REPUBLIC SERVICES, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

You should read the following discussion in conjunction with our audited
consolidated financial statements and the notes thereto included in Part II,
Item 8 of this Annual Report on Form 10-K. This discussion may contain
forward-looking statements that anticipate results that are subject to
uncertainty. We discuss in more detail various factors that could cause actual
results to differ from expectations in Part I, Item 1A, Risk Factors in this
Annual Report on Form 10-K.
For further discussion regarding our results of operations for the year ended
December 31, 2020 as compared to the year ended December 31, 2019, refer to Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, in our Annual Report on   Form 10-K for the fiscal year
ended December 31, 2020  .
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of a new
strain of coronavirus (COVID-19) a pandemic. The COVID-19 pandemic has
negatively impacted the global economy, disrupted global supply chains and
created significant volatility and disruption of financial markets. The full
extent of the impact of the COVID-19 pandemic on our operations and financial
performance will depend on future developments, including the duration and
spread of the pandemic, all of which are uncertain and cannot be predicted at
this time.
In mid-March 2020, certain customers in our small- and large-container
businesses began adjusting their service levels, which included a decrease in
the frequency of pickups or a temporary pause in service. In addition, we
experienced a decline in volumes disposed at certain of our landfills and
transfer stations. As service levels decreased, we also experienced a decrease
in certain costs of our operations which are variable in nature. This decline in
service activity peaked in the first half of April 2020 and improved
sequentially through December 31, 2021.
In April 2020, we launched our Committed to Serve initiative and committed $20
million to support frontline employees and
their families, as well as small business customers in the local communities
where we serve. In addition to this initiative, we
have experienced an increase in certain costs of doing business as a direct
result of the COVID-19 pandemic, including costs
for additional safety equipment and hygiene products and increased facility and
equipment cleaning. These costs are intended to
assist in protecting the safety of our frontline employees as we continue to
provide an essential service to our customers. In
2020 and 2021, we recognized our frontline employees for their commitment and
contributions to their communities during the pandemic with awards that were
paid in January 2021 and November 2021, respectively. In addition, we incurred
incremental costs associated with expanding certain aspects of our existing
healthcare programs. We may continue to incur similar costs in future years,
although we expect the annual amount of such costs to be less than those
incurred in 2020.
The effects of the COVID-19 pandemic on our business are described in more
detail in the Results of Operations discussion in this Management's Discussion
and Analysis of Financial Condition and Results of Operations.
Recent Developments
Acquisition of US Ecology
On February 8, 2022, we entered into a definitive agreement to acquire all
outstanding shares of US Ecology, Inc. (US Ecology) in a transaction valued at
approximately $2.2 billion, including debt. US Ecology is a leading provider of
environmental solutions offering treatment, recycling and disposal of hazardous,
non-hazardous and specialty waste. We intend to finance the transaction using
existing and new sources of debt.
The guidance included herein does not contemplate the impact from the pending
acquisition of US Ecology, which is subject to regulatory and other approvals.
2022 Financial Guidance
In 2022, we will focus on driving profitable growth, making disciplined
acquisition investments, maintaining an inclusive and engaging culture for our
people, delivering a superior customer experience, and advancing technology to
drive operational excellence. Our team remains focused on executing our strategy
to deliver consistent earnings and free cash flow growth, and improving return
on invested capital, while partnering with customers to create a more
sustainable world. We are committed to maintaining an efficient capital
structure, preserving our investment grade credit ratings and increasing cash
returned to our shareholders.
Our guidance is based on current economic conditions and does not assume any
significant changes in the overall economy in 2022. Specific guidance follows:
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Revenue
We expect an increase in average yield of approximately 3.4% and volume growth
to be in a range of 1.5% to 2.0%.
Adjusted Diluted Earnings per Share
The following is a summary of anticipated adjusted diluted earnings per share
for the year ending December 31, 2022 compared to the actual adjusted diluted
earnings per share for the year ended December 31, 2021. Adjusted diluted
earnings per share is not a measure determined in accordance with U.S. GAAP:
                                                                  (Anticipated)                   (Actual)
                                                                   Year Ending                   Year Ended
                                                                December 31, 2022             December 31, 2021
Diluted earnings per share                                             $ 4.53 to 4.60       $             4.04

Restructuring charges                                                    0.05                             0.04
Loss on business divestitures and impairments, net                          -                             0.02

Accelerated Vesting of Compensation Charge for CEO Transition

                                                                  -                             0.07
Adjusted diluted earnings per share                                    $ 4.58 to 4.65       $             4.17


We believe that the presentation of adjusted diluted earnings per share provides
an understanding of operational activities before the financial effect 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 effect on our results for a particular period. We
have incurred comparable charges and costs 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.
The guidance set forth above constitutes forward-looking information and is not
a guarantee of future performance. The
guidance is based upon the current beliefs and expectations of our management
and is subject to significant risk and
uncertainties that could cause actual results to differ materially from those
shown above. See Item 1A. Risk Factors - Disclosure Regarding Forward-Looking
Statements.
Overview
Republic is one of the largest providers of environmental services in the United
States, as measured by revenue. As of December 31, 2021, we operated facilities
in 41 states through 356 collection operations, 239 transfer stations, 198
active landfills, 71 recycling processing centers, 3 treatment, recovery and
disposal facilities, 3 treatment, storage and disposal facilities (TSDF), 6 salt
water disposal wells, and 7 deep injection wells. We are engaged in 77 landfill
gas-to-energy and other renewable energy projects and had post-closure
responsibility for 124 closed landfills.
Revenue for the year ended December 31, 2021 increased by 11.2% to $11,295.0
million compared to $10,153.6 million in 2020. This change in revenue is due to
increased volume of 3.8%, average yield of 2.9%, acquisitions, net of
divestitures of 2.8%, recycling processing and commodity sales of 1.1%, and fuel
recovery fees of 0.8%, partially offset by decreased environmental solutions
revenue of 0.1%. Additionally, revenue decreased 0.1% due to one less workday in
2021 as compared to 2020.
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The following table summarizes our revenue, costs and expenses for the years
ended December 31, 2021 and 2020 (in millions of dollars and as a percentage of
revenue):
                                                                      2021                                   2020
Revenue                                                 $ 11,295.0              100.0  %       $ 10,153.6              100.0  %
Expenses:
Cost of operations                                         6,737.7               59.7             6,100.5               60.1

Depreciation, amortization and depletion of property, plant and equipment

                                              1,111.7                9.8             1,015.9               10.0
Amortization of other intangible assets                       33.3                0.3                21.2                0.2
Amortization of other assets                                  40.5                0.4                38.8                0.4
Accretion                                                     82.7                0.7                82.9                0.8
Selling, general and administrative                        1,195.8               10.6             1,053.0               10.4
Withdrawal costs - multiemployer pension funds                   -                  -                34.5                0.3
Loss on business divestitures and impairments, net             0.5                  -                77.7                0.8
Restructuring charges                                         16.6                0.1                20.0                0.2
Operating income                                        $  2,076.2               18.4  %       $  1,709.1               16.8  %


Our pre-tax income was $1,575.1 million for the year ended December 31, 2021,
compared to $1,142.7 million in 2020. Our net income attributable to Republic
Services, Inc. was $1,290.4 million, or $4.04 per diluted share for 2021,
compared to $967.2 million, or $3.02 per diluted share, for 2020.
During 2021 and 2020, we recorded a number of charges, other expenses and
benefits 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 Results of Operations section of this Management's Discussion and Analysis
of Financial Condition and Results of Operations for a discussion of other items
that impacted our earnings during the years ended December 31, 2021 and 2020.
For comparative purposes, prior year amounts have been reclassified to conform
to current year presentation.
                                                               Year Ended December 31, 2021                                   Year Ended December 31, 2020
                                                                                               Diluted                                                        Diluted
                                                                              Net              Earnings                                      Net              Earnings
                                                      Pre-tax               Income -             per                 Pre-tax               Income -             per
                                                       Income               Republic            Share                 Income               Republic            Share
As reported                                      $    1,575.1             $ 1,290.4          $    4.04          $    1,142.7             $   967.2          $    3.02
Loss on extinguishment of debt and other related
costs                                                       -                     -                  -                  99.1                  73.0               0.23
Restructuring charges                                    16.6                  12.2                  0.04               20.0                  14.8                  0.05
Loss on business divestitures and impairments,
net                                                       0.5                   6.0               0.02                  77.7                  65.5     

0.21

Withdrawal costs - multiemployer pension funds              -                     -                  -                  34.5                  25.5               0.08

Bridgeton insurance recovery                                -                     -                  -                 (10.8)                 (8.2)             (0.03)
Accelerated vesting of compensation expense for
CEO transition                                           22.0                  22.0               0.07                     -                     -                  -
Total adjustments                                        39.1                  40.2               0.13                 220.5                 170.6               0.54
As adjusted                                      $    1,614.2             $ 1,330.6          $    4.17          $    1,363.2             $ 1,137.8          $    3.56


We believe that presenting adjusted pre-tax income, adjusted net income -
Republic, 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 operations separate from items that have a disproportionate
impact on our results for a particular period. We have incurred comparable
charges and costs in prior periods, and similar types of adjustments can
reasonably be expected to be recorded in future periods. Our definitions of
adjusted pre-tax income, adjusted net income - Republic, and adjusted diluted
earnings per share may not be comparable to similarly titled measures presented
by other companies. Further information on each of these adjustments is included
below.
Loss on extinguishment of debt and other related costs. During 2020, we incurred
a loss on the early extinguishment of debt and other related costs related to
the early extinguishment of our $600.0 million 5.250% senior notes due November
2021 (the 2021 Notes) and our $850.0 million 3.550% senior notes due June 2022
(the 2022 Notes), and to redeem $250.0 million of the $550.0 million outstanding
4.750% senior notes due May 2023 (the 2023 Notes). We paid total cash premiums
of $99.1 million and
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incurred non-cash charges related to the proportional share of unamortized
discounts and deferred issuance costs of $2.8 million. The unamortized
proportional share of certain cash flow hedges reclassified to earnings as
non-cash interest expense was $1.8 million, and the proportional share of our
fair value hedges (related to the 2023 Notes) that were dedesignated and
recognized in earnings as a reduction to non-cash interest expense was $4.7
million. During 2021, we did not incur a loss on the early extinguishment of
debt.
Restructuring charges. In 2020, we incurred costs related to the redesign of
certain back-office software systems, which continued into 2021. In addition, in
July 2020, we eliminated certain back-office support positions in response to a
decline in the underlying demand for services resulting from the COVID-19
pandemic. In 2021 and 2020, we incurred restructuring charges of $16.6 million
and $20.0 million, respectively. We paid $17.2 million and $15.5 million during
2021 and 2020, respectively, related to these restructuring efforts.
In 2022, we expect to incur additional restructuring charges of approximately
$20 million primarily related to the redesign of certain of our back-office
software systems. Substantially all of these restructuring charges will be
recorded in our corporate entities and other segment.
Loss on business divestitures and impairments, net. During 2021, we recorded a
loss of $0.5 million related to business divestitures and asset impairments in
certain markets. Additionally, we recognized an increase in our deferred tax
provision of $5.5 million due to a change in our U.S. operational footprint as a
result of certain acquisitions that closed during the period.
During 2020, we recorded a net loss on business divestitures and impairments of
$77.7 million, including $42.6 million resulting from management's decision to
exit certain product offerings and geographic basins in our upstream
environmental solutions business.
Withdrawal costs - multiemployer pension funds. During 2020, we recorded charges
to earnings of $34.5 million for withdrawal events at multiemployer pension
funds to which we contribute. As we obtain updated information regarding
multiemployer pension funds, the factors used in deriving our estimated
withdrawal liabilities will be subject to change, which may adversely impact our
reserves for withdrawal costs.
Bridgeton insurance recovery. During 2020, we recognized an insurance recovery
of $10.8 million, related to our closed Bridgeton Landfill in Missouri, which we
recognized as a reduction of remediation expenses in our cost of operations.
Accelerated vesting of compensation expense for CEO transition. In June 2021,
Donald W. Slager retired as Chief Executive Officer (CEO) of Republic Services,
Inc. During 2021, we recognized a charge of $22.0 million primarily related to
the accelerated vesting of his compensation awards that were previously
scheduled to vest in 2022 and beyond.
Results of Operations
Revenue
We generate revenue by providing environmental services to our customers,
including the collection and processing of recyclable materials, collection,
transfer and disposal of non-hazardous solid waste, and other environmental
solutions. Our residential, small-container and large-container collection
operations in some markets are based on long-term contracts with municipalities.
Certain of our municipal contracts have annual price escalation clauses that are
tied to changes in an underlying base index such as a consumer price index. We
generally provide small-container and large-container collection services to
customers under contracts with terms up to three years. Our transfer stations
and landfills generate revenue from disposal or tipping fees charged to third
parties. Our recycling processing centers generate revenue from tipping fees
charged to third parties and the sale of recycled commodities. Our revenue from
environmental solutions consists mainly of fees we charge for
disposal of hazardous and non-hazardous solid and liquid material and in-plant
services, such as transportation and logistics,
including at our TSDFs. Other non-core revenue consists primarily of revenue
from National Accounts, which represents the portion of revenue generated from
nationwide or regional contracts in markets outside our operating areas where
the associated material handling is 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 service line for the years ended
December 31, 2021 and 2020 (in millions of dollars and as a percentage of
revenue):
                                                     2021                         2020
Collection:
Residential                                $  2,452.8        21.7  %    $  2,309.0        22.7  %
Small-container                               3,417.7        30.3          3,106.8        30.6
Large-container                               2,378.4        21.1          2,148.9        21.2
Other                                            59.6         0.5             51.5         0.5
Total collection                              8,308.5        73.6          7,616.2        75.0
Transfer                                      1,490.0                      1,349.4
Less: intercompany                             (814.4)                      (745.9)
Transfer, net                                   675.6         6.0            603.5         5.9
Landfill                                      2,506.7                      2,298.1
Less: intercompany                           (1,092.8)                    (1,018.5)
Landfill, net                                 1,413.9        12.5          1,279.6        12.6
Environmental solutions                         202.5         1.8            127.7         1.3
Other:
Recycling processing and commodity sales        420.5         3.7            297.1         2.9
Other non-core                                  274.0         2.4            229.5         2.3
Total other                                     694.5         6.1            526.6         5.2
Total revenue                              $ 11,295.0       100.0  %    $ 10,153.6       100.0  %


The following table reflects changes in components of our revenue, as a
percentage of total revenue, for the years ended December 31, 2021 and 2020:
                                               2021        2020
Average yield                                  2.9  %      2.6  %
Fuel recovery fees                             0.8        (0.7)
Total price                                    3.7         1.9
Volume                                         3.8        (3.1)
Change in workdays                            (0.1)          -

Recycling processing and sale of raw materials 1.1 0.3 Environmental solutions

                       (0.1)       (0.9)
Total internal growth                          8.4        (1.8)
Acquisitions / divestitures, net               2.8         0.4
Total                                         11.2  %     (1.4) %

Core price                                     5.0  %      4.8  %


Average yield is defined as revenue growth from the change in average price per
unit of service, expressed as a percentage. Core price is defined as price
increases to our customers and fees, excluding fuel recovery, net of price
decreases to retain customers. We also measure changes in average yield and core
price as a percentage of related-business revenue, defined as total revenue
excluding recycled commodities, fuel recovery fees and environmental solutions
revenue to determine the effectiveness of our pricing strategies. Average yield
as a percentage of related-business revenue was 3.1% and 2.8% for 2021 and 2020,
respectively. Core price as a percentage of related-business revenue was 5.3%
and 5.1% for 2021 and 2020, respectively.
During 2021, we experienced the following changes in our revenue as compared to
2020:
•Average yield increased revenue by 2.9% due to positive pricing changes in all
lines of business.
•The fuel recovery fee program, which mitigates our exposure to increases in
fuel prices, increased revenue by 0.8%, primarily due to an increase in fuel
prices compared to the same period in 2020 and an increase in the total revenue
subject to the fuel recovery fees.
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•Volume increased revenue by 3.8% during 2021 as compared to 2020 primarily due
to volume growth in our landfill, transfer, and small- and large-container
collection lines of business, partially offset by a decline in residential
collection volumes. The volume increase in our landfill line of business is
primarily attributable to increased solid and special waste event driven
volumes. In mid-March 2020, certain customers in these lines of business began
adjusting their services levels as a result of the COVID-19 pandemic. This
decline in service activity peaked in the first half of April 2020 and
sequentially improved thereafter. These increases were partially offset by one
less workday as compared to 2020.
•Recycling processing and commodity sales increased revenue by 1.1% primarily
due to an increase in overall commodity prices as compared to 2020. The average
price for recycled commodities, excluding glass and organics for 2021 was $187
per ton compared to $96 per ton for 2020.
Changing market demand for recycled commodities causes volatility in commodity
prices. At current volumes and mix of materials, we believe a $10 per ton change
in the price of recycled commodities will change annual revenue and operating
income by approximately $22 million and $10 million, respectively.
•During 2021, environmental solutions decreased revenue by 0.1% primarily due to
a decrease in rig counts, drilling activity, and the delay of in-plant project
work as a result of lower demand for crude oil which began in 2020.
•Acquisitions, net of divestitures, increased revenue by 2.8% due to our
continued growth strategy of acquiring privately held environmental services
companies that complement our existing business platform.
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 costs, which
include costs for independent haulers that transport our material to disposal
facilities and costs for local operators who provide environmental 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 tax credits; disposal fees and taxes, consisting of landfill taxes, host
community fees and royalties; landfill operating costs, which includes financial
assurance, leachate disposal, remediation charges and other landfill maintenance
costs; risk management costs, which include insurance premiums and claims; cost
of goods sold, which includes material costs paid to suppliers; 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, 2021 and 2020 (in millions of dollars and as a
percentage of revenue):
                                                 2021                       

2020

Labor and related benefits             $ 2,324.4        20.6  %    $ 2,153.4        21.2  %
Transfer and disposal costs                865.8         7.7           796.9         7.9
Maintenance and repairs                  1,048.8         9.3           969.6         9.6
Transportation and subcontract costs       779.5         6.9           674.1         6.6
Fuel                                       383.0         3.4           271.7         2.7
Disposal fees and taxes                    336.6         3.0           313.5         3.1
Landfill operating costs                   258.9         2.3           258.2         2.5
Risk management                            261.6         2.3           213.9         2.1

Other                                      479.1         4.2           460.0         4.5
Subtotal                                 6,737.7        59.7         6,111.3        60.2

Bridgeton insurance recovery                   -           -           (10.8)       (0.1)
Total cost of operations               $ 6,737.7        59.7  %    $ 6,100.5        60.1  %


These cost categories may change from time to time and may not be comparable to
similarly titled categories presented by other companies. As such, you should
take care when comparing our cost of operations by component to that of other
companies and of ours for prior periods.
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Our cost of operations increased for the year ended December 31, 2021 compared
to the same period in 2020 as a result of the following:
•Labor and related benefits increased in aggregate dollars due to higher hourly
and salaried wages as a result of annual merit increases and an increase in
service levels attributable to the economic recovery from the COVID-19 pandemic.
This increase was partially offset by one less workday during 2021 as compared
to 2020.
•Transfer and disposal costs increased in aggregate dollars as a result of
higher collection volumes and an increase in third party disposal rates. During
both 2021 and 2020, approximately 68% of the total solid waste volume we
collected was disposed at landfill sites that we own or operate
(internalization).
•Maintenance and repairs expense increased in aggregate dollars due to an
increase in service levels attributable to the economic recovery from the
COVID-19 pandemic.
•Transportation and subcontract costs increased primarily due to higher
collection and transfer station volumes, acquisition-related activity, and
increased subcontract work attributable to an increase in non-core revenues,
partially offset by one less workday during 2021 as compared to 2020.
•Fuel costs increased due to an increase in the average diesel fuel cost per
gallon. The national average cost per gallon for diesel fuel in 2021 was $3.29
compared to $2.55 for 2020.
At current consumption levels, we believe a twenty-cent per gallon change in the
price of diesel fuel would change our fuel costs by approximately $26 million
per year. Offsetting these changes in fuel expense would be changes in our fuel
recovery fee charged to our customers. At current participation rates, we
believe a twenty-cent per gallon change in the price of diesel fuel would change
our fuel recovery fee by approximately $26 million per year.
•Disposal fees and taxes increased in aggregate dollars due to an increase in
service levels attributable to the economic recovery from the COVID-19 pandemic.
•Risk management expenses increased primarily due to unfavorable actuarial
development in our auto liability claims as well as higher premium costs,
partially offset by favorable workers' compensation development in prior year
programs.
•During 2020, we recognized an insurance recovery of $10.8 million, related to
our closed Bridgeton Landfill in Missouri, which we recognized as a reduction of
remediation expenses included in our cost of operations in our consolidated
statement of income.
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, 2021 and 2020 (in
millions of dollars and as a percentage of revenue):
                                                                       2021                                 2020

Depreciation of property, plant and equipment $734.2

       6.5  %       $   692.9               6.8  %
Landfill depletion and amortization                            377.5              3.3              323.0               3.2
Depreciation, amortization and depletion expense           $ 1,111.7              9.8  %       $ 1,015.9              10.0  %


Depreciation and amortization of property and equipment increased primarily due
to additional assets acquired with our acquisitions, an increase in the cost of
replacement vehicles and container assets, as well as increased capital
expenditures on vehicles to support volume growth.
Landfill depletion and amortization increased due to higher landfill disposal
volumes, primarily driven by increased solid and special waste volumes, coupled
with increased depletion rates. Additionally, we recognized favorable
amortization adjustments related to our asset retirement obligations in 2020
that did not recur in 2021.
Amortization of Other Intangible Assets
Expenses for amortization of other intangible assets were $33.3 million, or 0.3%
of revenue, for the year ended December 31, 2021, compared to $21.2 million, or
0.2% of revenue for 2020. Our other intangible assets primarily relate to
customer relationships and, to a lesser extent, non-compete agreements.
Amortization expense increased due to additional assets acquired as a result of
our business acquisitions.
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Amortization of Other Assets
Expenses for amortization of other assets were $40.5 million, or 0.4% of
revenue, for the year ended December 31, 2021, compared to $38.8 million, or
0.4% of revenue, for 2020. Our other assets primarily relate to the prepayment
of fees and capitalized implementation costs associated with cloud-based hosting
arrangements.
Accretion Expense
Accretion expense was $82.7 million, or 0.7% of revenue, and $82.9 million, or
0.8% of revenue, for the years ended December 31, 2021 and 2020, respectively.
Accretion expense has 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, legal settlements, marketing, investor and community
relations services, directors' and officers' insurance, general employee
relocation, travel, entertainment and bank charges. Restructuring charges are
excluded from selling, general and administrative expenses and are discussed
separately.
The following table summarizes our selling, general and administrative expenses
for the years ended December 31, 2021 and 2020 (in millions of dollars and as a
percentage of revenue):
                                                                         2021                                 2020
Salaries and related benefits                               $   844.4               7.5  %       $   740.5               7.3  %
Provision for doubtful accounts                                  19.9               0.2               27.8               0.3
Other                                                           309.5               2.7              284.7               2.8
Subtotal                                                      1,173.8              10.4            1,053.0              10.4

Accelerated Vesting of Compensation Charge for CEO Transition

                                                       22.0               0.2                  -                 -

Total selling, general and administrative expenses $1,195.8

        10.6  %       $ 1,053.0              10.4  %


These cost categories may change from time to time and may not be comparable to
similarly titled categories used by other companies. As such, you should take
care when comparing our selling, general and administrative expenses by cost
component to those of other companies and of ours for prior periods.
The most significant items affecting our selling, general and administrative
expenses during 2021 as compared to 2020 are summarized below:
•Salaries and related benefits increased primarily due to higher management
incentive expenses as a result of outperforming our annual incentive metrics.
•In 2021, the provision for doubtful accounts decreased as a result of an
improved trend in historical collections. Our days sales outstanding changed
from 39.2, or 27.5 days net of deferred revenue, as of December 31, 2021
compared to 38.6, or 26.4 days net of deferred revenue, as of December 31, 2020.
•Other selling, general and administrative expenses increased during 2021,
primarily due to an increase in recruiting, advertising, and bank fees. Meetings
and events expenses also increased during 2021 following a decrease in 2020 as a
result of the COVID-19 pandemic. These increases were partially offset by a
decrease in professional fees, acquisition deal costs and unfavorable changes in
certain legal reserves during 2020, which did not recur in 2021.
•During 2021, we recognized a charge of $22.0 million primarily related to the
accelerated vesting of Donald W. Slager's compensation awards that were
previously scheduled to vest in 2022 and beyond as a result of his retirement as
Chief Executive Officer (CEO) of Republic Services, Inc. in June 2021.
Withdrawal Costs - Multiemployer Pension Funds
During 2020, we recorded charges to earnings of $34.5 million for withdrawal
events at multiemployer pension funds to which we contribute. We paid $34.4
million during 2020 relative to these withdrawal events. As we obtain updated
information regarding multiemployer pension funds, the factors used in deriving
our estimated withdrawal liabilities will be subject to change, which may
adversely impact our reserves for withdrawal costs.
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Loss (Gain) on Business Divestitures and Impairments, Net
We strive to have a number one or number two market position in each of the
markets we serve, or have a clear path on how we will achieve a leading market
position over time. Where we cannot establish a leading market position, or
where operations are not generating acceptable returns, we may decide to divest
certain assets and reallocate resources to other markets. Business divestitures
could result in gains, losses or impairment charges that may be material to our
results of operations in a given period.
During 2021, we recorded a net loss on business divestitures and impairments of
$0.5 million, which was due to business divestitures in certain markets. During
2020, we recorded a net loss on business divestitures and impairments of $77.7
million, including $42.6 million resulting from management's decision to exit
certain product offerings and geographic basins in our upstream environmental
solutions business.
Restructuring Charges
In 2020, we incurred costs related to the redesign of certain back-office
software systems, which continued into 2021. In addition, in July 2020, we
eliminated certain back-office support positions in response to a decline in the
underlying demand for services resulting from the COVID-19 pandemic. During 2021
and 2020, we incurred restructuring charges of $16.6 million and $20.0 million,
respectively. We paid $17.2 million and $15.5 million during 2021 and 2020,
respectively, related to these restructuring efforts.
In 2022, we expect to incur additional restructuring charges of approximately
$20 million primarily related to the redesign of certain of our back-office
software systems. Substantially all of these restructuring charges will be
recorded in our corporate entities and other segment.
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 risk insurance liabilities assumed in acquisitions (in
millions of dollars):
                               2021         2020
Interest expense on debt     $ 249.1      $ 300.1
Non-cash interest               70.5         61.7
Less: capitalized interest      (5.0)        (6.2)
Total interest expense       $ 314.6      $ 355.6


Total interest expense for 2021 decreased compared to 2020 primarily due to
lower interest rates on our floating and fixed rate debt. The decrease
attributable to our fixed rate debt is primarily due to the issuance of senior
notes in 2020 with coupons ranging from 0.875% to 3.050%, the proceeds of which
were used to repay outstanding senior notes with coupons ranging from 3.550% to
5.500%.
During 2021 and 2020, cash paid for interest, excluding net swap settlements for
our fixed to floating interest rate swaps, was $249.4 million and
$325.1 million, respectively.
Loss on Extinguishment of Debt
During 2020, we incurred a $101.9 million loss on the early extinguishment of
debt. We paid total cash premiums during the year totaling $99.1 million and
incurred non-cash charges related to the proportional share of unamortized
discounts and deferred issuance costs of $2.8 million.
Income Taxes
Our provision for income taxes was $282.8 million and $173.1 million for 2021
and 2020, respectively. Our effective income tax rate was 18.0% and 15.2% for
2021 and 2020, respectively. We made income tax payments (net of refunds) of
approximately $300 million and $124 million for 2021 and 2020, respectively.
Income taxes paid in 2021 and 2020 reflect benefits from tax credits from our
continuing investments in solar energy. For 2020, cash taxes paid reflect
benefits from 100% bonus depreciation on qualified assets.
During 2021, we acquired non-controlling interests in limited liability
companies established to own solar energy assets that qualified for investment
tax credits under Section 48 of the Internal Revenue Code. We account for these
investments using the equity method of accounting and recognize our share of
income or loss and other reductions in the value of our investment in loss from
unconsolidated equity method investments within our consolidated statements of
income. For further discussion regarding our equity method accounting, see Note
3, Business Acquisitions, Investments and Restructuring Charges. Our 2021 tax
provision reflects a benefit of approximately $126 million due to the tax
credits related to these investments.
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Our 2020 tax provision was reduced by $11.6 million from excess tax benefits
related to stock compensation, approximately $100 million related to the tax
credits from our non-controlling interest in limited liability companies
established to own solar energy assets, $17.2 million for adjustments to our
valuation allowance due to the realizability of certain state loss
carryforwards, and $8.2 million due to the realization of additional federal and
state benefits as well as adjustments to deferred taxes due to the completion of
our 2019 tax returns.
We have deferred tax assets related to state net operating loss carryforwards
with an estimated tax effect of approximately $87 million available as of
December 31, 2021. These state net operating loss carryforwards expire at
various times between 2022 and 2041. We believe that it is more likely than not
that the benefit from some of our state net operating loss carryforwards will
not be realized due to limitations on these loss carryforwards in certain
states. In recognition of this risk, as of December 31, 2021, we have provided a
valuation allowance of approximately $43 million.
Reportable Segments
Our senior management evaluates the financial performance of our operations
through three operating segments. Group 1 primarily consists of geographic areas
located in the western United States, and Group 2 primarily consists of
geographic areas located in the southeastern and mid-western United States, and
the eastern seaboard of the United States. Our Environmental Solutions operating
segment, which provides environmental solutions for daily operations of
industrial, petrochemical and refining facilities, is aggregated with Corporate
entities and other as it only represents approximately 2% of our consolidated
revenue. Each operating segment provides integrated environmental services,
including collection, transfer, recycling, and disposal.
Summarized financial information concerning our reportable segments for the
years ended December 31, 2021 and 2020 is shown in the following table (in
millions of dollars and as a percentage of revenue in the case of operating
margin):
                                                   Depreciation,
                                              Amortization, Depletion         Adjustments to
                                                        and                    Amortization
                                                 Accretion Before                Expense               Depreciation,               Loss on
                                                  Adjustments for               for Asset              Amortization,               Business              Operating
                               Net               Asset Retirement               Retirement             Depletion and           Divestitures and            Income              Operating
                             Revenue                Obligations                Obligations               Accretion             Impairments, Net            (Loss)                Margin
2021:
Group 1                   $  5,558.9          $              555.1          $          (7.0)         $        548.1          $               -          $ 1,495.7                     26.9  %
Group 2                      5,333.6                         543.8                     (2.5)                  541.3                          -            1,135.7                     21.3  %
Corporate entities and
other                          402.5                         162.4                     16.4                   178.8                        0.5             (555.2)                       -
Total                     $ 11,295.0          $            1,261.3          $           6.9          $      1,268.2          $             0.5          $ 2,076.2                     18.4  %
2020:
Group 1                   $  5,057.5          $              522.1          $         (20.0)         $        502.1          $               -          $ 1,343.3                     26.6  %
Group 2                      4,791.9                         506.5                    (17.6)                  488.9                          -              966.8                     20.2  %
Corporate entities and
other                          304.2                         142.7                     25.1                   167.8                       77.7             (601.0)                       -
Total                     $ 10,153.6          $            1,171.3          $         (12.5)         $      1,158.8          $            77.7          $ 1,709.1                     16.8  %


Financial information for the year ended December 31, 2020 reflects the transfer
of our Environmental Solutions operating segment from Group 2 to Corporate
entities and other, to align with how our chief operating decision maker began
evaluating our operations in December 2020.
Corporate entities and other include legal, tax, treasury, information
technology, risk management, human resources, closed landfills, other
administrative functions and environmental solutions. National Accounts revenue
included in corporate entities represents the portion of revenue generated from
nationwide and regional contracts in markets outside our operating areas where
the associated material handling is 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 for 2021 compared to 2020 are discussed below.
Group 1
Revenue for 2021 increased 9.9% from 2020 due to an increase in both average
yield and volume in all lines of business.
Operating income in Group 1 increased from $1,343.3 million for 2020, or a 26.6%
operating margin, to $1,495.7 million for 2021, or a 26.9% operating margin.
Operating income margin during 2021 was favorably impacted by the increase in
revenue
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attributable to economic recovery coupled with the effective management of
certain operating costs. This benefit was partially offset by an increase in
fuel costs.
Group 2
Revenue for 2021 increased 11.3% from 2020 due to an increase in average yield
in all lines of business. Additionally, volume increased in our landfill,
transfer station, and small- and large-container collection lines of business,
partially offset by volume declines in our residential line of business.
Operating income in Group 2 increased from $966.8 million for 2020, or a 20.2%
operating margin, to $1,135.7 million for 2021, or a 21.3% operating margin.
Operating income margin for 2021 was favorably impacted by the increase in
revenue attributable to economic recovery coupled with the effective management
of certain operating costs. This benefit was partially offset by an increase in
fuel costs.
Corporate Entities and Other
The Corporate entities and other operating loss decreased from $601.0 million
for 2020 to $555.2 million for 2021. During 2021, we recorded a net loss on
business divestitures and impairments of $0.5 million. During 2020, we recorded
a net loss on business divestitures and impairments of $77.7 million, including
$42.6 million resulting from management's decision to exit certain product
offerings and geographic basins in our upstream environmental solutions
business.
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, transportation and disposal costs, methane
gas and groundwater monitoring and system maintenance costs, interim cap
maintenance costs, 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 acquiring and developing 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. Our
operating and accounting personnel use these estimates to adjust the rates we
use to expense capitalized costs. Changes in these estimates primarily relate to
changes in cost estimates, 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. 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.
Available Airspace
As of December 31, 2021 and 2020, we owned or operated 198 and 186 active solid
waste landfills, respectively, with total available disposal capacity estimated
to be 5.0 billion in-place cubic yards in both years. For these landfills, the
following table reflects changes in capacity and remaining capacity, as measured
in cubic yards of airspace:
                                                                                                Landfills
                                                                           New                  Acquired,               Permits Granted /                                    Changes in
                                            Balance as of              Expansions                Net of                    New Sites,                  Airspace              Engineering             Balance as of
                                          December 31, 2020            Undertaken             Divestitures               Net of Closures               Consumed               Estimates            December 31, 2021
Cubic yards (in millions):
Permitted airspace                               4,792.5                      -                    61.4                          37.8                    (79.3)                  14.3                     4,826.7
Probable expansion airspace                        196.4                   20.5                       -                         (30.9)                       -                      -                       186.0
Total cubic yards (in millions)                  4,988.9                   20.5                    61.4                           6.9                    (79.3)                  14.3                     5,012.7
Number of sites:
Permitted airspace                                   186                                             13                            (1)                                                                        198
Probable expansion airspace                           11                      2                                                    (2)                                                                         11


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Contents

                                                                                                Landfills
                                                                          New                   Acquired,                Permits Granted /                                       Changes in
                                           Balance as of               Expansions                 Net of                     New Sites,                   Airspace              Engineering              Balance as of
                                         December 31, 2019             Undertaken              Divestitures               Net of Closures                 Consumed               Estimates             December 31, 2020
Cubic yards (in millions):
Permitted airspace                              4,673.0                       -                     (5.1)                         205.8                     (76.1)                   (5.1)                    4,792.5
Probable expansion airspace                       321.7                    32.9                        -                         (158.2)                        -                       -                       196.4
Total cubic yards (in millions)                 4,994.7                    32.9                     (5.1)                          47.6                     (76.1)                   (5.1)                    4,988.9
Number of sites:
Permitted airspace                                  189                                               (2)                            (1)                                                                          186
Probable expansion airspace                          12                       2                                                      (3)                                                                           11


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. 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, of the notes to our consolidated financial statements in
Item 8 of this Annual Report on Form 10-K for further information. Also see our
Critical Accounting Judgments and Estimates section of this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 2021, 11 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 11 landfills have an estimated
remaining average site life of 33 years, including probable expansion airspace.
The average estimated remaining life of all of our landfills is 59 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 treatment as 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, 2021:
                   Number         Number
                  of Sites       of Sites
                   without         with
                  Probable       Probable                   Percent
                  Expansion      Expansion      Total         of
                  Airspace       Airspace       Sites        Total
0 to 5 years         21              -           21          10.6  %
6 to 10 years        19              -           19           9.6
11 to 20 years       25              3           28          14.1
21 to 40 years       55              3           58          29.3
41+ years            67              5           72          36.4
Total               187             11          198         100.0  %


Final Capping, Closure and Post-Closure Costs
As of December 31, 2021, accrued final capping, closure and post-closure costs
were $1,507.3 million, of which $68.4 million were current and $1,438.9 million
were long-term as reflected in our consolidated balance sheets in accrued
landfill and environmental costs included in Part II, Item 8 of this Annual
Report on Form 10-K.
Remediation and Other Charges for Landfill Matters
It is reasonably possible that we will need to adjust our accrued landfill and
environmental liabilities to reflect the effects of new or additional
information, to the extent that such information impacts the costs, timing or
duration of the required actions. Future changes in our estimates of the costs,
timing or duration of the required actions could have a material adverse effect
on our consolidated financial position, results of operations and cash flows.
In 2020, we recognized an insurance recovery of $10.8 million related to our
closed Bridgeton Landfill in Missouri as a reduction of remediation expenses
included in our cost of operations.
For a description of our significant remediation matters, see Note 8, Landfill
and Environmental Costs, of the notes to our consolidated financial statements
in Part II, Item 8 of this Annual Report on Form 10-K.
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Investment in Landfills
As of December 31, 2021, we expect to spend an estimated additional $9.6
billion on existing landfills, primarily related to cell construction and
environmental structures, over their remaining lives. Our total expected
investment, excluding non-depletable land, estimated to be $13.8 billion, or
$2.75 per cubic yard, is used in determining our depletion and amortization
expense based on airspace consumed using the units-of-consumption method.
The following table reflects our future expected investment as of December 31,
2021 (in millions):
                                                                     Balance as of          Expected              Total
                                                                     December 31,            Future             Expected
                                                                         2021              Investment          Investment
Non-depletable landfill land                                        $      197.7          $        -          $    197.7
Landfill development costs                                               8,539.6             9,631.5            18,171.1
Construction-in-progress - landfill                                        279.3                   -               279.3
Accumulated depletion and amortization                                  (4,625.6)                  -            (4,625.6)
Net investment in landfill land and development costs               $    

4,391.0 $9,631.5 $14,022.5

The following table reflects our net investment in our landfills, excluding non-depletable land, and our depletion, depreciation and accretion charges for the years ended December 31, 2021 and 2020:

                                                                         2021               2020
Number of landfills owned or operated                                      198                186

Net investment, excluding non-exhaustible land (in millions) $4,193.3 $4,046.0
Estimated Total Available Disposal Capacity (millions of cubic yards)

                                                                 5,012.7            4,988.9
Net investment per cubic yard                                        $    0.84          $    0.81
Landfill depletion and amortization expense (in millions)            $   377.5          $   323.0
Accretion expense (in millions)                                           82.7               82.9
                                                                         460.2              405.9
Airspace consumed (in millions of cubic yards)                            79.3               76.1

Exhaustion, depreciation and accretion expenses per cubic meter of airspace consumed

                                                    $    

5.80 $5.33


During 2021 and 2020, our average compaction rate was approximately 2,000 pounds
per cubic yard based primarily on a three-year historical moving average.
Property and Equipment
The following tables reflect the activity in our property and equipment accounts
for the years ended December 31, 2021 and 2020 (in millions of dollars):
                                                                                                         Gross Property and Equipment
                                                                                                                             Non-Cash             Adjustments           Impairments,
                                                                                                                             Additions                for                Transfers
                                   Balance as of                                                    Acquisitions,            for Asset               Asset                  and               Balance as of
                                    December 31,           Capital                                     Net of               Retirement            Retirement               Other               December 31,
                                        2020              Additions           Retirements           Divestitures            Obligations           Obligations           Adjustments                2021
Land                              $       633.4          $    32.7          $       (3.9)         $         16.6          $          -          $          -          $        16.1          $       694.9

Landfill development costs              7,991.7                6.5                     -                    65.5                  46.7                  58.9                  370.3                8,539.6
Vehicles and equipment                  8,119.0              651.0                (385.2)                  109.3                     -                     -                   82.8                8,576.9
Buildings and improvements              1,402.5               24.8                  (6.9)                   20.9                   0.5                     -                   66.6                1,508.4
Construction-in-progress -
landfill                                  303.8              358.5                     -                       -                     -                     -                 (383.0)                 279.3
Construction-in-progress - other          107.4              240.2                     -                     5.3                     -                     -                 (170.0)                 182.9
Total                             $    18,557.8          $ 1,313.7          $     (396.0)         $        217.6          $       47.2          $       58.9          $       (17.2)         $    19,782.0


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                                                                                          Accumulated Depreciation, Amortization and Depletion
                                                                                                                                     Adjustments          Impairments,
                                                                   Additions                                                             for                Transfers
                                           Balance as of            Charged                                  Acquisitions,              Asset                  and              Balance as of
                                            December 31,              to                                        Net of               Retirement               Other              December 31,
                                                2020                Expense            Retirements           Divestitures            Obligations           Adjustments               2021
Landfill development costs                $    (4,249.5)         $   

$(369.4) – $0.5 $(7.2)

         $          -          $    (4,625.6)
Vehicles and equipment                         (4,953.4)             (665.4)                376.3                       -                     -                  10.9               (5,231.6)
Buildings and improvements                       (628.7)              (68.9)                  5.0                     0.3                     -                  (0.4)                (692.7)
Total                                     $    (9,831.6)         $ (1,103.7)         $      381.3          $          0.8          $       (7.2)         $       10.5          $   (10,549.9)


                                                                                                         Gross Property and Equipment
                                                                                                                             Non-Cash             Adjustments           Impairments,
                                                                                                                             Additions                for                Transfers
                                   Balance as of                                                    Acquisitions,            for Asset               Asset                  and               Balance as of
                                    December 31,           Capital                                     Net of               Retirement            Retirement               Other               December 31,
                                        2019              Additions           Retirements           Divestitures            Obligations           Obligations           Adjustments                2020
Land                              $       618.8          $     9.9          $       (8.1)         $         10.4          $          -          $          -          $         2.4          $       633.4

Landfill development costs              7,474.7                2.6                 (15.5)                   62.3                  40.6                 (45.5)                 472.5                7,991.7
Vehicles and equipment                  7,766.0              654.4                (336.3)                    3.9                     -                     -                   31.0                8,119.0
Buildings and improvements              1,342.6                4.4                  (6.1)                   24.0                   1.7                     -                   35.9                1,402.5
Construction-in-progress -
landfill                                  366.8              406.9                     -                    (3.6)                    -                     -                 (466.3)                 303.8
Construction-in-progress - other           87.7              164.1                     -                       -                     -                     -                 (144.4)                 107.4
Total                             $    17,656.6          $ 1,242.3          $     (366.0)         $         97.0          $       42.3          $      (45.5)         $       (68.9)         $    18,557.8


                                                                                          Accumulated Depreciation, Amortization and Depletion
                                                                                                                                     Adjustments          Impairments,
                                                                   Additions                                                             for                Transfers
                                           Balance as of            Charged                                  Acquisitions,              Asset                  and              Balance as of
                                            December 31,              to                                        Net of               Retirement               Other              December 31,
                                                2019                Expense            Retirements           Divestitures            Obligations           Adjustments               2020
Landfill development costs                $    (3,968.6)         $   

(335.6) $15.5 $26.2 $13

         $          -          $    (4,249.5)
Vehicles and equipment                         (4,728.2)             (628.7)                322.7                    44.4                     -                  36.4               (4,953.4)
Buildings and improvements                       (576.3)              (65.5)                  4.7                     6.8                     -                   1.6                 (628.7)
Total                                     $    (9,273.1)         $ (1,029.8)         $      342.9          $         77.4          $         13          $       38.0          $    (9,831.6)


Liquidity and Capital Resources
Cash and Cash Equivalents
The following is a summary of our cash and cash equivalents and restricted cash
and marketable securities balances as of December 31:
                                                                      2021                 2020
Cash and cash equivalents                                        $      29.0          $      38.2
Restricted cash and marketable securities                              139.0                149.1
Less: restricted marketable securities                                 (62.4)               (73.1)

Cash, cash equivalents, restricted cash and restricted cash equivalents

                                                 $     

105.6 $114.2


Our restricted cash and marketable securities include, among other things,
restricted cash related to proceeds from the issuance of tax-exempt bonds that
will be used to fund qualifying landfill-related expenditures in the
Commonwealth of Pennsylvania, restricted cash and marketable securities pledged
to regulatory agencies and governmental entities as financial guarantees of our
performance under certain collection, landfill and transfer station contracts
and permits, and relating to our final capping, closure and post-closure
obligations at our landfills, and restricted cash and marketable securities
related to our insurance obligations.
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The following table summarizes our restricted cash and marketable securities as
of December 31:
                                                    2021         2020
Financing proceeds                                $  12.4      $     -

Capping, closure and post-closure obligations 42.4 31.5 Insurance

                                            84.2        117.6

Total restricted cash and marketable securities $139.0 $149.1


Material Cash Requirements and Intended Uses of Cash
We expect existing cash, cash equivalents, restricted cash and marketable
securities, cash flows from operations and financing activities to continue to
be sufficient to fund our operating activities and cash commitments for
investing and financing activities for at least the next 12 months and
thereafter for the foreseeable future. Our known current- and long-term uses of
cash include, among other possible demands: (1) capital expenditures and leases,
(2) acquisitions, (3) dividend payments, (4) share repurchases, (5) repayments
to service debt and other long-term obligations, and (6) payments for asset
retirement obligations and environmental liabilities.
Capital Expenditures and Leases
We make investments in property and equipment primarily to allow for growth of
our service offerings. These investments are largely concentrated in vehicles
and equipment and costs to construct our landfills. We expect to spend
approximately $1.3 billion on capital expenditures in 2022.
We lease property and equipment in the ordinary course of business under various
lease agreements. The most significant lease obligations are for real property
and equipment specific to our industry, including property operated as a
landfill or transfer station and operating equipment. As of December 31, 2021,
the amount of total future lease payments under operating and finance leases was
$315.4 million and $433.6 million, respectively. For additional detail regarding
our lease obligations, see Note 10, Leases, of the notes to our audited
consolidated financial statements in Part II, Item 8 of this Annual Report on
Form 10-K.
Acquisitions
Our acquisition growth strategy focuses primarily on acquiring privately held
recycling and solid waste companies and environmental solutions businesses that
complement our existing business platform. We continue to invest in
value-enhancing acquisitions in existing markets. In 2022, we expect to invest
at least $500 million in acquisitions.
Dividend Payments
In October 2021, our Board of Directors approved a quarterly dividend of $0.46
per share. Aggregate cash dividends declared were $563.0 million for the year
ended December 31, 2021. As of December 31, 2021, we recorded a quarterly
dividend payable of $145.9 million to shareholders of record at the close of
business on January 3, 2022, which was paid on January 14, 2022.
Share Repurchases
In October 2020, our Board of Directors approved a $2.0 billion share repurchase
authorization effective starting January 1, 2021 and extending through December
31, 2023. Share repurchases under the current program may be made through open
market purchases or privately negotiated transactions in accordance with
applicable federal securities laws. While the Board of Directors has approved
the program, the timing of any purchases, the prices and the number of shares of
common stock to be purchased will be determined by our management, at its
discretion, and will depend upon market conditions and other factors. The share
repurchase program may be extended, suspended or discontinued at any time. As of
December 31, 2021, the remaining authorized purchase capacity under our October
2020 repurchase program was $1.7 billion.
Debt and other long-term obligations
Debt repayments may include purchases of our outstanding indebtedness in the
secondary market or otherwise. We believe that our excess cash, cash from
operating activities and our availability to draw on our credit facilities
provide us with sufficient financial resources to meet our anticipated capital
requirements and maturing obligations as they come due.
We may choose to voluntarily retire certain portions of our outstanding debt
before their maturity dates using cash from operations or additional borrowings.
We may also explore opportunities in the capital markets to fund redemptions
should market conditions be favorable. Early extinguishment of debt will result
in an impairment charge in the period in which the debt is repaid. The loss on
early extinguishment of debt relates to premiums paid to effectuate the
repurchase and the relative portion of unamortized note discounts and debt issue
costs.
As of December 31, 2021, the total principal value of our debt was $9.7 billion
of which $8.2 million is due in 2022.
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We have several agreements that require us to dispose of a minimum number of
tons at third-party disposal facilities. Under these put-or-pay agreements, we
must pay for agreed-upon minimum volumes regardless of the actual number of tons
placed at the facilities.
Our unconditional purchase commitments have varying expiration dates, with some
extending through the remaining life of the respective landfill. Future minimum
payments under unconditional purchase commitments, consisting primarily of
(1) disposal related agreements, which include fixed or minimum royalty
payments, host agreements, and take-or-pay and put-or-pay agreements, and
(2) other obligations including committed capital expenditures and consulting
service agreements. As of December 31, 2021 such purchase commitments, which do
not qualify for recognition on our Consolidated Balance Sheets, amount to $772.3
million, of which $142.6 million is short-term.
For additional detail regarding our debt and known contractual and other
obligation, see Note 9, Debt, and Note 19, Commitments and Contingencies, of the
notes to our audited consolidated financial statements in Part II, Item 8 of
this Annual Report on Form 10-K.
Asset Retirement Obligations and Environmental Liabilities
We have future obligations for final capping, closure and post-closure costs
with respect to the landfills we own or operate as set forth in applicable
landfill permits. As of December 31, 2021, our future obligations for final
capping, closure and post-closure costs totaled $1.5 billion of which $68.4
million was short-term.
Additionally, we are subject to an array of laws and regulations relating to the
protection of the environment, and we remediate sites in the ordinary course of
our business. Our environmental remediation liabilities primarily include costs
associated with remediating groundwater, surface water and soil contamination,
as well as controlling and containing methane gas migration and the related
legal costs. As of December 31, 2021, our environmental liabilities totaled
$454.9 million of which $56.1 million was short-term.
For additional detail regarding our asset retirement obligations and
environmental liabilities, see Note 8, Landfill and Environmental Costs, of the
notes to our audited consolidated financial statements in Part II, Item 8 of
this Annual Report on Form 10-K.
Summary of Cash Flow Activity
The major components of changes in cash flows for 2021 and 2020 are discussed in
the following paragraphs. The following table summarizes our cash flow from
operating activities, investing activities and financing activities for the
years ended December 31, 2021 and 2020 (in millions of dollars):
                                                 2021            2020

Net cash flow generated by operating activities $2,786.7 $2,471.6
Net cash used in investing activities $(2,466.1) $(1,922.8)
Net cash used in financing activities $(329.2) $(612.0)


Cash Flows Provided by Operating Activities
The most significant items affecting the comparison of our operating cash flows
for 2021 and 2020 are summarized below.
Changes in assets and liabilities, net of effects from business acquisitions and
divestitures, decreased our cash flow from operations by $94.0 million in 2021,
compared to a decrease of $129.9 million in 2020, primarily as a result of the
following:
•Our accounts receivable, exclusive of the change in allowance for doubtful
accounts and customer credits, increased $135.4 million during 2021, compared to
a $13.8 million decrease in 2020. As of December 31, 2021, our days sales
outstanding were 39.2, or 27.5 days net of deferred revenue, as of December 31,
2021 compared to 38.6, or 26.4 days net of deferred revenue, as of December 31,
2020.
•Our prepaid expenses and other assets increased $57.0 million in 2021 compared
to a decrease of $6.5 million in 2020, primarily due to additional SaaS
implementation costs incurred related to the redesign of certain back-office
software systems in 2021. The decrease in 2020 was primarily attributable to the
receipt of the Bridgeton landfill settlement in the first quarter of 2020, and
an increase in alternative fuel tax credit receipts during 2020 compared to
2019, partially offset by an increase of prepaid taxes due to the timing of our
estimated tax payments. We made income tax payments (net of refunds) of
approximately $300 million and $124 million for 2021 and 2020, respectively.
Income taxes paid in 2021 and 2020 reflected benefits from tax credits from our
continuing investments in solar energy. In 2020, cash taxes paid also reflected
a benefit from 100% bonus depreciation on qualified assets.
•Our accounts payable increased $113.8 million during 2021 compared to a
decrease of $46.7 million during 2020, due to the timing of payments.
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•Cash paid for capping, closure and post-closure obligations was $1.0 million
higher during 2021 compared to 2020. The increase in cash paid for capping,
closure and post-closure obligations is primarily due to the timing of capping
and post-closure payments at certain of our landfill sites.
•Cash paid for remediation obligations was $6.4 million lower during 2021
compared to 2020, primarily due to $18.9 million in payments related to
management and monitoring of the remediation area of our closed Bridgeton
Landfill in Missouri during 2021 as compared to $25.6 million of payments during
2020.
In addition, cash paid for interest was $249.4 million and $325.1 million,
excluding net swap settlements for our fixed to floating interest rate swaps,
for 2021 and 2020, respectively.
We use cash flows from operations to fund capital expenditures, acquisitions,
dividend payments, share repurchases and debt repayments.
Cash Flows Used in Investing Activities
The most significant items affecting the comparison of our cash flows used in
investing activities for 2021 and 2020 are summarized below:
•Capital expenditures during 2021 were $1,316.3 million as compared to
$1,194.6 million for 2020.
•Proceeds from sales of property and equipment during 2021 were $19.5 million as
compared to $30.1 million for 2020.
•During 2021 and 2020, we used $1,221.7 million and $769.5 million,
respectively, for acquisitions and investments, net of cash acquired. During
2021 and 2020, we received $46.3 million and $32.9 million from business
divestitures, respectively.
We intend to finance capital expenditures and acquisitions through cash on hand,
restricted cash held for capital expenditures, cash flows from operations, our
revolving credit facilities, and tax-exempt bonds and other financings.
On February 8, 2022, we entered into a definitive agreement to acquire all
outstanding shares of US Ecology, Inc. (US Ecology) in a transaction valued at
approximately $2.2 billion, including debt. US Ecology is a leading provider of
environmental solutions offering treatment, recycling and disposal of hazardous,
non-hazardous and specialty waste. We intend to finance the transaction using
existing and new sources of debt.
Cash Flows Used in Financing Activities
The most significant items affecting the comparison of our cash flows used in
financing activities for 2021 and 2020 are summarized below:
•During 2021, we issued $700.0 million of senior notes for cash proceeds, net of
discounts and fees, of $692.3 million. During 2020, we issued $2,750.0 million
of senior notes for cash proceeds, net of discounts and fees, of
$2,716.1 million. Net payments of notes payable and long-term debt were $150.2
million during 2021, compared to net payments of $2,595.9 in 2020. For a more
detailed discussion, see the Financial Condition section of this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
•During 2020, we paid $99.1 million in cash premiums on the redemption of senior
notes.
•During 2021, we repurchased 2.2 million shares of our stock for $252.2 million.
During 2020, we repurchased 1.2 million shares of our stock for $98.8 million.
•In July 2021, our Board of Directors approved an increase in our quarterly
dividend to $0.46 per share. Dividends paid were $552.6 million and
$522.5 million in 2021 and 2020, respectively.
•During 2021, we paid $32.0 million related to the purchase of the remaining
equity interest in a previously held non-controlling interest.
•During 2021 and 2020, cash paid for purchase price holdback releases and
contingent purchase price related to acquisitions was $21.3 million and $15.5
million, respectively.
Financial Condition
Debt Obligations
As of December 31, 2021, we had $8.2 million of principal debt maturing within
the next 12 months, which includes certain finance lease obligations. All of our
tax-exempt financings are remarketed either quarterly or semiannually by
remarketing agents to effectively maintain a variable yield. The holders of the
bonds can put them back to the remarketing agents at the end of each interest
period. If the remarketing agent is unable to remarket our bonds, the
remarketing agent can put the bonds to us.
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In the event of a failed remarketing, we currently have availability under our
$3.0 billion unsecured revolving credit facility to fund these bonds until they
are remarketed successfully. Accordingly, we have classified these borrowings as
long-term in our consolidated balance sheet as of December 31, 2021.
An extended period of economic disruption associated with the COVID-19 pandemic
could further disrupt the global supply chain, negatively impact demand for our
services, and disrupt financial markets. These effects could materially and
adversely affect our business and financial condition, including our access to
sources of liquidity. We will continue to monitor the evolving COVID-19 pandemic
along with the effect on our business and access to capital markets. Refer to
Part I, Item 1A - Risk Factors of this Annual Report on Form 10-K for a
discussion of certain risk factors related to this pandemic.
For further discussion of the components of our overall debt, see Note 9, Debt,
of the notes to our consolidated financial statements in Part II, Item 8 of this
Annual Report on Form 10-K.
Credit Facilities
The Credit Facility
In August 2021, we entered into a $3.0 billion unsecured revolving credit
facility (the Credit Facility), which replaces the prior $2.25 billion unsecured
revolving credit facility which would have matured in June 2023 (the Replaced
Credit Facility). Borrowings under the Credit Facility mature in August 2026. As
permitted by the Credit Facility, we have the right to request two one-year
extensions of the maturity date but none of the lenders are committed to
participate in such extension. The Credit Facility also includes a feature that
allows us to increase availability, at our option, by an aggregate amount of up
to $1.0 billion through increased commitments from existing lenders or the
addition of new lenders.
At our option, borrowings under the Credit Facility bear interest at a Base
Rate, a daily floating London Interbank Offered Rate (LIBOR), or a Eurodollar
Rate, plus an applicable margin of 0.910% based on our Debt Ratings (all as
defined in the Credit Facility agreement). On the earliest of (i) the date that
all available tenors of U.S. dollar LIBOR have permanently or indefinitely
ceased to be provided or have been announced to be no longer representative,
(ii) June 30, 2023 or (iii) the effective date of an election to opt into a
secured overnight financing rate (SOFR), the LIBOR rate will be replaced by a
forward-looking term rate based on SOFR or a daily rate based on SOFR published
on such date.
The Credit Facility is subject to facility fees based on applicable rates
defined in the Credit Facility agreement and the aggregate commitment,
regardless of usage. Availability under our Credit Facility and Replaced Credit
Facility totaled $2,633.8 million and $1,671.8 million as of December 31, 2021
and 2020, respectively. The Credit Facility can be used for working capital,
capital expenditures, acquisitions, letters of credit and other general
corporate purposes. The Credit Facility agreement requires us to comply with
financial and other covenants. We may pay dividends and repurchase common stock
if we are in compliance with these covenants.
As of December 31, 2021 and 2020, we had $24.3 million and $186.0 million of
borrowings outstanding under our Credit Facility and Replaced Credit Facility,
respectively. We had $341.9 million and $376.5 million of letters of credit
outstanding under our Credit Facility and Replaced Credit Facility as of
December 31, 2021 and 2020, respectively.
Uncommitted Credit Facility
In January 2022, we entered into a $200.0 million unsecured uncommitted
revolving credit facility (the Uncommitted Credit Facility), which replaces the
prior $135.0 million uncommitted credit facility (the Replaced Uncommitted
Credit Facility). The Uncommitted Credit Facility bears interest at an annual
percentage rate to be agreed upon by both parties, rather than a LIBOR or Cost
of Funds rate used in the Replaced Uncommitted Credit Facility (as defined in
the Replaced Uncommitted Credit Facility agreement). Borrowings under the
Uncommitted Credit Facility can be used for working capital, letters of credit,
and other general corporate purposes. The agreement governing our Uncommitted
Credit Facility requires us to comply with certain covenants. The Uncommitted
Credit Facility may be terminated by either party at any time. As of December
31, 2021 and 2020, we had no borrowings outstanding under our Replaced
Uncommitted Credit Facility.
Financial and Other Covenants
The Credit Facility requires us to comply with financial and other covenants. To
the extent we are not in compliance with these covenants, we cannot pay
dividends or repurchase common stock. Compliance with covenants also is a
condition for any incremental borrowings under the Credit Facility, and failure
to meet these covenants would enable the lenders to require repayment of any
outstanding loans (which would adversely affect our liquidity). The Credit
Facility provides that our total debt to EBITDA ratio may not exceed 3.75 to
1.00 as of the last day of any fiscal quarter. In the case of an "elevated ratio
period", which may be elected by us if one or more acquisitions during a fiscal
quarter involve aggregate consideration in excess of $200.0 million (the Trigger
Quarter), the total debt to EBITDA ratio may not exceed 4.25 to 1.00 during the
Trigger Quarter and for the three fiscal quarters thereafter. The Credit
Facility also provides that there may not be more than two elevated ratio
periods during the respective term of the Credit Facility agreement. As of
December 31, 2021, our total debt to
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EBITDA ratio was 2.89 compared to the 3.75 maximum allowed by the covenants. As
of December 31, 2021, we were in compliance with the covenants under the Credit
Facility, and we expect to be in compliance throughout 2022.
EBITDA, which is a non-GAAP measure, is calculated as defined in our Credit
Facility agreement. In this context, EBITDA is used solely to provide
information regarding the extent to which we are in compliance with debt
covenants and is not comparable to EBITDA used by other companies or used by us
for other purposes.
Failure to comply with the financial and other covenants under the Credit
Facility, as well as the occurrence of certain material adverse events, would
constitute defaults and would allow the lenders under the Credit Facility to
accelerate the maturity of all indebtedness under the Credit Facility agreement.
This could have an adverse effect on the availability of financial assurances.
In addition, maturity acceleration on the Credit Facility constitutes an event
of default under our other debt instruments, including our senior notes, and,
therefore, our senior notes would also be subject to acceleration of maturity.
If such acceleration were to occur, we would not have sufficient liquidity
available to repay the indebtedness. We would likely have to seek an amendment
under the Credit Facility agreement for relief from the financial covenant or
repay the debt with proceeds from the issuance of new debt or equity, or asset
sales, if necessary. We may be unable to amend the Credit Facility agreement or
raise sufficient capital to repay such obligations in the event the maturity is
accelerated.
Senior Notes and Debentures
In November 2021, we issued $700.0 million of 2.375% senior notes due 2033 (the
2.375% Notes). We used the net proceeds for general corporate purposes,
including repayment of amounts outstanding under our unsecured and uncommitted
credit facilities. Prior to such use, Republic may have temporarily invested the
net proceeds in marketable securities and short-term investments.
During the second quarter of 2021, we paid the entire $35.3 million principal
balance of our 9.250% debentures which matured in May 2021.
Our senior notes are general senior unsecured obligations. Interest is payable
semi-annually.
Derivative Instruments and Hedging Relationships
Our ability to obtain financing through the capital markets is a key component
of our financial strategy. Historically, we have managed risk associated with
executing this strategy, particularly as it relates to fluctuations in interest
rates, by using a combination of fixed and floating rate debt. From time to
time, we also have entered into interest rate swap and lock agreements to manage
risk associated with interest rates, either to effectively convert specific
fixed rate debt to a floating rate (fair value hedges), or to lock interest
rates in anticipation of future debt issuances (cash flow hedges).
For a description of our derivative contracts and hedge accounting, see Note 9,
Debt, to our audited consolidated financial statements included in Part II,
Item 8 of this Annual Report on Form 10-K.
Tax-Exempt Financings
As of December 31, 2021, we had $1,181.5 million of certain variable rate
tax-exempt financings outstanding with maturities ranging from 2023 to 2051. As
of December 31, 2020, we had $1,104.7 million of certain variable rate
tax-exempt financings outstanding with maturities ranging from 2021 to 2050.
During the year ended December 31, 2021 and 2020, we issued $205.0 million and
$60.0 million, respectively, of new tax-exempt financings.
In the fourth quarter of 2021, the Pennsylvania Economic Development Financing
Authority issued, for our benefit, $30.0 million of Solid Waste Disposal Revenue
Bonds. The proceeds from the issuance, after deferred issuance costs, will be
used to fund qualifying landfill-related expenditures in the Commonwealth of
Pennsylvania, of which $17.2 million has been incurred and reimbursed to us. As
of December 31, 2021, we had $139.0 million of restricted cash and marketable
securities, of which $12.4 million represented proceeds from the issuance of the
tax-exempt bonds.
Finance Leases
We had finance lease liabilities of $249.4 million and $206.5 million as of
December 31, 2021 and 2020, respectively, with maturities ranging from 2022 to
2063 and 2021 to 2063, respectively.
Financial Assurance
We must provide financial assurance to governmental agencies and a variety of
other entities under applicable environmental regulations relating to our
landfill operations for capping, closure and post-closure costs, and related to
our performance under certain collection, landfill and transfer station
contracts. We satisfy these financial assurance requirements by providing surety
bonds, letters of credit, or insurance policies (Financial Assurance
Instruments), or trust deposits, which are included in restricted cash and
marketable securities and other assets in our consolidated balance sheets. The
amount of the financial assurance requirements for capping, closure and
post-closure costs is determined by applicable state environmental regulations.
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The financial assurance requirements for capping, closure and post-closure costs
may be associated with a portion of the landfill or the entire landfill.
Generally, states require a third-party engineering specialist to determine the
estimated capping, closure and post-closure costs that are used to determine the
required amount of financial assurance for a landfill. The amount of financial
assurance required can, and generally will, differ from the obligation
determined and recorded under U.S. GAAP. The amount of the financial assurance
requirements related to contract performance varies by contract. Additionally,
we must provide financial assurance for our insurance program and collateral for
certain performance obligations. We do not expect a material increase in
financial assurance requirements during 2022, although the mix of Financial
Assurance Instruments may change.
These Financial Assurance Instruments are issued in the normal course of
business and are not classified as indebtedness. Because we currently have no
liability for the Financial Assurance Instruments, they are not reflected in our
consolidated balance sheets; however, we record capping, closure and
post-closure liabilities and insurance liabilities as they are incurred.
Critical Accounting Judgments and Estimates
Our consolidated financial statements have been prepared in accordance with
U.S. GAAP and necessarily include certain estimates and judgments made by
management. The following is a list of accounting policies that we believe are
the most critical in understanding our consolidated financial position, results
of operations and cash flows and that may require management to make subjective
or complex judgments about matters that are inherently uncertain. Our critical
accounting estimates are those estimates that involve a significant level of
uncertainty at the time the estimate was made, and changes in them have had or
are reasonably likely to have a material effect on our financial condition or
results of operations. Accordingly, actual results could differ materially from
our estimates. We base our estimates on past experience and other assumptions
that we believe are reasonable under the circumstances, and we evaluate these
estimates on an ongoing basis. Such critical accounting policies, estimates and
judgments are applicable to all of our operating segments.
We have noted examples of the estimates that are subject to uncertainty in the
accounting for these areas below.
Landfill Accounting
Landfill operating costs are treated as period expenses and are not discussed
further in this section.
Our landfill assets and liabilities fall into the following two categories, each
of which requires accounting judgments and estimates:
•Landfill development costs that are capitalized as an asset.
•Landfill retirement obligations relating to our capping, closure and
post-closure liabilities that result in a corresponding landfill retirement
asset.
We use life-cycle accounting and the units-of-consumption method to recognize
landfill development costs over the life of the site. In life-cycle accounting,
all current and future capitalized costs to acquire and construct a site are
calculated, and charged to expense based on the consumption of cubic yards of
available airspace. Obligations associated with final capping, closure and
post-closure are also capitalized, and amortized on a units-of-consumption basis
as airspace is consumed. Cost and airspace estimates are developed at least
annually by engineers.
Landfill Development Costs
As of December 31, 2021 and 2020, we had net landfill development costs of
$3,914.0 million and $3,742.2 million, respectively. Changes in these estimates
may be sensitive to changes in cost estimates, inflation and applicable
regulations.
Site permits. To develop, construct and operate a landfill, we must obtain
permits from various regulatory agencies at the local, state and federal levels.
The permitting process requires an initial site study to determine whether the
location is feasible for landfill operations. The initial studies are reviewed
by our environmental management group and then submitted to the regulatory
agencies for approval. During the development stage we capitalize certain costs
that we incur after site selection but before the receipt of all required
permits if we believe that it is probable that the site will be permitted.
These estimates are subject to uncertainty attributable to:
•Changes in legislative or regulatory requirements may cause changes to the
landfill site permitting process. These changes could make it more difficult and
costly to obtain and maintain a landfill permit.
•Studies performed could be inaccurate, which could result in the denial or
revocation of a permit and changes to accounting assumptions. Conditions could
exist that were not identified in the study, which may make the location not
feasible for a landfill and could result in the denial of a permit. Denial or
revocation of a permit could impair the recorded value of the landfill asset.
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•Actions by neighboring parties, private citizen groups or others to oppose our
efforts to obtain, maintain or expand permits could result in denial, revocation
or suspension of a permit, which could adversely impact the economic viability
of the landfill and could impair the recorded value of the landfill. As a result
of opposition to our obtaining a permit, improved technical information as a
project progresses, or changes in the anticipated economics associated with a
project, we may decide to reduce the scope of, or abandon, a project, which
could result in an asset impairment.
Technical landfill design. Upon receipt of initial regulatory approval,
technical landfill designs are prepared. The technical designs, which include
the detailed specifications to develop and construct all components of the
landfill including the types and quantities of materials that will be required,
are reviewed by our environmental management group. The technical designs are
submitted to the regulatory agencies for approval. Upon approval of the
technical designs, the regulatory agencies issue permits to develop and operate
the landfill.
These estimates are subject to uncertainty attributable to:
•Changes in legislative or regulatory requirements may require changes in the
landfill technical designs. These changes could make it more difficult and
costly to meet new design standards.
•Technical design requirements, as approved, may need modifications at some
future point in time.
•Technical designs could be inaccurate and could result in increased
construction costs, difficulty in obtaining a permit or the use of rates to
recognize the amortization of landfill development costs and asset retirement
obligations that are not appropriate.
Permitted and probable landfill disposal capacity. Included in the technical
designs are factors that determine the ultimate disposal capacity of the
landfill. These factors include the area over which the landfill will be
developed, such as the depth of excavation, the height of the landfill elevation
and the angle of the side-slope construction. The disposal capacity of the
landfill is calculated in cubic yards. This measurement of volume is then
converted to a disposal capacity expressed in tons based on a site-specific
expected density to be achieved over the remaining operating life of the
landfill.
These estimates are subject to uncertainty attributable to:
•Estimates of future disposal capacity may change as a result of changes in
legislative or regulatory design requirements.
•The density of waste may vary due to variations in operating conditions,
including waste compaction practices, site design, climate and the nature of the
waste.
•Capacity is defined in cubic yards but waste received is measured in tons. The
number of tons per cubic yard varies by type of waste and our rate of
compaction.
Development costs. The types of costs that are detailed in the technical design
specifications generally include excavation, natural and synthetic liners,
construction of leachate collection systems, installation of methane gas
collection systems and monitoring probes, installation of groundwater monitoring
wells, construction of leachate management facilities and other costs associated
with the development of the site. We review the adequacy of our cost estimates
on an annual basis by comparing estimated costs with third-party bids or
contractual arrangements, reviewing the changes in year-over-year cost estimates
for reasonableness, and comparing our resulting development cost per acre with
prior period costs. These development costs, together with any costs incurred to
acquire, design and permit the landfill, including capitalized interest, are
recorded to the landfill asset on the balance sheet as incurred.
These estimates are subject to uncertainty attributable to:
•Actual future costs of construction materials and third-party labor could
differ from the costs we have estimated because of the level of demand and the
availability of the required materials and labor. Technical designs could be
altered due to unexpected operating conditions, regulatory changes or
legislative changes.
Landfill development asset amortization. To match the expense related to the
landfill asset with the revenue generated by the landfill operations, we
amortize the landfill development asset over its operating life on a per-ton
basis as waste is accepted at the landfill. The landfill asset is fully
amortized at the end of a landfill's operating life. The per-ton rate is
calculated by dividing the sum of the landfill development asset net book value
plus estimated future development costs (as described above) for the landfill,
by the landfill's estimated remaining disposal capacity. The expected future
development costs are not inflated or discounted, but rather expressed in
nominal dollars. This rate is applied to each ton accepted at the landfill to
arrive at amortization expense for the period.
Amortization rates may be sensitive to the original cost basis of the landfill,
including acquisition costs, which in turn is determined by geographic location
and market values. We secure significant landfill assets through business
acquisitions and
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value them at the time of acquisition based on fair value. Amortization rates
are also influenced by site-specific engineering and cost factors.
These estimates are subject to uncertainty attributable to:
•Changes in our future development cost estimates or our disposal capacity will
normally result in a change in our amortization rates and will impact
amortization expense prospectively. An unexpected significant increase in
estimated costs or reduction in disposal capacity could affect the ongoing
economic viability of the landfill and result in asset impairment.
On at least an annual basis, we update the estimates of future development costs
and remaining disposal capacity for each landfill. These costs and disposal
capacity estimates are reviewed and approved by senior operations management
annually. Changes in cost estimates and disposal capacity are reflected
prospectively in the landfill amortization rates that are updated annually. See
our Results of Operations section in this Management's Discussion and Analysis
of Financial Condition and Results of Operations for discussion on changes to
our landfill depletion and amortization.
Landfill Asset Retirement Obligations
We have two types of retirement obligations related to landfills: (1) capping
and (2) closure and post-closure. As of December 31, 2021 and 2020, our asset
retirement obligations related to capping, closure and post-closure were
$1,507.3 million and $1,346.4 million, respectively. Changes in these estimates
may be sensitive to changes in available airspace, cost estimates, inflation,
our credit-adjusted, risk-free interest rate and applicable regulations.
Obligations associated with final capping activities that occur during the
operating life of the landfill are recognized on a units-of-consumption basis as
airspace is consumed within each discrete capping event. Obligations related to
closure and post-closure activities that occur after the landfill has ceased
operations are recognized on a units-of-consumption basis as airspace is
consumed throughout the entire life of the landfill. Landfill retirement
obligations are capitalized as the related liabilities are recognized and
amortized using the units-of-consumption method over the airspace consumed
within the capping event or the airspace consumed within the entire landfill,
depending on the nature of the obligation. All obligations are initially
measured at estimated fair value. Fair value is calculated on a present value
basis using an inflation rate and our credit-adjusted, risk-free rate in effect
at the time the liabilities were incurred. Future costs for final capping,
closure and post-closure are developed at least annually by engineers, and are
inflated to future value using estimated future payment dates and inflation rate
projections.
Landfill capping. As individual areas within each landfill reach capacity, we
must cap and close the areas in accordance with the landfill site permit. These
requirements are detailed in each landfill's technical design, which is reviewed
and approved by the regulatory agency issuing the landfill site permit.
Closure and post-closure. Closure costs are costs incurred after a landfill
stops receiving waste, but prior to being certified as closed. After the entire
landfill has reached capacity and is certified closed, we must continue to
maintain and monitor the site for a post-closure period, which generally extends
for 30 years. Costs associated with closure and post-closure requirements
generally include maintenance of the site, the monitoring of methane gas
collection systems and groundwater systems, and other activities that occur
after the site has ceased accepting waste. Costs associated with post-closure
monitoring generally include groundwater sampling, analysis and statistical
reports, third-party labor associated with gas system operations and
maintenance, transportation and disposal of leachate, and erosion control costs
related to the final cap.
Landfill retirement obligation liabilities and assets. Estimates of the total
future costs required to cap, close and monitor each landfill as specified by
the landfill permit are updated annually. The estimates include inflation, the
specific timing of future cash outflows, and the anticipated waste flow into the
capping events. Our cost estimates are inflated to the period of performance
using an estimate of inflation, which is updated annually and is based upon the
ten year average consumer price index (1.7% in both 2021 and 2020).
The present value of the remaining capping costs for specific capping events and
the remaining closure and post-closure costs for each landfill are recorded as
incurred on a per-ton basis. These liabilities are incurred as disposal capacity
is consumed at the landfill.
Capping, closure and post-closure liabilities are recorded in layers and
discounted using our credit-adjusted risk-free rate in effect at the time the
obligation is incurred (3.4% in both 2021 and 2020).
Retirement obligations are increased each year to reflect the passage of time by
accreting the balance at the weighted average credit-adjusted risk-free rate
that was used to calculate each layer of the recorded liabilities. This
accretion is charged to operating expenses. Actual cash expenditures reduce the
asset retirement obligation liabilities as they are made.
Corresponding retirement obligation assets are recorded for the same value as
the additions to the capping, closure and post-closure liabilities. The
retirement obligation assets are amortized to expense on a per-ton basis as
disposal capacity is consumed. The per-ton rate is calculated by dividing the
sum of each of the recorded retirement obligation asset's net book
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value and expected future additions to the retirement obligation asset by the
remaining disposal capacity. A per-ton rate is determined for each separate
capping event based on the disposal capacity relating to that event. Closure and
post-closure per-ton rates are based on the total disposal capacity of the
landfill.
These estimates are subject to uncertainty attributable to:
•Changes in legislative or regulatory requirements, including changes in
capping, closure activities or post-closure monitoring activities, types and
quantities of materials used, or term of post-closure care, could cause changes
in our cost estimates.
•Changes in the landfill retirement obligation due to changes in the anticipated
waste flow, changes in airspace compaction estimates or changes in the timing of
expenditures for closed landfills and fully incurred but unpaid capping events
are recorded in results of operations prospectively. This could result in
unanticipated increases or decreases in expense.
•Actual timing of disposal capacity utilization could differ from projected
timing, causing differences in timing of when amortization and accretion expense
is recognized for capping, closure and post-closure liabilities.
•Changes in inflation rates could impact our actual future costs and our total
liabilities.
•Changes in our capital structure or market conditions could result in changes
to the credit-adjusted risk-free rate used to discount the liabilities, which
could cause changes in future recorded liabilities, assets and expense.
•Amortization rates could change in the future based on the evaluation of new
facts and circumstances relating to landfill capping design, post-closure
monitoring requirements, or the inflation or discount rate.
On an annual basis, we update our estimates of future capping, closure and
post-closure costs and of future disposal capacity for each landfill. Revisions
in estimates of our costs or timing of expenditures are recognized immediately
as increases or decreases to the capping, closure and post-closure liabilities
and the corresponding retirement obligation assets. Changes in the assets result
in changes to the amortization rates which are applied prospectively, except for
fully incurred capping events and closed landfills, where the changes are
recorded immediately in results of operations since the associated disposal
capacity has already been consumed. See our Results of Operations section in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations for discussion on changes to our landfill depletion and amortization.
Permitted and probable disposal capacity. Disposal capacity is determined by the
specifications detailed in the landfill permit. We classify this disposal
capacity as permitted. We also include probable expansion disposal capacity in
our remaining disposal capacity estimates, thus including additional disposal
capacity being sought through means of a permit expansion. Probable expansion
disposal capacity has not yet received final approval from the applicable
regulatory agencies, but we have determined that certain critical criteria have
been met and that the successful completion of the expansion is probable. We
have developed six criteria that must be met before an expansion area is
designated as probable expansion airspace. We believe that satisfying all of
these criteria demonstrates a high likelihood that expansion airspace that is
incorporated in our landfill costing will be permitted. However, because some of
these criteria are judgmental, they may exclude expansion airspace that will
eventually be permitted or include expansion airspace that will not be
permitted. In either of these scenarios, our amortization, depletion and
accretion expense could change significantly. Our internal criteria to classify
disposal capacity as probable expansion airspace are as follows:
•We own the land associated with the expansion airspace or control it pursuant
to an option agreement;
•We are committed to supporting the expansion project financially and with
appropriate resources;
•There are no identified fatal flaws or impediments associated with the project,
including political impediments;
•Progress is being made on the project;
•The expansion is attainable within a reasonable time frame; and
•We believe it is likely we will receive the expansion permit.
After successfully meeting these criteria, the disposal capacity that will
result from the planned expansion is included in our remaining disposal capacity
estimates. Additionally, for purposes of calculating landfill amortization and
capping, closure and post-closure rates, we include the incremental costs to
develop, construct, close and monitor the related probable expansion disposal
capacity.
These estimates are subject to uncertainty attributable to:
•We may be unsuccessful in obtaining permits for probable expansion disposal
capacity because of the failure to obtain the final local, state or federal
permits or due to other unknown reasons. If we are unsuccessful in obtaining
permits for
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probable expansion disposal capacity, or the disposal capacity for which we
obtain approvals is less than what was estimated, both our estimated total costs
and disposal capacity will be reduced, which generally increases the rates we
charge for landfill amortization and capping, closure and post-closure accruals.
An unexpected decrease in disposal capacity could also cause an asset
impairment.
Environmental Liabilities
We are subject to an array of laws and regulations relating to the protection of
the environment, and we remediate sites in the ordinary course of our business.
Under current laws and regulations, we may be responsible for environmental
remediation at sites that we either own or operate, including sites that we have
acquired, or sites where we have (or a company that we have acquired has)
delivered waste. Our environmental remediation liabilities primarily include
costs associated with remediating groundwater, surface water and soil
contamination, as well as controlling and containing methane gas migration and
the related legal costs. To estimate our ultimate liability at these sites, we
evaluate several factors, including the nature and extent of contamination at
each identified site, the required remediation methods, timing of expenditures,
the apportionment of responsibility among the potentially responsible parties
and the financial viability of those parties. We accrue for costs associated
with environmental remediation obligations when such costs are probable and
reasonably estimable in accordance with accounting for loss contingencies. We
periodically review the status of all environmental matters and update our
estimates of the likelihood of and future expenditures for remediation as
necessary. Changes in the liabilities resulting from these reviews are
recognized currently in earnings in the period in which the adjustment is known.
Adjustments to estimates are reasonably possible in the near term and may result
in changes to recorded amounts. With the exception of those obligations assumed
in certain business combinations, environmental obligations are recorded on an
undiscounted basis. Environmental obligations assumed in certain business
combinations are initially estimated on a discounted basis, and accreted to full
value over time through charges to interest expense. Adjustments arising from
changes in amounts and timing of estimated costs and settlements may result in
increases or decreases in these obligations and are calculated on a discounted
basis as they were initially estimated on a discounted basis. These adjustments
are charged to operating income when they are known. We perform a comprehensive
review of our environmental obligations annually and also review changes in
facts and circumstances associated with these obligations at least quarterly.
See our Results of Operations section in this Management's Discussion and
Analysis of Financial Condition and Results of Operations for discussion on our
remediation adjustments. We have not reduced the liabilities we have recorded
for recoveries from other potentially responsible parties or insurance
companies. As of December 31, 2021 and 2020, we had $454.9 million and $462.8
million of environmental liabilities. Changes in these estimates may be
sensitive to changes in cost estimates, timing of estimated costs and
settlements, inflation, our credit-adjusted, risk-free interest rate and
applicable regulations.
These estimates are subject to uncertainty attributable to:
•We cannot determine with precision the ultimate amounts of our environmental
remediation liabilities. Our estimates of these liabilities require assumptions
about uncertain future events. Thus, our estimates could change substantially as
additional information becomes available regarding the nature or extent of
contamination, the required remediation methods, timing of expenditures, the
final apportionment of responsibility among the potentially responsible parties
identified, the financial viability of those parties, and the actions of
governmental agencies or private parties with interests in the matter. The
actual environmental costs may exceed our current and future accruals for these
costs, and any adjustments could be material.
•Actual amounts could differ from the estimated liabilities as a result of
changes in estimated future litigation costs to pursue the matter to ultimate
resolution.
•An unanticipated environmental liability that arises could result in a material
charge to our consolidated statements of income.
Insurance Reserves and Related Costs
Our insurance policies for workers' compensation, commercial general liability,
commercial auto liability and environmental liability are high deductible, or
retention programs. The deductibles, or retentions, range from $3 million to
$10 million. The employee-related health benefits are also subject to a
high-deductible insurance policy. Accruals for deductibles or retentions are
based on claims filed and actuarial estimates of claims development and claims
incurred but not reported. As of December 31, 2021 and 2020, our insurance
reserves were $497.4 million and $449.3 million, respectively. Changes in these
estimates may be sensitive to changes in the frequency, severity and settlement
amount of claims.
These estimates are subject to uncertainty attributable to:
•Incident rates, including frequency and severity, and other actuarial
assumptions could change causing our current and future actuarially determined
obligations to change, which would be reflected in our consolidated statements
of income in the period in which such adjustment is known.
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•Recorded reserves may not be adequate to cover the future payment of claims.
Adjustments, if any, to estimates recorded resulting from ultimate claim
payments would be reflected in the consolidated statements of income in the
periods in which such adjustments are known.
•The settlement costs to discharge our obligations, including legal and health
care costs, could increase or decrease causing current estimates of our
insurance reserves to change.
New Accounting Standards
For a description of new accounting standards that may affect us, see Note 2,
Summary of Significant Accounting Policies, of the notes to our consolidated
financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

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