Form 10-K
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

  þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
  OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

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 of Incorporation)   (I.R.S. Employer Identification No.)

18500 North Allied Way

Phoenix, Arizona

 

85054

(Zip Code)

(Address of Principal Executive Offices)  

Registrant’s telephone number, including area code: (480) 627-2700

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on which Registered

Common Stock, par value $.01 per share

  The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  þ

   Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
   (Do not check if a 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 June 30, 2011, the aggregate market value of the shares of the Common Stock held by non-affiliates of the registrant was $11.6 billion.

As of January 27, 2012, the registrant had outstanding 370,074,090 shares of Common Stock (excluding treasury shares of 32,194,080).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement relative to the 2012 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I          

Item 1.

    

Business

       2   

Item 1A.

    

Risk Factors

       15   

Item 1B.

    

Unresolved Staff Comments

       23   

Item 2.

    

Properties

       23   

Item 3.

    

Legal Proceedings

       23   

Item 4.

    

Mine Safety Disclosures

       28   
PART II          

Item 5.

    

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

       28   

Item 6.

    

Selected Financial Data

       30   

Item 7.

    

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

       32   

Item 7A.

    

Quantitative and Qualitative Disclosures About Market Risk

       71   

Item 8.

    

Financial Statements and Supplementary Data

       73   

Item 9.

    

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

       148   

Item 9A.

    

Controls and Procedures

       148   

Item 9B.

    

Other Information

       149   
PART III          

Item 10.

    

Directors, Executive Officers and Corporate Governance

       149   

Item 11.

    

Executive Compensation

       149   

Item 12.

    

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

       149   

Item 13.

    

Certain Relationships and Related Transactions, and Director Independence

       150   

Item 14.

    

Principal Accounting Fees and Services

       150   
PART IV          

Item 15.

    

Exhibits, Financial Statement Schedules

       150   
    

Signatures

       160   


Table of Contents

Unless the context requires otherwise, all references in this Form 10-K to “Republic”, “the company,” “we,” “us” and “our” refer to Republic Services, Inc. and its consolidated subsidiaries.

PART I

ITEM 1. BUSINESS

Overview

We are the second largest provider of services in the domestic non-hazardous solid waste industry as measured by revenue. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 334 collection operations in 39 states and Puerto Rico. We own or operate 194 transfer stations, 191 active solid waste landfills and 74 materials recovery facilities. We also operate 69 landfill gas and renewable energy projects. We were incorporated as a Delaware corporation in 1996. On December 5, 2008, we acquired all the issued and outstanding shares of Allied Waste Industries, Inc. (Allied) in a stock-for-stock transaction for an aggregate purchase price of $12.1 billion, which included $5.4 billion of debt, at fair value.

Based on analysts’ reports and industry trade publications, we believe the United States non-hazardous solid waste services industry generates annual revenue of approximately $54 billion, of which approximately 60% is generated by publicly owned waste companies. We believe that we and one other public waste company generated in excess of 60% of the publicly owned companies’ total revenue. Additionally, industry data indicates that the non-hazardous waste industry in the United States remains fragmented as privately held companies and municipal and other local governmental authorities generate approximately 17% and 22%, respectively, of total industry revenue. In general, growth in the solid waste industry is linked to growth in the overall economy, including the level of new household and business formation and changes in residential and commercial construction activity.

Our operations are national in scope, but the physical collection and disposal of waste is very much a local business and the dynamics and opportunities differ in each of our markets. By combining local operating management with standardized business practices, we can drive greater overall operating efficiency across the company, while maintaining day-to-day operating decisions at the local level, closest to the customer. We implement this strategy through an organizational structure that groups our operations within a corporate, region, area and division structure. We manage our operations through four geographic operating regions that are also our reportable segments: Eastern, Midwestern, Southern and Western. Each of our regions is organized into several operating areas and each area contains multiple divisions or operating locations. Each of our regions and substantially all our areas provide collection, transfer, recycling and disposal services. We believe this structure facilitates the integration of our operations within each region, which is a critical component of our operating strategy. It also allows us to maximize the growth opportunities in each of our markets and to operate the business efficiently, while maintaining effective controls and standards over operational and administrative matters, including financial reporting. See Note 14, Segment Reporting, to our consolidated financial statements in Item 8 of this Form 10-K for further discussion of our operating segments.

We had revenue of $8.2 billion, $8.1 billion and $8.2 billion and operating income of $1.6 billion, $1.5 billion and $1.6 billion for the years ended December 31, 2011, 2010 and 2009, respectively. A number of items impacted our 2011, 2010 and 2009 financial results. For a description of these items, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview and Consolidated Results of Operations, in this Form 10-K.

We continue to focus on enhancing stockholder value by implementing our operating and cash utilization strategies. We have developed and implemented incentive programs that help focus our entire company on realizing key performance metrics, including increasing free cash flow, achieving targeted earnings, and maintaining and improving returns on invested capital. Our operating and cash utilization strategies are described further below.

 

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Operating Strategy

We seek to leverage existing assets and revenue growth to increase operating margins and enhance stockholder value. Our operating strategy for accomplishing these goals includes the following:

 

   

using the extensive industry knowledge and experience of our executive management team,

 

   

using a decentralized management structure in overseeing day-to-day operations,

 

   

using our strong, integrated operating platform, and

 

   

implementing major initiatives aimed at improving the quality of our service and our operating margins.

Experienced Executive Management Team

We believe we have one of the most experienced executive management teams in the solid waste industry.

Donald W. Slager became our CEO and remained our President on January 1, 2011, after having served as our President and Chief Operating Officer (COO) from the Allied acquisition in December 2008 until then. Mr. Slager resumed the role of principal operating executive in November 2011. Prior to the Allied acquisition, Mr. Slager worked for Allied from 1992 through 2008 and served in various management positions, including President and COO from 2004 through 2008 and Executive Vice President and COO from 2003 to 2004. From 2001 to 2003, Mr. Slager served as Senior Vice President, Operations. Mr. Slager held various management positions at Allied from 1992 to 2003, and was previously General Manager at National Waste Services, where he served in various management positions since 1985. Mr. Slager has over 31 years of experience in the solid waste industry. Mr. Slager has been a member of our Board of Directors since June 24, 2010.

Tod C. Holmes has served as our Chief Financial Officer since August 1998. Mr. Holmes served as our Vice President of Finance from June 1998 until August 1998 and as Vice President of Finance of our former parent company’s Solid Waste Group from January 1998 until June 1998. From 1987 to 1998, Mr. Holmes served in various management positions with Browning-Ferris Industries, Inc., including Vice President, Investor Relations from 1996 to 1998, Divisional Vice President, Collection Operations from 1995 to 1996, Divisional Vice President and Regional Controller – Northern Region from 1993 to 1995, and Divisional Vice President and Assistant Corporate Controller from 1991 to 1993. Mr. Holmes has over 24 years of experience in the solid waste industry.

Jeffrey A. Hughes was named Executive Vice President, Human Resources in December 2008. Before that, Mr. Hughes served as Senior Vice President, Eastern Region Operations for Allied from 2004 until Allied’s merger with Republic in December 2008. Mr. Hughes served as Assistant Vice President of Operations Support for Allied from 1999 to 2004 and as a District Manager for Allied from 1988 to 1999. Mr. Hughes has over 24 years of experience in the solid waste industry.

Michael P. Rissman has served as our Executive Vice President, General Counsel and Corporate Secretary since August 2009. Previously, Mr. Rissman had served as acting General Counsel and Corporate Secretary from March 2009. Mr. Rissman joined Allied as Vice President and Deputy General Counsel in July 2007 and continued in the same positions at Republic following the Allied acquisition in December 2008. Prior to joining Allied, Mr. Rissman was a partner at Mayer Brown LLP, in Chicago, where he worked from 1990 until coming to Allied in 2007.

Our regional senior vice presidents have an average of 26 years of experience in the industry.

 

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Decentralized Management Structure

We rely on a decentralized management structure to minimize administrative overhead costs and to more efficiently manage our day-to-day operations. Our local management has extensive industry experience in growing, operating and managing solid waste companies and has substantial experience in their local geographic markets. This allows us to quickly respond to and meet our customers’ needs and stay in touch with local businesses and municipalities. Each regional management team includes a senior vice president, vice president-controller, vice president of human resources, vice president of sales, vice president of operations support, director of safety, director of engineering and environmental management, and director of market planning and development. We believe that our strong regional management teams allow us to more effectively and efficiently drive our initiatives and help ensure consistency throughout the organization. Our regional management teams and area presidents have extensive authority, responsibility and autonomy for operations within their respective geographic markets. Compensation for area management teams is primarily based on improving operating income, free cash flow and return on invested capital generated in each manager’s geographic area of responsibility. In addition, through long-term incentive programs, including stock options, we believe we have achieved one of the lowest turnover levels in the industry for our local management teams. As a result of retaining experienced managers with extensive knowledge of and involvement in their local communities, we are proactive in anticipating customers’ needs and adjusting to changes in our markets. We also seek to implement the best practices of our various regions, areas and divisions throughout our operations to continue improving operating margins.

Strong, Integrated Operating Platform

We believe we have created a company with a strong, national operating platform. We seek to achieve a high rate of internalization by controlling waste streams from the point of collection through diversion to our materials recovery facilities for processing or disposal. Our fully integrated markets generally have a lower cost of operations and more favorable cash flows than our non-integrated markets. Through acquisitions, landfill operating agreements and other market development activities, we create market-specific, integrated operations typically consisting of one or more collection operations, transfer stations and landfills. We consider acquiring companies that own or operate landfills with significant permitted disposal capacity and appropriate levels of waste volumes.

We also seek to acquire solid waste collection operations in markets in which we own or operate landfills. In addition, we generate internal growth in our disposal operations by developing new landfills and expanding our existing landfills from time to time in markets in which we have significant collection operations or in markets that we determine lack sufficient disposal capacity. During the years ended December 31, 2011, 2010 and 2009, approximately 66%, 67% and 68%, respectively, of the total waste volume that we collected was disposed at landfill sites that we own or operate (internalization). In a number of our larger markets, we and our competitors are required to take waste to government-controlled disposal facilities (flow control). This provides us with an opportunity to effectively compete in these markets without investing in landfill capacity.

Our Priorities and Major Initiatives to Generate Cash Value

Our priorities are designed to deliver total waste stream solutions, including recycling, to our customers while creating sustainable economic value for our stockholders. We believe focusing on the following priorities and major initiatives will improve profitability and generate value for our stockholders:

 

   

Safety.  Safety remains our highest priority for all of our employees and the communities we serve. Our long-standing commitment to safety is unwavering. We will continue to improve our driver safety training program and reward our people for operating in a safe and conscientious manner in all our lines of business.

 

   

People.  We work to create and maintain an environment that attracts, develops and retains people who assure our success with customers, differentiate us from our competitors and allow us to be an employer of choice for top talent.

 

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Durability.  We believe our decentralized management structure provides us with a competitive advantage by allowing us to quickly respond to and meet customer’s needs and to stay in touch with local businesses and municipalities. However, functions such as fleet maintenance and customer service are areas where we believe we can continue to build durable, consistent processes across all operating divisions. Through standardization of core functions, we believe we can minimize variability in our maintenance facilities, resulting in a safer fleet of vehicles with lower operating costs and increased efficiency. By converting certain of our residential routes to automated single driver side-load service, we believe we can more efficiently service our customers, improve safety, increase productivity and reduce labor costs. Through 2011, we converted approximately 60% of our residential routes. Approximately 25% of our vehicle purchases during 2011 were vehicles fueled by natural gas. We expect that using natural gas will reduce our overall fleet operating costs.

 

   

Customer Experience.  We strive to provide the highest level of customer service. Our policy is to periodically visit each commercial account to ensure customer service and satisfaction. In addition to visiting existing customers, a salesperson develops a base of prospective customers within each market. We also have municipal marketing representatives who are responsible for working with each municipality or community to which we provide residential service to ensure customer satisfaction. Additionally, the municipal representatives organize and drive the effort to obtain new or renew municipal contracts in their service areas.

We will continue to invest in our vehicles, other equipment, landfills, recycling and other facilities to ensure the highest level of service to our customers and the communities we serve. In addition, we continue to focus on innovative waste disposal processes and programs to help our customers achieve their goals related to sustainability and environmentally sound waste practices.

We will continue to exceed our customers’ expectations through consistently delivering high quality service and an expanded use of technology to make it easier to do business with us. Our technology eventually will allow more customers to access information and perform functions like changing service requests and making payments over the internet that were previously done with the assistance of a customer service representative. By increasing the ease of use and functionality of our web-based market presence, we believe we will enhance customer satisfaction and retention while we lower our costs.

 

   

Targeted Profitable Growth.  Our growth strategy focuses on increasing revenue, gaining market share and enhancing stockholder value through internal growth in price and volume as well as through development activities, acquisitions and improving our operating margins. The key components of our growth strategy are:

 

  ¡    

Price Growth.  We seek to secure price increases necessary to offset increased costs, to improve our operating margins and to obtain adequate returns on our substantial investments in vehicles, other equipment, landfills, and other facilities.

 

  ¡    

Volume Growth.  Growth through increases in our customer base and services provided is the most capital efficient means for us to grow our business. We seek to obtain long-term contracts for collecting solid waste with exclusive franchise agreements with municipalities as well as commercial and industrial contracts. By obtaining such long-term agreements, we have the opportunity to grow our contracted revenue base at the same rate as the underlying population growth in these markets. In addition, we believe that by securing a base of long-term recurring revenue, we are better able to protect our market position from competition and our business may be less susceptible to downturns in economic conditions. We work to increase volumes while ensuring that prices charged for such services provide an appropriate return on our capital investment.

 

  ¡    

Sales and Marketing Activities.  We manage our sales and marketing activities to enable us to capitalize on our leading position in many of the markets in which we operate. We provide a National

 

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Accounts program in response to the needs of our national and regional clients, centralizing services to effectively manage their needs, such as minimizing their costs and contributing to their sustainability efforts. Our sales and marketing employees in the field are compensated using a commission structure that is focused on generating high levels of quality revenue. These employees directly solicit business from existing and new commercial, industrial, municipal and residential customers. When training sales personnel, we emphasize increased price structures as well as the use of a customer relationship management system that assists in tracking sales opportunities. It also tracks renewal periods for potential commercial, industrial and franchise contracts. We believe our National Accounts program offers an opportunity for sales growth over the next several years.

 

  ¡    

Development Activities.  We seek to identify opportunities to further our position as an integrated service provider in markets where we are not fully integrated. Where appropriate, we seek to obtain permits to build transfer stations, materials recovery facilities, and landfills that would provide vertically integrated waste services or expand the service areas for our existing disposal sites. Development projects, while generally less capital intensive than acquisitions, typically require extensive permitting efforts that can take years to complete with no assurance of success. We undertake development projects when we believe there is a reasonable probability of success and where reasonably priced acquisition opportunities are not available.

 

  ¡    

Acquisitions.  Our acquisition growth strategy focuses primarily on acquiring privately held solid waste and recycling companies and the waste and recycling operations and facilities of municipal and other local governmental authorities that complement our existing business platform. We believe our ability to acquire privately held companies is enhanced by increasing competition in the solid waste industry, increasing capital requirements due to changes in solid waste regulatory requirements, and the limited number of exit strategies for privately held companies. We believe our ability to acquire operations and facilities from municipalities that are privatizing is enhanced, as they increasingly seek to raise capital and reduce risk. In addition, we will continue to evaluate opportunities to acquire operations and facilities that are being divested by other publicly owned waste companies. The consolidation of acquired businesses into existing operations reduces costs by decreasing capital and expenses used for truck routing, personnel, equipment and vehicle maintenance, inventories and back-office administration. Generally, we consolidate our acquired administrative centers to reduce our general and administrative costs.

For certain risks related to our operating strategy, see Item 1A, Risk Factors, in this Form 10-K.

Cash Utilization Strategy

Key components of our cash utilization strategy include generating and growing free cash flow and sustaining or improving our return on invested capital. Our definition of free cash flow, which is not a measure determined in accordance with United States generally accepted accounting principles (U.S. GAAP), is cash provided by operating activities less purchases of property and equipment, plus proceeds from sales of property and equipment as presented in our consolidated statements of cash flows. We believe that free cash flow is a driver of stockholder value and provides useful information regarding the recurring cash provided by our operations. Free cash flow also demonstrates our ability to execute our cash utilization strategy, which includes:

 

   

internal growth and acquisitions,

 

   

share repurchases,

 

   

dividends, and a

 

   

strong capital structure.

 

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We manage our free cash flow by ensuring that capital expenditures and operating asset levels are appropriate in light of our existing business and growth opportunities and by closely managing our working capital, which consists primarily of accounts receivable and accounts payable.

Internal Growth and Acquisitions

Within our markets, our goal is to deliver sustainable, long-term profitable growth while efficiently operating our assets to generate acceptable rates of return. We allocate capital to businesses, markets and development projects both to support growth and to achieve acceptable rates of return. We develop previously non-permitted materials recovery facilities, transfer stations and landfills. We also expand our existing materials recovery facilities, transfer stations and landfills, when possible. We supplement this organic growth with acquisitions of operating assets, such as landfills, transfer stations, materials recovery facilities and tuck-in acquisitions of collection and disposal operations in existing markets. We continuously evaluate our existing operating assets and their deployment within each market to determine if we have optimized our position and to ensure appropriate investment of capital. Where operations are not generating acceptable returns, we examine opportunities to achieve greater efficiencies and returns through integrating additional assets. If such enhancements are not possible, we may ultimately decide to divest the existing assets and reallocate resources to other markets.

Share Repurchases

In August 2011, our board of directors approved a share repurchase program pursuant to which we may repurchase up to $750 million of our outstanding shares of common stock through December 31, 2013. This authorization is in addition to the $400 million repurchase program authorized in November 2010. From November 2010 to December 31, 2011, we used $500.8 million under these programs to repurchase 17.1 million shares at a weighted average cost per share of $29.21. We expect to use the remaining funds, totaling $649.2 million, to repurchase our outstanding shares of common stock throughout 2012 and 2013.

Dividends

In July 2003, our Board of Directors initiated a quarterly cash dividend of $0.04 per share. Our quarterly dividend has increased from time to time thereafter, the latest increase occurring in the third quarter of 2011 to $0.22 per share, representing a compound annual growth rate of approximately 24%. We expect to continue paying quarterly cash dividends and may consider additional dividend increases if we believe they will enhance stockholder value.

Strong Capital Structure

Debt. Following our December 5, 2008 Allied acquisition, we initiated a debt reduction program that, to date, has resulted in a net reduction in borrowings of $0.8 billion funded by cash flow from operations and proceeds from disposition of assets. We also refinanced $4.5 billion in senior notes and $869.4 million in tax-exempt financings, which reduced the average coupon rate on our senior notes and tax-exempt financings, on a weighted average basis, by more than 155 basis points while extending our debt maturities and giving greater stability to our capital structure. We anticipate taking further advantage of capital market opportunities to mitigate our financial risk by issuing new debt and using the proceeds to repay existing debt. Early extinguishment of debt will result in a charge in the period in which the debt is repaid.

Credit Ratings. We believe that a key component of our financial strategy includes maintaining investment grade ratings on our senior debt, which was rated BBB by Standard & Poor’s, BBB by Fitch and Baa3 by Moody’s as of December 31, 2011. Such ratings have allowed us, and should continue to allow us, to readily access capital markets at competitive rates. Our cash utilization strategy will continue to focus on maintaining our investment grade credit ratings.

For certain risks related to our cash utilization strategy, see Item 1A, Risk Factors, in this Form 10-K.

 

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Operations

Our operations primarily consist of providing collection, transfer station and disposal of non-hazardous solid waste and the recovery and recycling of certain materials.

Collection Services.  We provide solid waste collection services to commercial, industrial, municipal and residential customers through 334 collection operations. In 2011, 75% of our revenue was derived from collection services. Within the collection line of business, 35% of our revenue is from services provided to municipal and residential customers, 40% is from services provided to commercial customers, and 25% is from services provided to industrial and other customers.

Our residential collection operations involve the curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. We typically perform residential solid waste collection services under contracts with municipalities, which we generally secure by competitive bid and which give us exclusive rights to service all or a portion of the homes in the respective municipalities. These contracts or franchises usually range in duration from one to five years, although some of our exclusive franchises are for significantly longer periods. We also perform residential solid waste collection services on a subscription basis, in which individual households contract directly with us. The fees received for subscription residential collection are based primarily on market factors, frequency and type of service, the distance to the disposal facility and the cost of disposal. In general, subscription residential collection fees are paid quarterly in advance by the residential customers receiving the service.

In our commercial and industrial collection operations, we supply our customers with waste containers of varying sizes. We also rent compactors to large waste generators. We typically perform commercial collection services under one- to three-year service agreements, and we determine fees by considerations such as market factors, collection frequency, type of equipment furnished, the type and volume or weight of the waste collected, transportation costs, the distance and cost of disposal.

We also provide waste collection services to industrial and construction facilities on a contractual basis with terms ranging from a single pickup to one year or longer. Our construction services are provided to the commercial construction and home building sectors. We collect the containers or compacted waste and transport the waste to either a landfill or a transfer station for disposal.

Transfer Services.  We own or operate 194 transfer stations, and in 2011 transfer services accounted for 5% of our revenue. Revenue at transfer stations is primarily generated by charging tipping or disposal fee. Our collection operations deposit waste at these transfer stations, as do other private and municipal haulers, for compaction and transfer to disposal sites or materials recovery facilities. Essentially, transfer stations provide collection operations with a cost effective means to consolidate waste and reduce transportation costs while providing our landfill sites with an additional “gate” to extend the geographic reach of a particular landfill site with the goal of increased internalization.

Disposal Services.  We own or operate 191 active landfills. We charge tipping fees to third parties, and in 2011 disposal services accounted for 13% of our revenue. We had approximately 37,000 permitted acres and total available permitted and probable expansion disposal capacity of approximately 4.8 billion in-place cubic yards. The in-place capacity of our landfills is subject to change based on engineering factors, requirements of regulatory authorities, our ability to continue to operate our landfills in compliance with applicable regulations, and our ability to successfully renew operating permits and obtain expansion permits at our sites. Some of our landfills accept non-hazardous special waste, including utility ash, asbestos and contaminated soils.

Most of our active landfill sites have the potential for expanded disposal capacity beyond the currently permitted acreage. We monitor the availability of permitted disposal capacity at each of our landfills and evaluate whether to pursue an expansion at a given landfill based on estimated future waste volumes and prices, market needs,

 

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remaining capacity and the likelihood of obtaining an expansion. To satisfy future disposal demand, we are currently seeking to expand permitted capacity at certain of our landfills. However, we cannot assure you that all proposed or future expansions will be permitted as designed.

We also have responsibility for 130 closed landfills, for which we have associated closure and post-closure obligations.

Recycling Services.  We own or operate 74 materials recovery facilities and other recycling operations. These facilities generate revenue through the collection, processing, and sale of old corrugated cardboard (OCC), old newspaper (ONP), aluminum, glass and other materials. Most of these recyclable materials are internally collected by our residential and industrial collection operations.

Changing market demand for recyclable materials causes volatility in commodity prices. At current volumes and mix of materials, we believe a ten dollar per ton change in the price of recyclable materials will change annual revenue and operating income by approximately $27 million and $18 million, respectively, on an annual basis.

In certain instances we issue recycling rebates to municipalities or large industrial customers, which can be based on the price we receive upon the final sale of recyclable materials, a fixed contractual rate or other measures. We also receive rebates when we dispose of recyclable materials at third-party facilities.

Other Services.  Other revenue consists primarily of National Accounts revenue generated from nationwide contracts in markets outside our operating areas, where the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.

Sales and Marketing

We seek to provide quality services that will enable us to maintain high levels of customer satisfaction. Our business is derived from a broad customer base, which we believe will enable us to experience stable growth. We focus our marketing efforts on continuing and expanding our business with existing customers, as well as attracting new customers.

Our sales and marketing strategy provides high-quality, comprehensive solid waste collection, recycling, transfer and disposal services to our customers at competitive prices. We target customers of all sizes, from small quantity generators to large “Fortune 500” companies and municipalities.

While most of our marketing activity is local in nature, we also provide a National Accounts program in response to the needs of national and regional customers. This National Accounts program is designed to provide the best total solution to our customers’ evolving waste management needs in an environmentally responsible manner. We partner with national clients to reach their sustainability goals, optimize waste streams, balance equipment and service intervals, and provide customized reporting. The National Accounts program centralizes services to effectively manage customer needs, while helping minimize costs. With our extended geographic reach, this program effectively serves our customers nationwide. As industry leaders, our mission is to use our strengths and expertise to exceed customer expectations by consistently delivering the best national program available.

Historically we have not always changed the trade names of the local businesses we acquired, and therefore we do not operate nationally under any one mark or trade name.

Customers

We provide services to a broad base of commercial, industrial, municipal and residential customers. No single customer has individually accounted for more than 3% of our consolidated revenue or of our reportable segment revenue in any of the last three years.

 

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Competition

Although we operate in a highly competitive industry, entry into our business and the ability to operate profitably require substantial amounts of capital and managerial experience. Competition in the non-hazardous solid waste industry comes from a few other large, national publicly-owned companies, including Waste Management, Inc., several regional publicly- and privately-owned solid waste companies, and thousands of small privately-owned companies. In any given market, competitors may have larger operations and greater resources. In addition to national and regional firms and numerous local companies, we compete with municipalities that maintain waste collection or disposal operations. These municipalities may have financial advantages due to the availability of tax revenue and tax-exempt financing.

We compete for collection accounts primarily on the basis of price and the quality of our services. From time to time, our competitors reduce the price of their services in an effort to expand market share or to win a competitively bid municipal contract. Our ability to maintain and increase prices in certain markets may be impacted by our competitors’ pricing policies. This may have an impact on our future revenue and profitability.

Seasonality and Severe Weather

Our operations can be adversely affected by periods of inclement or severe weather, which could increase the volume of waste collected under our existing contracts (without corresponding compensation), delay the collection and disposal of waste, reduce the volume of waste delivered to our disposal sites, or delay the construction or expansion of our landfill sites and other facilities. Our operations also can be favorably affected by severe weather, which could increase the volume of waste in situations where we are able to charge for our additional services.

Regulation

Our facilities and operations are subject to a variety of federal, state and local requirements that regulate the environment, public health, safety, zoning and land use. Operating and other permits, licenses and other approvals generally are required for landfills and transfer stations, certain solid waste collection vehicles, fuel storage tanks and other facilities that we own or operate. These permits are subject to denial, revocation, modification and renewal in certain circumstances. Federal, state and local laws and regulations vary, but generally govern wastewater or storm water discharges, air emissions, the handling, transportation, treatment, storage and disposal of hazardous and non-hazardous waste, and the remediation of contamination associated with the release or threatened release of hazardous substances. These laws and regulations provide governmental authorities with strict powers of enforcement, which include the ability to revoke or decline to renew any of our operating permits, obtain injunctions, or impose fines or penalties in the event of violations, including criminal penalties. The U.S. Environmental Protection Agency (EPA) and various other federal, state and local authorities administer these regulations.

We strive to conduct our operations in compliance with applicable laws, regulations and permits. However, from time to time we have been issued citations or notices from governmental authorities that have resulted in the need to expend funds for remedial work and related activities at various landfills and other facilities. We cannot assure you that citations and notices will not be issued in the future despite our regulatory compliance efforts. We have established final capping, closure, post-closure and remediation reserves that we believe, based on currently available information, will be adequate to cover our current estimates of regulatory costs. However, we cannot assure you that actual costs will not exceed our reserves.

Federal Regulation.  The following summarizes the primary federal environmental and occupational health and safety-related statutes that affect our facilities and operations:

 

   

The Solid Waste Disposal Act, including the Resource Conservation and Recovery Act (RCRA). RCRA establishes a framework for regulating the handling, transportation, treatment, storage and disposal of

 

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hazardous and non-hazardous solid waste, and requires states to develop programs to ensure the safe disposal of solid waste in sanitary landfills.

Subtitle D of RCRA establishes a framework for regulating the disposal of municipal solid waste. Regulations under Subtitle D currently include minimum comprehensive solid waste management criteria and guidelines, including location restrictions, facility design and operating criteria, final capping, closure and post-closure requirements, financial assurance standards, groundwater monitoring requirements and corrective action standards. All of the states in which we operate have implemented permit programs pursuant to RCRA and Subtitle D. These state permit programs may include landfill requirements which are more stringent than those of Subtitle D. Our failure to comply with the implementation of federal environmental requirements by state and local authorities at any of our locations may lead to temporary or permanent loss of an operating permit, which would result in costs in connection with securing new permits and reduced revenue from lost operational time.

All of our planned landfill expansions and new landfill development projects have been engineered to meet or exceed Subtitle D requirements. Operating and design criteria for existing operations have been modified to comply with these regulations. Compliance with Subtitle D regulations has resulted in increased costs and may in the future require substantial additional expenditures in addition to other costs normally associated with our waste management activities.

 

   

The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). CERCLA, among other things, provides for the cleanup of sites from which there is a release or threatened release of a hazardous substance into the environment. CERCLA may impose strict joint and several liability for the costs of cleanup and for damages to natural resources upon current owners and operators of a site, parties who were owners or operators of a site at the time the hazardous substances were disposed of, parties who transported the hazardous substances to a site, and parties who arranged for the disposal of the hazardous substances at a site. Under the authority of CERCLA and its implementing regulations, detailed requirements apply to the manner and degree of investigation and remediation of facilities and sites where hazardous substances have been or are threatened to be released into the environment. Liability under CERCLA is not dependent on the existence or disposal of only “hazardous wastes,” but also can be based upon the existence of small quantities of more than 700 “substances” characterized by the EPA as “hazardous,” many of which are found in common household waste. Among other things, CERCLA authorizes the federal government to investigate and remediate sites at which hazardous substances have been or are threatened to be released into the environment or to order persons potentially liable for the cleanup of the hazardous substances to do so themselves. In addition, the EPA has established a National Priorities List of sites at which hazardous substances have been or are threatened to be released and which require investigation or cleanup.

CERCLA liability is strict liability. It can be founded upon the release or threatened release, even as a result of unintentional, non-negligent or lawful action, of hazardous substances, including very small quantities of such substances. Thus, even if we have never knowingly transported or received hazardous substances, it is likely that hazardous substances have been deposited or “released” at landfills or other facilities that we presently or historically have owned or operated, or at properties owned by third parties to which we have transported waste. Therefore, we could be liable under CERCLA for the cost of cleaning up such hazardous substances at such sites and for damages to natural resources, even if those substances were deposited at our facilities before we acquired or operated them. The costs of a CERCLA cleanup can be very expensive and can include the costs of disposing of hazardous substances at appropriately-licensed facilities. Given the difficulty of obtaining insurance for environmental impairment liability, such liability could have a material impact on our business, financial condition, results of operations and cash flows.

 

   

The Federal Water Pollution Control Act of 1972 (the Clean Water Act). This act regulates the discharge of pollutants from a variety of sources, including solid waste disposal sites, into streams, rivers and other

 

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waters of the United States. Runoff from our landfills and transfer stations that is discharged into surface waters through discrete conveyances must be covered by discharge permits that generally require us to conduct sampling and monitoring, and, under certain circumstances, to reduce the quantity of pollutants in those discharges. Storm water discharge regulations under the Clean Water Act require a permit for certain construction activities and for runoff from industrial operations and facilities, which may affect our operations. If a landfill or transfer station discharges wastewater through a sewage system to a publicly owned treatment works, the facility must comply with discharge limits imposed by that treatment works. In addition, states may adopt groundwater protection programs under the Clean Water Act or the Safe Drinking Water Act that could affect the manner in which our solid waste landfills monitor and control their waste management activities. Furthermore, if development at any of our facilities alters or affects wetlands, we may be required to secure permits before such development starts. In these situations, permitting agencies may require mitigation of wetland impacts.

 

   

The Clean Air Act. The Clean Air Act imposes limitations on emissions from various sources, including landfills. In March 1996, the EPA promulgated regulations that require large municipal solid waste landfills to install landfill gas monitoring systems. These regulations apply to landfills that commenced construction, reconstruction or modification on or after May 30, 1991, and, principally, to landfills that can accommodate 2.5 million cubic meters or more of municipal solid waste. The regulations apply whether the landfills are active or closed. The date by which each affected landfill must have a gas collection and control system installed and made operational varies depending on calculated emission rates at the landfill. Efforts to curtail the emission of greenhouse gases and to ameliorate the effect of climate change may require our landfills to deploy more stringent emission controls and monitoring systems, with resulting capital or operating costs. Many state regulatory agencies also currently require monitoring systems for the collection and control of certain landfill gas. Certain of these state agencies are also implementing greenhouse gas control regulations that would also apply to landfill gas emissions. See Item 1A, Risk Factors – “Regulation of greenhouse gas emissions could impose costs on our operations, the magnitude of which we cannot yet estimate,” in this Form 10-K.

In addition, our vehicle fleet also may become subject to higher efficiency standards or other carbon-emission restrictions. Over the past two years, EPA and the National Highway Traffic Safety Administration (NHTSA) have adopted regulations mandating the reduction of vehicle tail pipe emissions as a means of reducing greenhouse gas emissions. The regulations take the form of fuel economy standards. EPA and NHTSA have developed fuel economy standards in two vehicle categories: (1) conventional automobiles and light-duty trucks; and (2) heavy-duty tucks, including solid waste collection vehicles and tractor trailers. We own and operate vehicles in both categories. For conventional automobiles and light-duty trucks, in May 2010 EPA and NHTSA finalized fuel economy standards for model years 2012 through 2016. In October 2011, EPA and NHTSA initiated a second round of rulemaking for conventional automobiles and pick-up trucks in model years 2017 through 2025. In August 2011, EPA and NHTSA finalized standards for heavy duty trucks, including solid waste collection vehicles and tractor trailers, for model years 2014 through 2018. In issuing the fuel economy standards for heavy-duty trucks and tractor trailers, the government estimated the standards would increase the cost of the average tractor-trailer by approximately $6,200, but that the vehicle would save fuel costs over its operating life.

 

   

The Occupational Safety and Health Act of 1970 (OSHA). This act authorizes the Occupational Safety and Health Administration of the U.S. Department of Labor to promulgate occupational safety and health standards. A number of these standards, including standards for notices of hazardous chemicals and the handling of asbestos, apply to our facilities and operations.

State and Local Regulation.  Each state in which we operate has its own laws and regulations governing solid waste disposal, water and air pollution, and, in most cases, releases and cleanup of hazardous substances and liabilities for such matters. States also have adopted regulations governing the design, operation, maintenance and closure of landfills and transfer stations. Some counties, municipalities and other local governments have

 

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adopted similar laws and regulations. In addition, our operations may be affected by the trend in many states toward requiring solid waste reduction and recycling programs. For example, several states have enacted laws that require counties or municipalities to adopt comprehensive plans to reduce, through solid waste planning, composting, recycling or other programs, the volume of solid waste deposited in landfills. Additionally, laws and regulations restricting the disposal of certain waste in solid waste landfills, including yard waste, newspapers, beverage containers, unshredded tires, lead-acid batteries, electronic wastes and household appliances, have been adopted in several states and are being considered in others. Legislative and regulatory measures to mandate or encourage waste reduction at the source and waste recycling also have been or are under consideration by the U.S. Congress and the EPA.

To construct, operate and expand a landfill, we must obtain one or more construction or operating permits, as well as zoning and land use approvals. These permits and approvals may be burdensome to obtain and to comply with, are often opposed by neighboring landowners and citizens’ groups, may be subject to periodic renewal, and are subject to denial, modification, non-renewal and revocation by the issuing agency. Significant compliance disclosure obligations often accompany these processes. In connection with our acquisition of existing landfills, we may be required to spend considerable time, effort and money to bring the acquired facilities into compliance with applicable requirements and to obtain the permits and approvals necessary to increase their capacity.

Other Regulations.  Many of our facilities own and operate underground storage tanks that are generally used to store petroleum-based products. These tanks are subject to federal, state and local laws and regulations that mandate their periodic testing, upgrading, closure and removal. In the event of leaks or releases from these tanks, these regulations require that polluted groundwater and soils be remediated. We believe that all of our underground storage tanks meet all applicable regulations. If underground storage tanks we own or operate leak, we could be liable for response costs and, if the leakage migrates onto the property of others, we could be liable for damages to third parties. We are unaware of facts indicating that issues of compliance with regulations related to underground storage tanks will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

With regard to our solid waste transportation operations, we are subject to the jurisdiction of the Surface Transportation Board and are regulated by the Federal Highway Administration, Office of Motor Carriers, and by regulatory agencies in states that regulate such matters. Various state and local government authorities have adopted, or are considering adopting, laws and regulations that would restrict the transportation of solid waste across state, county, or other jurisdiction lines. In 1978, the U.S. Supreme Court ruled that a law that restricts the importation of out-of-state solid waste is unconstitutional; however, states have attempted to distinguish proposed laws from those involved in and implicated by that ruling. In 1994, the Supreme Court ruled that a flow control law, which attempted to restrict solid waste from leaving its place of generation, imposes an impermissible burden upon interstate commerce and is unconstitutional. In 2007, however, the U.S. Supreme Court upheld the right of a local government to direct the flow of solid waste to a publicly-owned and publicly-operated waste facility. A number of county and other local jurisdictions have enacted ordinances or other regulations restricting the free movement of solid waste across jurisdictional boundaries. Other governments may enact similar regulations in the future. These regulations may, in some cases, cause a decline in volumes of waste delivered to our landfills or transfer stations and may increase our costs of disposal, thereby adversely affecting our operations and our financial results.

Liabilities Established for Landfill and Environmental Costs.  We have established reserves for landfill and environmental costs, which include landfill site final capping, closure and post-closure costs. We periodically reassess such costs based on various methods and assumptions regarding landfill airspace and the technical requirements of Subtitle D of RCRA, and we adjust our rates used to expense final capping, closure and post-closure costs accordingly. Based on current information and regulatory requirements, we believe that our recorded reserves for such landfill and environmental expenditures are adequate. However, environmental laws may change, and we cannot assure you that our recorded reserves will be adequate to cover requirements under existing or new environmental laws and regulations, future changes or interpretations of existing laws and regulations, or adverse environmental conditions previously unknown to us. Refer to the Contractual Obligations

 

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table within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained elsewhere in this Form 10-K for further information.

Liability Insurance and Bonding

The nature of our business exposes us to the risk of liabilities arising out of our operations, including possible damages to the environment. Such potential liabilities could involve, for example, claims for remediation costs, personal injury, property damage and damage to the environment in cases where we may be held responsible for the escape of harmful materials; claims of employees, customers or third parties for personal injury or property damage occurring in the course of our operations; or claims alleging negligence or other wrongdoing in the planning or performance of work. We also could be subject to fines and civil and criminal penalties in connection with alleged violations of regulatory requirements. Because of the nature and scope of the possible environmental damages, liabilities imposed in environmental litigation can be significant. Our solid waste operations have third party environmental liability insurance with limits in excess of those required by permit regulations, subject to certain limitations and exclusions. However, we cannot assure you that such environmental liability insurance would be adequate, in scope or amount, in the event of a major loss, nor can we assure you that we would continue to carry excess environmental liability insurance should market conditions in the insurance industry make such coverage costs prohibitive.

We maintain general liability, vehicle liability, employment practices liability, pollution liability, directors and officers’ liability, workers’ compensation and employer’s liability coverage, as well as umbrella liability policies to provide excess coverage over the underlying limits contained in these primary policies. We also carry property insurance. Although we try to operate safely and prudently we have, subject to limitations and exclusions, substantial liability insurance, we cannot assure you that we will not be exposed to uninsured liabilities that could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

Our insurance programs for workers’ compensation, general liability, vehicle liability, and employee-related health care benefits are effectively self-insured. Claims in excess of self-insurance levels are insured subject to the excess policy limits and exclusions. Accruals are based on claims filed and actuarial estimates of claims development and claims incurred but not reported. Due to the variable condition of the insurance market, we have experienced, and may experience in the future, increased self-insurance retention levels and increased premiums. As we assume more risk for self-insurance through higher retention levels, we may experience more variability in our self-insurance reserves and expense.

In the normal course of business, we post performance bonds, insurance policies, letters of credit, or cash or marketable securities deposits in connection with municipal residential collection contracts, closure and post-closure of landfills, environmental remediation, environmental permits, and business licenses and permits as a financial guarantee of our performance. To date, we have satisfied financial responsibility requirements by making cash or marketable securities deposits or by obtaining bank letters of credit, insurance policies or surety bonds.

Employees

As of December 31, 2011, we employed approximately 30,000 full-time employees, approximately 27% of whom were covered by collective bargaining agreements. From time to time, our operating locations may experience union organizing efforts. We have not historically experienced any significant work stoppages. We currently have no disputes or bargaining circumstances that we believe could cause significant disruptions in our business. Our management believes we have good relations with our employees.

Availability of Reports and Other Information

Our corporate website is www.republicservices.com. We make available on this website, free of charge, access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy

 

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Statements on Schedule 14A, and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934. We make such materials available as soon as reasonably practicable after we electronically submit them to the Securities and Exchange Commission (SEC). Our corporate website also contains our Corporate Governance Guidelines, Code of Ethics, Political Contributions Policy, and Charters of the Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee of the Board of Directors. In addition, the SEC website is www.sec.gov. The SEC makes available on this website, free of charge, reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC. Information on our website or the SEC website is not part of this Form 10-K. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K and applicable New York Stock Exchange (NYSE) rules regarding amendments to or waivers of our Code of Ethics by posting this information on our website at www.republicservices.com.

ITEM 1A. RISK FACTORS

This Form 10-K contains certain forward-looking information about us that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Words such as “guidance,” “expect,” “will,” “may,” “anticipate,” “plan,” “estimate,” “project,” “intend,” “should,” “can,” “likely,” “could” and similar expressions are intended to identify forward-looking statements. These statements include statements about our plans, strategies and prospects. Forward-looking statements are not guarantees of performance. These statements are based upon the current beliefs and expectations of our management and are subject to risk and uncertainties, including the risks set forth below in these risk factors, which could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that the expectations will prove to be correct. According, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K. Except to the extent required by applicable law or regulation, we undertake no obligation to update or publish revised forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.

We have substantial indebtedness, which may limit our financial flexibility.

As of December 31, 2011, we had approximately $7 billion in principal value of debt and capital leases outstanding. This amount of indebtedness and our debt service requirements may limit our financial flexibility to access additional capital and make capital expenditures and other investments in our business, to withstand economic downturns and interest rate increases, to plan for or react to changes in our business and our industry, and to comply with the financial and other restrictive covenants of our debt instruments. Further, our ability to comply with the financial and other covenants contained in our debt instruments may be affected by changes in economic or business conditions or other events that are beyond our control. If we do not comply with these covenants and restrictions, we may be required to take actions such as reducing or delaying capital expenditures, reducing or eliminating dividends or stock repurchases, selling assets, restructuring or refinancing all or part of our existing debt, or seeking additional equity capital.

General economic conditions can directly and adversely affect our operating results.

Our business is directly affected by changes in national and general economic factors and overall economic activity that are outside of our control, including consumer confidence and interest rates. A weak economy generally results in decreases in volumes of waste generated, which adversely affects our revenues. In addition, we have a relatively high fixed-cost structure, which is difficult to adjust quickly to match declining waste volume levels. Consumer uncertainty and the loss of consumer confidence may decrease overall economic activity and thereby limit the amount of services requested by our customers. Additionally, the decline in waste volumes may result in increased competitive pricing pressure and increased customer turnover, resulting in lower revenue and increased operating costs. Recent and continuing economic conditions have negatively impacted the portion of our collection business servicing commercial and industrial accounts in general and the manufacturing

 

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and construction industries in particular. We cannot assure you that worsening economic conditions would not have a significant adverse impact on our consolidated financial condition, results of operations or cash flows. Further, recovery in the solid waste industry historically has lagged behind recovery in the general economy. Accordingly, we cannot assure you that an improvement in general economic conditions will result in an immediate, or any, improvement in our consolidated financial condition, results of operations or cash flows.

The weak U.S. economy may expose us to credit risk for amounts due from governmental agencies, large national accounts, industrial customers and others.

The weak U.S. economy has reduced the amount of taxes collected by various governmental agencies. We provide services to a number of these agencies, including numerous municipalities. These governmental agencies may suffer financial difficulties resulting from a decrease in tax revenue and may ultimately be unable or unwilling to pay amounts owed to us. In addition, the weak economy may cause other customers, including our large national accounts or industrial clients, to suffer financial difficulties and ultimately to be unable or unwilling to pay amounts owed to us. This could have a negative impact on our consolidated financial condition, results of operations and cash flows.

The waste industry is highly competitive and includes competitors that may have greater financial and operational resources, flexibility to reduce prices or other competitive advantages that could make it difficult for us to compete effectively.

We principally compete with large national waste management companies, numerous municipalities, and numerous regional and local companies. Competition for collection accounts is primarily based on price and the quality of services. Competition for disposal business is primarily based on price, geographic location and quality of operations. One of our competitors may have greater financial and operational resources than we do. Further, many counties and municipalities that operate their own waste collection and disposal facilities have the benefits of tax revenue or tax-exempt financing. Our ability to obtain solid waste volume for our landfills also may be limited by the fact that some major collection operations also own or operate landfills to which they send their waste. In markets in which we do not own or operate a landfill, our collection operations may operate at a disadvantage to fully integrated competitors. As a result of these factors, from time to time we may have difficulty competing effectively in certain markets. If we were to lose market share or if we were to lower prices to address competitive issues, it could negatively impact our revenues and profitability.

Price increases may not be adequate to offset the impact of increased costs and may cause us to lose volume.

We seek to secure price increases necessary to offset higher costs (including fuel and environmental costs), to maintain or improve operating margins, and to obtain adequate returns on our substantial investments in assets such as our landfills. From time to time, our competitors reduce their prices in an effort to expand their market share. Contractual, general economic or market-specific conditions also may limit our ability to raise prices. For example, many of our contracts have price adjustment provisions that are tied to an index such as the Consumer Price Index. Particularly in a weak U.S. economy such as the current one, our costs may increase in excess of the increase, if any, in the Consumer Price Index. This may continue to be the case even when the U.S. economy recovers because a recovery in the solid waste industry historically has lagged behind a recovery in the general economy. As a result, we may be unable to offset increases in costs, improve our operating margins and obtain adequate investment returns through price increases. We also may lose volume to lower-cost competitors.

Increases in the cost of fuel or petrochemicals would increase our operating expenses, and we cannot assure you that we would be able to recover such cost increases from our customers.

We depend on fuel purchased in the open market to operate our collection and transfer trucks and other equipment used for collection, transfer, and disposal. Fuel prices are unpredictable and fluctuate significantly based on events beyond our control, including geopolitical developments, actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, supply and demand for oil and gas, war,

 

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terrorism and unrest in oil-producing countries, and regional production patterns. Due to contractual or market factors, we may not be able to offset such volatility through fuel recovery fees. For example, our fuel costs were $516.5 million in 2011, or 6.3% of our revenue, compared to $407.6 million in 2010, or 5.0% of our revenue.

To manage our exposure to volatility in fuel prices, we have entered into multiple swap agreements whereby we receive or make payments to counter-parties should the price of fuel vary from a specified amount. During 2011, approximately 4% of our fuel volume purchases were hedged with swap agreements. Additionally, we are able to collect fuel recovery fees from some customers. For 2011, we were able to recover approximately 68% of our fuel costs with fuel recovery fees. At our current consumption levels, a one-cent per gallon change in the price of diesel fuel changes our fuel costs by $1.4 million on an annual basis, which would be partially offset by a smaller change in the fuel recovery fees charged to our customers. Accordingly, a substantial rise or drop in fuel costs could result in a material impact to our revenue and cost of operations.

Over the last several years, regulations have been adopted mandating changes in the composition of fuels for motor vehicles. The renewable fuel standards that EPA sets annually affect the type of fuel our motor vehicle fleet uses. Pursuant to the Energy Independence and Security Act of 2007, EPA establishes annual renewable fuel volume requirements and separate volume requirements for four different categories of renewable fuels (renewable fuel, advanced biofuel, cellulosic biofuel, and biomass-based diesel). These volume requirements set standards for the proportion of refiners’ or importers’ total fuel volume that must be renewable and must take into account the fuels’ impact on reducing greenhouse gas emissions. These regulations are one of many factors that may affect the cost of the fuel we use.

Our operations also require the use of products (such as liners at our landfills) whose costs may vary with the price of petrochemicals. An increase in the price of petrochemicals could increase the cost of those products, which would increase our operating and capital costs. We are also susceptible to increases in indirect fuel recovery fees from our vendors.

Fluctuations in prices for recycled commodities that we sell to customers may adversely affect our consolidated financial condition, results of operations and cash flows.

We purchase or collect and process recyclable materials such as paper, cardboard, plastics, aluminum and other metals for sale to third parties. Our results of operations may be affected by changing prices or market requirements for recyclable materials. The resale and purchase prices of, and market demand for, recyclable materials are volatile due to changes in economic conditions and numerous other factors beyond our control. These fluctuations may affect our consolidated financial condition, results of operations and cash flows.

To manage our exposure to fluctuations in prices for recycled commodities, we have entered into multiple hedging arrangements whereby we receive or make payments to counter-parties should the price of recycled commodities vary from a specified amount or range. During 2011, approximately 33% of our tonnage sold was hedged with such arrangements. At our current sales levels, a ten dollar per ton change in the sale price of recyclable materials changes our revenue and operating income by approximately $27 million and $18 million, respectively, on an annual basis. Accordingly, a substantial rise or drop in recycled commodity prices could result in a material impact to our revenue and cost of operations.

Adverse weather conditions may limit our operations and increase the costs of collection and disposal.

Our collection and landfill operations could be adversely impacted by extended periods of inclement weather, or by increased severity of weather and climate extremes resulting in the future from climate change. Any of this could increase the volume of waste collected under our existing contracts (without corresponding compensation), interfere with collection and landfill operations, delay the development of landfill capacity or reduce the volume of waste generated by our customers. In addition, adverse weather conditions may result in the temporary suspension of our operations, which can significantly affect our operating results in the affected regions during those periods.

 

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We may be unable to maintain our credit ratings or execute our financial strategy.

Our ability to execute our financial strategy depends in part on our ability to maintain investment grade ratings on our debt. The credit rating process is contingent upon a number of factors, many of which are beyond our control. We cannot assure you that we will be able to maintain our investment grade ratings in the future. If we were unable to do so, our interest expense would increase and our ability to obtain financing on favorable terms may be adversely affected.

Our financial strategy also depends on our ability to generate sufficient cash flow to reinvest in our existing business, fund internal growth, acquire other solid waste businesses, pay dividends, repurchase stock, reduce indebtedness and minimize borrowings, and take other actions to enhance stockholder value. We cannot assure you that we will be successful in executing our broad-based pricing initiatives, that we will generate sufficient cash flow to execute our financial strategy, that we will be able to pay cash dividends at our present rate, or increase them, or that we will be able to continue our share repurchase program.

The solid waste industry is a capital-intensive industry and our capital expenditures may exceed current expectations, which could require us to obtain additional funding for our operations or impair our ability to grow our business.

Our ability to remain competitive and to grow and expand our operations largely depends on our cash flow from operations and access to capital. If our capital efficiency programs cannot offset the impact of inflation and business growth, it may be necessary to increase the amount we spend. Additionally, if we make acquisitions or further expand our operations, the amount we spend on capital, capping, closure, post-closure, environmental remediation and other items will increase. Our cash needs also will increase if the expenditures for capping, closure, post-closure and remediation activities increase above our current estimates, which may occur over a long period due to changes in federal, state or local government requirements and other factors beyond our control. Increases in expenditures would negatively impact our cash flows.

We may be unable to obtain or maintain required permits or to expand existing permitted capacity of our landfills, which could decrease our revenue and increase our costs.

We cannot assure you that we will successfully obtain or maintain the permits we require to operate our business because permits to operate new landfills and to expand the permitted capacity of existing landfills have become more difficult and expensive to obtain and maintain. Permits often take years to obtain as a result of numerous hearings and compliance requirements with regard to zoning, environmental and other regulations. These permits are also often subject to resistance from citizen or other groups and other political pressures. Local communities and citizen groups, adjacent landowners or governmental agencies may oppose the issuance of a permit or approval we may need, allege violations of the permits under which we currently operate or laws or regulations to which we are subject, or seek to impose liability on us for environmental damage. Responding to these challenges has at times increased our costs and extended the time associated with establishing new facilities and expanding existing facilities. In addition, failure to receive regulatory and zoning approval may prohibit us from establishing new facilities or expanding existing facilities. Our failure to obtain the required permits to operate our non-hazardous solid waste landfills could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. In addition, we may have to dispose collected waste at landfills operated by our competitors or haul the waste long distances at a higher cost to one of our other landfills, either of which could significantly increase our waste disposal costs.

If we do not appropriately estimate the cost of landfill capping, closure and post-closure costs, our financial condition and results of operations may be adversely affected.

A landfill must be closed and capped, and post-closure maintenance commenced, once the permitted capacity of the landfill is reached and additional capacity is not authorized. We have significant financial obligations relating to capping, closure and post-closure costs at our existing owned or operated landfills, and will have material

 

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financial obligations with respect to any future owned or operated landfills. We establish accruals for the estimated costs associated with capping, closure and post-closure financial obligations. We could underestimate such costs, and our financial obligations for capping, closure or post-closure costs could exceed the amount accrued or amounts otherwise receivable pursuant to trust funds established for this purpose. Such a shortfall could result in significant unanticipated charges to income. Additionally, if a landfill must be closed earlier than expected or its remaining airspace is reduced for any other reason, the accruals for capping, closure and post-closure could be required to be accelerated, which could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

Alternatives to landfill disposal could reduce our disposal volumes and cause our revenues and operating results to decline.

Most of the states in which we operate landfills require counties and municipalities to formulate comprehensive plans to reduce the volume of solid waste deposited in landfills through waste planning, composting and recycling, or other programs. Some state and local governments mandate waste reduction at the source and prohibit the disposal of certain types of wastes, such as yard waste, at landfills. Further, many of our customers voluntarily are diverting waste to alternatives to landfill disposal, such as recycling and composting, while also working to reduce the amount of waste they generate. Many of the largest companies in the U.S. are setting zero-waste goals in which they strive to send no waste to landfills. Although such actions help to protect our environment, they have reduced and will in the future reduce the volume of waste going to landfills and may affect the prices that we can charge for landfill disposal. Accordingly, we cannot assure you that we will be able to operate our landfills at their current volumes or charge current prices for landfill disposal services due to the decrease in demand for such services. If we cannot expand our service offerings and grow lines of business to service waste streams that do not go to landfills and to provide services for customers that wish to reduce waste entirely, this could have a negative impact on our consolidated financial condition, results of operations and cash flows. Further, even if we can develop service offerings and lines of business, disposal alternatives nonetheless could have a negative impact on our consolidated financial condition, results of operations and cash flows.

The possibility of landfill and transfer station site development projects, expansion projects or pending acquisitions not being completed or certain other events could result in material charges to income.

In accordance with U.S. GAAP, we capitalize certain expenditures relating to development, expansion, acquisition and other projects. If a facility or operation is permanently shut down or determined to be impaired, or a development, expansion or other project is not completed or is determined to be impaired, we will charge against earnings any unamortized capitalized expenditures relating to such facility or project that we are unable to recover through sale, transfer or otherwise. We also carry a significant amount of goodwill on our consolidate balance sheets, which we must assess for impairment annually, and more frequently in the case of certain triggering events. We may incur charges against earnings in accordance with this policy, or other events may cause impairments. Such charges could have a material adverse impact on our results of operations.

We are subject to costly environmental regulations and flow-control regulations that may affect our operating margins, restrict our operations and subject us to additional liability.

Complying with laws and regulations governing the use, treatment, storage, transfer and disposal of solid and hazardous wastes and materials, air quality, water quality and the remediation of contamination associated with the release of hazardous substances is costly. Laws and regulations often require us to enhance or replace our equipment and to modify landfill operations or initiate final closure of a landfill. We cannot assure you that we will be able to implement price increases sufficient to offset the costs of complying with these laws and regulations. In addition, environmental regulatory changes could accelerate or increase expenditures for capping, closure and post-closure, and environmental and remediation activities at solid waste facilities and obligate us to spend sums in addition to those presently accrued for such purposes.

 

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Our collection, transfer, and landfill operations are, and may in the future continue to be, affected by state or local laws or regulations that restrict the transportation of solid waste across state, county or other jurisdictional lines or that direct the flow of waste to a specified facility. Such laws and regulations could negatively affect our operations, resulting in declines in landfill volumes and increased costs of alternate disposal.

In addition to the costs of complying with environmental regulations, we incur costs to defend against litigation brought by government agencies and private parties who allege we are in violation of our permits and applicable environmental laws and regulations, or who assert claims alleging environmental damage, personal injury or property damage. As a result, we may be required to pay fines or implement corrective measures, or we may have our permits and licenses modified or revoked. A significant judgment against us, the loss of a significant permit or license, or the imposition of a significant fine could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. We establish accruals for our estimates of the costs associated with our environmental obligations. We could underestimate such accruals and remediation costs could exceed amounts accrued. Such shortfalls could result in significant unanticipated charges to income.

Regulation of greenhouse gas emissions could impose costs on our operations, the magnitude of which we cannot yet estimate.

Efforts to curtail the emission of greenhouse gases and to ameliorate the effects of climate change continue to be debated on the federal, regional, and state level. Our landfill operations emit methane, identified as a greenhouse gas, and our vehicle fleets emit, among others, carbon dioxide, which also has been identified as a greenhouse gas. Conventional wisdom now suggests that passage of comprehensive, federal climate change legislation is highly unlikely. Nonetheless, should comprehensive federal climate change legislation be enacted, we expect it to impose costs on our operations, the materiality of which we cannot predict.

Absent comprehensive federal legislation to control greenhouse gas emissions, EPA is moving ahead administratively under its existing Clean Air Act authority. EPA is compelled to issue rules by the U.S. Supreme Court’s April 2007 Massachusetts v. EPA ruling that greenhouse gases are “pollutants” for purposes of the Clean Air Act and EPA’s December 2009 finding that continued emissions of greenhouse gases endanger human health and welfare. One applicable rule is EPA’s May 2010 Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule (Tailoring Rule). The Tailoring Rule sets levels of greenhouse gas emissions at new or modified stationary emission sources that trigger permit and control obligations. EPA’s authority to issue the Tailoring Rule has been challenged in court, and the outcome of that court challenge is uncertain. Moreover, in July 2011 EPA issued a rule deferring the application of the Tailoring Rule to solid waste landfills for three years. We cannot assure you that eventual application of the Tailoring Rule to our landfills will not have a material effect on our landfill operations or on our consolidated financial condition, results of operations, or cash flows.

We may have environmental liabilities that are not covered by our insurance. Changes in insurance markets also may impact our financial results.

We may incur liabilities for the deterioration of the environment as a result of our operations. We maintain high deductibles for our environmental liability insurance coverage. If we were to incur substantial liability for environmental damage, our insurance coverage may be inadequate to cover such liability. This could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

Also, due to the variable condition of the insurance market, we may experience future increases in self-insurance levels as a result of increased retention levels and increased premiums. As we assume more risk for self-insurance through higher retention levels, we may experience more variability in our self-insurance reserves and expense.

 

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Despite our efforts, we may incur additional hazardous substances liability in excess of amounts presently known and accrued.

We are a potentially responsible party at many sites under CERCLA, which provides for the remediation of contaminated facilities and imposes strict, joint and several liability for the cost of remediation on current owners and operators of a facility at which there has been a release or a threatened release of a “hazardous substance.” CERCLA liability also extends to parties who were site owners and operators at the time hazardous substances were disposed, and on persons who arrange for the disposal of such substances at the facility (i.e., generators of the waste and transporters who selected the disposal site). Hundreds of substances are defined as “hazardous” under CERCLA and their presence, even in minute amounts, can result in substantial liability. Notwithstanding our efforts to comply with applicable regulations and to avoid transporting and receiving hazardous substances, we may have additional liability under CERCLA, or similar state laws or RCRA, in excess of our current reserves because such substances may be present in waste collected by us or disposed of in our landfills, or in waste collected, transported or disposed of in the past by companies we have acquired. Actual costs for these liabilities could be significantly greater than amounts presently accrued for these purposes, which could have a material adverse impact on our consolidated financial position, results of operations, and cash flows.

Currently pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements.

We are, and from time to time become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings arising out of the ordinary course of our business. Many of these matters raise difficult and complicated factual and legal issues and are subject to uncertainties and complexities. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is uncertain. Further, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments and adversely affect our consolidated financial condition, results of operations and cash flows.

We may be unable to manage our growth effectively.

Our growth strategy places significant demands on our financial, operational and management resources. To continue our growth, we may need to add administrative and other personnel, and may need to make additional investments in operations and systems. We cannot assure you that we will be able to find and train qualified personnel, or do so on a timely basis, or expand our operations and systems to the extent, and in the time, required.

We may be unable to execute our acquisition growth strategy.

Our ability to execute our growth strategy depends in part on our ability to identify and acquire desirable acquisition candidates and on our ability to successfully consolidate acquired operations into our business. The consolidation of our operations with those of acquired companies may present significant challenges to our management. In addition, competition among our competitors for acquisition candidates may prevent us from acquiring certain acquisition candidates. Thus, we cannot assure you that:

 

 

desirable acquisition candidates exist or will be identified,

 

 

we will be able to acquire any of the candidates identified,

 

 

we will effectively consolidate companies we acquire, or

 

 

any acquisitions will be profitable or accretive to our earnings.

If any of these factors force us to alter our growth strategy, our growth prospects could be adversely affected.

 

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Businesses we acquire may have undisclosed liabilities.

In pursuing our acquisition strategy, our due diligence investigations of the acquisition candidates may fail to discover certain undisclosed liabilities. If we acquire a company having undisclosed liabilities such as environmental, remediation or contractual, as a successor owner we may be responsible for such undisclosed liabilities. We try to minimize our exposure to such liabilities when we can by conducting due diligence, by obtaining indemnification from each sellers of the acquired companies, by deferring payment of a portion of the purchase price as security for the indemnification and by acquiring only specified assets. However, we cannot assure you that we will be able to obtain indemnification or that any indemnification obtained will be enforceable, collectible or sufficient in amount, scope or duration to fully offset any undisclosed liabilities arising from our acquisitions.

Our consolidated financial statements are based on estimates and assumptions that will differ from actual results.

Our consolidated financial statements have been prepared in accordance with U.S. GAAP and necessarily include amounts based on management’s estimates. Actual results will differ from these amounts. Significant items requiring management to make subjective or complex judgments about matters that are inherently uncertain include the recoverability of long-lived assets, the depletion and amortization of landfill development costs, accruals for final capping, closure and post-closure costs, valuation allowances for accounts receivable and deferred tax assets, liabilities for potential litigation, claims and assessments, and liabilities for environmental remediation, employee benefit and pension plans, deferred taxes, uncertain tax positions and self-insurance.

We cannot assure you that the liabilities recorded for landfill and environmental costs will be adequate to cover the requirements of existing environmental regulations, future changes to or interpretations of existing regulations, or the identification of adverse environmental conditions previously unknown to management.

The introduction of new accounting rules, laws or regulations could adversely impact our results of operations.

Complying with new accounting rules, laws or regulations could adversely impact our results of operations or cause unanticipated fluctuations in our results of operations in future periods.

We may be subject to workforce influences, including work stoppages, which could increase our operating costs and disrupt our operations.

As of December 31, 2011, approximately 27% of our workforce was represented by various local labor unions. If our unionized workers were to engage in strikes, work stoppages or other slowdowns, we could experience a significant disruption of our operations and an increase in our operating costs, which could have an adverse impact on our consolidated financial condition, results of operations and cash flows. Additional groups of employees may seek union representation in the future and, if successful, the negotiation of collective bargaining agreements could divert management attention and result in increased operating costs. If a greater percentage of our workforce becomes unionized, our consolidated financial condition, results of operations and cash flows could be adversely impacted due to the potential for increased operating costs.

Our obligation to fund multi-employer pension plans to which we contribute may have an adverse impact on us.

We contribute to at least 27 multi-employer pension plans covering at least 20% of our current employees. We do not administer these plans and generally are not represented on the boards of trustees of these plans. The Pension Protection Act enacted in 2006 (the PPA) requires under-funded pension plans to improve their funding ratios. Based on the information available to us, we believe that some of the multi-employer plans to which we contribute are either “critical” or “endangered” as those terms are defined in the PPA. We cannot determine at this time the amount of additional funding, if any, we may be required to make to these plans and, therefore, have

 

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not recorded any related liabilities. However, plan assessments could have an adverse impact on our results of operations or cash flows for a given period. Furthermore, under current law, upon the termination of a multi-employer pension plan, or in the event of a withdrawal by us (which we consider from time to time) or a mass withdrawal of contributing employers (each, a “Withdrawal Event”), we would be required to make payments to the plan for our proportionate share of the plan’s unfunded vested liabilities. We cannot assure you that there will not be a Withdrawal Event with respect to any of the multi-employer pension plans to which we contribute or that, in the event of such a Withdrawal Event, the amounts we would be required to contribute would not have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

For additional discussion and detail regarding multi-employer pension plans see Note 11, Employee Benefit Plans, to our consolidated financial statements in Item 8 of this Form 10-K.

The costs of providing for pension benefits and related funding requirements are subject to changes in pension fund values and fluctuating actuarial assumptions, and may have a material adverse impact on our results of operations and cash flows.

We sponsor a defined benefit pension plan that is funded with trustee assets invested in a diversified portfolio of debt and equity securities. Our costs for providing such benefits and related funding requirements are subject to changes in the market value of plan assets. Our pension expenses and related funding requirements are also subject to various actuarial calculations and assumptions, which may differ materially from actual results due to changing market and economic conditions, interest rates and other factors. A significant increase in our pension obligations and funding requirements could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

The loss of key personnel could have a material adverse effect on our consolidated financial condition, results of operations, cash flows and growth prospects.

Our future success depends on the continued contributions of several key employees and officers. The loss of the services of key employees and officers, whether such loss is through resignation or other causes, or the inability to attract additional qualified personnel, could have a material adverse effect on our financial condition, results of operations, cash flows and growth prospects.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate office is located at 18500 North Allied Way, Phoenix, Arizona 85054, where we currently lease approximately 145,000 square feet of office space. We also maintain regional administrative offices in all of our regions.

Our principal property and equipment consists of land, landfills, buildings, vehicles and equipment. We own or lease real property in the states in which we conduct operations. At December 31, 2011, we owned or operated 334 collection operations, 194 transfer stations, 191 active solid waste landfills and 74 materials recovery facilities in 39 states and Puerto Rico. In aggregate, our active solid waste landfills total approximately 102,000 acres, including approximately 37,000 permitted acres. We also own or have responsibilities for 130 closed landfills. We believe that our property and equipment are adequate for our current needs.

ITEM 3. LEGAL PROCEEDINGS

We are subject to extensive and evolving laws and regulations and have implemented our own safeguards to respond to regulatory requirements. In the normal course of conducting our operations, we become involved in

 

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legal proceedings. Some of these actions may result in fines, penalties or judgments against us, which may impact earnings and cash flows for a particular period. Although we cannot predict the ultimate outcome of any legal matter with certainty, except as described below, we do not believe that the outcome of our pending legal proceedings will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

As used herein, the term legal proceedings refers to litigation and similar claims against us and our subsidiaries, excluding: (i) ordinary course accidents, general commercial liability and workers compensation claims, which are covered by insurance programs, subject to customary deductibles, and which, together with self-insured employee health care costs, are discussed in Note 7 to our consolidated financial statements, Other Liabilities; (ii) environmental remediation liabilities, which are discussed in Note 8 to our consolidated financial statements, Landfill and Environmental Costs; and (iii) tax-related matters, which are discussed in Note 10 to our consolidated financial statements, Income Taxes. Please see our consolidated financial statements included in this Form 10-K under Item 8 for information about these matters.

We accrue for legal proceedings when losses become probable and reasonably estimable. We have recorded an aggregate accrual of approximately $114 million relating to our outstanding legal proceedings as of December 31, 2011, including those described herein and others not specifically identified herein. As of the end of each applicable reporting period, we review each of our legal proceedings and, where it is probable that a liability has been incurred, we accrue for all probable and reasonably estimable losses. Where we are able to reasonably estimate a range of losses we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate. If we are able to reasonably estimate a range but no amount within the range appears to be a better estimate than any other, we use the amount that is the low end of such range. If we used the high ends of such ranges, our aggregate potential liability would have been approximately $109 million higher than the amount recorded as of December 31, 2011.

General Legal Proceedings

Countywide Matter

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

 

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Luri Matter

On August 17, 2007, a former employee, Ronald Luri, sued Republic Services, Inc., Republic Services of Ohio Hauling LLC, Republic Services of Ohio I LLC, Jim Bowen and Ron Krall in the Cuyahoga County Common Pleas Court in Ohio. Plaintiff alleges that he was unlawfully fired in retaliation for refusing to discharge or demote three employees who were all over 50 years old. On July 3, 2008, a jury verdict was awarded against us in the amount of $46.6 million, including $43.1 million in punitive damages. On September 24, 2008, the court awarded pre-judgment interest of $0.3 million and attorney fees and litigation costs of $1.1 million. Post-judgment interest accrued or will accrue at a rate of 8% for 2008, 5% for 2009, 4% for 2010 and 2011, and 3% for 2012. Management anticipates that post-judgment interest could accrue through the end of 2012 for a total of up to $9.5 million. We appealed to the Court of Appeals, and on May 19, 2011 the court reduced the punitive damages award to $7.0 million. The Ohio Supreme Court has granted plaintiff’s and defendants’ petitions for review of the appellate decision. It is reasonably possible that following all appeals a final judgment of liability for compensatory and punitive damages may be assessed against us related to this matter.

Litigation Related to Fuel and Administrative Fees

On November 20, 2009, Klingler’s European Bake Shop & Deli, Inc., filed a complaint against BFI Waste Services, LLC in the Circuit Court of Jefferson County, Alabama, in which plaintiff complains about fuel recovery fees and administrative fees charged. The complaint purports to be filed on behalf of a class of similarly situated plaintiffs in Alabama. This complaint asserts various legal and equitable theories of recovery and alleges in essence that the fees were not properly disclosed, were unfair, and were contrary to contract. Class-certification-related discovery concluded, plaintiff did not move for class certification by the November 10, 2011 deadline, and during a hearing on November 22, 2011, plaintiff withdrew its class allegations. On November 29, 2011, the Court dismissed the class allegations, without prejudice. Although Plaintiff has not specified the amount of damages sought, the fees at issue total less than $1,600.

Compensation Matter

Shortly after the dismissal of his 2009 lawsuit in Federal court in Delaware challenging our disclosures in our 2009 proxy statement with respect to the Executive Incentive Plan, the same stockholder sued Republic Services, Inc., its directors, and several executive officers in the Court of Chancery in Delaware. His new lawsuit, filed in May 2011, challenges certain compensation decisions that were made by the Board of Directors or its Compensation Committee. The lawsuit is purportedly brought on behalf of our company against all of our directors and several executive officers. In particular, the plaintiff’s amended complaint: (1) challenges certain payments totaling $3.05 million made to our former Chief Executive Officer, James O’Connor, under his June 25, 2010 Retirement Agreement; (2) contends that the company committed “waste” by awarding restricted stock units that vest over time (which typically would not be tax deductible) rather than awarding performance-based units (which typically would be tax deductible); (3) alleges that the Board overpaid itself by awarding directors too many restricted stock units in 2009 and 2010; and (4) alleges that the Company may not pay any bonuses under its Synergy Incentive Plan because net earnings purportedly have not increased since the merger with Allied. The amended complaint seeks injunctive relief and seeks an equitable accounting for unspecified losses the company purportedly sustained. We believe the lawsuit is without merit and is not material. The defendants will defend the lawsuit vigorously and have filed motions to dismiss the amended complaint.

Chicago Contracting Matter

We discovered actions of non-compliance by one of our subsidiaries with the subcontracting provisions of certain government contracts in our Chicago market. These contracts included contracts with the City of Chicago (the City) and with certain other municipal agencies in the Chicago area. We reported the discovery to, and have had further discussions with, law enforcement and other authorities.

 

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On December 29, 2011, we signed a settlement agreement with the City under which we have: (1) paid the City $11 million in January 2012; (2) agreed to convert 79 positions at our Chicago transfer station and materials recovery facilities, which are currently held by temporary workers through vendors, to full-time company employees; and (3) released any claims we might have due to alleged shortfalls in the amount of waste delivered by the City under one of our contracts. In exchange, the City has released all claims against us and has agreed that we may continue to perform our existing contracts and that we will remain eligible to bid on future City contracts.

Although we have settled with the City, the matter remains ongoing with law enforcement authorities and other municipal agencies. Our non-compliance could result in additional payments by us in the form of restitution, damages, or penalties, or the loss of future business in the affected market or other markets.

Congress Development Landfill Matter

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

In a suit originally filed on December 23, 2009 in the Circuit Court of Cook County, Illinois and subsequently amended to add additional plaintiffs, approximately 2,550 plaintiffs sued our subsidiaries Allied Transportation and Allied Waste Industries, Inc., CDC and Sexton. The court entered an order dismissing Allied Waste Industries, Inc. without prejudice on October 26, 2010. The plaintiffs allege bodily injury, property damage and inability to have normal use and enjoyment of property arising from, among other things, odors and other damages arising from landfill gas leaking, and they base their claims on negligence, trespass, and nuisance. On January 6, 2012, the court took plaintiffs’ motion for leave to amend their complaint to seek punitive damages under advisement, to be considered on a plaintiff-by-plaintiff basis. The court also granted plaintiffs leave to serve discovery on the punitive damages issue. Following the court’s order in our favor striking the plaintiffs’ allegations requesting actual damages in excess of $50 million and punitive damages in excess of $50 million, the amount of damages being sought is unspecified. Discovery is ongoing. We intend to vigorously defend against the plaintiffs’ allegations in this action.

Livingston Matter

On October 13, 2009, the Twenty-First Judicial District Court, Parish of Livingston, State of Louisiana, issued its Post Class Certification Findings of Fact and Conclusions of Law in a lawsuit alleging nuisance from the activities of the former hazardous waste facility owned by our subsidiary CECOS International, Inc. (CECOS) located in Livingston Parish, Louisiana. The court granted class certification for all those living within a six mile radius of the CECOS site between the years 1977 and 1990. We appealed the class certification order. On August 17, 2011, the court of appeals granted a joint motion to remand the case to the trial court for the parties to finalize a proposed settlement. The parties executed a settlement agreement on September 15, 2011, which was approved by the trial court at a fairness hearing on December 8, 2011.The settlement agreement, which provides for payment of $29.5 million to settle the claims of the class, will become final upon the expiration of the appeal period on February 23, 2012, unless an appeal is filed before that date.

Legal Proceedings over Certain Environmental Matters Involving Governmental Authorities with Possible Sanctions of $100,000 or More

Item 103 of the SEC’s Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions unless we reasonably believe that the monetary sanctions will not equal or exceed $100,000. We are disclosing the following matters in accordance with that requirement:

 

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Forward Matters

The District Attorney for San Joaquin County filed a civil action against Forward, Inc. and Allied Waste Industries, Inc. on February 14, 2008 in the Superior Court of California, County of San Joaquin. The complaint seeks civil penalties of $2,500 for each alleged violation, but no less than $10.0 million, and an injunction against Forward and Allied for alleged permit and regulatory violations at the Forward Landfill. The District Attorney contends that the alleged violations constitute unfair business practices under the California Business and Professions Code section 17200, et seq., by virtue of violations of Public Resources Code Division 30, Part 4, Chapter 3, Article 1, sections 44004 and 44014(b); California Code of Regulations Title 27, Chapter 3, Subchapter 4, Article 6, sections 20690(11) and 20919.5; and Health and Safety Code sections 25200, 25100, et seq., and 25500, et seq. Although the complaint is worded very broadly and does not identify specific permit or regulatory violations, the District Attorney has articulated three primary concerns in past communications, alleging that the landfill: (1) used green waste containing food as alternative daily cover, (2) exceeded its daily solid waste tonnage receipt limitations under its solid waste facility permit, and (3) received hazardous waste in violation of its permit (i.e., auto shredder waste). Additionally, the District Attorney alleges that landfill gas measured by a monitoring probe at the property boundary has exceeded an action level of five percent methane. We are vigorously defending against the allegations.

On March 2, 2011, the U.S. Environmental Protection Agency (EPA) Region IX and the San Joaquin Valley Air Pollution Control District filed a civil action against Forward, Inc. in the U.S. District Court for the Northern District of California. The complaint seeks civil penalties of up to $75,000 for each day of alleged violation, an order directing Forward to comply with various Clean Air Act regulations and the landfill’s Title V permit, and unspecified injunctive relief. The facility is jointly regulated by the EPA and the San Joaquin Valley Air Pollution Control District. The alleged violations include operating gas collection wellheads at greater than 15% oxygen, experiencing a subsurface oxidation event on multiple occasions, submitting inaccurate compliance certifications, and operating a compost facility and associated equipment without a permit. We are undergoing nonbinding mediation with the agencies as we continue to vigorously defend against the allegations.

Sunshine Canyon Matter

On November 17, 2009, the South Coast Air Quality Management District (SCAQMD) issued a Petition for an Order for Abatement (Petition) as a result of a series of odor complaints and notices of violation alleged to be associated with the operations at the Sunshine Canyon Landfill located in Sylmar, California (Sunshine Canyon). The Petition described eight notices of violation beginning in November 2008 and continuing to November 2009. The SCAQMD’s independent Hearing Board held a series of public hearings between December 2009 and March 2010, after which it issued a final order (Order) that requires certain operational changes aimed at odor control, and further requires Sunshine Canyon to perform several studies regarding odor control techniques, equipment and site meteorology. In July 2010, the Hearing Board approved an amended Order suspending certain operational requirements contained in the initial Order pending completion of additional odor control studies. In September 2010, the County of Los Angeles Department of Public Works (Department) issued a directive to Sunshine Canyon requiring the implementation of certain corrective measures aimed at reducing odors. Since September 2010 and continuing through 2011, Sunshine Canyon has received several Notices of Violation from the SCAQMD based on confirmed odor complaints from the neighborhood near the landfill. On December 3, 2011, following public hearings, the Hearing Board entered a third stipulated amended order for abatement requiring Sunshine Canyon to expand its landfill gas collection system and to undertake additional odor abatement measures, and also granted permission to Sunshine Canyon to install a temporary landfill gas flare to control potential odors from landfill gas. While the District prosecutor’s office has stated its intention to assess a penalty on Sunshine Canyon, it has not indicated the amount or type of such a penalty.

Lorain County Landfill Matter

Since 2006, the Lorain County Landfill located in Lorain, Ohio has agreed to two consensual Director’s Final Findings and Orders (DFFOs) issued by the Ohio Environmental Protection Agency related to operational issues,

 

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including odor nuisances. The Ohio Attorney General’s office has advised us that it intends to initiate legal proceedings against our subsidiary, Lorain County Landfill, LLC, and against Lorain County LFG Power Station Energy Developments, Inc., which has operated and maintained the landfill’s gas collection system, for violations that are alleged to continue to occur in violation of the DFFOs and are related to continuing alleged nuisance odors. We are engaging in discussions with representatives of the Attorney General’s office to attempt to amicably resolve the State’s issues and to negotiate a consent order that would be filed with the common pleas court. The Attorney General’s office has communicated a settlement demand to Lorain County Landfill, LLC. We understand that the Attorney General’s Office also is seeking a penalty against Lorain County LFG Power Station Energy Developments, Inc. The Attorney General’s office also is seeking injunctive relief related to ongoing landfill operations, including the landfill gas collection and control system. Settlement discussions with the Attorney General’s office are ongoing.

Queen Creek Matter

The Maricopa County Air Quality Department issued a Notice of Violation (NOV) to the Maricopa County Solid Waste Department in March 2010 and to the Town of Queen Creek (Queen Creek) and Allied Waste Industries (Arizona), Inc. (Allied Waste) in October 2010 relating to the Queen Creek Landfill (Landfill). The NOV alleges violations of the Clean Air Act relating to the Landfill while it was in operation. The Landfill was owned by Maricopa County and operated by Allied Waste under contract with Queen Creek between 1996 and 2007, at which time it was closed. The NOV alleges the failure to design, install and operate a landfill gas collection control system, failure to timely apply for an air quality permit, and failure to provide required reports relating to landfill capacity, status and closure. Under the terms of several intergovernmental agreements between Maricopa County and Queen Creek, Maricopa County agreed to be responsible for the majority of activities that are the subject of the NOVs and to indemnify Queen Creek and its contractors for Maricopa County’s failure to meet its obligations under the agreements. While the parties are exploring possible resolution, Allied Waste intends to vigorously defend against the allegations and seek indemnification from Maricopa County.

ITEM 4.  MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information, Holders and Dividends

The principal market for our common stock is the NYSE, and it is traded under the symbol RSG. The following table sets forth the range of the high and low sale prices per share of our common stock on the NYSE and the cash dividends declared per share of common stock for the periods indicated:

 

     High      Low      Dividends
Declared
 

Year Ended December 31, 2011:

        

First Quarter

     $  31.50         $  28.36         $  0.20   

Second Quarter

     33.10         29.24         0.20   

Third Quarter

     31.73         24.72         0.22   

Fourth Quarter

     30.01         25.78         0.22   

Year Ended December 31, 2010:

        

First Quarter

     $  29.55         $  25.15         $  0.19   

Second Quarter

     31.92         27.65         0.19   

Third Quarter

     32.95         28.97         0.20   

Fourth Quarter

     32.13         27.70         0.20   

 

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There were 819 holders of record of our common stock at January 27, 2012, which does not include beneficial owners for whom Cede & Co. or others act as nominees.

In February 2012, our board of directors declared a regular quarterly dividend of $0.22 per share for stockholders of record on April 2, 2012. We expect to continue to pay quarterly cash dividends, and we may consider increasing our dividends if we believe it will enhance stockholder value.

We have the ability under our credit facilities to pay dividends and repurchase our common stock if we are in compliance with the financial covenants in our credit facilities. As of December 31, 2011 and throughout the entire year, we were in compliance with those financial covenants.

Issuer Purchases of Equity Securities

The following table provides information relating to our purchases of shares of our common stock during the three months ended December 31, 2011:

 

     Total Number of
Shares  Purchased (a)
     Average Price Paid
per Share  (a)
     Total Number of Shares
Shares  Purchased as
Part of Publicly
Announced Program (b)
     Approximate Dollar
Value of  Shares that
May Yet Be Purchased
Under the Program (c)
 

October 2011

     790,206       $ 28.08         790,206       $ 657,578,595   

November 2011

     210,900         27.76         210,900         651,724,891   

December 2011

     104,365         27.05         94,550         649,170,517   
  

 

 

    

 

 

    

 

 

    
     1,105,471       $ 27.92         1,095,656      
  

 

 

    

 

 

    

 

 

    

 

(a) In August 2011, our board of directors approved a share repurchase program pursuant to which we may repurchase up to $750 million of our outstanding shares of common stock through December 31, 2013 (the 2011 Program). The 2011 Program was publicly announced on August 15, 2011. Previously, our board of directors approved a share repurchase program pursuant to which we were authorized to repurchase up to $400 million of our outstanding shares of common stock through December 31, 2011 (the 2010 Program). The 2010 Program was publicly announced on November 4, 2010. The authorization under the 2011 Program was in addition to the authorization then remaining under the 2010 Program. During the third quarter of 2011, we completed our share purchases under the 2010 Program. Share repurchases under the programs 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 programs, 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 2011 Program may be extended, suspended or discontinued at any time. The total number of shares purchased also includes 9,815 shares to satisfy minimum tax withholding obligations in connection with the vesting of outstanding restricted stock.

 

(b) The total number of shares purchased as part of the publicly announced program were all purchased pursuant to the 2011 Program.

 

(c) The approximate dollar value of shares that may yet be purchased under the program excludes the dollar value of shares of common stock that may be surrendered to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted stock issued to employees.

Recent Sales of Unregistered Securities

None

 

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Performance Graph

The following graph compares the performance of our common stock to the Standard & Poor’s 500 Stock Index (S&P 500 Index) and the Dow Jones Waste & Disposal Services Index (DJW&DS Index). The graph covers the period from December 31, 2006 to December 31, 2011 and assumes that the value of the investment in our common stock and in each index was $100 at December 31, 2006 and that all dividends were reinvested.

Comparison of Five Year Cumulative Total Return

Assumes Initial Investment of $100

LOGO

Indexed Returns For Years Ending

 

     December 31,  
         2006              2007              2008              2009              2010              2011      

Republic Services, Inc.

   $ 100.00       $ 117.72       $ 95.50       $ 112.67       $ 121.97       $ 115.83   

S&P 500 Index

     100.00         105.50         66.45         84.03         96.68         98.72   

DJ W&DS Index

     100.00         104.59         98.22         111.79         132.82         133.07   

 

ITEM 6.  SELECTED FINANCIAL DATA

You should read the following Selected Financial Data in conjunction with our consolidated financial statements and notes thereto as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-K.

On December 5, 2008, we acquired all the issued and outstanding shares of Allied in a stock-for-stock transaction for an aggregate purchase price of $12.1 billion, which included $5.4 billion of debt, at fair value. The Allied acquisition has been accounted for as an acquisition of Allied by Republic. The consolidated financial statements

 

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include the operating results of Allied from the date of the acquisition, and have not been retroactively restated to include Allied’s historical financial position or results of operations. In accordance with the purchase method of accounting, the purchase price paid has been allocated to the assets and liabilities acquired based upon their estimated fair values as of the acquisition date, with the excess of the purchase price over the net assets acquired being recorded as goodwill.

Our shares, per share data and weighted average common and common equivalent shares outstanding have been retroactively adjusted for all periods prior to 2007 to reflect a 3-for-2 stock split in the form of a stock dividend that was effective on March 16, 2007.

See Notes 1, 2, 3, 8, 9, 10 and 12 to our consolidated financial statements in Item 8 of this Form 10-K for a discussion of basis of presentation, significant accounting policies, business acquisitions and divestitures, restructuring charges, landfill and environmental costs, debt, income taxes and stockholders’ equity and their effect on comparability of year-to-year data. These historical results are not necessarily indicative of the results to be expected in the future. Amounts are in millions, except per share data.

 

     Year Ended December 31,  
     2011     2010     2009     2008     2007  

Statement of Operations Data:

          

Revenue

   $ 8,192.9      $ 8,106.6      $ 8,199.1      $ 3,685.1      $ 3,176.2   

Expenses:

          

Cost of operations

     4,865.1        4,764.8        4,844.2        2,416.7        2,003.9   

Depreciation, amortization and depletion

     843.6        833.7        869.7        354.1        305.5   

Accretion

     78.0        80.5        88.8        23.9        17.1   

Selling, general and administrative

     825.4        858.0        880.4        434.7        313.7   

Loss (gain) on disposition of assets and impairments, net

     28.1        19.1        (137.0     89.8        -   

Restructuring charges

     -        11.4        63.2        82.7        -   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1,552.7        1,539.1        1,589.8        283.2        536.0   

Interest expense

     (440.2     (507.4     (595.9     (131.9     (94.8

Loss on extinguishment of debt

     (210.8     (160.8     (134.1     -        -   

Interest income

     0.3        0.7        2.0        9.6        12.8   

Other income (expense), net

     4.3        5.4        3.2        (1.6     14.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     906.3        877.0        865.0        159.3        468.1   

Provision for income taxes

     317.4        369.5        368.5        85.4        177.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     588.9        507.5        496.5        73.9        290.2   

Net loss (income) attributable to noncontrolling interests

     0.3        (1.0     (1.5     (0.1     -   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Republic Services, Inc.

   $ 589.2      $ 506.5      $ 495.0      $ 73.8      $ 290.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share attributable to Republic

          

Services, Inc. stockholders:

          

Basic earnings per share

   $ 1.57      $ 1.32      $ 1.30      $ 0.38      $ 1.53   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     376.0        383.0        379.7        196.7        190.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share attributable to Republic

          

Services, Inc. stockholders:

          

Diluted earnings per share

   $ 1.56      $ 1.32      $ 1.30      $ 0.37      $ 1.51   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common and common equivalent shares outstanding

     377.6        385.1        381.0        198.4        192.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends per common share

   $ 0.8400      $ 0.7800      $ 0.7600      $ 0.7200      $ 0.5534   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Operating Data:

          

Cash flows from operating activities

   $ 1,766.7      $ 1,433.7      $ 1,396.5      $ 512.2      $ 661.3   

Capital expenditures

     936.5        794.7        826.3        386.9        292.5   

Proceeds from sales of property and equipment

     34.6        37.4        31.8        8.2        6.1   

Balance Sheet Data:

          

Cash and cash equivalents

   $ 66.3      $ 88.3      $ 48.0      $ 68.7      $ 21.8   

Restricted cash and marketable securities

     189.6        172.8        240.5        281.9        165.0   

Total assets

     19,551.5        19,461.9        19,540.3        19,921.4        4,467.8   

Total debt

     6,921.8        6,743.6        6,962.6        7,702.5        1,567.8   

Total stockholders' equity

     7,683.4        7,848.9        7,567.1        7,282.5        1,303.8   

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our audited consolidated financial statements and the notes thereto, included elsewhere in this Form 10-K. This discussion may contain forward-looking statements that anticipate results based on management’s plans that are subject to uncertainty. We discuss in more detail various factors that could cause actual results to differ from expectations in Item 1A, Risk Factors in this Form 10-K.

Overview

We are the second largest provider of services in the domestic non-hazardous solid waste industry, as measured by revenue. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 334 collection operations in 39 states and Puerto Rico. We own or operate 194 transfer stations, 191 active solid waste landfills and 74 materials recovery facilities. We also operate 69 landfill gas and renewable energy projects.

Revenue for the year ended December 31, 2011 was $8,192.9 million compared to $8,106.6 million for the same period in 2010. Core price for the year ended December 31, 2011 increased 0.8%, fuel recovery fees increased 1.0%, commodity revenue increased 1.0% and acquisitions, net of divestitures increased 0.1%. Offsetting this revenue growth of 2.9% were decreases of 1.4% due to the expiration of our San Mateo County contract and our transportation and disposal contract with the City of Toronto effective December 31, 2010 and 0.4% from volume declines.

The following table summarizes our operating revenue, costs and expenses in millions of dollars and as a percentage of our revenue for the years ended December 31, 2011, 2010 and 2009:

 

$8,106.6 $8,106.6 $8,106.6 $8,106.6 $8,106.6 $8,106.6
     2011     2010     2009  

Revenue

   $ 8,192.9         100.0   $ 8,106.6         100.0   $ 8,199.1        100.0

Expenses:

              

Cost of operations

     4,865.1         59.4        4,764.8         58.8        4,844.2        59.1   

Depreciation, amortization and
depletion of property and equipment

     766.9         9.4        762.2         9.4        799.1        9.7   

Amortization of other intangible assets
and other assets

     76.7         0.9        71.5         0.9        70.6        0.9   

Accretion

     78.0         0.9        80.5         1.0        88.8        1.1   

Selling, general and administrative

     825.4         10.1        858.0         10.6        880.4        10.7   

Loss (gain) on disposition of assets and
impairments, net

     28.1         0.3        19.1         0.2        (137.0     (1.7

Restructuring charges

     -         -        11.4         0.1        63.2        0.8   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

   $ 1,552.7         19.0   $ 1,539.1         19.0   $ 1,589.8        19.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Pre-tax income was $906.3 million, $877.0 million and $865.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. Net income attributable to Republic Services, Inc. was $589.2 million, or $1.56 per diluted share, for the year ended December 31, 2011, compared to $506.5 million, or $1.32 per diluted share, in 2010 and $495.0 million, or $1.30 per diluted share, in 2009.

 

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During each of the three years ended December 31, 2011, 2010 and 2009, we recorded a number of gains, charges (recoveries) and other expenses that impacted our pre-tax income, net income attributable to Republic Services, Inc. (Net Income – Republic) and diluted earnings per share as noted in the following table (in millions, except per share data). Additionally, see our “Income Taxes” discussion contained in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

     Year Ended December 31, 2011      Year Ended December 31, 2010      Year Ended December 31, 2009  
     Pre-tax
Income
     Net
Income -
Republic
     Diluted
Earnings
per
Share
     Pre-tax
Income
     Net
Income -
Republic
     Diluted
Earnings
per
Share
     Pre-tax
Income
    Net
Income -
Republic
    Diluted
Earnings
per
Share
 

As reported

   $ 906.3       $ 589.2       $ 1.56       $ 877.0       $ 506.5       $ 1.32       $ 865.0      $ 495.0      $ 1.30   

Loss on extinguishment of debt

     210.8         129.3         0.34         160.8         98.6         0.26         134.1        83.3        0.22   

Costs to achieve synergies

     -         -         -         33.3         20.3         0.05         41.8        25.6        0.06   

Restructuring charges

     -         -         -         11.4         7.0         0.02         63.2        38.6        0.10   

Remediation recoveries, net

     -         -         -         -         -         -         (6.8     (4.1     (0.01

Loss (gain) on disposition of assets and impairments, net

     28.1         19.8         0.06         19.1         25.4         0.06         (137.0     (73.8     (0.19
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted

   $ 1,145.2       $ 738.3       $ 1.96       $ 1,101.6       $ 657.8       $ 1.71       $ 960.3      $ 564.6      $ 1.48   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Loss on extinguishment of debt.  During the years ended December 31, 2011, 2010 and 2009, we completed refinancing transactions that resulted in cash paid for premiums and professional fees to repurchase outstanding debt as well as the non-cash write-off of unamortized debt discounts and deferred issuance costs. For more detailed discussion of the components of these costs and the debt series to which they relate, see our “Loss on Extinguishment of Debt” discussion contained in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Costs to achieve synergies.  During the years ended December 31, 2010 and 2009, we incurred incremental costs to achieve our synergy plan that are recorded in selling, general and administrative expenses. These incremental costs primarily relate to our synergy incentive plan as well as other integration costs. We did not incur any such expenses during the year ended December 31, 2011. We expect to pay amounts earned under the synergy incentive plan during the first quarter of 2012.

Restructuring charges.  During the year ended December 31, 2010 and 2009, we incurred restructuring and integration charges related to the Allied acquisition. These charges consist of severance and other employee termination and relocation benefits as well as consulting and professional fees. Substantially all of these charges were recorded in our corporate segment. We completed our restructuring plan in 2010, and we did not incur any additional restructuring charges related to the Allied acquisition in 2011.

Remediation recoveries, net.  During 2009, we recovered $12.0 million of insurance proceeds related to remediation costs at the Countywide facility, which were partially offset by additional charges of $5.2 million at our closed disposal facility in California.

Loss (gain) on disposition of assets and impairments, net.  For more detailed discussion of the components of these costs, see our “Loss (Gain) on Disposition of Assets and Impairments, Net” discussion contained in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We believe the presentation of adjusted pre-tax income, adjusted net income attributable to Republic Services, Inc. and adjusted diluted earnings per share, which are not measures determined in accordance with U.S. GAAP, provide an understanding of operational activities before the financial impact of certain items. We use these measures, and believe investors will find them helpful, in understanding the ongoing performance of our

 

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operations separate from items that have a disproportionate impact on our results for a particular period. Comparable charges and costs have been incurred in prior periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Our definition of adjusted pre-tax income, adjusted net income attributable to Republic Services, Inc. and adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies.

2012 Guidance

Our objectives for 2012 remain consistent with previous years and focus on enhancing stockholder value by increasing returns on invested capital and efficiently using free cash flow. We remain committed to continuing our broad-based pricing initiatives across all lines of business to recover increasing costs and to expand our operating margins.

Our guidance is based on current economic conditions and does not assume any improvement or deterioration in the overall economy in 2012. Specific guidance follows:

Revenue

We expect 2012 revenue to increase by approximately 1.5 to 2.0%. This consists of the following:

 

     Increase
(Decrease)
 

Core price

     1.0 to 1.5

Volume

     0.5

Fuel recovery fees

     0.2

Recycling commodities

     (0.7 )% 

Acquisitions / divestitures, net

     0.5
  

 

 

 

Total change

     1.5 to 2.0
  

 

 

 

Changes in price are restricted on approximately 50% of our annual revenue. These restrictions include:

 

   

price changes based upon fluctuation in a specific index as defined in the contract;

   

fixed price increases based on stated contract terms; or

   

price changes based on a cost plus a specific profit margin or other measurement.

Of these restricted pricing arrangements, approximately 65% are based on a consumer price index, 20% are fixed arrangements and the remainder are based upon a cost plus or other specific arrangement. The consumer price index varies from a single historical stated period of time or an average of trailing historical rates over a stated period of time. In addition, many pricing resets lag between the measurement period and the date the revised pricing goes into effect. As a result, current changes in a specific index, such as the consumer price index, may not manifest themselves in our reported pricing for several quarters into the future.

Adjusted Diluted Earnings per Share

The following is a summary of anticipated adjusted diluted earnings per share for the year ended December 31, 2012, which are not measures determined in accordance with GAAP, excluding loss on extinguishment of debt:

 

     (Anticipated)
Year

Ended
December  31,
2012
 

Diluted earnings per share

   $ 1.80 - 1.84   

Loss on extinguishment of debt

     0.18   
  

 

 

 

Adjusted diluted earnings per share

   $ 1.98 - 2.02   
  

 

 

 

 

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We believe that the presentation of adjusted diluted earnings per share, which excludes loss on extinguishment of debt, provides an understanding of operational activities before the financial impact of certain items. We use this measure, and believe investors will find it helpful, in understanding the ongoing performance of our operations separate from items that have a disproportionate impact on our results for a particular period. Comparable charges and costs have been incurred in prior periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Our definition of adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies.

During 2012, we expect to call and refinance $750.0 million of our June 2017 6.875% Senior Notes. As of December 31, 2011 the unamortized discount associated with these notes was $75.8 million. Early extinguishment of the notes will result in an impairment charge in the amount of the unamortized note discount as well as any premiums paid to effectuate the repurchase.

Property and Equipment

In 2012, we anticipate receiving approximately $860 million of property and equipment as follows:

 

Trucks and equipment

     $ 319   

Landfill

       289   

Containers

       126   

Facilities and other

       126   
    

 

 

 

Property and equipment received during 2012

     $ 860   
    

 

 

 

Purchases of property and equipment as reflected on our consolidated statement of cash flows for 2012 are expected to be approximately $920 million. The difference between property and equipment received and purchases of property and equipment is approximately $60 million of property and equipment received during 2011 but paid for in 2012.

Results of Operations

Years Ended December 31, 2011, 2010 and 2009

Revenue

We generate revenue primarily from our solid waste collection operations. Our remaining revenue is from other services, including transfer stations, landfill disposal and recycling. Our revenue from collection operations consists of fees we receive from commercial, industrial, municipal and residential customers. Our residential and commercial collection operations in some markets are based on long-term contracts with municipalities. We generally provide commercial and industrial collection services to customers under contracts with terms up to three years. Our transfer stations, landfills and, to a lesser extent, our material recovery facilities generate revenue from disposal or tipping fees. In general, we integrate our recycling operations with our collection operations and obtain revenue from the sale of recyclable materials. Other revenue consists primarily of revenue from National Accounts. National Accounts revenue represents the portion of revenue generated from nationwide contracts in markets outside our operating areas, where the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.

 

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The following table reflects our revenue by line of business for the years ended December 31 2011, 2010 and 2009 (in millions of dollars and as a percentage of our revenue):

 

     2011     2010     2009  

Collection:

            

Residential

   $ 2,135.7        26.1   $ 2,173.9        26.8   $ 2,187.0        26.7

Commercial

     2,487.5        30.4        2,486.8        30.7        2,553.4        31.1   

Industrial

     1,515.4        18.5        1,482.9        18.3        1,541.4        18.8   

Other

     32.9        0.4        29.6        0.4        26.9        0.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total collection

     6,171.5        75.4        6,173.2        76.2        6,308.7        76.9   

Transfer

     978.0          1,030.3          1,111.1     

Less: Intercompany

     (556.6       (587.9       (611.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer, net

     421.4        5.1        442.4        5.4        499.9        6.1   

Landfill

     1,867.6          1,865.8          1,892.5     

Less: Intercompany

     (846.9       (861.7       (891.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Landfill, net

     1,020.7        12.5        1,004.1        12.4        1,000.9        12.2   

Sale of recyclable materials

     438.6        5.4        337.9        4.2        229.8        2.8   

Other non-core

     140.7        1.6        149.0        1.8        159.8        2.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other

     579.3        7.0        486.9        6.0        389.6        4.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 8,192.9        100.0   $ 8,106.6        100.0   $ 8,199.1        100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table reflects changes in our adjusted revenue for the years ended December 31, 2011, 2010 and 2009. We have presented the components of our revenue changes for the year ended December 31, 2009 assuming the Allied acquisition occurred on January 1, 2008:

 

     2011     2010     2009  

Core price

     0.8     1.6     3.0

Fuel recovery fees

     1.0        0.5        (2.5

Recycling commodities

     1.0        1.4        (1.7
  

 

 

   

 

 

   

 

 

 

Total price

     2.8        3.5        (1.2

Volume

     (0.4     (3.5     (9.5

San Mateo and Toronto contract losses

     (1.4     -        -   
  

 

 

   

 

 

   

 

 

 

Total internal growth

     1.0        -        (10.7

Acquisitions / divestitures, net

     0.1        (1.1     (1.4

Intercompany eliminations

     -        -        (0.3
  

 

 

   

 

 

   

 

 

 

Total

     1.1     (1.1 )%      (12.4 )% 
  

 

 

   

 

 

   

 

 

 

The intercompany eliminations relates to prior year transactions between Republic and Allied that would have been eliminated if the companies had merged on January 1, 2008. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

Revenue – 2011 versus 2010

The increase in revenue in 2011 compared to 2010 is due to the following:

 

   

Changes in core price increased revenue by 0.8% in 2011 compared to 1.6% in 2010. The lower core price increase in 2011 compared to 2010 is due primarily to the competitive municipal and franchise contract pricing environment in our residential collection line of business and the continued low

 

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inflationary environment, which limits our price increases on index based contracts, partially offset by our continued broad-based pricing initiatives particularly in our landfill line of business.

 

   

Changes in fuel recovery fees increased revenue by 1.0% in 2011 compared to 0.5% in 2010. Revenue benefited from increased fuel recovery fees due to higher fuel prices during 2011 that were passed along to our customers.

 

   

Changes in recycling commodity prices increased revenue by 1.0% in 2011 compared to 1.4% in 2010. Revenue benefited from higher commodity prices for recovered materials until the fourth quarter of 2011, when changes in recycling commodity prices decreased revenue by 0.1% year over year.

 

   

Changes in core volume decreased revenue by 0.4% in 2011 compared to 3.5% in 2010. Core volume continued to decline throughout 2011, but at a lower rate of decline than earlier in the year or during 2010. Core volume in our industrial collection and landfill lines of business was positive in 2011 primarily driven by special event work, offset by declines in our commercial and residential collection and transfer station lines of business.

 

   

Our San Mateo County contract and our transportation and disposal contract with the City of Toronto ended effective December 31, 2010, which reduced our revenue growth by 1.4%.

Revenue – 2010 versus 2009

The decrease in revenue in 2010 compared to 2009 is due to the following:

 

   

Changes in core price increased revenue by 1.6% in 2010 compared to 3.0% in 2009. The lower core price increase in 2010 compared to 2009 is due primarily to the lower inflationary environment, which limits our price increases on index based contracts, partially offset by our continued broad-based pricing initiatives.

 

   

Changes in fuel recovery fees increased revenue by 0.5% in 2010 compared to a decrease of 2.5% in 2009. Revenue benefited from fuel recovery fees resulting from higher fuel costs that were passed along to our customers in 2010. The increase in fuel recovery fees in 2010 compared to 2009 is directly attributable to an increase in fuel costs.

 

   

Changes in recycling commodity prices increased revenue by 1.4% in 2010 compared to a decrease of 1.7% in 2009. Revenue benefited from higher commodity prices for recovered materials in 2010 compared to 2009.

 

   

Changes in core volume decreased revenue by 3.5% in 2010 compared to 9.5% in 2009. During 2010, we continued to experience negative core growth in all lines of business, especially in temporary roll-off within our industrial collection business in the first half of 2010. Core volume continued to decline throughout 2010, but at a lower rate than earlier in the year or in 2009.

 

   

The DOJ required us to divest of certain assets and related liabilities in connection with the Allied acquisition. The resulting divestitures, as well as other divestitures in the normal course of business, decreased revenue by 1.1% in 2010 and 1.4% in 2009.

Cost of Operations

Cost of operations includes labor and related benefits, which consists of salaries and wages, health and welfare benefits, incentive compensation and payroll taxes. It also includes transfer and disposal costs representing tipping fees paid to third party disposal facilities and transfer stations; maintenance and repairs relating to our vehicles, equipment and containers, including related labor and benefit costs; transportation and subcontractor

 

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costs, which include costs for independent haulers who transport our waste to disposal facilities and costs for local operators who provide waste handling services associated with our national accounts in markets outside our standard operating areas; fuel, which includes the direct cost of fuel used by our vehicles, net of fuel credits; disposal franchise fees and taxes consisting of landfill taxes, municipal franchise fees, host community fees and royalties; landfill operating costs, which includes financial assurance, leachate disposal and other landfill maintenance costs; risk management, which includes casualty insurance premiums and claims; cost of goods sold, which includes material costs paid to suppliers associated with recycling commodities; and other, which includes expenses such as facility operating costs, equipment rent and gains or losses on sale of assets used in our operations.

The following table summarizes the major components of our cost of operations for the years ended December 31, 2011, 2010 and 2009 (in millions of dollars and as a percentage of our revenue):

 

     2011     2010     2009  

Labor and related benefits

   $ 1,530.4         18.7   $ 1,534.4         18.9   $ 1,561.0         19.0

Transfer and disposal costs

     636.1         7.8        664.3         8.2        707.3         8.6   

Maintenance and repairs

     632.1         7.7        609.7         7.5        649.2         7.9   

Transportation and subcontract costs

     443.4         5.4        466.7         5.8        490.5         6.0   

Fuel

     516.5         6.3        407.6         5.0        349.8         4.3   

Franchise fees and taxes

     395.7         4.8        395.8         4.9        403.7         4.9   

Landfill operating costs

     126.1         1.5        136.2         1.7        117.8         1.4   

Risk management

     167.5         2.0        171.6         2.1        212.0         2.6   

Cost of goods sold

     146.8         1.8        103.9         1.3        63.3         0.8   

Other

     270.5         3.4        274.6         3.4        289.6         3.6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total cost of operations

   $ 4,865.1         59.4   $ 4,764.8         58.8   $ 4,844.2         59.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The cost categories shown above may change from time to time and may not be comparable to similarly titled categories used by other companies. Thus, you should take care when comparing our cost of operations by cost component to that of other companies.

Cost of Operations – 2011 versus 2010

Our cost of operations, as a percentage of revenue, increased 0.6% in 2011 compared to 2010, primarily as a result of the following:

 

   

An increase in fuel expenses of $108.9 million, or 26.7% year over year. The average fuel price per gallon for 2011 was $3.85, an increase of $0.86 or approximately 28.8% from an average price of $2.99 for 2010. At our current consumption levels, a one-cent per gallon change in the price of diesel fuel changes our fuel costs by approximately $1.4 million on an annual basis, which would be partially offset by a smaller change in the fuel recovery fees charged to our customers. Accordingly, a substantial rise or drop in fuel costs could result in a material impact to our revenue and cost of operations.

 

   

An increase in cost of goods sold primarily due to changes in the market price of recycling commodities and an increase in volumes processed year over year. The average price for old corrugated cardboard (OCC) for 2011 was $159 per ton versus $142 per ton for the comparable 2010 period. The average price of old newspaper (ONP) for 2011 was $142 per ton versus $111 per ton for the comparable 2010 period. At current volumes and mix of materials, we believe a ten dollar per ton change in the price of recyclable materials will change revenue and operating income by approximately $27 million and $18 million, respectively, on an annual basis.

 

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These increases were partially offset by:

 

   

A decrease in labor and related benefits expenses due to volume-related workforce reductions, including the expiration of the San Mateo contract, as well as increased productivity gains primarily due to the automation of our residential fleet and lower benefit plan costs. Partially offsetting these declines were increases in overall wages and increases in workforce due to acquisitions.

 

   

A decrease in transfer and disposal costs due to the divestiture of transfer stations in 2010 as well as overall lower collection volumes. During 2011, 2010 and 2009, approximately 66%, 67% and 68%, respectively, of the total waste volume that we collected was disposed at landfill sites that we own or operate (internalization).

 

   

A decrease in transportation and subcontract costs primarily due to the expiration of our San Mateo County contract and our transportation and disposal contract with the City of Toronto and a decline in our overall collection volumes. Partially offsetting these decreases were increases due to fuel recovery fees related to project work with certain of our National Accounts customers.

Cost of Operations – 2010 versus 2009

Our cost of operations, as a percentage of revenue, decreased 0.3% for 2010 compared to 2009, primarily as a result of the following:

 

   

Transfer and disposal, maintenance and repair, and transportation and subcontract costs decreased versus the comparable 2009 period due to lower waste volumes and cost control measures.

 

   

Risk management costs decreased during 2010 as we continued to experience favorable actuarial developments primarily attributable to our continued focus on safety.

These decreases were partially offset by:

 

   

Fuel expenses increased by $57.8 million, or 16.5%, year over year. The average fuel price per gallon for 2010 was $2.99, an increase of $0.52 or approximately 21% from an average price of $2.47 for 2009.

 

   

Landfill operating costs increased by $18.4 million, or 15.6%, year over year. During the year ended December 31, 2009, we recovered $12.0 million of insurance proceeds related to remediation costs at the Countywide facility, which reduced our landfill operating costs during that period. There were no such recoveries during 2010. The remainder of the increase in landfill operating costs is due to adjustments recorded to remediation reserves.

Depreciation, Amortization and Depletion of Property and Equipment

The following table summarizes depreciation, amortization and depletion of property and equipment for the years ended December 31, 2011, 2010 and 2009 (in millions of dollars and as a percentage of revenue):

 

     2011     2010     2009  

Depreciation and amortization of property and equipment

   $ 511.4         6.2   $ 511.6         6.3   $ 520.6         6.3

Landfill depletion and amortization

     255.5         3.1        250.6         3.1        278.5         3.4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Depreciation, amortization and depletion expense

   $ 766.9         9.3   $ 762.2         9.4   $ 799.1         9.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Landfill depletion and amortization increased in aggregate dollars slightly during 2011 due to increased volumes year over year. The decrease in landfill depletion and amortization in aggregate dollars and as a percentage of revenue for 2010 versus 2009 is due to a reduction of amortization expense associated with lower landfill volumes and assets divested as required by the DOJ. Depreciation and amortization of property and equipment, as a percentage of revenue, has remained consistent for 2011, 2010 and 2009.

Amortization of Other Intangible and Other Assets

Expenses for amortization of intangible and other assets were $76.7 million, $71.5 million and $70.6 million, or, as a percentage of revenue, 0.9% for 2011, 2010 and 2009, respectively. Our other intangible and other assets primarily relate to customer lists, franchise agreements, municipal contracts, trade names, favorable lease assets and to a lesser extent non-compete agreements. Amortization of intangible assets in aggregate dollars increased slightly during 2011 as compared to 2010 due to increased acquisition activity.

Accretion Expense

Accretion expense was $78.0 million, $80.5 million and $88.8 million, or, as a percentage of revenue, 1.0% for 2011 and 2010 and 1.1% for 2009. The amounts have remained relatively unchanged as our asset retirement obligations remained relatively consistent period over period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include salaries, health and welfare benefits and incentive compensation for corporate and field general management, field support functions, sales force, accounting and finance, legal, management information systems, and clerical and administrative departments. Other expenses include rent and office costs, fees for professional services provided by third parties, marketing, investor and community relations, directors’ and officers’ insurance, general employee relocation, travel, entertainment and bank charges, but excludes any such amounts recorded as restructuring charges.

The following table provides the components of our selling, general and administrative expenses for the three years ended December 31, 2011, 2010 and 2009 (in millions of dollars and as a percentage of revenue):

 

     2011     2010     2009  

Salaries

   $ 539.6         6.6   $ 538.6         6.6   $ 548.1         6.7

Provision for doubtful accounts

     20.9         0.3        23.6         0.3        27.3         0.3   

Costs to achieve synergies

     -         -        33.3         0.4        41.6         0.5   

Other

     264.9         3.2        262.5         3.3        263.4         3.2   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total selling, general and administrative expenses

   $ 825.4         10.1   $ 858.0         10.6   $ 880.4         10.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The cost categories shown above may change from time to time and may not be comparable to similarly titled categories used by other companies. Thus, you should take care when comparing our selling, general and administrative expenses by cost component to that of other companies.

Selling, General and Administrative Expenses – 2011 versus 2010

Selling, general and administrative expenses decreased $32.6 million for 2011 versus 2010, or 0.5% as a percentage of revenue. Selling, general and administrative expenses include an accrual for synergy bonus related to the Allied acquisition of approximately $33 million in 2010. In 2011, we did not incur any additional costs to achieve synergies.

 

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Selling, General and Administrative Expenses – 2010 versus 2009

Selling, general and administrative expenses decreased $22.4 million for 2010 versus 2009 and, as a percentage of revenue, remained consistent with 2009.

Loss (Gain) on Disposition of Assets and Impairments, Net

Loss (gain) on disposition of assets and impairments, net of costs to sell, was $28.1 million, $19.1 million and $(137.0) million for the years ended December 31, 2011, 2010 and 2009, respectively.

During the year ended December 31, 2011, we disposed of businesses in various markets, resulting in a gain of $21.0 million including transaction costs. In connection with the dispositions, we closed a landfill, resulting in an asset impairment charge of $28.7 million for the remaining landfill assets and the acceleration of capping, closure and post-closure obligations. Additionally, we recorded asset impairments of $20.4 million primarily related to certain long-lived assets that are held for sale and for losses on the divestiture of certain businesses and related goodwill. Proceeds from dispositions of solid waste assets were $14.2 million for the year ended December 31, 2011.

We divested certain assets throughout 2010 resulting in a net loss on disposition of assets of $4.0 million, including transaction costs. Additionally, we recorded an impairment loss of $15.1 million related to certain long-lived assets that are held and used.

During the year ended December 31, 2009, we divested of certain assets as required by the DOJ as a condition of the Allied acquisition and recorded a gain of $153.5 million. Offsetting this gain was a loss of $10.2 million recognized in connection with the divestiture of a hauling operation in Miami-Dade County, Florida as well as $7.1 million of additional asset impairments, primarily related to our former corporate offices and other assets sold or held for sale.

Restructuring Charges

During 2010 and 2009, we incurred $11.4 million and $63.2 million, respectively, of restructuring and integration charges related to the integration of Allied, which consisted of charges and adjustments for severance, employee termination and relocation benefits. The remainder of the charges primarily related to consulting and professional fees. Substantially all of these charges were recorded in our corporate segment. We completed our restructuring plan in 2010, and we did not incur any additional restructuring charges related to the Allied acquisition in 2011.

Interest Expense

The following table provides the components of interest expense, including accretion of debt discounts and accretion of discounts primarily associated with environmental and self-funded risk insurance liabilities assumed in the Allied acquisition (in millions):

 

     2011     2010     2009  

Interest expense on debt and capital lease obligations

   $ 372.9      $ 413.2      $ 453.5   

Accretion of debt discounts

     25.6        52.4        92.1   

Accretion of remediation and risk reserves

     49.8        48.1        58.1   

Less: capitalized interest

     (8.1     (6.3     (7.8
  

 

 

   

 

 

   

 

 

 

Total interest expense

   $ 440.2      $ 507.4      $ 595.9   
  

 

 

   

 

 

   

 

 

 

The decrease in interest expense is due to refinancing our higher interest rate debt and the net reduction of borrowings. Accretion of debt discounts continues to decrease as the discounts are written-off upon refinancing the associated debt.

 

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The debt we assumed from Allied was recorded at fair value as of December 5, 2008. We recorded a discount of $624.3 million, which is amortized as interest expense over the applicable terms of the related debt instruments or written off upon refinancing. The remaining unamortized discounts on the outstanding debt assumed from Allied as of December 31, 2011 are as follows (in millions):

 

     Remaining
Discount
     Expected
Amortization
Over the Next
Twelve Months
 

$750.0 million 6.875% senior notes due June 2017

   $ 75.8       $ 11.3   

$99.5 million 9.250% debentures due May 2021

     2.0         0.1   

$360.0 million 7.400% debentures due September 2035

     41.9         0.5   

Other, maturing 2014 through 2031

     15.8         2.9   
  

 

 

    

 

 

 

Total

   $ 135.5       $ 14.8   
  

 

 

    

 

 

 

Loss on Extinguishment of Debt

During 2011, 2010 and 2009, we completed financing transactions that resulted in cash paid for premiums and professional fees to repurchase debt as well as the non-cash write-off of unamortized debt discounts and deferred issuance costs. The following table summarizes the loss on extinguishment of debt by securities for the years ended December 31, 2011, 2010, and 2009 (in millions):

 

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

2011:

       

$600.0 million 7.125% senior notes due May 2016

  $ 600.0      $ 21.4      $ 61.3      $ 82.7   

$99.5 million 9.250% debentures due May 2021

    64.2        24.2        3.8        28.0   

$360.0 million 7.400% debentures due September 2035

    194.8        44.7        49.9        94.6   

Amendments to credit facilities

    -        -        1.7        1.7   

Ineffective portion of interest rate lock settlements

    -        0.3        -        0.3   

Industrial revenue bonds

    -        -        3.5        3.5   
   

 

 

   

 

 

   

 

 

 

Loss on extinguishment of debt for the year ended December 31, 2011

    $ 90.6      $ 120.2      $ 210.8   
   

 

 

   

 

 

   

 

 

 

2010:

       

$425.0 million 6.125% senior notes due February 2014

  $ 425.0      $ 8.7      $ 44.1      $ 52.8   

$600.0 million 7.250% senior notes due March 2015

    600.0        21.8        57.5        79.3   

Accounts receivable securitization program

    300.0        -        0.2        0.2   

Industrial revenue bonds

    -        -        28.5        28.5   
   

 

 

   

 

 

   

 

 

 

Loss on extinguishment of debt for the year ended December 31, 2010

    $ 30.5      $ 130.3      $ 160.8   
   

 

 

   

 

 

   

 

 

 

2009:

       

$350.0 million 6.500% senior notes due November 2010

  $ 128.4      $ 6.3      $ 3.7      $ 10.0   

$400.0 million 5.750% senior notes due February 2011

    137.1        6.9        6.6        13.5   

$275.0 million 6.375% senior notes due April 2011

    58.1        3.2        2.5        5.7   

$450.0 million 6.750% senior notes due August 2011

    63.0        4.4        0.2        4.6   

$450.0 million 7.875% senior notes due April 2013

    450.0        11.8        22.6        34.4   

$400.0 million of 7.375% senior notes due April 2014

    400.0        14.7        31.4        46.1   

$230.0 million of 4.250% senior convertible note due April 2034

    230.0        -        17.4        17.4   

Industrial revenue bonds

    -        1.0        1.4        2.4   
   

 

 

   

 

 

   

 

 

 

Loss on extinguishment of debt for the year ended December 31, 2009

    $ 48.3      $ 85.8      $ 134.1   
   

 

 

   

 

 

   

 

 

 

 

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Income Taxes

Our provision for income taxes was $317.4 million, $369.5 million and $368.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. Our effective income tax rate was 35.0%, 42.1% and 42.6% for 2011, 2010 and 2009, respectively. Our 2011 effective tax rate was favorably impacted by our December 2011 settlement with the IRS related to Allied’s 2000 – 2003 tax years, which contributed to a net favorable impact to our tax provision of approximately $23 million. Additionally, our 2011 tax provision was favorably impacted by the realization of tax credits and lower state rates due to changes in estimates of approximately $19 million. In 2010 and 2009 our effective income tax rate was adversely impacted by the disposition of assets that had little or no basis for tax and accruals for penalties and interest on uncertain tax positions.

Our effective income tax rate can be adversely impacted by expenses incurred that are non-deductible for tax purposes, disposition of assets that have little or no basis for tax, and accruals for penalties and interest on uncertain tax positions. In the future we may choose to divest of certain operating assets that have little or no tax basis, thereby resulting in a higher taxable gain than otherwise would be recognized. The higher taxable gain will increase our effective rate in the quarter in which the divestiture is consummated.

We made income tax payments (net of refunds received) of $173 million, $418 million and $444 million for 2011, 2010 and 2009, respectively. Income taxes paid in 2011 reflect the favorable tax depreciation provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) that was signed into law in December 2010 (Bonus Depreciation). The Tax Relief Act included 100% Bonus Depreciation for property placed in service after September 8, 2010 and through December 31, 2011 (and for certain long-term construction projects to be placed in service in 2012) and 50% Bonus Depreciation for property placed in service in 2012 (and for certain long-term construction projects to be placed in service in 2013). We anticipate our cash paid for income taxes for 2012 will be approximately $140 million higher than that of 2011.

For additional discussion and detail regarding our income taxes, see Note 10, Income Taxes, to our consolidated financial statements in Item 8 of this Form 10-K.

 

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Reportable Segments

Our operations are managed and reviewed through four geographic regions that we designate as our reportable segments. Summary financial information concerning our reportable segments for the years ended December 31, 2011, 2010 and 2009 is shown in the following table (in millions of dollars and as a percentage of revenue):

 

      Net
Revenue
     Depletion and
Accretion Before
Adjustments for
Asset  Retirement
Obligations
     Amortization
Expense
for Asset
Retirement
Obligations
    Depreciation,
Amortization,
Depletion and
Accretion
     Gain (Loss) on
Disposition of
Assets, Net
and Asset
Impairment
    Operating
Income
(Loss)
    Operating
Margin
 
                 
                 
                 
                 

2011:

                 

Eastern

   $ 2,103.1       $ 214.3       $ (11.9   $ 202.4       $ (12.2   $ 493.0        23.4

Midwestern

     1,806.5         214.9         (8.4     206.5         (0.2     375.9        20.8   

Southern

     2,029.9         227.5         2.4        229.9         (11.6     460.7        22.7   

Western

     2,155.7         223.5         (3.0     220.5         (5.2     486.4        22.6   

Corporate entities

     97.7         51.0         11.3        62.3         1.1        (263.3     -   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 8,192.9       $ 931.2       $ (9.6   $ 921.6       $ (28.1   $ 1,552.7        19.0
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

2010:

                 

Eastern

   $ 2,075.5       $ 208.8       $ (3.3   $ 205.5       $ (15.0   $ 488.4        23.5

Midwestern

     1,766.9         214.2         (10.6     203.6         9.3        402.0        22.8   

Southern

     1,977.3         225.3         (3.8     221.5         1.8        482.8        24.4   

Western

     2,188.6         224.2         (6.0     218.2         (0.9     521.2        23.8   

Corporate entities

     98.3         51.9         13.5        65.4         (14.3     (355.3     -   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 8,106.6       $ 924.4       $ (10.2   $ 914.2       $ (19.1   $ 1,539.1        19.0
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

2009:

                 

Eastern

   $ 2,115.0       $ 215.5       $ (1.2   $ 214.3       $ 4.0      $ 483.0        22.8

Midwestern

     1,777.0         227.3         (1.4     225.9         27.1        367.3        20.7   

Southern

     2,046.2         241.9         (8.8     233.1         29.8        522.9        25.6   

Western

     2,170.0         228.5         6.4        234.9         88.1        582.0        26.8   

Corporate entities

     90.9         50.4         (0.1     50.3         (12.0     (365.4     -   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 8,199.1       $ 963.6       $ (5.1   $ 958.5       $ 137.0      $ 1,589.8        19.4
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Corporate entities include legal, tax, treasury, information technology, risk management, human resources, closed landfills, and other typical administrative functions. National Accounts revenue included in corporate entities represents the portion of revenue generated from nationwide contracts in markets outside our operating areas, where the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.

Significant changes in the revenue and operating margins of our reportable segments comparing 2011 to 2010 and 2010 to 2009 are discussed in the following paragraphs. The results of our reportable segments were also affected by the disposition of certain assets and liabilities, as required by the DOJ in connection with the Allied acquisition, and in the normal course of business.

2011 compared to 2010

Eastern Region

Revenue for 2011 benefited from core price growth in all lines of business, except residential collection, and an increase in commodity recycling revenue. Volume increases in our residential collection and landfill lines of business also helped to increase our revenue.

 

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Operating margins were 23.4% in 2011 versus 23.5% in 2010. The decrease in operating margins is due primarily to higher fuel, commodities and sales and marketing costs. These unfavorable items were partially offset by the favorable adjustments to landfill amortization expense for asset retirement obligations of $11.9 million in 2011 compared to a favorable adjustment of $3.3 million in 2010. Operating margins for 2011 also were impacted by lower disposal, subcontract and transportation costs as a result of a decline in subcontracted volumes and a lower loss on the disposition of assets and impairments.

Midwestern Region

Revenue for 2011 benefited from core price growth in all lines of business and an increase in recycling commodity revenue. These increases were offset by volume declines in our residential collection, transfer station and disposal lines of business, in part due to the expiration of the City of Toronto transportation and disposal contract.

Operating margins were 20.8% in 2011 versus 22.8% in 2010. The decrease in operating margins is due primarily to the gain on disposition of assets of $9.3 million in 2010 compared to a loss of $0.2 million in 2011. Operating margins were also impacted by higher fuel costs and costs of commodities sold as well as sales and marketing costs and legal settlements. These decreases were partially offset by lower disposal, subcontract and transportation costs primarily due to the expiration of the City of Toronto contract.

Southern Region

Revenue for 2011 benefited from core price growth in all lines of business, except residential collection and transfer station, an increase in landfill volume and an increase in recycling commodity revenue. These increases were partially offset by volume declines in our commercial and residential collection lines of business.

Operating margins were 22.7% in 2011 versus 24.4% in 2010. The decrease in operating margins is due primarily to the early closure of a landfill resulting in an impairment charge of $28.7 million. The impairment was partially offset by a gain of $17.2 million relating to the disposition of businesses in three markets during the second quarter of 2011. Operating margins were also impacted by unfavorable adjustments to landfill amortization expense for asset retirement obligations of $2.4 million in 2011 compared to a favorable adjustment of $3.8 million in 2010. Additionally, operating margins were impacted by higher fuel, commodities and sales and marketing costs, partially offset by lower disposal costs, during 2011 versus 2010.

Western Region

Revenue for 2011 benefited from core price growth in all lines of business and an increase in recycling commodity revenues. The increases were partially offset by volume declines in all lines of business, primarily due to the expiration of our San Mateo County contract.

Operating margins were 22.6% in 2011 versus 23.8% in 2010. The decrease in operating margins is due primarily to the losses on dispositions of assets and impairments during 2011 of $5.2 million from the divestiture of a business versus $0.9 million for 2010 and higher fuel costs in 2011. Additionally, in 2010, there was a favorable $6.0 million adjustment to landfill amortization expense for asset retirement obligations. These decreases were partially offset by lower labor, benefit and disposal costs due to the expiration of our San Mateo County contract.

Corporate Entities

Operating loss improved $91.9 million in 2011 versus 2010. During 2010, we incurred $33.3 million of incremental costs to achieve our synergy plan and $11.4 million of restructuring and integration charges related to our acquisition of Allied. Operating margins for 2010 also were impacted by higher litigation and management incentive plan costs. Additionally, during 2011 we recorded a gain on the disposition of assets and impairments of $1.1 million versus an impairment loss of $14.4 million related to certain long lived assets that were held and used for 2010.

 

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Table of Contents

2010 compared to 2009

Eastern Region

Revenue for 2010 benefited from core price growth in all lines of business. However, the increase in revenue from core price was more than offset by volume declines in our collection and transfer station lines of business while our landfill line of business reflected a modest increase. 2010 includes revenue of $20.8 million associated with divested locations. 2009 includes revenue of $61.9 million associated with divested locations. Excluding the effect of the divested revenue, revenue increased $1.6 million for 2010 versus 2009.

Operating margins were 23.5% in 2010 versus 22.8% in 2009. The increase in operating margins is due primarily to lower labor, benefits, disposal, transportation, repair and maintenance expenses as a result of lower volumes and cost control measures. Operating margins for 2010 also were impacted by lower risk insurance costs. These increases were partially offset by the loss on the disposition of assets of $15.0 million in 2010 compared to the gain of $4.0 million in 2009 and by higher fuel costs and costs of commodities sold in 2010. We also recorded a $12.0 million recovery of insurance proceeds related to remediation costs at the Countywide facility that reduced our landfill operating costs during the third quarter of 2009.

Midwestern Region

Revenue for 2010 benefited from core price growth in all lines of business except landfill. While price associated with municipal solid waste volumes increased during 2010, this increase was offset by a higher mix of special waste volumes. However, the increase in revenue from core price for 2010 was more than offset by volume declines in our collection and transfer station lines of business. Landfill volumes increased for 2010 primarily due to special waste event driven work. 2010 includes revenues of $22.5 million associated with divested locations. 2009 includes revenue of $31.5 million associated with divested locations. Excluding the effect of the divested revenue, revenue decreased $1.1 million for 2010 versus 2009.

Operating margins were 22.8% in 2010 versus 20.7% in 2009. The increase in operating margins is due primarily to lower labor, benefits, disposal, transportation, and repair and maintenance expenses as a result of lower volumes and cost control measures. Operating margins for 2010 also were impacted by lower risk insurance costs and a favorable adjustment to amortization expense for asset retirement obligations of $10.6 million in 2010 compared to a favorable adjustment of $1.4 million in 2009. These increases were partially offset by the lower gain on the disposition of assets of $9.3 million in 2010 compared to a gain of $27.1 million in 2009 and higher fuel costs and costs of commodities sold in 2010.

Southern Region

Revenue for 2010 benefited from core price growth in all lines of business except transfer station. However, the increase in revenue from core price was more than offset by volume declines, especially in our collection and landfill lines of business. Contributing to the decline in revenue for 2009 was $30.4 million of revenue associated with divested locations. Excluding the effect of the divested revenue, revenue decreased $38.5 million for 2010 versus 2009.

Operating margins were 24.4% in 2010 versus 25.6% in 2009. The decrease in operating margins is due primarily to the gain on disposition of assets of $1.8 million in the 2010 period compared to the gain of $29.8 million in 2009. Operating margins for 2010 also were impacted by higher fuel costs and costs of commodities sold. These decreases were partially offset by lower labor, benefits, disposal and repair and maintenance expenses as a result of lower volumes and cost control measures and lower risk insurance costs.

Western Region

Revenue for 2010 benefited from core price growth in all lines of business. However, the increase in revenue from core price was more than offset by volume declines, especially in our collection and transfer station lines of

 

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business. Landfill volumes in 2010 increased primarily due to special waste event driven work. 2009 includes revenues of $11.0 million associated with divested locations. Excluding the divested revenue, revenue increased $29.6 million for 2010 versus 2009.

Operating margins were 23.8% in 2010 versus 26.8% in 2009. The decrease in operating margins is primarily attributed to the loss on disposition of assets of $0.9 million in 2010 compared to the gain of $88.1 million in 2009. Operating margins for 2010 also were impacted by higher fuel costs and costs of commodities sold. These decreases were partially offset by lower risk insurance costs and a favorable adjustment to amortization expense for asset retirement obligations of $6.0 million in 2010 compared to an unfavorable adjustment of $6.4 million in 2009. We also recorded a $5.2 million remediation charge in 2009 related to environmental conditions at our closed disposal facility in California.

Corporate Entities

The changes in net revenue relates to our National Accounts program. Included in our gain (loss) on disposition of assets and impairments, net, for 2010 and 2009 are transaction related expenses from the disposition of assets in our other segments. Additionally, during 2010 we recorded an impairment loss of $14.4 million related to certain long-lived assets that are held and used.

Landfill and Environmental Matters

Our landfill costs include daily operating expenses, costs of capital for cell development, costs for final capping, closure and post-closure, and the legal and administrative costs of ongoing environmental compliance. Daily operating expenses include leachate treatment and disposal, methane gas and groundwater monitoring and system maintenance, interim cap maintenance, and costs associated with applying daily cover materials. We expense all indirect landfill development costs as they are incurred. We use life cycle accounting and the units-of-consumption method to recognize certain direct landfill costs related to landfill development. In life cycle accounting, certain direct costs are capitalized and charged to depletion expense based on the consumption of cubic yards of available airspace. These costs include all costs to acquire and construct a site, including excavation, natural and synthetic liners, construction of leachate collection systems, installation of methane gas collection and monitoring systems, installation of groundwater monitoring wells, and other costs associated with the acquisition and development of the site. Obligations associated with final capping, closure and post-closure are capitalized and amortized on a units-of-consumption basis as airspace is consumed.

Cost and airspace estimates are developed at least annually by engineers. These estimates are used by our operating and accounting personnel to adjust the rates we use to expense capitalized costs. Changes in these estimates primarily relate to changes in costs, available airspace, inflation and applicable regulations. Changes in available airspace include changes in engineering estimates, changes in design and changes due to the addition of airspace lying in expansion areas that we believe have a probable likelihood of being permitted.

 

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Table of Contents

Available Airspace

The following tables reflect landfill airspace activity for active landfills owned or operated by us for the years ended December 31, 2011, 2010 and 2009:

 

     Balance
as of
December 31,
2010
    New
Expansions
Undertaken
    Landfills
Acquired,
Net of
Divestitures
    Permits
Granted,
Net of
Closures
    Airspace
Consumed
    Changes
in
Engineering
Estimates
     Balance
as of
December 31,
2011
 
              
              
              

Cubic yards (in millions):

              

Permitted airspace

    4,595.5        -        7.9        98.1        (79.9     0.2         4,621.8   

Probable expansion airspace

    149.1        69.4        -        (52.1     -        0.1         166.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total cubic yards (in millions)

    4,744.6        69.4        7.9        46.0        (79.9     0.3         4,788.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Number of sites:

              

Permitted airspace

                193                        1                      (3                      191   
 

 

 

     

 

 

   

 

 

        

 

 

 

Probable expansion airspace

    8                    4          (4          8   
 

 

 

   

 

 

     

 

 

        

 

 

 

 

     Balance
as of
December 31,
2009
    New
Expansions
Undertaken
    Landfills
Acquired,
Net of
Divestitures
    Permits
Granted,
Net of
Closures
    Airspace
Consumed
    Changes
in
Engineering
Estimates
    Balance
as of
December 31,
2010
 
             
             
             

Cubic yards (in millions):

             

Permitted airspace

    4,436.4        -        15.3        222.6        (84.3     5.5        4,595.5   

Probable expansion airspace

    212.5        29.8        -        (93.1     -        (0.1     149.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cubic yards (in millions)

    4,648.9        29.8        15.3        129.5        (84.3     5.4        4,744.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Number of sites:

             

Permitted airspace

                192                          3                  (2                     193   
 

 

 

     

 

 

   

 

 

       

 

 

 

Probable expansion airspace

    12                    2          (6         8   
 

 

 

   

 

 

     

 

 

       

 

 

 
     Balance
as of
December 31,
2008
    New
Expansions
Undertaken
    Landfills
Acquired,
Net of
Divestitures
    Permits
Granted,
Net of
Closures
    Airspace
Consumed
    Changes
in
Engineering
Estimates
    Balance
as of
December 31,
2009
 
             
             
             

Cubic yards (in millions):

             

Permitted airspace

    4,559.6        -        (176.8     134.2        (86.9     6.3        4,436.4   

Probable expansion airspace

    386.2        22.4        (62.2     (133.2     -        (0.7     212.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cubic yards (in millions)

    4,945.8        22.4        (239.0     1.0        (86.9     5.6        4,648.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Number of sites:

             

Permitted airspace

                213                      (9           (12                     192   
 

 

 

     

 

 

   

 

 

       

 

 

 

Probable expansion airspace

    23                    1        (1     (11         12   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

 

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Changes in engineering estimates typically include modifications to the available disposal capacity of a landfill based on a refinement of the capacity calculations resulting from updated information. Changes in design typically include significant modifications to a landfill’s footprint or vertical slopes.

As of December 31, 2011, we owned or operated 191 active solid waste landfills with total available disposal capacity estimated to be 4.8 billion in-place cubic yards. Total available disposal capacity represents the sum of estimated permitted airspace plus an estimate of probable expansion airspace. Engineers develop these estimates at least annually using information provided by annual aerial surveys. As of December 31, 2011, total available disposal capacity is estimated to be 4.6 billion in-place cubic yards of permitted airspace plus 0.2 billion in-place cubic yards of probable expansion airspace. Before airspace included in an expansion area is determined to be probable expansion airspace and, therefore, included in our calculation of total available disposal capacity, it must meet all of our expansion criteria. See Note 2, Summary of Significant Accounting Policies, and Note 8, Landfill and Environmental Costs, to our consolidated financial statements in Item 8 of this Form 10-K for further information.

As of December 31, 2011, eight of our landfills met all of our criteria for including their probable expansion airspace in their total available disposal capacity. At projected annual volumes, these landfills have an estimated remaining average site life of 53 years, including probable expansion airspace. The average estimated remaining life of all of our landfills is 61 years. We have other expansion opportunities that are not included in our total available airspace because they do not meet all of our criteria for probable expansion airspace.

The following table reflects the estimated operating lives of our active landfill sites based on available and probable disposal capacity using current annual volumes as of December 31, 2011:

 

        Number
of  Sites

without
Probable
Expansion
Airspace
       Number
of  Sites

with
Probable
Expansion
Airspace
       Total
Sites
       Percent
of
Total
 
                   
                   
                   
                   
                   

0 to 5 years

       12                     12           6.3

6 to 10 years

       21                     21           11.0   

11 to 20 years

       34           1           35           18.3   

21 to 40 years

       51           2           53           27.7   

41+ years

       65           5           70           36.7   
    

 

 

      

 

 

      

 

 

      

 

 

 

Total

       183           8           191           100.0
    

 

 

      

 

 

      

 

 

      

 

 

 

Final Capping, Closure and Post-Closure Costs

As of December 31, 2011, accrued final capping, closure and post-closure costs were $1,037.0 million, of which $85.2 million is current and $951.8 million is long-term as reflected in our consolidated balance sheets in accrued landfill and environmental costs.

Remediation and Other Charges for Landfill Matters

In December 2009, we finalized our purchase price allocation for the environmental liabilities we assumed as part of the Allied acquisition. These liabilities represent our estimate of costs to remediate sites that were previously owned or operated by Allied or sites at which Allied, or a predecessor company that it had acquired, had been identified as a potentially responsible party. The remediation of these sites is in various stages of completion from having received an initial notice from a regulatory agency and commencing investigation to being in the final stages of post remedial monitoring. See also Note 2, Summary of Significant Accounting Policies – Environmental Remediation Liabilities, to our consolidated financial statements in Item 8 of this Form 10-K for further information. We have

 

49


Table of Contents

recorded these liabilities at their estimated fair values using a discount rate of 9.75%. Discounted liabilities are accreted to interest expense through the period that they are paid.

The following is a discussion of certain of our significant remediation matters:

Countywide Landfill. In September 2009, Republic Services of Ohio II, LLC entered into Final Findings and Orders with the Ohio Environmental Protection Agency that require us to implement a comprehensive operation and maintenance program to manage the remediation area at the Countywide Recycling and Disposal Facility (Countywide). The remediation liability for Countywide recorded as of December 31, 2011 is $56.8 million, of which $5.0 million is expected to be paid during 2012. We believe the reasonably possible range of loss for remediation costs is $53 million to $74 million.

Congress Landfill. In August 2010, Congress Development Company agreed with the State of Illinois to have a Final Consent Order (Final Order) entered by the Circuit Court of Illinois, Cook County. Pursuant to the Final Order, we have agreed to continue to implement certain remedial activities at the Congress Landfill. The remediation liability recorded as of December 31, 2011 is $83.6 million, of which $7.4 million is expected to be paid during 2012. We believe the reasonably possible range of loss for remediation costs is $53 million to $154 million.

Investment in Landfills

The following tables reflect changes in our investment in landfills for the years ended December 31, 2011, 2010 and 2009 and the future expected investment as of December 31, 2011 (in millions):

 

     Balance
as of
December 31,
2010
    Capital
Additions
    Retirements     Acquisitions
Net of
Divestitures
    Non-cash
Additions
for Asset
Retirement
Obligations
    Additions
Charged
to
Expense
    Impairments,
Transfers
and
Other
Adjustments
    Adjustments
for
Asset
Retirement
Obligations
    Balance
as of
December 31,
2011
 
                 
                 
                 
                 

Non-depletable landfill land

  $ 158.0      $ 3.1      $ -      $ -      $ -      $ -      $ 0.7      $ -      $ 161.8   

Landfill development costs

    4,575.2        2.8        -        8.7        33.9        -        173.7        (31.0     4,763.3   

Construction-in-progress -landfill

    133.2        272.5        -        (0.4     -        -        (218.0     -        187.3   

Accumulated depletion and amortization

    (1,504.6     -        -        0.5        -        (264.5     23.0        9.9        (1,735.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in landfill land and development costs

  $ 3,361.8      $ 278.4      $ -      $ 8.8      $ 33.9      $ (264.5   $ (20.6   $ (21.1   $ 3,376.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

      Balance
as of
December 31,
2011
    Expected
Future
Investment
     Total
Expected
Investment
 
       
       
       

Non-depletable landfill land

   $ 161.8         $ 161.8   

Landfill development costs

     4,763.3        6,540.9         11,304.2   

Construction-in-progress - landfill

     187.3           187.3   

Accumulated depletion and amortization

     (1,735.7        (1,735.7
  

 

 

   

 

 

    

 

 

 

Net investment in landfill land and development costs

   $ 3,376.7      $ 6,540.9       $ 9,917.6   
  

 

 

   

 

 

    

 

 

 

 

     Balance
as of
December 31,
2009
    Capital
Additions
    Retirements     Acquisitions
Net of
Divestitures
    Non-cash
Additions
for Asset
Retirement
Obligations
    Additions
Charged
to
Expense
    Impairments,
Transfers
and
Other
Adjustments
    Adjustments
for
Asset
Retirement
Obligations
    Balance
as of
December 31,
2010
 
                 
                 
                 
                 

Non-depletable landfill land

  $ 142.7      $ 1.3      $ -      $ (1.7   $ -      $ -      $ 15.7      $ -      $ 158.0   

Landfill development costs

    4,230.9        15.4        0.2        (13.9     31.5        -        337.6        (26.5     4,575.2   

Construction-in-progress - landfill

    245.1        250.7        (0.1     0.1        -        -        (362.6     -        133.2   

Accumulated depletion and amortization

    (1,275.4     -        -        19.6        -        (258.9     -        10.1        (1,504.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in landfill land and development costs

  $ 3,343.3      $ 267.4      $ 0.1      $ 4.1      $ 31.5      $ (258.9   $ (9.3   $ (16.4   $ 3,361.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

 

     Balance
as of
December 31,
2008
    Capital
Additions
    Retirements     Acquisitions
Net of
Divestitures
    Non-cash
Additions
for Asset
Retirement
Obligations
    Additions
Charged
to
Expense
    Impairments,
Transfers
and
Other
Adjustments
    Adjustments
for
Asset
Retirement
Obligations
    Balance
as of
December 31,
2009
 
                 
                 
                 
                 

Non-depletable landfill land

  $ 169.3      $ 5.9      $ (2.6   $ (7.9   $ -      $ -      $ (22.0   $ -      $ 142.7   

Landfill development costs

    4,126.3        11.7        (0.3     (3.2     32.5        -        124.1        (60.2     4,230.9   

Construction-in-progress - landfill

    76.2        278.8        -        -        -        -        (109.9     -        245.1   

Accumulated depletion and amortization

    (1,004.2     -        -        1.2        -        (282.5     5.2        4.9        (1,275.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in landfill land and development costs

  $ 3,367.6      $ 296.4      $ (2.9   $ (9.9   $ 32.5      $ (282.5   $ (2.6   $ (55.3   $ 3,343.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table reflects our net investment in our landfills, excluding non-depletable land, and our depletion, amortization and accretion expense for the years ended December 31, 2011, 2010 and 2009:

 

      2011      2010      2009  

Number of landfills owned or operated

     191         193         192   
  

 

 

    

 

 

    

 

 

 

Net investment, excluding non-depletable land (in millions)

   $ 3,214.9       $ 3,203.8       $ 3,200.6   

Total estimated available disposal capacity (in millions of cubic yards)

     4,788.3         4,744.6         4,648.9   
  

 

 

    

 

 

    

 

 

 

Net investment per cubic yard

   $ 0.67       $ 0.68       $ 0.69   
  

 

 

    

 

 

    

 

 

 

Landfill depletion and amortization expense (in millions)

   $ 255.5       $ 250.6       $ 278.5   

Accretion expense (in millions)

     78.0         80.5         88.8   
  

 

 

    

 

 

    

 

 

 
     333.5         331.1         367.3   

Airspace consumed (in millions of cubic yards)

     79.9         84.3         86.9   
  

 

 

    

 

 

    

 

 

 

Depletion, amortization and accretion expense per cubic yard of airspace consumed

   $ 4.17       $ 3.93       $ 4.23   
  

 

 

    

 

 

    

 

 

 

During 2011 our average compaction rate was approximately 1,900 pounds per cubic yard based on our three-year historical moving average as compared to 1,800 pounds per cubic yard for 2010. Our compaction rates may improve as a result of the settlement and decomposition of waste.

As of December 31, 2011, we expect to spend an estimated additional $6.5 billion on existing landfills, primarily related to cell construction and environmental structures, over their expected remaining lives. Our total expected investment, excluding non-depletable land, estimated to be $9.8 billion, or $2.04 per cubic yard, is used in determining our depletion and amortization expense based on airspace consumed using the units-of-consumption method.

Property and Equipment

The following tables reflect the activity in our property and equipment accounts for the years ended December 31, 2011, 2010 and 2009 (in millions):

 

     Gross Property and Equipment  
     Balance
as of
December 31,
2010
    Capital
Additions
    Retirements     Acquisitions,
Net of
Divestitures
    Non-Cash
Additions
for Asset
Retirement
Obligations
    Adjustments
for
Asset
Retirement
Obligations
    Impairments,
Transfers
and
Other
Adjustments
    Balance
as of
December 31,
2011
 
               
               
               
               

Other land

  $ 391.9      $ 0.8      $ (1.9   $ (1.1   $ -      $ -      $ (14.6   $ 375.1   

Non-depletable landfill land

    158.0        3.1        -        -        -        -        0.7        161.8   

Landfill development costs

    4,575.2        2.8        -        8.7        33.9        (31.0     173.7        4,763.3   

Vehicles and equipment

    4,142.1        522.0        (178.8     1.3        -        -        28.5        4,515.1   

Buildings and improvements

    768.5        19.6        (2.7     1.3        -        -        16.1        802.8   

Construction-in-progress - landfill

    133.2        272.5        -        (0.4     -        -        (218.0     187.3   

Construction-in-progress - other

    27.2        64.9        -        (0.1     -        -        (44.7     47.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 10,196.1      $ 885.7      $ (183.4   $ 9.7      $ 33.9      $ (31.0   $ (58.3   $ 10,852.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

51


Table of Contents

 

      Accumulated Depreciation, Amortization and Depletion  
      Balance
as of
December 31,
2010
    Additions
Charged
to
Expense
    Retirements      Acquisitions,
Net of
Divestitures
     Adjustments
for
Asset
Retirement
Obligations
     Impairments,
Transfers
and
Other
Adjustments
    Balance
as of
December 31,
2011
 
                 
                 
                 
                 

Landfill development costs

   $ (1,504.6   $ (264.5   $ -       $ 0.5       $ 9.9       $ 23.0      $ (1,735.7

Vehicles and equipment

     (1,820.6     (478.8     162.4         18.2         -         (0.3     (2,119.1

Buildings and improvements

     (172.4     (35.3     1.4         0.4         -         0.3        (205.6
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ (3,497.6   $ (778.6   $ 163.8       $ 19.1       $ 9.9       $ 23.0      $ (4,060.4
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     Gross Property and Equipment  
     Balance
as of
December 31,
2009
    Capital
Additions
    Retirements     Acquisitions,
Net of
Divestitures
    Non-Cash
Additions
for Asset
Retirement
Obligations
    Adjustments
for
Asset
Retirement
Obligations
    Impairments,
Transfers
and
Other
Adjustments
    Balance
as of
December 31,
2010
 
               
               
               
               

Other land

  $ 418.7      $ 2.6      $ (9.4   $ (21.0   $ -      $ -      $ 1.0      $ 391.9   

Non-depletable landfill land

    142.7        1.3        -        (1.7     -        -        15.7        158.0   

Landfill development costs

    4,230.9        15.4        0.2        (13.9     31.5        (26.5     337.6        4,575.2   

Vehicles and equipment

    3,792.4        522.6        (174.5     (2.1     -        -        3.7        4,142.1   

Buildings and improvements

    741.6        24.4        (10.8     (2.4     -        -        15.7        768.5   

Construction-in-progress - landfill

    245.1        250.7        (0.1     0.1        -        -        (362.6     133.2   

Construction-in-progress - other

    23.0        31.6        0.2        -        -        -        (27.6     27.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 9,594.4      $ 848.6      $ (194.4   $ (41.0   $ 31.5      $ (26.5   $ (16.5   $ 10,196.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Accumulated Depreciation, Amortization and Depletion  
     Balance
as of
December 31,
2009
    Additions
Charged
to
Expense
    Retirements     Acquisitions,
Net of
Divestitures
    Adjustments
for
Asset
Retirement
Obligations
    Impairments,
Transfers
and
Other
Adjustments
    Balance
as of
December 31,
2010
 
             
             
             
             

Landfill development costs

  $ (1,275.4   $ (258.9   $ -      $ 19.6      $ 10.1      $ -      $ (1,504.6

Vehicles and equipment

    (1,518.2     (478.7     162.2        14.1        -        -        (1,820.6

Buildings and improvements

    (143.1     (35.2     3.7        2.2        -        -        (172.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ (2,936.7   $ (772.8   $ 165.9      $ 35.9      $ 10.1      $ -      $ (3,497.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Gross Property and Equipment  
     Balance
as of
December 31,
2008
    Capital
Additions
    Retirements     Acquisitions,
Net of
Divestitures
    Non-Cash
Additions
for Asset
Retirement
Obligations
    Adjustments
for
Asset
Retirement
Obligations
    Impairments,
Transfers
and
Other
Adjustments
    Balance
as of
December 31,
2009
 
               
               
               
               

Other land

  $ 464.4      $ 10.1      $ (3.5   $ (48.3   $ -