a component of accumulated other comprehensive income, net of tax, was $12.2 million and $13.4 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 approximately $1.5 million of net expense, net of tax, 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 and $7.8 million during the three months ended September 30, 2017 and 2016, respectively, and $2.0 million and $9.1 million during the nine months ended September 30, 2017 and 2016, respectively.
8. INCOME TAXES
Our effective tax rate, exclusive of noncontrolling interests, for the three and nine months ended September 30, 2017 was 37.4% and 37.7%, respectively. Our effective tax rate, exclusive of noncontrolling interests, for each of the three and nine months ended September 30, 2017 was favorably affected by the realization of federal and state benefits as well as adjustments to deferred taxes due to the completion of our 2016 tax returns, the adoption of ASU 2016-09, and by tax refunds received as a result of filing various state amended tax returns. In addition, our effective rate was unfavorably impacted by the write-off of goodwill associated with a divestiture that had no corresponding tax basis.
Our effective tax rate, exclusive of noncontrolling interests, for the three and nine months ended September 30, 2016 was 32.5% and 36.9%, respectively. The effective tax rate for the three and nine months ended September 30, 2016 was favorably affected by the realization of federal and state benefits on our 2015 tax returns, certain debt refinancings and the resolution of various state and federal tax matters.
Cash paid for income taxes was $270.5 million and $145.7 million for the nine months ended September 30, 2017 and 2016, respectively. The year over year increase is attributable to lower cash taxes paid in 2016 as a result of our 2016 debt refinancing activities.
We are subject to income tax in the United States and Puerto Rico, as well as in multiple state jurisdictions. Our compliance with income tax rules and regulations is periodically audited by taxing authorities. These authorities may challenge the positions taken in our tax filings. 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, 2017, we accrued a liability for penalties of $0.5 million and a liability for interest (including interest on penalties) of $12.9 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 and 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.

20

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. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized.
Substantially all of our valuation allowance is associated with state loss carryforwards. 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, 2017, the valuation allowance associated with our state loss carryforwards was approximately $60 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 14.0 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, 2017:
 
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, 2016
3.2

 
$
30.35

 
 
 
 
Granted

 

 
 
 
 
Exercised
(1.0
)
 
29.76

 
 
 
$
32.4

Forfeited or expired

 

 
 
 
 
Outstanding as of September 30, 2017
2.2

 
$
30.62

 
1.8
 
$
77.0

Exercisable as of September 30, 2017
2.1

 
$
30.51

 
1.8
 
$
74.6

During the nine months ended September 30, 2017 and 2016, compensation expense for stock options was $0.1 million and $0.4 million, respectively.
As of September 30, 2017, total unrecognized compensation expense related to outstanding stock options was less than $0.1 million, which will be recognized over a weighted average period of 0.6 year. The total fair value of stock options that vested during the nine months ended September 30, 2017 was $3.0 million.
Restricted Stock Units
The following table summarizes restricted stock unit (RSU) activity for the nine months ended September 30, 2017:
 
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, 2016
1,823.8

 
$
37.49

 
 
 
 
Granted
624.7

 
60.11

 
 
 
 
Vested and issued
(586.7
)
 
36.08

 
 
 
 
Forfeited
(57.5
)
 
47.29

 
 
 
 
Outstanding as of September 30, 2017
1,804.3

 
$
45.47

 
1.2
 
$
119.2

Vested and unissued as of September 30, 2017
681.0

 
$
32.89

 
 
 
 

21

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

During the nine months ended September 30, 2017, we awarded our non-employee directors 47,913 RSUs, which vested immediately. During the nine months ended September 30, 2017, we awarded 547,815 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, 29,047 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, 2017 and 2016, compensation expense related to RSUs totaled $18.3 million and $13.5 million, respectively. As of September 30, 2017, total unrecognized compensation expense related to outstanding RSUs was $47.7 million, which will be recognized over a weighted average period of 3.0 years.
Performance Shares
During the nine months ended September 30, 2017, we awarded 116,872 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 our financial performance for the entire performance period is reported, typically in 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.
During the nine months ended September 30, 2017, we awarded 181,650 PSUs to our employees other than our named executive officers. These PSUs are payable 100% in shares of common stock after the end of a three-year performance period, when the Company's financial performance for the entire performance period is reported, typically in 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, 2017:
 
Number of
PSUs
(in thousands)
 
Weighted Average
Grant Date Fair
Value per Share
Outstanding as of December 31, 2016
504.8

 
$
44.40

Granted
309.3

 
60.60

Vested and issued

 

Forfeited
(7.9
)
 
52.23

Outstanding as of September 30, 2017
806.2

 
$
50.55

During the nine months ended September 30, 2017, 10,858 PSUs accumulated as dividend equivalents. The PSUs do not carry any voting or dividend rights, except the right to accumulate additional PSUs in lieu of dividends.
For the stock-settled portion of the awards that vest based on future ROIC and CFVC performance, compensation expense is measured using the fair value of our common stock at the grant date. For the cash-settled portion of the awards that vest based on future ROIC and CFVC performance, compensation expense is recorded based on the fair value of our common stock at the end of each reporting period. 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 the portion of the award that we expect to vest, which we estimate based on an assessment of the probability that the performance criteria will be achieved.
For the stock-settled portion of the awards that vest based on RTSR, the grant date fair value is based on a Monte Carlo valuation and compensation expense is recognized on a straight-line basis over the vesting period. For the cash-settled portion of the awards that vest based on RTSR, compensation expense incorporates the fair value of our PSUs at the end of each reporting period. Compensation expense is recognized for the RTSR portion of the award whether or not the market conditions are achieved.
During the nine months ended September 30, 2017 and 2016, compensation expense related to PSUs totaled $13.7 million and $5.9 million, respectively. As of September 30, 2017, total unrecognized compensation expense related to outstanding PSUs was $24.0 million, which we expect to be recognized over a weighted average period of 1.4 years.

22

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

10. STOCK REPURCHASES, DIVIDENDS AND EARNINGS PER SHARE
Stock Repurchases
Stock repurchase activity during the three and nine months ended September 30, 2017 and 2016 follows (in millions, except per share amounts):
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2017
 
2016
2017
 
2016
Number of shares repurchased
1.9

 
2.2

5.6

 
6.5

Amount paid
$
122.7

 
$
110.5

$
353.3

 
$
306.6

Weighted average cost per share
$
64.78

 
$
50.75

$
62.81

 
$
47.83

As of September 30, 2017 and 2016, 0.1 million and 0.2 million repurchased shares were pending settlement and $3.3 million and $9.1 million was unpaid and included within other accrued liabilities, respectively.
In October 2017, our board of directors added $2.0 billion to our existing share repurchase authorization. Before this, $98.4 million remained under a prior authorization. The total authorization is now $2.1 billion through December 31, 2020. 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 purchase 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, and will depend upon market conditions and other factors. The program may be extended, suspended or discontinued at any time.
Dividends
In July 2017, our board of directors approved a quarterly dividend of $0.345 per share. Cash dividends declared were $331.9 million for the nine months ended September 30, 2017. As of September 30, 2017, we recorded a quarterly dividend payable of $115.7 million to shareholders of record at the close of business on October 2, 2017.
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.

23

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

Earnings per share for the three and nine months ended September 30, 2017 and 2016 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Basic earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
223,200

 
$
85,600

 
$
614,000

 
$
423,100

Weighted average common shares outstanding
336,549

 
342,611

 
338,158

 
343,968

Basic earnings per share
$
0.66

 
$
0.25

 
$
1.82

 
$
1.23

Diluted earnings per share:
 
 
 
 
 
 
 
Net income attributable to Republic Services, Inc.
$
223,200

 
$
85,600

 
$
614,000

 
$
423,100

Weighted average common shares outstanding
336,549

 
342,611

 
338,158

 
343,968

Effect of dilutive securities:
 
 
 
 
 
 

Options to purchase common stock
1,200

 
1,040

 
1,295

 
1,097

Unvested RSU awards
355

 
204

 
347

 
172

Unvested PSU awards
370

 
125

 
312

 
82

Weighted average common and common equivalent shares outstanding
338,474

 
343,980

 
340,112

 
345,319

Diluted earnings per share
$
0.66

 
$
0.25

 
$
1.81

 
$
1.23

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

 

 

 

11. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BY COMPONENT
A summary of changes in accumulated other comprehensive income (loss), net of tax, by component, for the nine months ended September 30, 2017 follows:
 
Cash Flow Hedges
 
Defined Benefit Pension Items
 
Total
Accumulated other comprehensive income (loss) as of December 31, 2016
$
(3.3
)
 
$
17.5

 
$
14.2

Other comprehensive loss before reclassifications
(3.6
)
 

 
(3.6
)
Amounts reclassified from accumulated other comprehensive loss
4.8

 

 
4.8

Net current period other comprehensive income
1.2

 

 
1.2

Accumulated other comprehensive income (loss) as of September 30, 2017
$
(2.1
)
 
$
17.5

 
$
15.4

A summary of reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016 follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2017
 
2016
 
2017
 
2016
 
 
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement where Net Income is Presented
Gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Recyclable commodity hedges
 
$
(1.3
)
 
$

 
$
(2.8
)
 
$

 
Revenue
Fuel hedges
 
(0.8
)
 
(8.0
)
 
(3.1
)
 
$
(26.7
)
 
Cost of operations
Terminated interest rate locks
 
(0.7
)
 
(7.8
)
 
(2.0
)
 
(9.1
)
 
Interest expense
Total before tax
 
(2.8
)
 
(15.8
)
 
(7.9
)
 
(35.8
)
 
 
Tax benefit
 
1.1

 
6.3

 
3.1

 
14.2

 
 
Total loss reclassified into earnings, net of tax
 
$
(1.7
)
 
$
(9.5
)
 
$
(4.8
)
 
$
(21.6
)
 
 

24

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

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, 2017:
Year
 
Gallons Hedged
 
Weighted Average Contract 
Price per Gallon
2017
 
3,000,000
 
2.92
2018
 
7,500,000
 
2.59
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, 2017 were current assets of $1.2 million and current liabilities of $0.4 million, which are included in prepaid expenses and other current assets and other accrued liabilities in our consolidated balance sheets, respectively. As of December 31, 2016, the aggregate fair values of our outstanding fuel hedges were current liabilities of $2.7 million, which are included in other accrued liabilities in our consolidated balance sheets. The ineffective portions of the changes in fair values resulted in no gain (loss) for the three and nine months ended September 30, 2017, and gains of $0.1 million and $0.6 million for the three and nine months ended September 30, 2016, respectively, and have been recorded in other income, net in our unaudited consolidated statements of income.
Total gain recognized in other comprehensive income, net of tax, for fuel hedges (the effective portion) was $2.1 million for the three and nine months ended September 30, 2017, and $4.0 million and $14.7 million for the three and nine months ended September 30, 2016, respectively. We classify cash inflows and outflows from our fuel hedges within operating activities in the unaudited consolidated statements of cash flows.
Recyclable Commodity Hedges
Revenue from the sale of recycled commodities is primarily from sales of old corrugated containers (OCC) and old newsprint. 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. During 2016, we entered into multiple agreements related to the forecasted OCC sales. The agreements qualified for, and were designated as, effective hedges of changes in the prices of certain forecasted recyclable commodity sales (commodity hedges).
We entered into costless collar agreements on forecasted sales of OCC. The agreements involve combining a purchased put option giving us the right to sell OCC at an established floor strike price with a written call option obligating us to deliver OCC at an established cap strike price. The puts and calls have the same settlement dates, are net settled in cash on such dates and have the same terms to expiration. The contemporaneous combination of options resulted in no net premium for us and represents costless collars. Under these agreements, we will make or receive no payments as long as the settlement price is between the floor price and cap price; however, if the settlement price is above the cap, we will pay the counterparty an amount equal to the excess of the settlement price over the cap times the monthly volumes hedged. If the settlement price is below the floor, the counterparty will pay us the deficit of the settlement price below the floor times the monthly volumes hedged. The objective of these agreements is to reduce variability of cash flows for forecasted sales of OCC between two designated strike prices.
As of September 30, 2017, we had outstanding costless collar hedges for OCC totaling 150,000 tons with a weighted average floor strike price of $81.50 per ton and a weighted average cap strike price of $120.00 per ton, all of which will be settled in 2017 and 2018. Costless collar hedges are recorded in our consolidated balance sheets at fair value. Fair values of costless collars are determined using standard option valuation models with assumptions about commodity prices based upon forward commodity price curves in underlying markets (Level 2 in the fair value hierarchy).

25

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

The aggregate fair values of the outstanding recyclable commodity hedges as of September 30, 2017 were current assets of less than $0.1 million and current liabilities of $1.1 million, which are included in prepaid expenses and other current assets and other accrued liabilities in our consolidated balance sheets, respectively. As of December 31, 2016, the aggregate fair values of the outstanding recyclable commodity hedges were current liabilities of $0.8 million, which are included in other accrued liabilities in our consolidated balance sheets. No amounts were recognized in other income, net in our unaudited consolidated statements of income for the ineffectiveness portion of the changes in fair values during the three and nine months ended September 30, 2017, respectively.
Total gain (loss) recognized in other comprehensive income for recyclable commodity hedges (the effective portion) was $1.1 million and $(0.2) million, net of tax, for the three and nine months ended September 30, 2017, 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, 2017 and December 31, 2016, 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, 2017
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Money market mutual funds
$
29.7

 
$
29.7

 
$
29.7

 
$

 
$

Bonds - restricted cash and marketable securities and other assets
53.5

 
53.5

 

 
53.5

 

Commodity and fuel hedges - other current assets
1.2

 
1.2

 

 
1.2

 

Interest rate swaps - other assets
11.6

 
11.6

 

 
11.6

 

Interest rate locks - other assets
17.1

 
17.1

 

 
17.1

 

Total assets
$
113.1

 
$
113.1

 
$
29.7

 
$
83.4

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
$
0.4

 
$
0.4

 
$

 
$
0.4

 
$

Commodity hedges - other accrued liabilities
1.1

 
1.1

 

 
1.1

 

Contingent consideration - other long-term liabilities
73.5

 
73.5

 

 

 
73.5

Total liabilities
$
75.0

 
$
75.0

 
$

 
$
1.5

 
$
73.5


26

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

 
 
 
Fair Value Measurements Using
 
Carrying Amount
 
Total as of December 31, 2016
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Money market mutual funds
$
23.8

 
$
23.8

 
$
23.8

 
$

 
$

Bonds - restricted cash and marketable securities and other assets
57.6

 
57.6

 

 
57.6

 

Interest rate swaps - other assets
12.2

 
12.2

 

 
12.2

 

Interest rate locks - other assets
20.2

 
20.2

 

 
20.2

 
 
Total assets
$
113.8

 
$
113.8

 
$
23.8

 
$
90.0

 
$

Liabilities: