10-K 1 rsg-2014x1231x10xk.htm 10-K RSG-2014-12.31-10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number: 1-14267
REPUBLIC SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
65-0716904
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification No.)
18500 North Allied Way
Phoenix, Arizona
85054
(Zip Code)
(Address of Principal Executive Offices)
 
Registrant’s telephone number, including area code: (480) 627-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on which Registered
Common Stock, par value $.01 per share
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  þ    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  þ
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
(Do not check if a smaller reporting company)              
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
As of June 30, 2014, the aggregate market value of the shares of the Common Stock held by non-affiliates of the registrant was $13.5 billion.
As of February 10, 2015, the registrant had outstanding 353,059,223 shares of Common Stock (excluding treasury shares of 61,774,399).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement relative to the 2015 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.



TABLE OF CONTENTS
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
 




Unless the context requires otherwise, all references in this Form 10-K to “Republic,” “the Company,” “we,” “us” and “our” refer to Republic Services, Inc. and its consolidated subsidiaries.
PART I
ITEM 1.
BUSINESS
Overview
We are the second largest provider of services in the domestic non-hazardous solid waste services industry, as measured by revenue. As of December 31, 2014, we operate in 39 states and Puerto Rico. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 340 collection operations. We own or operate 198 transfer stations, 189 active solid waste landfills and 60 recycling centers. We also operate 72 landfill gas and renewable energy projects. We were incorporated as a Delaware corporation in 1996.
Based on an industry trade publication, the United States non-hazardous solid waste services industry generates annual revenue of approximately $55 billion, of which approximately 45% is recognized by publicly owned waste companies. Industry data also indicates that the non-hazardous solid waste services industry in the United States remains fragmented as privately held companies and municipal and other local governmental authorities generate approximately 35% and 20%, respectively, of total industry revenue. We believe growth in the solid waste industry historically has been linked primarily to growth in the overall economy, including the level of new household and business formation and changes in residential and commercial construction activity.
Our operations are national in scope, but the physical collection and disposal of waste is very much a local business and the dynamics and opportunities differ in each of our markets. By combining local operating management with standardized business practices, we drive greater overall operating efficiency across the company while maintaining day-to-day operating decisions at the local level, closest to the customer.
We manage and evaluate our operations through three geographic operating regions that are also our reportable segments: East, Central and West. Each region is organized into several areas and each area contains multiple business units or operating locations. Each of our regions and all of our operating areas provide collection, transfer, recycling and landfill services. We believe this structure facilitates integrating our operations within each region, which is a critical component of our operating strategy. It also allows us to maximize the growth opportunities in each of our markets and to operate the business efficiently, while minimizing administrative overhead costs and maintaining effective controls and standards over operational and administrative matters, including financial reporting. See Note 14, Segment Reporting, to our consolidated financial statements in Item 8 of this Form 10-K for further discussion of our operating segments.
Our Core Priorities
Commitment to Safety
Republic is dedicated to the safety of our employees, customers and the communities we serve. Due to the nature of our industry, we prioritize safety above all else and we recognize and reward employees for outstanding safety records. Over the past 7 years our safety performance (based on OSHA recordable rates) has been 42% better than the industry average. Our Think, Choose, Live slogan encapsulates our everyday safety messaging to our employees to: Think about what you are doing, Choose the safe answer, and Live to go home to your family. With the phrase printed on numerous items, including hard hats and equipment our employees touch, there are constant reminders for employees to go home in the same condition that they came to work. Our goal is to ensure every one of our employees returns home safely each night.
We are proud of our two safety incentive programs: Dedicated to Safety and Dedicated to Excellence. For Dedicated to Safety, employees must meet all safety requirements for the year, including no preventable accidents and no safety warnings. For Dedicated to Excellence, employees must earn the Dedicated to Safety Award and meet additional criteria for customer service, attendance and other performance metrics. During 2014, approximately 12,000 of our employees earned the Dedicated to Safety Award and almost 6,000 earned the Dedicated to Excellence recognition. Further, our industry-leading safety training program, Focus 6, provides employees with tips and techniques to prevent the six most common types of serious accidents: backing, intersections, push-pull-lift, rear collisions, rollover, and pedestrian.
We take pride in recognizing employees who demonstrate a relentless commitment to safety. Employees with the best driving records are eligible for the industry’s most prestigious award, National Waste & Recycling Association’s Driver of the Year. Since 2009, Republic drivers have won Driver of the Year for the large truck category 10 out of 12 times. In 2014, Republic swept the category with all three winners: Large Residential, Large Industrial and Large Commercial.

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Commitment to Compliance
We also are dedicated to compliance. Compliance with laws and our policies and procedures is essential to our efforts to gain and keep the confidence and support of customers, regulatory and other governmental agencies, suppliers and the public. Most important, compliance is simply the right thing to do and is a critical part of the way we do business. Thus, we require all of our employees and independent contractors to comply with all applicable laws and rules, our Compliance Program and our Code of Business Ethics and Conduct. We also require them to report any violation or illegal activity to us so that we may deal with it appropriately.
Environmental and Social
Republic has made, and continues to make, significant investments in high-impact areas of our business to provide meaningful improvements in environmental and social conditions, and we publicly report on our efforts in these areas.
Environmental. In 2014, we participated in the Carbon Disclosure Project (CDP) S&P 500 Climate Change Report. The report represents the progress companies achieve in reducing emissions, responding to climate-related risks and opportunities, and mobilizing influence to manage climate change. For our first year, which creates a baseline for future submissions, we earned a disclosure score of 93 out of 100, which reflects our strong commitment to transparency, thoroughness and responsibility, and a C band in performance, which we see as a strong starting point for a first-year responder. We also recently released a Sustainability Report, which modeled the CDP protocol. Our Sustainability Report, which is available on our website at www.republicservices.com, reflects our work in Republic’s five pillars of sustainability: Operations, Materials Management, Communities, Safety and People.
With approximately 16,000 trucks on the road, Republic operates the 8th largest vocational fleet in the country. Approximately 2,200 of our vehicles are powered by compressed natural gas (CNG) at our 36 natural gas fueling stations nationwide. Roughly 35% of the vehicles we bought in 2014 are powered by this domestic fuel source. We believe using CNG vehicles provides us a competitive advantage while reducing the amount of fuel required for our operations, improving air emissions, and significantly reducing vehicle noise profiles. Our CNG fleet has carbon emission reduction benefits equal to removing nearly 13,000 taxis from the roads.
Republic has 60 recycling centers across the nation. We collected nearly 5 million tons of recyclable materials in 2014, enabling discarded items to be regenerated into newspaper, cardboard, glass and plastic bottles, tissue, paper towels, and metal cans. Recycling this quantity of material saves 15 million tons of carbon dioxide equivalent (CO2e), which is nearly as much as our entire carbon footprint.
Republic is equally committed to harnessing landfill gas, the natural byproduct of decomposing waste, and converting it into energy. We operate 72 landfill gas and renewable energy projects across the country. Annually, these projects generate enough electricity to power approximately 400,000 households, meeting the needs of a community the size of Austin, Texas. In addition, the carbon emission reductions benefit from our current landfill gas and renewable energy projects is equal to removing more than 4 million cars from the roads.
Social. We believe there is no better way to protect our planet than to recruit and hire the heroes who have protected our country. We actively recruit and hire veterans - those transitioning from military life as well as those long discharged from active duty. We value the skills, experience and operational excellence they bring to our organization, as well as their commitment to a better tomorrow. Historically, we have had great success hiring veterans. In 2012, for example, 33% of general managers, 20% of operations managers, and 38% of maintenance managers that we hired self-identified as having served in the U.S. Coast Guard, Army, Navy, Marines or Air Force.
Customer Experience
We strive to provide the highest level of customer service. This means placing the focus squarely on our customers by listening and responding as well as anticipating their wants and needs. We then determine how to best meet our customers' expectations by delivering and implementing superior, customized solutions. We frequently visit customers to ensure customer service and satisfaction, and confirm their expectations are being met. We also have municipal marketing representatives who are responsible for working with municipalities or communities to which we provide residential service.
The expanded use of technology is one of the ways in which we intend to continue to meet our customers’ expectations. We desire to make it easy and seamless for our customers to do business with us. For example, our technology allows more customers to access information and perform functions, such as changing or making service requests and interacting with customer service representatives, online. By increasing the ease of use and functionality of our web-based market presence, we believe we enhance customer satisfaction and retention while we lower our costs.

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Commitment to People
Training and developing our people is a priority. We aspire to be a company where the best people want to work and are committed to doing their best work every day. We work to create and maintain an environment that attracts, develops and retains people who assure our success with customers, differentiate us from our competitors and allow us to be an employer of choice for top talent. As of December 31, 2014, we employed approximately 31,000 full-time employees, approximately 27% of whom were covered by collective bargaining agreements.
Creating Shareholder Value
We are committed to creating long-term shareholder value by generating consistent earnings and cash flow growth, while continually improving returns on invested capital. Our incentive compensation programs are aligned with these objectives at all levels of management. We value regular communication and interaction with our shareholders, and regularly participate in investor meetings and conferences.
Management Team
We believe we have one of the most experienced management teams in the solid waste industry.
Donald W. Slager became our Chief Executive Officer (CEO) and remained our President on January 1, 2011, after having served as our President and Chief Operating Officer (COO) from the Allied Waste Industries, Inc. (Allied) acquisition in December 2008 until then. In addition to his duties as CEO, Mr. Slager resumed the role of principal operating executive from November 2011 until August 2012 and beginning October 2013 to June 2014. Prior to the Allied acquisition, Mr. Slager worked for Allied from 1992 through 2008 and served in various management positions, including President and COO from 2004 through 2008 and Executive Vice President and COO from 2003 to 2004. From 2001 to 2003, Mr. Slager served as Senior Vice President, Operations. Mr. Slager held various management positions at Allied from 1992 to 2003, and was previously General Manager at National Waste Services, where he served in various management positions since 1985. Mr. Slager has over 34 years of experience in the solid waste industry. Mr. Slager has been a member of our Board of Directors since June 24, 2010.
Jeffrey A. Hughes was named Executive Vice President, Chief Administrative Officer (previously called Executive Vice President, Human Resources) in December 2008. Before that, Mr. Hughes served as Senior Vice President, Eastern Region Operations for Allied from 2004 until the Allied acquisition in December 2008. Mr. Hughes served as Assistant Vice President of Operations Support for Allied from 1999 to 2004 and as a District Manager for Allied from 1988 to 1999. Mr. Hughes has over 27 years of experience in the solid waste industry.
Robert A. Maruster was elected Executive Vice President - COO, in June 2014. Mr. Maruster has years of broad-based operational experience in the airline industry. He joined Republic from JetBlue Airways Corporation, where he was its COO/Executive Vice President from 2009 to April 2014. Prior to that, Mr. Maruster served JetBlue as its Senior Vice President, Customer Service and Vice President, Operational Planning. Before joining JetBlue in 2005, he served for 12 years in various management roles for Delta Air Lines, culminating in his role running the Atlanta Hub as Vice President, Operations and Customer Service.
Michael P. Rissman has served as our Executive Vice President, Chief Legal Officer and Corporate Secretary (previously called Executive Vice President, General Counsel and Corporate Secretary) since August 2009. Previously, Mr. Rissman had served as acting General Counsel and Corporate Secretary from March 2009. Mr. Rissman joined Allied as Vice President and Deputy General Counsel in July 2007 and continued in the same positions at Republic following the Allied acquisition in December 2008. Prior to joining Allied, Mr. Rissman was a partner at Mayer Brown LLP in Chicago, where he worked from 1990 until coming to Allied.
Charles F. Serianni was appointed Executive Vice President - Chief Financial Officer, in August 2014. Mr. Serianni is a seasoned senior executive with 30 years of experience in a variety of progressively more responsible roles. He was named Vice President, Region Controller for the Company's West Region in July 2013. Before that, Mr. Serianni served as our Assistant Controller starting in June 1998 and progressed to Senior Vice President, Chief Accounting Officer in December 2008. He served as the Accounting Operations Director for Republic Industries, Inc. (AutoNation) from February 1997 to June 1998. Before that, Mr. Serianni served as the Accounting Operations Director for Sunglass Hut International, Inc. from May 1993 to February 1997, and as the Manager, Accounting and Auditing Services for Deloitte & Touche from September 1984 to May 1993.
Our local management teams have extensive industry experience in growing, operating and managing solid waste companies and have substantial experience in their local geographic markets. This allows us to quickly respond to and meet our customers’ needs and stay in touch with local businesses and municipalities. Each regional management team includes a region

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president, vice president, vice president-controller, vice president of human resources, vice president of sales, vice president of operations support, director of safety, director of engineering and environmental management, and director of market planning and development. We believe our strong regional management teams allow us to effectively and efficiently drive our initiatives and help ensure consistency throughout the organization. Our regional management teams and area presidents have extensive authority, responsibility and autonomy for operations within their respective geographic markets. As a result of retaining experienced managers with extensive knowledge of, and involvement in, their local communities, we are proactive in anticipating customers’ needs and adjusting to changes in our markets. We also seek to implement the best practices of our various regions, areas and business units throughout our operations to continue improving our operations and our operating margins.
Integrated Operations
We believe we have created a company with a strong, national operating platform that allows us to compete more effectively and efficiently in the local markets in which we operate. We seek to achieve a high rate of internalization by controlling waste streams from the point of collection through processing or disposal. During the year ended December 31, 2014, approximately 68% of the total waste volume we collected was disposed at landfills we own or operate (internalization). Our fully integrated markets generally have a lower cost of operations and more favorable cash flows than our non-integrated markets. Through acquisitions, landfill operating agreements and other market development activities, we create market-specific, integrated operations typically consisting of one or more collection operations, transfer stations and landfills. We also operate recycling centers in markets where diversion of waste is a priority and it is profitable to do so.
Growth Initiatives
Our growth initiatives are designed to deliver total waste stream solutions to our customers while creating sustainable economic value for our shareholders. We believe focusing on the following growth initiatives will improve profitability and generate value for our shareholders:
Internal Growth
Within our markets, our goal is to deliver sustainable, long-term profitable growth while efficiently operating our assets to generate attractive rates of return. We allocate capital to businesses, markets and development projects both to support growth and to achieve acceptable rates of return. The key components of our internal growth strategy are:
Price Growth.  We seek to secure price increases necessary to offset increased costs, to improve our operating margins and to obtain adequate returns on our substantial investments in vehicles, equipment, landfills, transfer stations and recycling centers.
Volume Growth. We believe waste volumes are driven by population growth, household formation and new business formation. Volume growth through increases in our customer base and service offerings is the most capital efficient method to grow our business. We seek to obtain long-term contracts for collecting solid waste under residential collection contracts with municipalities, exclusive franchise agreements, and commercial and industrial contracts. By obtaining such long-term agreements, we can grow our contracted revenue base at the same rate as the underlying population growth in these markets. In addition, by securing a base of long-term recurring revenue, we are better able to protect our market position from competition. We work to increase volumes while ensuring that prices charged for services provide an appropriate return on our capital investment.
Sales and Marketing Activities and National Accounts.  We manage our sales and marketing activities to enable us to capitalize on our leading position in many of the markets in which we operate. While most of our marketing activity is local in nature, we also employ a National Accounts selling organization in response to the needs of national and regional customers. The National Accounts team is designed to provide the best total solution to our customers’ evolving waste management needs in an environmentally responsible manner. We partner with national clients to reach their sustainability goals, optimize waste streams, balance equipment and service intervals, and provide customized reporting. The National Accounts team centralizes certain services like customer support and billing to effectively manage customer needs, while helping minimize costs. With our extended geographic reach, this team effectively serves our customers nationwide.
Acquisitions and Public-Private Partnerships
Our acquisition growth strategy focuses primarily on acquiring privately held solid waste and recycling companies that complement our existing business platform. We believe our ability to acquire privately held companies is enhanced by increasing competition in the solid waste industry, increasing capital requirements due to changes in solid waste regulatory requirements, and the limited number of exit strategies for privately held companies. We also will continue to evaluate opportunities to acquire operations and facilities that are being divested by other publicly owned waste companies. Generally, we expect to maintain a steady pace of tuck-in acquisition investment of approximately $100 million annually. Given our free

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cash flow, availability under our credit facilities and our ability to access the public capital markets, we also have the flexibility to make additional acquisitions that will complement our existing business platform or larger acquisitions if the right opportunities present themselves.
We also focus on the waste and recycling operations and facilities of municipal and other local governmental authorities for growth opportunities. We believe our ability to acquire operations and facilities from municipalities that are privatizing is growing, as they increasingly seek to raise capital and reduce risk.
The consolidation of acquired businesses into existing operations, whether through acquisitions or public-private partnerships, reduces costs by decreasing capital and expenses used for truck routing, personnel, equipment and vehicle maintenance, inventories and back-office administration.
Expansion of Recycling Capabilities
Based on an industry trade publication, we believe approximately 34% of municipal solid waste is recycled. Communities have increasingly committed to their residents to enhance and expand their recycling programs. We continue to focus on innovative waste disposal processes and programs to help our customers achieve their goals related to sustainability and environmentally sound waste practices. We currently own or operate 60 recycling centers. During 2014, we invested approximately $20 million to develop and upgrade our recycling centers. We will continue to look for opportunities to expand our recycling capabilities in markets where these services are desired and provide an appropriate return on our investment.
Development Activities
We seek to identify opportunities to further our position as an integrated service provider in markets where we are not fully integrated. Where appropriate, we obtain permits to build transfer stations, recycling centers and landfills that would vertically integrate our waste services or expand the service areas for our existing disposal sites. Development projects, while generally less capital intensive than acquisitions, typically require extensive permitting efforts that can take years to complete with no assurance of success. We undertake development projects when we believe there is a reasonable probability of success and where reasonably priced acquisition opportunities are not available.
We continuously evaluate our existing operating assets and their deployment within each market to determine if we have optimized our position and to ensure appropriate return on investment of capital. Where operations are not generating acceptable returns, we examine opportunities to achieve greater efficiencies and returns through integrating additional assets. If such enhancements are not possible, we may ultimately decide to divest the existing assets and reallocate resources to other markets.
Cost Control Initiatives
Our cost control initiatives are designed to deliver the best service possible to our customers in the most efficient, productive and environmentally sound way possible.
Fleet Automation
Approximately 69% of our residential routes have been converted to automated single driver trucks. By converting our residential routes to automated service, we reduce labor costs, improve driver productivity and create a safer work environment for our employees. Additionally, communities using automated vehicles have higher participation rates in recycling programs, thereby complementing our initiative to expand our recycling capabilities.
Fleet Conversion to Compressed Natural Gas (CNG)
Approximately 14% of our fleet operates on natural gas. We expect to continue our gradual fleet conversion to CNG, our preferred alternative fuel technology, as part of our ordinary annual fleet replacement process. We believe a gradual fleet conversion is most prudent to realize the full value of our previous fleet investments. Approximately 35% of our replacement vehicle purchases during 2014 were CNG vehicles. We believe using CNG vehicles provides us a competitive advantage in communities with strict clean emission objectives or initiatives that focus on protecting the environment. Although upfront costs are higher, we expect that using natural gas will reduce our overall fleet operating costs through lower fuel expenses. During 2014, we added 7 CNG fueling stations to our operations to bring our total CNG fueling stations that we operate to 36.

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Standardized Maintenance
Based on an industry trade publication, we operate the eighth largest vocational fleet in the United States. As of December 31, 2014, our average fleet age in years, by line of business, was as follows:
 
 
Approximate Number of Vehicles
 
Approximate Average Age
Residential
 
7,600

 
7
Commercial
 
4,300

 
7
Industrial
 
3,900

 
9
Total
 
15,800

 
7.5
Through standardization of core functions, we believe we can minimize variability in our maintenance processes resulting in higher vehicle quality while extending the service life of our fleet. We believe operating a more reliable, safer and efficient fleet will lower our operating costs. We have implemented standardized maintenance programs for approximately 60% of our fleet maintenance operations as of December 31, 2014.
Cash Utilization Strategy
Key components of our cash utilization strategy include increasing free cash flow and improving our return on invested capital. Our definition of free cash flow, which is not a measure determined in accordance with United States generally accepted accounting principles (U.S. GAAP), is cash provided by operating activities less purchases of property and equipment, plus proceeds from sales of property and equipment as presented in our consolidated statements of cash flows. For a discussion and reconciliation of free cash flow, you should read the "Free Cash Flow" section of our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 of this Form 10-K.
We believe free cash flow drives shareholder value and provides useful information regarding the recurring cash provided by our operations. Free cash flow also demonstrates our ability to execute our cash utilization strategy, which includes investments in acquisitions and returning a majority of free cash flow to our shareholders through dividends and share repurchases. We are committed to an efficient capital structure and maintaining our investment grade credit ratings.
We manage our free cash flow by ensuring that capital expenditures and operating asset levels are appropriate in light of our existing business and growth opportunities, and by closely managing our working capital, which consists primarily of accounts receivable, accounts payable, and accrued landfill and environmental costs.
Dividends
In July 2003, our board of directors initiated a quarterly cash dividend of $0.04 per share. Our quarterly dividend has increased from time to time thereafter, the latest increase occurring in July 2014 to $0.28 per share, representing a 7.7% increase over that of the prior year. Over the last 5 years, our dividend has increased at a compounded annual growth rate of 8.1%. We expect to continue paying quarterly cash dividends and may consider additional dividend increases if we believe they will enhance shareholder value.
Share Repurchases
In October 2013, our board of directors added $650 million to the existing share repurchase authorization originally approved in November 2010. From November 2010 to December 31, 2014, we used $1,439.5 million to repurchase 46.6 million shares of our common stock at a weighted average cost per share of $30.88. As of December 31, 2014, there were $360.2 million remaining under our share repurchase authorization. During 2015, we expect to use our remaining authorization to repurchase more of our outstanding common stock.

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Strong Capital Structure
Since our merger with Allied on December 5, 2008, we have refinanced $5,288.2 million in senior notes and $1,260.1 million in tax-exempt financings. This reduced the average coupon rate on our senior notes and tax-exempt financings, on a weighted average basis, by more than 175 basis points while extending our debt maturities and giving greater stability to our capital structure. Our debt maturity and revolver capacity profile is as follows (dollars in millions):
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
 
 
 
 
 
 
 
 
 
 
 
Credit facilities
$

 
$

 
$
1,000.0

 
$

 
$
1,250.0

 
$

Senior notes

 

 

 
700.0

 
650.0

 
4,375.7

Debentures

 

 

 

 

 
200.6

Tax-exempt financings
4.7

 

 

 

 
35.0

 
1,044.1

Total
$
4.7

 
$

 
$
1,000.0

 
$
700.0

 
$
1,935.0

 
$
5,620.4

 
 
 
 
 
 
 
 
 
 
 
 
A key component of our financial strategy includes maintaining investment grade ratings on our senior debt, which was rated BBB+ by Standard & Poor’s Ratings Services, BBB by Fitch Ratings, Inc. and Baa3 by Moody’s Investors Service, Inc. as of December 31, 2014. Such ratings have allowed us, and should continue to allow us, to readily access capital markets at competitive rates.
Operations
Our operations primarily consist of providing collection, transfer and disposal of non-hazardous solid waste and recovering and recycling certain materials.
Collection Services.  We provide solid waste collection services to commercial, industrial, municipal and residential customers through 340 collection operations. In 2014, 77% of our revenue was derived from collection services. Within the collection line of business, 25% of our revenue is from services provided to municipal and residential customers, 31% is from services provided to commercial customers and 21% is from services provided to industrial (both permanent and temporary) and other customers.
Our residential collection operations involve the curbside collection of refuse from small containers into collection vehicles for transport to transfer stations, or directly to landfills or recycling centers. We typically perform residential solid waste collection services under contracts with municipalities, which we generally secure by competitive bid and which give us exclusive rights to service all or a portion of the homes in the respective municipalities. These contracts or franchises usually range in duration from one to five years, although some of our exclusive franchises are for significantly longer periods. We also perform residential solid waste collection services on a subscription basis, in which individual households contract directly with us. The fees received for subscription residential collection are based primarily on market factors, frequency and type of service, the distance to the disposal facility and the cost of disposal. In general, subscription residential collection fees are paid quarterly in advance by the residential customers receiving the service.
In our commercial and industrial collection operations, we supply our customers with waste containers of varying sizes. We also rent compactors to large waste generators. We typically perform commercial collection services under one- to three-year service agreements, and fees are determined based on a number of factors including the market, collection frequency, type of equipment furnished, type and volume or weight of the waste collected, transportation costs, and the cost of disposal.
We also provide waste collection services to industrial and construction facilities on a contractual basis with terms ranging from a single pickup to one year or longer. Our construction services are provided to the commercial construction and home building sectors. We collect the containers or compacted waste and transport the waste to either a transfer station or directly to a landfill for disposal.
We also provide recycling services based on our collection customers' requirements to complete our service offerings.
Transfer Services.  We own or operate 198 transfer stations. Revenue at our transfer stations is primarily generated by charging tipping or disposal fees, which accounted for approximately 5% of our revenue during 2014. Our collection operations deposit waste at these transfer stations, as do other private and municipal haulers, for compaction and transfer to disposal sites or recycling centers. Transfer stations provide collection operations with a cost effective means to consolidate waste and reduce transportation costs while providing our landfills with an additional "gate" to extend their geographic reach.

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When our own collection operations use our transfer stations, this improves internalization by allowing us to retain fees we would otherwise pay to third-party disposal sites. It also allows us to manage costs associated with waste disposal because: (1) transfer trucks have larger capacities than collection trucks, allowing us to deliver more waste to the landfill in each trip; (2) waste is accumulated and compacted at strategically located transfer stations to increase efficiency; and (3) we can retain volume by managing the waste to one of our own landfills rather than to a competitor’s.
Landfill Services.  We own or operate 189 active landfills. We charge tipping fees to third parties, which accounted for approximately 12% of our revenue during 2014. As of December 31, 2014, we had approximately 37,000 permitted acres and total available permitted and probable expansion disposal capacity of 4.8 billion in-place cubic yards. The in-place capacity of our landfills is subject to change based on engineering factors, requirements of regulatory authorities, our ability to continue to operate our landfills in compliance with applicable regulations, and our ability to successfully renew operating permits and obtain expansion permits at our sites. Some of our landfills accept non-hazardous special waste, including utility ash, asbestos and contaminated soils.
Most of our active landfill sites have the potential for expanded disposal capacity beyond the currently permitted acreage. We monitor the availability of permitted disposal capacity at each of our landfills and evaluate whether to pursue an expansion at a given landfill based on estimated future waste volumes and prices, market needs, remaining capacity and the likelihood of obtaining an expansion. To satisfy future disposal demand, we are currently seeking to expand permitted capacity at certain of our landfills; however, we cannot assure you that all proposed or future expansions will be permitted as designed.
We also have responsibility for 125 closed landfills, for which we have associated closure and post-closure obligations.
Recycling Services.  We own or operate 60 recycling centers. These facilities generate revenue through the processing and sale of old corrugated cardboard (OCC), old newspaper (ONP), aluminum, glass and other materials, which accounted for approximately 4% of our revenue during 2014. Approximately 70% of our recycling center volume relates to OCC, ONP and other mixed paper. Of the 4.9 million tons we sold during 2014, 2.3 million moved through our recycling centers and 2.6 million we collected and delivered to third parties.
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 $28 million and $16 million, respectively.
In certain instances we issue recycling rebates to municipalities or large industrial customers, which can be based on the price we receive upon the final sale of recycled commodities, a fixed contractual rate or other measures. We also receive rebates when we dispose of recycled commodities at third-party facilities.
As consumer demand for recycling services has increased, we have met that demand by integrating recycling components to each of our collection service offerings.  Our goal is to provide a complete waste stream management solution to our customers in an environmentally sustainable way.
We continue to invest in proven technologies to control costs and to simplify and streamline recycling for our customers. For example, advanced sorting equipment, such as disk screens, magnets and optical sorters, identifies and separates different kinds of paper, metals, plastics and other materials to increase efficiency and maximize our recycling efforts.
Other Services.  Other revenue consists primarily of National Accounts revenue generated from nationwide contracts in markets outside our operating areas where the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.
Competition
We operate in a competitive industry. Competition in the non-hazardous solid waste industry comes from a few other large, national publicly-owned companies, several regional publicly- and privately-owned solid waste companies, and thousands of small privately-owned companies. In any given market, competitors may have larger operations and greater resources. In addition, we compete with municipalities that maintain waste collection or disposal operations. These municipalities may have financial advantages due to the availability of tax revenue and tax-exempt financing.
We compete for collection accounts primarily on the basis of price and the quality of our services. From time to time, our competitors reduce the price of their services in an effort to expand market share or to win a competitively bid municipal contract. Our ability to maintain and increase prices in certain markets may be impacted by our competitors’ pricing policies. This may have an impact on our future revenue and profitability.

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Seasonality and Severe Weather
Our operating revenues tend to be somewhat higher in the summer months, primarily due to higher volumes of construction and demolition waste. The volumes of industrial and residential waste in certain regions also tend to increase during the summer months. Our second and third quarter revenues and results of operations typically reflect this seasonality.
Our operations can be adversely affected by periods of inclement or severe weather, which could increase the volume of waste collected under our existing contracts (without corresponding compensation), delay the collection and disposal of waste, reduce the volume of waste delivered to our disposal sites, or delay the construction or expansion of our landfill sites and other facilities. Our operations also can be favorably affected by severe weather, which could increase the volume of waste in situations where we are able to charge for our additional services.
Regulation
Our facilities and operations are subject to a variety of federal, state and local requirements that regulate, among other things, the environment, public health, safety, zoning and land use. Operating and other permits, licenses and other approvals generally are required for landfills and transfer stations, certain solid waste collection vehicles, fuel storage tanks and other facilities that we own or operate. These permits are subject to denial, revocation, modification and renewal in certain circumstances. Federal, state and local laws and regulations vary, but generally govern wastewater or storm water discharges, air emissions, the handling, transportation, treatment, storage and disposal of hazardous and non-hazardous waste, and the remediation of contamination associated with the release or threatened release of hazardous substances. These laws and regulations provide governmental authorities with strict powers of enforcement, which include the ability to revoke or decline to renew any of our operating permits, obtain injunctions, or impose fines or penalties in the event of violations, including criminal penalties. The U.S. Environmental Protection Agency (EPA) and various other federal, state and local authorities administer these regulations.
We strive to conduct our operations in compliance with applicable laws, regulations and permits. However, from time to time we have been issued citations or notices from governmental authorities that have resulted in the need to expend funds for remedial work and related activities at various landfills and other facilities or in the need to expend funds for fines, penalties or settlements. We cannot assure you that citations and notices will not be issued in the future despite our strong regulatory compliance efforts. We have established final capping, closure, post-closure and remediation reserves that we believe, based on currently available information, will be adequate to cover our current estimates of regulatory costs; however, we cannot assure you that actual costs will not exceed our reserves.
Federal Regulation.  The following summarizes the primary federal environmental and occupational health and safety-related statutes that affect our facilities and operations:
 The Solid Waste Disposal Act, including the Resource Conservation and Recovery Act (RCRA).  RCRA establishes a framework for regulating the handling, transportation, treatment, storage and disposal of hazardous and non-hazardous solid waste, and requires states to develop programs to ensure the safe disposal of solid waste in sanitary landfills.
Subtitle D of RCRA establishes a framework for regulating the disposal of municipal solid waste. Regulations under Subtitle D currently include minimum comprehensive solid waste management criteria and guidelines, including location restrictions, facility design and operating criteria, final capping, closure and post-closure requirements, financial assurance standards, groundwater monitoring requirements and corrective action standards. All of the states in which we operate have implemented permit programs pursuant to RCRA and Subtitle D. These state permit programs may include landfill requirements that are more stringent than those of Subtitle D. Our failure to comply with any of these environmental requirements at any of our locations may lead to temporary or permanent loss of an operating permit, which would result in costs in connection with securing new permits and reduced revenue from lost operational time.
All of our planned landfill expansions and new landfill development projects have been engineered to meet or exceed Subtitle D requirements. Operating and design criteria for existing operations have been modified to comply with these regulations. Compliance with Subtitle D regulations has resulted in increased costs and may in the future require substantial additional expenditures in addition to other costs normally associated with our waste management activities.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). CERCLA, among other things, provides for the cleanup of sites from which there is a release or threatened release of a hazardous substance into the environment. CERCLA may impose strict joint and several liability for the costs of cleanup and for damages to natural resources upon current owners and operators of a site, parties who were owners or operators of a site at the time the hazardous substances were disposed of, parties who transported the hazardous substances to a site, and parties who arranged for the disposal of the hazardous substances at a site. Under the authority of CERCLA and

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its implementing regulations, detailed requirements apply to the manner and degree of investigation and remediation of facilities and sites where hazardous substances have been or are threatened to be released into the environment. Liability under CERCLA is not dependent on the existence or disposal of only “hazardous wastes,” but also can be based upon the existence of small quantities of more than 700 “substances” characterized by the EPA as “hazardous,” many of which are found in common household waste. Among other things, CERCLA authorizes the federal government to investigate and remediate sites at which hazardous substances have been or are threatened to be released into the environment, or to order persons potentially liable for the cleanup of the hazardous substances to do so themselves. In addition, the EPA has established a National Priorities List of sites at which hazardous substances have been, or are threatened to be, released and which require investigation or cleanup.
CERCLA liability is strict liability. It can be founded upon the release or threatened release, even as a result of unintentional, non-negligent or lawful action, of hazardous substances, including very small quantities of such substances. Thus, even if we have never knowingly transported or received hazardous substances, it is likely that hazardous substances have been deposited or “released” at landfills or other facilities that we presently or historically have owned or operated, or at properties owned by third parties to which we have transported waste. Therefore, we could be liable under CERCLA for the cost of cleaning up such hazardous substances at such sites and for damages to natural resources, even if those substances were deposited at our facilities before we acquired or operated them. The costs of a CERCLA cleanup can be very expensive and can include the costs of disposing of hazardous substances at appropriately-licensed facilities. Given the difficulty of obtaining insurance for environmental impairment liability, any such liability could have a material impact on our business, financial condition, results of operations and cash flows.
The Federal Water Pollution Control Act of 1972 (the Clean Water Act). This act regulates the discharge of pollutants from a variety of sources, including solid waste disposal sites, into streams, rivers and other waters of the United States. Runoff from our landfills and transfer stations that is discharged into surface waters through discrete conveyances must be covered by discharge permits that generally require us to conduct sampling and monitoring, and, under certain circumstances, to reduce the quantity of pollutants in those discharges. Storm water discharge regulations under the Clean Water Act require a permit for certain construction activities and for runoff from industrial operations and facilities, which may affect our operations. If a landfill or transfer station discharges wastewater through a sewage system to a publicly owned treatment works, the facility must comply with discharge limits imposed by that treatment works. In addition, states may adopt groundwater protection programs under the Clean Water Act or the Safe Drinking Water Act that could affect the manner in which our landfills monitor and control their waste management activities. Furthermore, if development at any of our facilities alters or affects wetlands, we may be required to secure permits before such development starts. In these situations, permitting agencies may require mitigation of wetland impacts.
The Clean Air Act.  The Clean Air Act imposes limitations on emissions from various sources, including landfills. In March 1996, the EPA promulgated regulations that require large municipal solid waste landfills to install landfill gas monitoring systems. These regulations apply to landfills that commenced construction, reconstruction or modification on or after May 30, 1991, and, principally, to landfills that can accommodate 2.5 million cubic meters or more of municipal solid waste. The regulations apply whether the landfills are active or closed. The date by which each affected landfill must have a gas collection and control system installed and made operational varies depending on calculated emission rates at the landfill. On July 17, 2014, the EPA proposed updates to its regulations that would require large landfills that commenced construction, reconstruction, or modification on or after July 17, 2014 to capture additional landfill gas to reduce emissions of methane and certain non-methane gases, which are recognized as greenhouse gases. That same day, the EPA also issued an Advance Notice of Proposed Rulemaking seeking input on whether and how to update emissions limits for existing landfills to further reduce their emissions of methane and non-methane greenhouse gases. These and other efforts to curtail the emission of greenhouse gases and to ameliorate the effect of climate change may require our landfills to deploy more stringent emission controls and monitoring systems, with resulting capital or operating costs. Many state regulatory agencies also currently require monitoring systems for the collection and control of certain landfill gas. Certain of these state agencies are also implementing greenhouse gas control regulations that would also apply to landfill gas emissions. See Item 1A, Risk Factors – “Regulation of greenhouse gas emissions could impose costs on our operations, the magnitude of which we cannot yet estimate,” in this Form 10-K.
In addition, our vehicle fleet also may become subject to higher efficiency standards or other carbon-emission restrictions. Over the past two years, the EPA and the National Highway Traffic Safety Administration (NHTSA) have adopted regulations mandating the reduction of vehicle tail pipe emissions as a means of reducing greenhouse gas emissions. The regulations take the form of fuel economy standards. The EPA and the NHTSA have developed fuel economy standards in two vehicle categories: (1) conventional automobiles and light-duty trucks; and (2) heavy-duty trucks, including solid waste collection vehicles and tractor trailers. We own and operate vehicles in both categories.

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For conventional automobiles and light-duty trucks, in May 2010 the EPA and the NHTSA finalized fuel economy standards for model years 2012 through 2016. In October 2011, the EPA and the NHTSA initiated a second round of rulemaking for conventional automobiles and pick-up trucks in model years 2017 through 2025. In August 2011, the EPA and the NHTSA finalized standards for heavy-duty trucks, including solid waste collection vehicles and tractor trailers, for model years 2014 through 2018. In issuing the fuel economy standards for heavy-duty trucks and tractor trailers, the government estimated the standards would increase the cost of the average tractor-trailer by approximately $6,200, but that the vehicle would save fuel costs over its operating life.
The Occupational Safety and Health Act of 1970 (OSHA).  This act authorizes the Occupational Safety and Health Administration of the U.S. Department of Labor to promulgate occupational safety and health standards. A number of these standards, including standards for notices of hazardous chemicals and the handling of asbestos, apply to our facilities and operations.
State and Local Regulation.  Each state in which we operate has its own laws and regulations governing solid waste disposal, water and air pollution, and, in most cases, releases and cleanup of hazardous substances and liabilities for such matters. States also have adopted regulations governing the design, operation, maintenance and closure of landfills and transfer stations. Some counties, municipalities and other local governments have adopted similar laws and regulations. In addition, our operations may be affected by the trend in many states toward requiring solid waste reduction and recycling programs. For example, several states have enacted laws that require counties or municipalities to adopt comprehensive plans to reduce, through solid waste planning, composting, recycling or other programs, the volume of solid waste deposited in landfills. Additionally, laws and regulations restricting the disposal of certain waste in solid waste landfills, including yard waste, newspapers, beverage containers, unshredded tires, lead-acid batteries, electronic wastes and household appliances, have been adopted in several states and are being considered in others. Legislative and regulatory measures to mandate or encourage waste reduction at the source and waste recycling also have been considered, or are under consideration by, the U.S. Congress and the EPA.
To construct, operate and expand a landfill, we must obtain one or more construction or operating permits, as well as zoning and land use approvals. These permits and approvals may be burdensome to obtain and to comply with, are often opposed by neighboring landowners and citizens’ groups, may be subject to periodic renewal, and are subject to denial, modification, non-renewal and revocation by the issuing agency. Significant compliance disclosure obligations often accompany these processes. In connection with our acquisition of existing landfills, we may be required to spend considerable time, effort and money to bring the acquired facilities into compliance with applicable requirements and to obtain the permits and approvals necessary to increase their capacity.
Other Regulations.  Many of our facilities own and operate underground storage tanks that are generally used to store petroleum-based products. These tanks are subject to federal, state and local laws and regulations that mandate their periodic testing, upgrading, closure and removal. In the event of leaks or releases from these tanks, these regulations require that polluted groundwater and soils be remediated. We believe that all of our underground storage tanks meet all applicable regulations. If underground storage tanks we own or operate leak, we could be liable for response costs and, if the leakage migrates onto the property of others, we could be liable for damages to third parties. We are unaware of facts indicating that issues of compliance with regulations related to underground storage tanks will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
With regard to our solid waste transportation operations, we are subject to the jurisdiction of the Surface Transportation Board and are regulated by the Federal Highway Administration, Office of Motor Carriers, and by regulatory agencies in states that regulate such matters. Various state and local government authorities have adopted, or are considering adopting, laws and regulations that would restrict the transportation of solid waste across state, county, or other jurisdictional lines. In 1978, the U.S. Supreme Court ruled that a law that restricts the importation of out-of-state solid waste is unconstitutional; however, states have attempted to distinguish proposed laws from those involved in and implicated by that ruling. In 1994, the U.S. Supreme Court ruled that a flow control law, which attempted to restrict solid waste from leaving its place of generation, imposes an impermissible burden upon interstate commerce and is unconstitutional. In 2007, however, the U.S. Supreme Court upheld the right of a local government to direct the flow of solid waste to a publicly-owned and publicly-operated waste facility. A number of county and other local jurisdictions have enacted ordinances or other regulations restricting the free movement of solid waste across jurisdictional boundaries. Other governments may enact similar regulations in the future. These regulations may cause a decline in volumes of waste delivered to our landfills or transfer stations and may increase our costs of disposal, thereby adversely affecting our operations and our financial results.
Liabilities Established for Landfill and Environmental Costs.  We have established reserves for landfill and environmental costs, which include landfill site final capping, closure and post-closure costs. We periodically reassess such costs based on various methods and assumptions regarding landfill airspace and the technical requirements of Subtitle D of RCRA, and we adjust our rates used to expense final capping, closure and post-closure costs accordingly. Based on current information and

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regulatory requirements, we believe that our recorded reserves for such landfill and environmental expenditures are adequate; however, environmental laws may change, and we cannot assure you that our recorded reserves will be adequate to cover requirements under existing or new environmental laws and regulations, future changes or interpretations of existing laws and regulations, or adverse environmental conditions previously unknown to us. Refer to the "Contractual Obligations" section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 of this Form 10-K for further information.
Liability Insurance and Bonding
The nature of our business exposes us to the possible risk of liabilities arising out of our operations, including damages to the environment, property, employees or the general public. Although we focus on operating safely and prudently, we occasionally receive claims, alleging damages, negligence or other wrongdoing in the planning or performance of work, which resulted in harm to the environment, property, employees or the general public. These liabilities can be significant. We also could be subject to fines and civil and criminal penalties in connection with alleged violations of regulatory requirements. We maintain various policies of insurance that, subject to limitations, exclusions, or deductibles, provide coverage for these types of claims. While we believe the amount of insurance is appropriate for our type of business, we can neither assure you that such insurance would be adequate, in scope or amount, in the event of a major loss, nor that we will not be exposed to uninsured liabilities that could have a material adverse effect on our consolidated financial condition, results of operations or cash flows. We also cannot assure you that we would continue to maintain the insurance should market conditions in the insurance industry make such coverage cost prohibitive.
Accruals for deductibles are based on claims filed and actuarial estimates of claims development and claims incurred but not reported. Due to the variable condition of the insurance market, we have experienced, and may experience in the future, increased deductible retention levels and increased premiums. As we assume more risk through higher retention levels, we may experience more variability in our insurance reserves and expense.
In the normal course of business, we also purchase surety bonds, insurance policies, letters of credit, or marketable securities deposits in connection with municipal residential collection contracts, financial assurance for closure and post-closure of landfills, environmental remediation, environmental permits, and business licenses and permits as a financial guarantee of our performance.
Availability of Reports and Other Information
Our corporate website is www.republicservices.com. We make available on that website, free of charge, access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A, and amendments to those materials filed or furnished with the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make such materials available as soon as reasonably practicable after we electronically submit them to the SEC. Our corporate website also contains our Certificate of Incorporation, Bylaws, Corporate Governance Guidelines, Code of Ethics, Political Contributions Policy, and Charters of the Nominating and Corporate Governance Committee, Audit Committee and Management Development and Compensation Committee of the board of directors. In addition, the SEC website is www.sec.gov. The SEC makes available on that website, free of charge, reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC. Information on our website or the SEC website is not part of this Form 10-K. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K and applicable New York Stock Exchange (NYSE) rules regarding amendments to or waivers of our Code of Ethics by posting this information on our website at www.republicservices.com.
ITEM 1A.
RISK FACTORS
This Form 10-K contains certain forward-looking information about us that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Words such as “guidance,” “expect,” “will,” “may,” “anticipate,” “plan,” “estimate,” “project,” “intend,” “should,” “can,” “likely,” “could,” “outlook,” “believe” and similar expressions are intended to identify forward-looking statements. These statements include statements about our plans, strategies and prospects. Forward-looking statements are not guarantees of performance. These statements are based upon our management's current beliefs and expectations and are subject to risk and uncertainties, including the risks set forth below in these Risk Factors, which could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that the expectations will prove to be correct. Accordingly, you should not place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-K. Except to the extent required by applicable law or regulation, we undertake no obligation to update or publish revised forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.

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We have substantial indebtedness, which may limit our financial flexibility.
As of December 31, 2014, we had approximately $7 billion in principal value of debt and capital leases outstanding. This amount of indebtedness and our debt service requirements may limit our financial flexibility to access additional capital and make capital expenditures and other investments in our business, to withstand economic downturns and interest rate increases, to plan for or react to changes in our business and our industry, and to comply with the financial and other covenants of our debt instruments. Further, our ability to comply with these financial and other covenants may be affected by changes in economic or business conditions or other events that are beyond our control. If we do not comply with these covenants, we may be required to take actions such as reducing or delaying capital expenditures, reducing or eliminating dividends or stock repurchases, selling assets, restructuring or refinancing all or part of our existing debt, or seeking additional equity capital.
General economic conditions can directly and adversely affect our operating results.
Our business is directly affected by changes in national and general economic factors and overall economic activity that are outside of our control, including consumer confidence and interest rates. A weak economy generally results in decreases in volumes of waste generated, which adversely affects our revenues. In addition, we have a relatively high fixed-cost structure, which is difficult to adjust quickly to match declining waste volume levels. Consumer uncertainty and the loss of consumer confidence may decrease overall economic activity and thereby limit the amount of services we provide. Additionally, the decline in waste volumes may result in increased competitive pricing pressure and increased customer turnover, resulting in lower revenue and increased operating costs. We cannot assure you that worsening economic conditions would not have a significant adverse impact on our consolidated financial condition, results of operations or cash flows. Further, recovery in the solid waste industry historically has lagged behind recovery in the general economy. Accordingly, we cannot assure you that an improvement in general economic conditions will result in an immediate, or any, improvement in our consolidated financial condition, results of operations or cash flows.
Weakness in the U.S. economy may expose us to credit risk for amounts due from governmental agencies, large national accounts, industrial customers and others.
Weakness in the U.S. economy reduces the amount of taxes collected by various governmental agencies. We provide services to a number of these agencies, including numerous municipalities. These governmental agencies may suffer financial difficulties resulting from a decrease in tax revenue and may ultimately be unable or unwilling to pay amounts owed to us. In addition, weakness in the economy may cause other customers, including our large national accounts or industrial clients, to suffer financial difficulties and ultimately to be unable or unwilling to pay amounts owed to us. This could negatively impact our consolidated financial condition, results of operations and cash flows.
The waste industry is highly competitive and includes competitors that may have greater financial and operational resources, flexibility to reduce prices or other competitive advantages that could make it difficult for us to compete effectively.
We principally compete with large national waste management companies, numerous municipalities, and numerous regional and local companies. Competition for collection accounts is primarily based on price and the quality of services. Competition for disposal business is primarily based on price, geographic location and quality of operations. One of our competitors may have greater financial and operational resources than we do. Further, many counties and municipalities that operate their own waste collection and disposal facilities have the benefits of tax revenue or tax-exempt financing. Our ability to obtain solid waste volume for our landfills also may be limited by the fact that some major collection operations also own or operate landfills to which they send their waste. In certain markets in which we do not own or operate a landfill, from time to time our collection operations may have difficulty competing effectively. If we were to lose market share or if we were to lower prices to address competitive issues, it could negatively impact our consolidated financial condition, results of operations and cash flows.
Price increases may not be adequate to offset the impact of increased costs and may cause us to lose volume.
We seek to secure price increases necessary to offset higher costs, to maintain or improve operating margins, and to obtain adequate returns on our substantial investments in assets such as our landfills. From time to time, our competitors reduce their prices in an effort to expand their market share. Contractual, general economic or market-specific conditions also may limit our ability to raise prices. For example, many of our contracts have price adjustment provisions that are tied to an index such as the consumer price index. Particularly in a weak U.S. economy such as the current one, our costs may increase in excess of the increase, if any, in the consumer price index. This may continue to be the case even when the U.S. economy recovers because a recovery in the solid waste industry historically has lagged behind a recovery in the general economy. As a result, we may be unable to offset increases in costs, improve our operating margins and obtain adequate investment returns through price increases. Price increases also might cause us to lose volume to lower-cost competitors.

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Increases in the cost of fuel or petrochemicals would increase our operating expenses, and we cannot assure you that we would be able to recover such cost increases from our customers.
We depend on fuel purchased in the open market to operate our collection and transfer trucks and other equipment used for collection, transfer and disposal. Fuel prices are unpredictable and fluctuate significantly based on events beyond our control, including geopolitical developments, actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, supply and demand for oil and gas, war, terrorism and unrest in oil-producing countries, adverse weather and regional production patterns. Due to contractual or market factors, we may not be able to offset such volatility through fuel recovery fees. Our fuel costs were $500.0 million in 2014, or 5.7% of revenue, compared to $516.7 million in 2013, or 6.1% of our revenue.
To manage our exposure to volatility in fuel prices, we have entered into multiple swap agreements whereby we receive or make payments to counter-parties should the price of fuel vary from a specified amount. During 2014, approximately 20% of our fuel volume purchases were hedged with swap agreements. Additionally, we are able to collect fuel recovery fees from some customers. For 2014, we were able to recover approximately 78% of our fuel costs with fuel recovery fees. At current consumption levels, a twenty-cent per gallon change in the price of diesel fuel changes our fuel costs by approximately $26 million on an annual basis. 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 changes our fuel recovery fee by approximately $25 million. Accordingly, a substantial rise or drop in fuel costs could result in a material impact to our revenue and cost of operations.
Over the last several years, regulations have been adopted mandating changes in the composition of fuels for motor vehicles. The renewable fuel standards that the EPA sets annually affect the type of fuel our motor vehicle fleet uses. Pursuant to the Energy Independence and Security Act of 2007, the EPA establishes annual renewable fuel volume requirements for four different categories of renewable fuels (renewable fuel, advanced biofuel, cellulosic biofuel, and biomass-based diesel). These volume requirements set standards for the proportion of refiners' or importers' total fuel volume that must contain renewable fuels (as designated by regulation). The total volume metrics for each year vary based upon a number of factors (e.g., the availability of such fuels), and it is difficult to predict the ultimate quantity that the EPA will eventually mandate for 2015 and beyond. These regulations are one of many factors that may affect the cost of the fuel we use.
Our operations also require the use of products (such as liners at our landfills) whose costs may vary with the price of petrochemicals. An increase in the price of petrochemicals could increase the cost of those products, which would increase our operating and capital costs. Petrochemical prices, and hence our operating and capital costs, may be further affected by regulatory efforts to reduce greenhouse gases from the industries that produce such petrochemicals. We are also susceptible to increases in indirect fuel recovery fees from our vendors.
Fluctuations in prices for recycled commodities that we sell to customers may adversely affect our consolidated financial condition, results of operations and cash flows.
We purchase or collect and process recyclable materials such as paper, cardboard, plastics, aluminum and other metals for sale to third parties. Our results of operations may be affected by changing prices or market requirements for recyclable materials. The resale and purchase prices of, and market demand for, recyclable materials are volatile due to changes in economic conditions and numerous other factors beyond our control. These fluctuations may affect our consolidated financial condition, results of operations and cash flows.
To manage our exposure to fluctuations in prices for recycled commodities, we have entered into multiple hedging arrangements whereby we receive or make payments to counter-parties should the price of recycled commodities vary from a specified amount or range. During 2014, approximately 6% of our tonnage sold was hedged with such arrangements. 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 $28 million and $16 million, respectively, on an annual basis. Accordingly, a substantial rise or drop in recycled commodity prices could result in a material impact to our revenue and cost of operations.


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Adverse weather conditions, including those brought about by climate change, may limit our operations and increase the costs of collection and disposal.
Our collection and landfill operations could be adversely impacted by extended periods of inclement weather, or by increased severity of weather and climate extremes resulting from climate change, some of which we may already be experiencing. Recent studies suggest that global warming is occurring faster than previously projected, with the EPA projecting a 4° to 11° Fahrenheit temperature increase in the United States by the end of the century. In addition to sea level rise, this temperature increase is expected to result in more severe droughts, floods, and other extreme weather events. Any of these factors could increase the volume of waste collected under our existing contracts (without corresponding compensation), interfere with collection and landfill operations, delay the development of landfill capacity or reduce the volume of waste generated by our customers. In addition, adverse weather conditions may result in the temporary suspension of our operations, which can significantly affect our operating results in the affected regions during those periods.
We may be unable to maintain our credit ratings or execute our financial strategy.
Our ability to execute our financial strategy depends in part on our ability to maintain investment grade ratings on our debt. The credit rating process is contingent upon a number of factors, many of which are beyond our control. We cannot assure you that we will be able to maintain our investment grade ratings in the future. If we were unable to do so, our interest expense would increase and our ability to obtain financing on favorable terms may be adversely affected.
Our financial strategy also depends on our ability to generate sufficient cash flow to reinvest in our existing business, fund internal growth, acquire other solid waste businesses, pay dividends, repurchase stock, and take other actions to enhance shareholder value. We cannot assure you that we will succeed in executing our broad-based pricing initiatives, that we will generate sufficient cash flow to execute our financial strategy, that we will be able to pay cash dividends at our present rate, or increase them, or that we will be able to continue our share repurchase program.
The solid waste industry is a capital-intensive industry and our capital expenditures may exceed current expectations, which could require us to obtain additional funding for our operations or impair our ability to grow our business.
Our ability to remain competitive and to grow our business largely depends on our cash flow from operations and access to capital. If our capital efficiency programs cannot offset the impact of inflation and business growth, it may be necessary to increase the amount we spend. Additionally, if we make acquisitions or further expand our operations, the amount we spend on capital, capping, closure, post-closure, environmental remediation and other items will increase. Our cash needs also will increase if the expenditures for capping, closure, post-closure and remediation activities increase above our current estimates, which may occur over a long period due to changes in federal, state or local government requirements and other factors beyond our control. Increases in expenditures would negatively impact our cash flows.
We may be unable to obtain or maintain required permits or to expand existing permitted capacity of our landfills, which could decrease our revenue and increase our costs.
We cannot assure you that we will be able to obtain or maintain the permits we require to operate because permits to operate new landfills and transfer stations, or to expand the permitted capacity of existing landfills, have become more difficult and expensive to obtain and maintain. Permits often take years to obtain as a result of numerous hearings and compliance requirements with regard to zoning, environmental and other regulations. These permits are also often subject to resistance from citizen or other groups and other political pressures. Local communities and citizen groups, adjacent landowners or governmental agencies may oppose the issuance of a permit or approval we may need, allege violations of the permits under which we currently operate or laws or regulations to which we are subject, or seek to impose liability on us for environmental damage. Responding to these challenges has at times increased our costs and extended the time associated with establishing new landfills and transfer stations and expanding existing landfills. In addition, failure to receive regulatory and zoning approval may prohibit us from establishing new landfills or transfer stations or expanding existing landfills. Our failure to obtain the required permits to operate our landfills and transfer stations could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. In addition, we may have to dispose collected waste at landfills operated by our competitors or haul the waste long distances at a higher cost to one of our other landfills, either of which could significantly increase our waste disposal costs.

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If we do not appropriately estimate landfill capping, closure and post-closure costs, our financial condition and results of operations may be adversely affected.
A landfill must be closed and capped, and post-closure maintenance commenced, once the landfill's permitted capacity is reached and additional capacity is not authorized. We have significant financial obligations relating to capping, closure and post-closure costs at our existing owned or operated landfills, and will have material financial obligations with respect to any future owned or operated landfills. We establish accruals for the estimated costs associated with capping, closure and post-closure financial obligations. We could underestimate such costs, and our financial obligations for capping, closure or post-closure costs could exceed the amounts accrued or amounts otherwise receivable pursuant to trust funds established for this purpose. Additionally, if a landfill must be closed earlier than expected or its remaining airspace is reduced for any other reason, the accruals for capping, closure and post-closure could be required to be accelerated. If our capping, closure or post-closure costs exceed the amounts accrued, or if such accruals are required to be accelerated, this could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.
Alternatives to landfill disposal could reduce our disposal volumes and cause our revenues and operating results to decline.
Most of the states in which we operate landfills require counties and municipalities to formulate comprehensive plans to reduce the volume of solid waste deposited in landfills through waste planning, composting, recycling or other programs. Some state and local governments mandate waste reduction at the source and prohibit the disposal of certain types of wastes, such as yard waste, at landfills. Further, many of our customers voluntarily are diverting waste to alternatives to landfill disposal, such as recycling and composting, while also working to reduce the amount of waste they generate. Many of the largest companies in the U.S. are setting zero-waste goals in which they strive to send no waste to landfills. Although such actions help to protect our environment, they have reduced, and will in the future reduce, the volume of waste going to landfills and may affect the prices that we can charge for landfill disposal. Accordingly, we cannot assure you that we will be able to operate our landfills at their current volumes or charge current prices for landfill disposal services due to possible decreases in demand for such services. If we cannot expand our service offerings and grow lines of business to service waste streams that do not go to landfills and to provide services for customers that wish to reduce waste entirely, this could have a negative impact on our consolidated financial condition, results of operations and cash flows. Further, even if we can develop such service offerings and lines of business, disposal alternatives nonetheless could have a negative impact on our consolidated financial condition, results of operations and cash flows.
The possibility of landfill and transfer station site development projects, or expansion projects not being completed or certain other events could result in material charges to income.
In accordance with U.S. GAAP, we capitalize certain expenditures relating to development, expansion and other projects. If a facility or operation is permanently shut down or determined to be impaired, or a development, expansion or other project is not completed or is determined to be impaired, we will charge against earnings any unamortized capitalized expenditures relating to such facility or project that we are unable to recover through sale, transfer or otherwise. We also carry a significant amount of goodwill on our consolidated balance sheets, which we must assess for impairment annually, and more frequently in the case of certain triggering events. We may incur charges against earnings in accordance with this policy, or other events may cause impairments. Such charges could have a material adverse impact on our results of operations.
We are subject to costly environmental regulations and flow-control regulations that may affect our operating margins, restrict our operations and subject us to additional liability.
Complying with laws and regulations governing the collection, treatment, storage, transfer and disposal of solid and hazardous wastes and materials, air quality and emissions of greenhouse gases, water quality and the remediation of contamination associated with the release of hazardous substances is costly. Laws and regulations often require us to enhance or replace our equipment and to modify landfill operations or initiate final closure of a landfill. We cannot assure you that we will be able to implement price increases sufficient to offset the costs of complying with these laws and regulations. In addition, environmental regulatory changes could accelerate or increase expenditures for capping, closure and post-closure, and environmental and remediation activities at solid waste facilities and obligate us to spend sums in addition to those presently accrued for such purposes.
Our collection, transfer, and landfill operations are and will continue to be affected by state or local laws or regulations that restrict the transportation of solid waste across state, county or other jurisdictional lines or that direct the flow of waste to a specified facility or facilities. Such laws and regulations could negatively affect our operations, resulting in declines in landfill volumes and increased costs of alternate disposal.
In addition to the costs of complying with environmental regulations, we incur costs to defend against litigation brought by government agencies and private parties who allege we are in violation of our permits and applicable environmental laws and

17


regulations, or who assert claims alleging nuisance, environmental damage, personal injury or property damage. As a result, we may be required to pay fines or implement corrective measures, or we may have our permits and licenses modified or revoked. A significant judgment against us, the loss of a significant permit or license, or the imposition of a significant fine could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. We establish accruals for our estimates of the costs associated with our environmental obligations. We could underestimate such accruals and remediation costs could exceed amounts accrued. Such shortfalls could result in significant unanticipated charges to income.
Regulation of greenhouse gas emissions could impose costs on our operations, the magnitude of which we cannot yet estimate.
Efforts to curtail the emission of greenhouse gases and to ameliorate the effects of climate change continue to progress. Our landfill operations emit anthropogenic methane, identified as a greenhouse gas, and our vehicle fleet emits, among other things, carbon dioxide, which also is a greenhouse gas. Conventional wisdom still suggests that passage of comprehensive, federal climate change legislation is highly unlikely. Nonetheless, should comprehensive federal climate change legislation be enacted, we expect it to impose costs on our operations, the materiality of which we cannot predict.
Absent comprehensive federal legislation to control greenhouse gas emissions, the EPA is moving ahead administratively under its existing Clean Air Act authority. The EPA is compelled to issue rules by the U.S. Supreme Court's April 2007 Massachusetts v. EPA ruling that greenhouse gases are “pollutants” for purposes of the Clean Air Act and the EPA's December 2009 finding that continued emissions of greenhouse gases endanger human health and welfare. With respect to our light- and heavy-duty vehicle fleet, the EPA has since finalized regulations limiting greenhouse gas emissions and increasing fuel economy standards. the EPA and the NHTSA have finalized such regulations applicable to heavy-duty vehicles through model-year 2018 and to light-duty vehicles through model-year 2025. We cannot assure you that federal efforts to curtail greenhouse gas emissions and to increase the fuel efficiency of light-duty and heavy-duty vehicles will not have a material effect on our consolidated financial condition, results of operations or cash flows.
As it relates to stationary sources of greenhouse gases, in May 2010 the EPA finalized the Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule (Tailoring Rule). The Tailoring Rule sets levels of greenhouse gas emissions at new or modified stationary emission sources that trigger permit and control obligations based upon such sources' total greenhouse gas emissions. Recent efforts to challenge the Tailoring Rule before the U.S. Court of the Appeals for the District of Columbia (the DC Circuit) have failed. Most recently, a federal appellate court decision has called into question certain regulatory deferrals that had been established for biogenic carbon dioxide emissions, including those from landfills. The D.C. Circuit struck down the EPA’s July 2011 rule deferring the application of the Tailoring Rule to biogenic carbon emissions. Subsequently, on July 17, 2014, the EPA proposed updates to its regulations that would require large landfills that commenced construction, reconstruction, or modification on or after July 17, 2014 to capture additional landfill gas to reduce emissions of methane and certain non-methane gases, which are recognized as greenhouse gases. That same day, the EPA also issued an Advance Notice of Proposed Rulemaking seeking input on whether and how to update emissions limits for existing landfills to further reduce their emissions of methane and non-methane greenhouse gases. These regulations, if finally adopted, may require our landfills to deploy more stringent emission controls and monitoring systems, with resulting capital or operating costs. We cannot assure you that the application of these or other greenhouse gas regulations to our landfills will not have a material effect on our landfill operations or on our consolidated financial condition, results of operations or cash flows.
We may have environmental liabilities that are not covered by our insurance. Changes in insurance markets also may impact our financial results.
We may incur liabilities for the deterioration of the environment arising from our operations or properties. We maintain high deductibles for our environmental liability insurance coverage. If we were to incur substantial liability for environmental damage, our insurance coverage may be inadequate to cover such liability. This could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.
Also, due to the variable condition of the insurance market, we may experience future increases in insurance levels as a result of increased retention levels and increased premiums. As we assume more risk for insurance through higher retention levels, we may experience more variability in our insurance reserves and expense.


18


Despite our efforts, we may incur additional liability under environmental laws in excess of amounts presently known and accrued.
We are a potentially responsible party at many sites under CERCLA, which provides for the remediation of contaminated facilities and imposes strict, joint and several liability for the cost of remediation on current owners and operators of a facility at which there has been a release or a threatened release of a “hazardous substance.” CERCLA liability also extends to parties who were site owners and operators at the time hazardous substances were disposed, and on persons who arrange for the disposal of such substances at the facility (i.e., generators of the waste and transporters who selected the disposal site). Hundreds of substances are defined as “hazardous” under CERCLA and their presence, even in minute amounts, can result in substantial liability.
Notwithstanding our efforts to comply with applicable environmental laws, we may have additional liability under environmental laws in excess of our current reserves because, among other things, hazardous substances may be present in waste collected by us or disposed of in our landfills (or in waste collected, transported or disposed of in the past by companies we have acquired), environmental laws may change, or there may be adverse environmental conditions that develop or were otherwise previously unknown to us. For example, during 2012 through 2014, we recorded an aggregate of $393.4 million in charges relating to environmental remediation at our closed landfill in Bridgeton, Missouri. Actual costs for liabilities at Bridgeton or other sites could be significantly greater than amounts we have accrued for these purposes. Environmental liabilities in excess of our current reserves could have a material adverse impact on our consolidated financial position, results of operations and cash flows.
Currently pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements.
We are and will continue to be involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings arising out of the ordinary course of our business. Many of these matters raise complicated factual and legal issues and are subject to uncertainties. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is uncertain. Further, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments and adversely affect our consolidated financial condition, results of operations and cash flows.
We may be unable to manage our growth effectively.
Our growth strategy places significant demands on our financial, operational and management resources. To continue our growth, we may need to add administrative and other personnel, and may need to make additional investments in operations and systems. We cannot assure you that we will be able to find and train qualified personnel, or do so on a timely basis, or to expand our operations and systems to the extent, and in the time, required.
We may be unable to execute our acquisition growth strategy.
Our ability to execute our growth strategy depends in part on our ability to identify and acquire desirable acquisition candidates and on our ability to successfully integrate acquired operations into our business. The integration of our operations with those of acquired companies may present significant challenges to our management. In addition, competition for acquisition candidates may prevent us from acquiring certain acquisition candidates. Thus, we cannot assure you that:
desirable acquisition candidates exist or will be identified;
we will be able to acquire any of the candidates identified;
we will effectively integrate and manage companies we acquire; or
any acquisitions will be profitable or accretive to our earnings.
If any of these factors force us to alter our growth strategy, our growth prospects could be adversely affected.
Businesses we acquire may have undisclosed liabilities.
Our due diligence investigations of acquisition candidates may fail to discover certain undisclosed liabilities. If we acquire a company having undisclosed liabilities such as environmental, remediation or contractual liabilities, as a successor owner we may be responsible for such undisclosed liabilities. We try to minimize our exposure to such liabilities by conducting due diligence, by obtaining indemnification from each seller of the acquired companies, by deferring payment of a portion of the purchase price as security for the indemnification and by acquiring only specified assets. However, we cannot assure you that we will be able to obtain indemnification or that any indemnification obtained will be enforceable, collectible or sufficient in amount, scope or duration to fully offset any undisclosed liabilities arising from our acquisitions.

19


Our consolidated financial statements are based on estimates and assumptions that may differ from actual results.
Our consolidated financial statements have been prepared in accordance with U.S. GAAP and necessarily include amounts based on management's estimates. Actual results may differ from these amounts. Significant items requiring management to make subjective or complex judgments about matters that are inherently uncertain include the recoverability of long-lived assets, the depletion and amortization of landfill development costs, accruals for final capping, closure and post-closure costs, valuation allowances for accounts receivable and deferred tax assets, liabilities for potential litigation, claims and assessments, and liabilities for environmental remediation, multiemployer pension plans, employee benefit plans, deferred taxes, uncertain tax positions, insurance and our estimates of the fair values of assets acquired and liabilities assumed in any acquisition. We cannot assure you that the liabilities recorded for items such as these will be adequate to cover the costs we ultimately will face.
The introduction of new accounting rules, laws or regulations could adversely impact our reported results of operations.
Complying with new accounting rules, laws or regulations could adversely impact our results of operations or cause unanticipated fluctuations in our results of operations or financial conditions in future periods.
We may be subject to workforce influences, including work stoppages, which could increase our operating costs and disrupt our operations.
As of December 31, 2014, approximately 27% of our workforce was represented by various local labor unions. If our unionized workers were to engage in strikes, work stoppages or other slowdowns, we could experience a significant disruption of our operations and an increase in our operating costs, which could have an adverse impact on our consolidated financial condition, results of operations and cash flows. Additional groups of employees may seek union representation in the future and, if successful, the negotiation of collective bargaining agreements could divert management's attention and result in increased operating costs. If a greater percentage of our workforce becomes unionized, our consolidated financial condition, results of operations and cash flows could be adversely impacted due to the potential for increased operating costs.
Our obligation to fund multiemployer pension plans to which we contribute, or our withdrawal from such plans, may have an adverse impact on us.
We contribute to 27 multiemployer pension plans under collective bargaining agreements (CBAs) covering union-represented employees. Approximately 20% of our total current employees participate in such multiemployer plans. We do not administer these plans and generally are not represented on the boards of trustees of these plans. The Pension Protection Act enacted in 2006 (the PPA) requires under-funded pension plans to improve their funding ratios. Based on the information available to us, we believe that some of the multiemployer plans to which we contribute are either “critical” or “endangered” as those terms are defined in the PPA. Except as discussed in Note 11, Employee Benefit Plans, to our consolidated financial statements in Item 8 of this Form 10-K, we cannot determine at this time the amount of additional funding, if any, we may be required to make to these plans and, therefore, have not recorded any related liabilities. However, plan assessments could have an adverse impact on our results of operations or cash flows for a given period.
Further, under current law, upon the termination of a multiemployer pension plan, or in the event of a withdrawal by us (which we consider from time to time) or a mass withdrawal of contributing employers (each, a Withdrawal Event), we would be required to make payments to the plan for our proportionate share of the plan's unfunded vested liabilities. We cannot assure you that there will not be a Withdrawal Event with respect to any of the multiemployer pension plans to which we contribute or that, in the event of such a Withdrawal Event, the amounts we would be required to contribute would not have a material adverse impact on our consolidated financial condition, results of operations and cash flows.
For additional discussion and detail regarding multiemployer pension plans see, Note 11, Employee Benefit Plans, to our consolidated financial statements in Item 8 of this Form 10-K.
The costs of providing for pension benefits and related funding requirements are subject to changes in pension fund values and fluctuating actuarial assumptions, and may have a material adverse impact on our results of operations and cash flows.
We sponsor a defined benefit pension plan that is funded with trustee assets invested in a diversified portfolio of debt and equity securities. Our costs for providing such benefits and related funding requirements are subject to changes in the market value of plan assets. Our pension expenses and related funding requirements are also subject to various actuarial calculations and assumptions, which may differ materially from actual results due to changing market and economic conditions, interest rates and other factors. A significant increase in our pension obligations and funding requirements could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

20


The loss of key personnel could have a material adverse effect on our consolidated financial condition, results of operations, cash flows and growth prospects.
Our future success depends on the continued contributions of several key employees and officers. The loss of the services of key employees and officers, whether such loss is through resignation or other causes, or the inability to attract additional qualified personnel, could have a material adverse effect on our financial condition, results of operations, cash flows and growth prospects.
A cyber security incident could negatively impact our business and our relationships with customers.
We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking and other online activities to connect with our employees and our customers. Such uses give rise to cyber security risks, including security breach, espionage, system disruption, theft and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ personal information, private information about employees, and financial and strategic information about the Company and its business partners. We also rely on a Payment Card Industry compliant third party to protect our customers’ credit card information. While the Company pursues its strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cyber security risk. If we fail to assess and identify cyber security risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. Additionally, while we have implemented measures to prevent security breaches and cyber incidents, our preventive measures and incident response efforts may not be entirely effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability and competitive disadvantage.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate office is located at 18500 North Allied Way, Phoenix, Arizona 85054, where we currently lease approximately 145,000 square feet of office space. We also maintain regional administrative offices in all of our regions.
Our principal property and equipment consists of land, landfills, buildings, vehicles and equipment. We own or lease real property in the states in which we conduct operations. As of December 31, 2014, we owned or operated 340 collection operations, 198 transfer stations, 189 active solid waste landfills and 60 recycling centers in 39 states and Puerto Rico. In aggregate, our active solid waste landfills total approximately 105,000 acres, including approximately 37,000 permitted acres. We also own or have responsibilities for 125 closed landfills. We believe that our property and equipment are adequate for our current needs.
ITEM 3.
LEGAL PROCEEDINGS
General Legal Proceedings
We are subject to extensive and evolving laws and regulations and have implemented safeguards to respond to regulatory requirements. In the normal course of our business, we become involved in legal proceedings. Some may result in fines, penalties or judgments against us, which may impact earnings and cash flows for a particular period. Although we cannot predict the ultimate outcome of any legal matter with certainty, we do not believe the outcome of any of our pending legal proceedings will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
As used herein, the term legal proceedings refers to litigation and similar claims against us and our subsidiaries, excluding: (1) ordinary course accidents, general commercial liability and workers compensation claims, which are covered by insurance programs, subject to customary deductibles, and which, together with self-insured employee health care costs, are discussed in Note 7, Other Liabilities, to our consolidated financial statements in Item 8 of this Form 10-K; and (2) environmental remediation liabilities, which are discussed in Note 8, Landfill and Environmental Costs, to our consolidated financial statements in Item 8 of this Form 10-K.

21


We accrue for legal proceedings when losses become probable and reasonably estimable. We have recorded an aggregate accrual of approximately $68 million relating to our outstanding legal proceedings as of December 31, 2014. As of the end of each applicable reporting period, we review each of our legal proceedings and, where it is probable that a liability has been incurred, we accrue for all probable and reasonably estimable losses. Where we are able to reasonably estimate a range of losses we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate. If we are able to reasonably estimate a range but no amount within the range appears to be a better estimate than any other, we use the amount that is the low end of such range. If we had used the high ends of such ranges, our aggregate potential liability would be approximately $74 million higher than the amount recorded as of December 31, 2014.
Legal Proceedings over Certain Environmental Matters Involving Governmental Authorities with Possible Sanctions of $100,000 or More
Item 103 of the SEC's Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions unless we reasonably believe the monetary sanctions will not equal or exceed $100,000. We are disclosing the following matters in accordance with that requirement:
Bridgeton Landfill Matters - Regulatory
On July 23, 2012, the Missouri Department of Natural Resources (MDNR) issued a notice of violation (NOV) to the closed Bridgeton Landfill in Bridgeton, Missouri after it determined that a sub-surface smoldering event (SSE) was occurring at the landfill. The NOV specified required actions intended to prevent the spread of the SSE, offsite odors, and environmental pollution. On March 27, 2013, the Missouri Attorney General's Office, on behalf of MDNR, sued Republic Services, Inc., and our subsidiaries Allied Services, LLC, and Bridgeton Landfill, LLC in the Circuit Court of St. Louis County in connection with odors and leachate from the landfill. The action alleges, among other things, violations of the Missouri Solid Waste Management, Hazardous Waste Management, Clean Water, and Air Conservation Laws, and claims for nuisance, civil penalties, costs, and natural resource damages. The suit seeks a preliminary and permanent injunction requiring us to take measures to remedy the alleged resulting nuisance and other relief. On May 13, 2013, the court entered a stipulated preliminary injunction under which, the Bridgeton Landfill, LLC agreed, among other things, to continue remedial work plans previously approved by MDNR and to continue reporting to MDNR. On June 19, 2014, the court entered an agreed amendment to the injunction providing for increased frequency in some carbon monoxide monitoring, three new rounds of air sampling, implementation of an Odor Management Plan, and cost reimbursement to MDNR.
Sunshine Canyon Landfill Matter
The Sunshine Canyon Landfill, in Sylmar, California, entered into settlement agreements with the South Coast Air Quality Management District (SCAQMD) in 2012 and 2013. The settlement agreements resolved claims for excess emission charges, civil penalties, and investigative and administrative costs relating to odor-related and surface emissions NOVs received from SCAQMD. Since the period covered by the 2013 settlement agreement, Sunshine Canyon has received an additional 52 NOVs from SCAQMD for odors and excess surface emissions.
ITEM 4.
MINE SAFETY DISCLOSURES
None.

22


PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders and Dividends
The principal market for our common stock is the New York Stock Exchange, and it is traded under the symbol RSG. The following table sets forth the range of the high and low sale prices per share of our common stock on the New York Stock Exchange and the cash dividends declared per share of common stock for the periods indicated:
 
High
 
Low
 
Dividends
Declared
Year Ended December 31, 2014:
 
 
 
 
 
First quarter
$
34.65

 
$
31.42

 
$
0.260

Second quarter
38.13

 
33.99

 
0.260

Third quarter
39.66

 
36.72

 
0.280

Fourth quarter
41.12

 
37.18

 
0.280

Year Ended December 31, 2013:
 
 
 
 
 
First quarter
$
33.01

 
$
29.34

 
$
0.235

Second quarter
35.28

 
32.07

 
0.235

Third quarter
35.61

 
31.94

 
0.260

Fourth quarter
35.29

 
32.29

 
0.260

There were 710 holders of record of our common stock at February 10, 2015, which does not include beneficial owners for whom Cede & Co. or others act as nominees.
In February 2015, our board of directors declared a regular quarterly dividend of $0.28 per share for shareholders of record on April 1, 2015. We expect to continue to pay quarterly cash dividends, and we may consider increasing our dividends if we believe it will enhance shareholder value.
We have the ability under our credit facilities to pay dividends and repurchase our common stock if we are in compliance with the financial covenants in our credit facilities. As of December 31, 2014, we were in compliance with those financial covenants.
Issuer Purchases of Equity Securities
The following table provides information relating to our purchases of shares of our common stock during the three months ended December 31, 2014:
 
Total Number of
Shares (or Units) Purchased (a)
 
Average Price Paid
per Share (a)
 
Total Number of Shares
Shares Purchased as
Part of Publicly
Announced Program (b)
 
Approximate Dollar
Value of  Shares that
May Yet Be Purchased
Under the Program (c)
October 2014
40,000

 
$
38.89

 
40,000

 
$
481,745,126

November 2014
2,650,000

 
39.18

 
2,650,000

 
377,928,196

December 2014
450,000

 
39.29

 
450,000

 
360,247,375

 
3,140,000

 
 
 
3,140,000

 
 
(a)
In October 2013, our board of directors added $650 million to the share repurchase authorization originally approved by the board of directors in November 2010. The program extends through December 31, 2015. Share repurchases under the program may be made through open market purchases or privately negotiated transactions in accordance with applicable federal securities laws. While the board of directors has approved the 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.

23


(b)
The total number of shares purchased as part of the publicly announced program were all purchased pursuant to the October 2013 authorization.
(c)
Shares that may be purchased under the program exclude shares of common stock that may be surrendered to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted stock issued to employees.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the three months ended December 31, 2014.
Performance Graph
The following graph compares the performance of our common stock to the Standard & Poor’s 500 Stock Index (S&P 500 Index) and the Dow Jones Waste & Disposal Services Index (DJ W&DS Index). The graph covers the period from December 31, 2009 to December 31, 2014 and assumes that the value of the investment in our common stock and in each index was $100 as of December 31, 2009 and that all dividends were reinvested.
 
Indexed Returns for the Years Ended December 31,
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Republic Services, Inc.
$
100.00

 
$
108.27

 
$
102.81

 
$
113.11

 
$
131.91

 
$
164.55

S&P 500 Index
100.00

 
115.06

 
117.49

 
136.30

 
180.44

 
205.14

DJ W&DS Index
100.00

 
118.78

 
118.99

 
129.11

 
161.31

 
183.49

ITEM 6.
SELECTED FINANCIAL DATA
You should read the following Selected Financial Data in conjunction with Item 8, Financial Statements and Supplementary Data, which includes our consolidated financial statements and notes thereto as of December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014 and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-K.

24


See Notes 1, 2, 3, 8, 9, 10 and 12 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for a discussion of basis of presentation, significant accounting policies, business acquisitions and divestitures, landfill and environmental costs, debt, income taxes and stockholders’ equity and their effect on comparability of year-to-year data. These historical results are not necessarily indicative of the results to be expected in the future. Amounts are in millions, except per share data.
 
Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue
$
8,788.3

 
$
8,417.2

 
$
8,118.3

 
$
8,192.9

 
$
8,106.6

Expenses:
 
 
 
 
 
 
 
 
 
Cost of operations
5,628.1

 
5,234.7

 
5,005.7

 
4,865.1

 
4,764.8

Depreciation, amortization and depletion
906.9

 
877.4

 
848.5

 
843.6

 
833.7

Accretion
78.0

 
76.6

 
78.4

 
78.0

 
80.5

Selling, general and administrative
918.9

 
853.8

 
820.9

 
825.4

 
858.0

Negotiation and withdrawal costs - Central States Pension and Other Funds
1.5

 
157.7

 
35.8

 

 

Loss (gain) on disposition of assets and impairments, net
20.0

 
(1.9
)
 
(2.7
)
 
28.1

 
19.1

Restructuring charges
1.8

 
8.6

 
11.1

 

 
11.4

Operating income
1,233.1

 
1,210.3

 
1,320.6

 
1,552.7

 
1,539.1

Interest expense
(348.7
)
 
(360.0
)
 
(388.5
)
 
(440.2
)
 
(507.4
)
Loss on extinguishment of debt
(1.4
)
 
(2.1
)
 
(112.6
)
 
(210.8
)
 
(160.8
)
Interest income
0.6

 
0.7

 
1.0

 
0.3

 
0.7

Other income, net
1.7

 
2.3

 
3.4

 
4.3

 
5.4

Income before income taxes
885.3

 
851.2

 
823.9

 
906.3

 
877.0

Provision for income taxes
337.4

 
262.1

 
251.8

 
317.4

 
369.5

Net income
547.9

 
589.1

 
572.1

 
588.9

 
507.5

Net (income) loss attributable to noncontrolling interests
(0.3
)
 
(0.2
)
 
(0.3
)
 
0.3

 
(1.0
)
Net income attributable to Republic Services, Inc.
$
547.6

 
$
588.9

 
$
571.8

 
$
589.2

 
$
506.5

Basic earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
1.54

 
$
1.63

 
$
1.56

 
$
1.57

 
$
1.32

Weighted average common shares outstanding
356.7

 
362.1

 
366.9

 
376.0

 
383.0

Diluted earnings per share attributable to Republic Services, Inc. stockholders:
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
1.53

 
$
1.62

 
$
1.55

 
$
1.56

 
$
1.32

Weighted average common and common equivalent shares outstanding
358.1

 
363.4

 
368.0

 
377.6

 
385.1

Cash dividends per common share
$
1.08

 
$
0.99

 
$
0.91

 
$
0.84

 
$
0.78

Other Operating Data:
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
1,529.8

 
$
1,548.2

 
$
1,513.8

 
$
1,766.7

 
$
1,433.7

Purchases of property and equipment
862.5

 
880.8

 
903.5

 
936.5

 
794.7

Proceeds from sales of property and equipment
35.7

 
23.9

 
28.7

 
34.6

 
37.4

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
75.2

 
$
213.3

 
$
67.6

 
$
66.3

 
$
88.3

Restricted cash and marketable securities
115.6

 
169.7

 
164.2

 
189.6

 
172.8

Total assets
20,094.0

 
19,949.2

 
19,616.9

 
19,551.5

 
19,461.9

Total debt
7,061.2

 
7,018.1

 
7,070.5

 
6,921.8

 
6,743.6

Total stockholders' equity
7,747.8

 
7,906.1

 
7,705.7

 
7,683.4

 
7,848.9


25


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in Item 8 of this 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 Item 1A, Risk Factors in this Form 10-K.
Overview
We are the second largest provider of services in the domestic non-hazardous solid waste industry, as measured by revenue. As of December 31, 2014, we operate in 39 states and Puerto Rico. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 340 collection operations. We own or operate 198 transfer stations, 189 active solid waste landfills and 60 recycling centers. We also operate 72 landfill gas and renewable energy projects.
Revenue for the year ended December 31, 2014 increased by 4.4% to $8,788.3 million compared to $8,417.2 million in 2013. This change in revenue is due to increases in average yield of 1.4%, fuel recovery fees of 0.1%, volume of 2.0%, recycled commodities of 0.1% and acquisitions, net of divestitures of 0.8%.
The following table summarizes our revenue, costs and expenses for the years ended December 31, 2014, 2013 and 2012 (in millions of dollars and as a percentage of revenue): 
 
2014
 
2013
 
2012
Revenue
$
8,788.3

 
100.0
%
 
$
8,417.2

 
100.0
 %
 
$
8,118.3

 
100.0
%
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of operations
5,628.1

 
64.0

 
5,234.7

 
62.2

 
5,005.7

 
61.7

Depreciation, amortization and depletion of property and equipment
838.5

 
9.6

 
806.7

 
9.6

 
778.4

 
9.6

Amortization of other intangible assets and other assets
68.4

 
0.8

 
70.7

 
0.8

 
70.1

 
0.9

Accretion
78.0

 
0.9

 
76.6

 
0.9

 
78.4

 
1.0

Selling, general and administrative
918.9

 
10.5

 
853.8

 
10.1

 
820.9

 
10.1

Negotiation and withdrawal costs - Central States Pension and Other Funds
1.5

 

 
157.7

 
1.9

 
35.8

 
0.4

Loss (gain) on disposition of assets and impairments, net
20.0

 
0.2

 
(1.9
)
 

 
(2.7
)
 

Restructuring charges
1.8

 

 
8.6

 
0.1

 
11.1

 
0.1

Operating income
$
1,233.1

 
14.0
%
 
$
1,210.3

 
14.4
 %
 
$
1,320.6

 
16.2
%
Our pre-tax income was $885.3 million, $851.2 million and $823.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. Our net income attributable to Republic Services, Inc. was $547.6 million, or $1.53 per diluted share for the year ended December 31, 2014, compared to $588.9 million, or $1.62 per diluted share, for the year ended December 31, 2013, and $571.8 million, or $1.55 per diluted share, for the year ended December 31, 2012.
During each of the three years ended December 31, 2014, 2013 and 2012, we recorded a number of charges and 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 “Cost of Operations,” “Selling, General and Administrative Expenses” and “Income Taxes” discussions contained in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of other items that impacted our earnings.
 

26


 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
Pre-tax
Income
 
Net
Income -
Republic
 
Diluted
Earnings
per
Share
 
Pre-tax
Income
 
Net
Income -
Republic
 
Diluted
Earnings
per
Share
 
Pre-tax
Income
 
Net
Income -
Republic
 
Diluted
Earnings
per
Share
As reported
$
885.3

 
$
547.6

 
$
1.53

 
$
851.2

 
$
588.9

 
$
1.62

 
$
823.9

 
$
571.8

 
$
1.55

Negotiation and withdrawal costs - Central States Pension and Other Funds(1)
1.5

 
0.9

 
0.00

 
157.7

 
98.3

 
0.27

 
35.8

 
21.6

 
0.06

Restructuring charges(1)
1.8

 
1.0

 
0.00

 
8.6

 
5.6

 
0.02

 
11.1

 
6.6

 
0.02

Loss on extinguishment of debt(1)
1.4

 
0.9

 
0.00

 
2.1

 
1.3

 

 
112.6

 
68.6

 
0.18

Bridgeton remediation and other
227.1

 
137.6

 
0.38

 
108.7

 
65.6

 
0.18

 
74.1

 
44.7

 
0.12

Tax valuation allowance adjustment

 

 

 

 
(43.5
)
 
(0.12
)
 

 

 

Loss (gain) on disposition of assets and impairments, net
20.0

 
12.6

 
0.04

 
(1.9
)
 
(0.9
)
 

 
(5.3
)
 
(5.2
)
 
(0.01
)
Total adjustments
251.8

 
153.0

 
0.43

 
275.2

 
126.4

 
0.35

 
228.3

 
136.3

 
0.37

As adjusted
$
1,137.1

 
$
700.6

 
$
1.96

 
$
1,126.4

 
$
715.3

 
$
1.97

 
$
1,052.2

 
$
708.1

 
$
1.92

(1) The aggregate impact of these items noted to adjusted diluted earnings per share totals to $0.01 for the year ended December 31, 2014.
We believe that presenting adjusted pre-tax income, adjusted net income attributable to Republic Services, Inc., and adjusted diluted earnings per share, which are not measures determined in accordance with accounting principles generally accepted in the United States (U.S. GAAP), provides 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. In the case of the Bridgeton remediation charges, we are adjusting such amounts due to their significant effect on our operating results; however, in the ordinary course of our business, we often incur remediation adjustments that we do not adjust from our operating results. Our definition of adjusted pre-tax income, adjusted net income attributable to Republic Services Inc., and adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies.
Negotiation and withdrawal costs - Central States Pension and Other Funds. During the year ended December 31, 2014, we recorded charges to earnings of $1.5 million, primarily related to costs associated with our 2013 withdrawal from the Central States, Southeast and Southwest Areas Pension Fund (the Fund). During the years ended December 31, 2013 and 2012, we recorded charges to earnings of $157.7 million and $35.8 million, respectively, primarily related to our negotiation and withdrawal liability from the Fund.
Restructuring charges. During the fourth quarter of 2012, we announced a restructuring of our field and corporate operations to create a more efficient and competitive company. These changes included consolidating our field regions from four to three and our areas from 28 to 20, relocating office space, and reducing administrative staffing levels. During the year ended December 31, 2014, we incurred costs of $1.8 million due to a change in estimate of amounts recoverable from sublet income associated with abandoned office space with non-cancellable lease terms. During the years ended December 31, 2013 and 2012, we incurred $8.6 million and $11.1 million, respectively, of restructuring charges, which consisted of severance and other employee termination benefits, relocation benefits, and the closure of offices with lease agreements with non-cancelable terms.
Loss on extinguishment of debt. We refinanced our credit facilities and certain of our tax-exempt financings in 2014, resulting in non-cash charges for deferred issuance costs of $1.4 million. During the years ended December 31, 2013 and 2012, we completed various refinancing transactions that resulted in cash paid for premiums and professional fees to repurchase outstanding debt, as well as non-cash charges for unamortized debt discounts and deferred issuance costs. For a more detailed discussion of the components of these costs and the debt series to which they relate, see our “Loss on Extinguishment of Debt” discussion contained in the Results of Operations section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

27


Bridgeton remediation and other. During 2014, we updated our cost and timeline estimates to build and operate a leachate management facility and related infrastructure, manage the remediation area and monitor the site. Accordingly, we recorded environmental remediation charges of $210.6 million. Additionally, we recorded certain remediation charges for the superfund site and ongoing litigation costs. During the years ended December 31, 2013 and 2012, we recorded environmental remediation charges in the amount of $108.7 million and $74.1 million, respectively, to manage the remediation area and monitor the site.
Tax valuation allowance adjustment. During the fourth quarter of 2013, we reduced our valuation allowance related to certain deferred tax assets for state net operating loss carryforwards due to our determination that it is more likely than not that a portion of these carryforwards would be utilized in future years.
Loss (gain) on disposition of assets and impairments, net. During 2014, we recorded a charge to earnings of $20.0 million primarily related to costs associated with one of our divested landfills, of which $14.1 million relates to closure and post-closure costs and $5.9 million relates to remediation expenditures. During each of the years ended December 31, 2013 and 2012, we recorded a net gain on disposition of assets of and impairments related to certain divestitures. For a more detailed discussion of the components of this, see our “Loss (gain) on Disposition of Assets and Impairments, Net” discussion contained in the Results of Operations section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recent Developments
In February 2015, we acquired all the equity of Tervita, LLC (Tervita) in exchange for a cash payment of approximately $485 million. Tervita is an environmental solutions provider serving oil and natural gas producers in the United States. Tervita provides oilfield waste services to its diverse customer base and operates three types of waste management and disposal facilities: treatment, recovery and disposal facilities; engineered landfills; and salt water disposal injection wells. Additionally, Tervita provides closed loop solids control systems and transportation services. While we have available cash on hand and capacity under our Credit Facilities, we are evaluating opportunities to finance the acquisition on a longer term basis.
2015 Guidance
In 2015, we will continue to focus on managing the controllable aspects of our business by enhancing the quality of our revenue, investing in profitable growth opportunities, and reducing costs. Our team remains focused on executing our strategy to deliver consistent earnings and free cash flow growth, and improve return on invested capital. We are committed to an efficient capital structure, maintaining our investment grade credit ratings, and increasing cash returns to our shareholders.
Our guidance is based on current economic conditions and does not assume any significant changes in the overall economy in 2015. The guidance includes the expected financial impact from the acquisition of Tervita, LLC in February 2015. Specific guidance follows:
Revenue
We expect 2015 revenue to increase by approximately 4.0% to 5.0% comprised of the following:
 
Increase
(Decrease)
Average yield
1.5
%
Volume
      1.5 to 2.0

Fuel recovery fees
(1.0)

Recycled commodities
(0.5) to (1.0)

Solid waste acquisitions
  1.5

E&P acquisition
1.5

Total change
4.0 to 5.0%


Changes in price are restricted on approximately 50% of our annual service revenue. Of these restricted pricing arrangements:
approximately 60% of the revenue has price changes based on fluctuations in a specific index (primarily the consumer price index) as defined in the contract;
approximately 20% of the revenue has fixed price increases based on stated contract terms; and

28


approximately 20% of the revenue has price changes based on a cost plus a specific profit margin or other measurement.
The consumer price index varies from a single historical stated period of time or an average of trailing historical rates over a stated period of time. In addition, the initial impact of pricing resets typically lags 6 to 12 months from the end of the index measurement period to the date the revised pricing goes into effect. As a result, current changes in a specific index may not manifest themselves in our reported pricing for several quarters into the future.
Diluted Earnings per Share
We expect 2015 diluted earnings per share to be in the range of $1.98 to $2.04.
Property and Equipment, Net
In 2015, we anticipate receiving approximately $885 million of property and equipment, net of proceeds from sales of property and equipment, as follows:
Trucks and equipment
$
350

Landfill
290

Containers
145

Facilities and other
125

Property and equipment received during 2015
910

Proceeds from sales of property and equipment
(25
)
Property and equipment received, net of proceeds, during 2015
$
885

Results of Operations
Revenue
We generate revenue primarily from our solid waste collection operations. Our remaining revenue is from other services, including transfer station services, landfill disposal and recycling. Our residential and commercial 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 the consumer price index. We generally provide commercial and industrial collection services to customers under contracts with terms up to three years. Our transfer stations, landfills and, to a lesser extent, our recycling facilities generate revenue from disposal or tipping fees charged to third parties. In general, we integrate our recycling operations with our collection operations and obtain revenue from the sale of recycled commodities. Other non-core revenue consists primarily of revenue from National Accounts, which represents the portion of revenue generated from nationwide contracts in markets outside our operating areas where the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.


29


The following table reflects our revenue by service line for the years ended December 31, 2014, 2013 and 2012 (in millions of dollars and as a percentage of revenue):
 
2014
 
2013
 
2012
Collection:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
2,193.6

 
25.0
%
 
$
2,175.5

 
25.8
%
 
$
2,155.7

 
26.6
%
Commercial
2,723.3

 
31.0

 
2,616.9

 
31.1

 
2,523.2

 
31.1

Industrial
1,784.0

 
20.3

 
1,639.4

 
19.5

 
1,544.2

 
19.0

Other
37.2

 
0.4

 
34.7

 
0.4

 
33.4

 
0.4

Total collection
6,738.1

 
76.7

 
6,466.5

 
76.8

 
6,256.5

 
77.1

Transfer
1,062.6

 
 
 
1,021.8

 
 
 
964.5

 
 
Less: intercompany
(654.4
)
 
 
 
(615.2
)
 
 
 
(575.3
)
 
 
Transfer, net
408.2

 
4.6

 
406.6

 
4.8

 
389.2

 
4.8

Landfill
2,014.5

 
 
 
1,927.2

 
 
 
1,863.3

 
 
Less: intercompany
(928.1
)
 
 
 
(902.2
)
 
 
 
(862.5
)
 
 
Landfill, net
1,086.4

 
12.4

 
1,025.0

 
12.2

 
1,000.8

 
12.3

Sale of recycled commodities
390.8

 
4.4

 
374.6

 
4.5

 
349.0

 
4.3

Other non-core
164.8

 
1.9

 
144.5

 
1.7

 
122.8

 
1.5

Other
555.6

 
6.3

 
519.1

 
6.2

 
471.8

 
5.8

Total revenue
$
8,788.3

 
100.0
%
 
$
8,417.2

 
100.0
%
 
$
8,118.3

 
100.0
%
The following table reflects changes in our revenue for the years ended December 31, 2014, 2013 and 2012:
 
2014
 
2013
 
2012
Average yield
1.4
%
 
1.3
%
 
0.8
 %
Fuel recovery fees
0.1

 
0.3

 
0.1

Total price
1.5

 
1.6

 
0.9

Volume
2.0

 
1.3

 
(1.0
)
Recycled commodities
0.1

 
0.3

 
(1.2
)
Total internal growth
3.6

 
3.2

 
(1.3
)
Acquisitions / divestitures, net
0.8

 
0.5

 
0.4

Total
4.4
%
 
3.7
%
 
(0.9
)%
 
 
 
 
 
 
Core price
3.1
%
 
3.3
%
 
2.8
 %
Revenue – 2014 compared to 2013
During the year ended December 31, 2014, we experienced the following changes in our revenue as compared to 2013:
Average yield increased revenue by 1.4% due to positive pricing in all lines of business.
The fuel recovery fee program, which mitigates our exposure to increases in fuel prices, generated 0.1% of the total revenue growth. These fees fluctuate with the price of fuel and, consequently, any increase in fuel prices would result in an increase in our revenue. Higher fuel recovery fees for 2014 resulted primarily from an increase in the fuel recovery rates charged. During 2014, we were able to recover approximately 78% of our direct fuel expenses with fuel recovery fees, compared to approximately 74% during 2013.
Volume increased revenue by 2.0%, primarily due to volume increases in our industrial and commercial collection and landfill lines of business due to improving business activity and new National Accounts contracts, partially offset by declines in our residential collection line and our transfer station lines of business. Volume increases in our landfill line of business were primarily attributable to increased special waste volumes.
Recycled commodities increased revenue by 0.1%, primarily due to the mix of materials and increased production volumes, offset by lower commodity prices. The average price for old corrugated cardboard for 2014 was $116 per ton compared to $128 per ton for 2013. The average price of old newspaper for 2014 was $89 per ton compared to

30


$93 per ton for 2013. Our recycled commodity volume for 2014 of 2.3 million tons sold was approximately 4% higher than the volume in 2013 as a result of our continued investment in recycling centers along with increases in brokering of recycled commodity volumes on behalf of our National Accounts customers.
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 $28 million and $16 million, respectively.
Revenue – 2013 compared to 2012
During the year ended December 31, 2013, we experienced the following changes in our revenue as compared to 2012:
Average yield increased revenue by 1.3% due to positive pricing in all lines of business.
The fuel recovery fee program generated 0.3% of the total revenue growth. Higher fuel recovery fees for 2013 as compared to 2012 resulted primarily from an increase in the fuel recovery rates charged. During 2013, we were able to recover approximately 74% of our direct fuel expenses with fuel recovery fees, compared to 67% during 2012.
Volume increased revenue by 1.3%, primarily due to higher volumes in commercial and industrial collection, disposal and non-core lines of business, partially offset by lower volumes in our residential collection line of business. Volume increases in our landfill line of business were primarily attributable to construction and special waste volumes, offset by decreases in municipal solid waste.
Recycled commodities increased revenue by 0.3%, primarily due to the change in the market price of materials as well as increased production volumes. The average price for old corrugated cardboard was $128 per ton for 2013 compared to $124 per ton for 2012. The average price of old newspaper was $93 per ton for 2013 compared to $105 per ton for 2012. Our recycled commodity volume for 2013 of 2.2 million tons sold was 9% higher than the volume in 2012 as a result of our investment in recycling centers along with higher organic volumes.
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 waste to disposal facilities and costs for local operators who provide waste handling services associated with our National Accounts in markets outside our standard operating areas; fuel, which includes the direct cost of fuel used by our vehicles, net of fuel tax credits; disposal franchise fees and taxes, consisting of landfill taxes, municipal franchise fees, host community fees and royalties; landfill operating costs, which includes financial assurance, leachate disposal, remediation charges and other landfill maintenance costs; risk management, which includes casualty insurance premiums and claims; cost of goods sold, which includes material costs paid to suppliers associated with recycled commodities; and other, which includes expenses such as facility operating costs, equipment rent and gains or losses on sale of assets used in our operations.

31


The following table summarizes the major components of our cost of operations for the years ended December 31, 2014, 2013 and 2012 (in millions of dollars and as a percentage of revenue):
 
2014
 
2013
 
2012
Labor and related benefits
$
1,724.1

 
19.6
%
 
$
1,651.6

 
19.6
%
 
$
1,573.9

 
19.4
%
Transfer and disposal costs
680.8

 
7.7

 
637.0

 
7.6

 
616.4

 
7.6

Maintenance and repairs
786.7

 
8.9

 
736.0

 
8.7

 
682.7

 
8.4

Transportation and subcontract costs
500.0

 
5.7

 
469.1

 
5.6

 
431.9

 
5.3

Fuel
500.0

 
5.7

 
516.7

 
6.1

 
530.1

 
6.5

Franchise fees and taxes
427.7

 
4.9

 
412.5

 
4.9

 
401.9

 
5.0

Landfill operating costs
145.1

 
1.6

 
116.4

 
1.4

 
124.0

 
1.5

Risk management
179.4

 
2.0

 
158.7

 
1.9

 
177.3

 
2.2

Cost of goods sold
160.4

 
1.8

 
132.8

 
1.6

 
114.6

 
1.4

Other
306.8

 
3.6

 
295.2

 
3.5

 
278.8

 
3.4

Subtotal
5,411.0

 
61.5

 
5,126.0

 
60.9

 
4,931.6

 
60.7

Bridgeton remediation
217.1

 
2.5

 
108.7

 
1.3

 
74.1

 
1.0

Total cost of operations
$
5,628.1

 
64.0
%
 
$
5,234.7

 
62.2
%
 
$
5,005.7

 
61.7
%
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 cost of operations by cost component to that of other companies.
Cost of Operations - 2014 compared to 2013
Our cost of operations increased $393.4 million or, as a percentage of revenue, 1.8% for the year ended December 31, 2014 compared to 2013, primarily as a result of the following:
Labor and related benefits increased due to increased hourly and salaried wages as a result of merit increases and higher collection volumes. The Central and East Regions experienced unfavorable weather conditions during the first quarter of 2014, which contributed to increases in labor expense, resulting from lower labor productivity.
Transfer and disposal costs increased primarily due to higher collection volumes. During each of 2014 and 2013, approximately 68% of the total waste volume we collected was disposed at landfill sites that we own or operate (internalization).
Maintenance and repairs expense increased due to higher collection volume, cost of parts, internal labor, third party truck repairs, vehicle complexity and costs associated with our fleet maintenance initiative.
Transportation and subcontract costs increased primarily due to new National Accounts contracts and subcontracted work resulting from growth in landfill special waste volume.
Our fuel costs decreased due to our continued conversion to lower cost CNG, lower prices of diesel fuel, and higher alternative fuel tax credits recognized in 2014. The national average fuel cost per gallon for 2014 was $3.83 compared to $3.92 for 2013, a decrease of $0.09 or approximately 2%.
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 changes our fuel recovery fee by approximately $25 million per year.
Franchise fees and taxes increased due primarily to volume increases in our landfill line of business.
Landfill operating expenses increased due to volume increases in our landfill line of business. Additionally, during 2013, we recorded favorable remediation adjustments of $17.1 million, of which $15.0 million relates to changes in the estimated timing of payments for our remediation obligations, which did not recur in 2014.
Risk management expenses increased primarily due to unfavorable actuarial development in our vehicle liability program in 2014, compared to favorable actuarial development in our workers' compensation, vehicle liability and general liability insurance programs in 2013. During 2014, we continued to see favorable development in our workers' compensation program.

32


Cost of goods sold relates to rebates paid for volumes delivered to our recycling facilities. Cost of goods sold in aggregate dollars increased primarily due to an increase in brokering and production of recycled commodity volumes.
Other expenses increased primarily due to higher facility operating costs, including property taxes related to infrastructure investments. Other expenses also increased due to higher utility costs associated with the unfavorable weather conditions experienced in our Central and East Regions during the first quarter of 2014, as well as $4.8 million of 2012 alternative fuel tax credits recognized during the first quarter of 2013, which did not recur in 2014.
During 2014, we updated our cost and timeline estimates to build and operate a leachate management facility and related infrastructure, manage the remediation area and monitor our closed Bridgeton Landfill in Missouri. Accordingly, we recorded environmental remediation charges of $210.6 million. Additionally, we recorded certain remediation charges for the superfund site. During 2013, we recorded environmental remediation charges in the amount of $108.7 million to manage the remediation area and monitor the site.
Cost of Operations – 2013 compared to 2012
Our cost of operations increased $229.0 million or, as a percentage of revenue, an increase of 0.5% for the year ended December 31, 2013 compared to 2012, primarily as a result of the following:
Labor and related benefits increased due to increased hourly and salaried wages as a result of merit increases, health care costs and collection volumes.
Transfer and disposal costs increased primarily due to higher prices and volumes disposed at third party sites. During 2013, approximately 68% of the total waste volume we collected was disposed at landfill sites that we own or operate (internalization) compared to 67% for 2012.
Maintenance and repairs expense increased due to higher collection volume, cost of parts, internal labor, third party truck repairs and costs associated with our fleet maintenance initiative. Container and compactor maintenance had an unfavorable impact on maintenance and repairs expense due primarily to increased container repairs resulting from unit growth in our commercial and industrial lines of business.
Subcontract costs increased primarily due to new National Accounts contracts and subcontracted work. Transportation costs increased due to an increase in transfer station volumes and increased fuel surcharges.
Our fuel costs in aggregate dollars and as a percentage of revenue decreased $13.4 million and 0.4%, respectively, due to our continued conversion to lower cost CNG and alternative fuel tax credits. Average fuel costs per gallon for 2013 were $3.92 compared to $3.97 for 2012, a decrease of 1%.
Franchise fees and taxes increased due to increased collection revenue in franchised markets as well as increased host fees and taxes due to increased landfill volumes.
Landfill operating expenses in aggregate dollars and as a percentage of revenue decreased $7.6 million and 0.1%, respectively, primarily due to net favorable remediation adjustments of $17.1 million, of which $15.0 million relates to changes in the estimated timing of payments for our remediation obligations, offset by increased leachate management expenses of $9.1 million.
Risk management expenses decreased primarily due to favorable actuarial development, primarily in our auto liability insurance reserves.
Cost of goods sold in aggregate dollars and as a percentage of revenue increased $18.2 million and 0.2%, respectively, primarily due to an increase in both the volume of commodities sold and the average cost per ton for commodities.
Included in other cost of operations is occupancy and facility costs, which increased $7.5 million primarily due to increased facility maintenance expense.
We recorded environmental remediation charges at our closed Bridgeton Landfill in Missouri of $108.7 million in June 2013 and $74.1 million during 2012 to manage the remediation area and monitor the site.

33


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, 2014, 2013 and 2012 (in millions of dollars and as a percentage of revenue):
 
2014
 
2013
 
2012
Depreciation and amortization of property
   and equipment
$
575.5

 
6.6
%
 
$
544.8

 
6.5
%
 
$
520.8

 
6.4
%
Landfill depletion and amortization
263.0

 
3.0

 
261.9

 
3.1

 
257.6

 
3.2

Depreciation, amortization and depletion
   expense
$
838.5

 
9.6
%
 
$
806.7

 
9.6
%
 
$
778.4

 
9.6
%
Depreciation, Amortization and Depletion of Property and Equipment - 2014 compared to 2013
Depreciation and amortization of property and equipment in aggregate dollars increased primarily due to higher acquisition costs of replacement vehicles and an increased number of CNG vehicles in our fleet, which are more expensive to purchase than diesel vehicles. In addition, we made increased investments in new and upgraded recycling infrastructure projects that became operational over the past several quarters.
Landfill depletion and amortization expense in aggregate dollars increased primarily due to increased landfill disposal volumes and an overall increase in our average depletion rate. Offsetting these increases were favorable amortization adjustments of $13.3 million that were recognized in 2014 relative to asset retirement obligations, compared to favorable amortization adjustments of $0.3 million in 2013. Included in these favorable adjustments are increases in deemed probable expansion airspace at certain of our active solid waste landfills.
Depreciation, Amortization and Depletion of Property and Equipment - 2013 compared to 2012
Depreciation and amortization of property and equipment in aggregate dollars increased $24.0 million, primarily due to higher costs of residential side loaders for automating our residential collection routes and an increased number of CNG vehicles. In addition, we made increased investments in new and upgraded recycling infrastructure projects that became operational over the past several quarters.
Landfill depletion and amortization expense in aggregate dollars increased $4.3 million, primarily due to increased landfill disposal volumes, as well as an overall increase in our average depletion rate. Offsetting these increases were favorable amortization adjustments of $0.3 million that were recognized in 2013 related to asset retirement obligations, compared to net unfavorable adjustments of $4.9 million in 2012. Landfill depletion and amortization as a percentage of revenue remained relatively consistent at 3.1% for 2013 and 3.2% for 2012.
Amortization of Other Intangible Assets and Other Assets
Expenses for amortization of other intangible assets and other assets were $68.4 million, $70.7 million and $70.1 million for the years ended December 31, 2014, 2013 and 2012, respectively, or, 0.8%, 0.8% and 0.9% of revenue, for 2014, 2013 and 2012, respectively. Our other intangible assets and other assets primarily relate to customer relationships, franchise agreements, other municipal agreements, favorable lease assets and, to a lesser extent, non-compete agreements and trade names. The decline in amortization is the result of certain intangible assets now being fully amortized, partially offset by assets acquired in the acquisitions of various solid waste businesses throughout the year.
Accretion Expense
Accretion expense was $78.0 million, $76.6 million and $78.4 million, or, 0.9%, 0.9% and 1.0% of revenue, for the years ended December 31, 2014, 2013 and 2012, 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,

34


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, 2014, 2013 and 2012 (in millions of dollars and as a percentage of revenue):
 
2014
 
2013
 
2012
Salaries
$
579.8

 
6.6
%
 
$
545.4

 
6.5
%
 
$
539.4

 
6.6
%
Provision for doubtful accounts
22.6

 
0.3

 
16.1

 
0.2

 
29.7

 
0.4

Other
316.5

 
3.6

 
292.3

 
3.4

 
251.8

 
3.1

Total selling, general and administrative expenses
$
918.9

 
10.5
%
 
$
853.8

 
10.1
%
 
$
820.9

 
10.1
%
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.
Selling, General and Administrative Expenses – 2014 compared to 2013
Salaries increased primarily due to higher wages resulting from merit increases, increased headcount and management incentive pay.
Provision for doubtful accounts increased primarily due to a net favorable adjustment, recorded in our corporate segment in 2013, of $8.3 million resulting from a change in our estimated future bad debts.
Other selling, general and administrative expenses increased primarily due to costs associated with strategic growth initiatives as well as costs incurred with the acquisition of various solid waste businesses.
Selling, General and Administrative Expenses – 2013 compared to 2012
Salaries increased $6.0 million, but remained relatively consistent as a percentage of revenue at 6.5% and 6.6% for 2013 and 2012, respectively. During 2013, we recorded severance costs due to management departures, and higher salaries, payroll taxes and benefits resulting from merit increases and management incentive pay, partially offset by lower salaries expense in connection with the reorganization.
Provision for doubtful accounts decreased $13.6 million and 0.2% of revenue, primarily due to a net favorable adjustment, recorded in our corporate segment, of $8.3 million resulting from a change in our estimated future bad debts.
Other selling, general and administrative expenses in aggregate dollars and as a percentage of revenue increased $40.5 million and 0.3%, respectively. These increases are primarily related to charges for legal settlements of $29.6 million for 2013, which relate to legal matters occurring in the ordinary course of business, as compared to net favorable legal settlement adjustments of $3.7 million for 2012.
Negotiation and Withdrawal Costs - Central States Pension and Other Funds
During the year ended December 31, 2014, we recorded charges to earnings of $1.5 million, primarily related to costs associated with our 2013 withdrawal from the Fund. During the years ended December 31, 2013 and 2012, we recorded charges to earnings of $157.7 million and $35.8 million, respectively, primarily related to our negotiation and withdrawal liability from the Fund.
For additional discussion and detail regarding our obligations to the Fund, see our Central States, Southeast and Southwest Areas Pension Fund discussion in Note 11, Employee Benefit Plans, to our consolidated financial statements in Item 8 of this Form 10-K.

35


Loss (Gain) on Disposition of Assets and Impairments, Net
During 2014, we recorded a charge to earnings of $20.0 million primarily related to costs associated with one of our divested landfills, of which $14.1 million relates to closure and post-closure costs and $5.9 million relates to remediation expenditures.
During 2013, we recorded a net gain on disposition of assets and impairments of $1.9 million, primarily related to the contingent sales price of $1.0 million received in connection with a 2011 business divestiture in our West Region.
During 2012, we recorded a net gain on disposition of assets and impairments of $2.7 million, primarily due to a $5.5 million net gain on a divestiture of a collection business in our East Region and a sale of certain assets associated with our rail logistics business.
Restructuring Charges
During the fourth quarter of 2012, we announced a restructuring of our field and corporate operations to create a more efficient and competitive company. These changes included consolidating our field regions from four to three and our areas from 28 to 20, relocating office space, and reducing administrative staffing levels. During 2014, we incurred costs of $1.8 million due to a change in estimate of amounts recoverable from sublet income associated with abandoned office space with non-cancellable lease terms. During 2013 and 2012, we incurred $8.6 million and $11.1 million of restructuring charges, respectively, which consisted of severance and other employee termination benefits, relocation benefits, and the closure of offices with lease agreements with non-cancelable terms.
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 the Allied acquisition (in millions of dollars):
 
2014
 
2013
 
2012
Interest expense on debt and capital lease obligations
$
310.3

 
$
319.8

 
$
338.5

Accretion of debt discounts
6.6

 
6.9

 
12.2

Accretion of remediation reserves and other
38.2

 
40.6

 
46.2

Less: capitalized interest
(6.4
)
 
(7.3
)
 
(8.4
)
Total interest expense
$
348.7

 
$
360.0

 
$
388.5

During the second half of 2013, we entered into various interest rate swap agreements relative to our 4.750% fixed rate senior notes due in May 2023. These swap agreements, which were designated as fair value hedges, have a total notional value of $300.0 million and resulted in a $7.7 million reduction in interest expense during 2014, compared to a $2.0 million reduction in interest expense during 2013. Additionally, there were lower variable rates on our tax-exempt financings, which also contributed to the reduction in interest expense during 2014. During 2014, 2013 and 2012, cash paid for interest was $320.2 million, $324.0 million and $341.0 million, respectively.

36


Loss on Extinguishment of Debt
The following table summarizes the refinancing transactions that resulted in cash paid for premiums and professional fees to
repurchase outstanding debt, as well as non-cash charges for unamortized debt discounts and deferred issuance costs for the years ended December 31, 2014, 2013 and 2012 (in millions of dollars):
 
Principal
Repaid
 
Cash Paid on
Loss on
Extinguishment
of Debt
 
Non-cash Loss
on
Extinguishment
of Debt
 
Total Loss on
Extinguishment
of Debt
2014:
 
 
 
 
 
 
 
Amendments to credit facilities
$

 
$

 
$
0.7

 
$
0.7

Tax-exempt financings
42.5

 

 
0.7

 
0.7

Loss on extinguishment of debt for the year ended
   December 31, 2014
 
 
$

 
$
1.4

 
$
1.4

2013:
 
 
 
 
 
 
 
Tax-exempt financings
$
189.1

 
$

 
$
2.1

 
$
2.1

Loss on extinguishment of debt for the year ended
   December 31, 2013
 
 
$

 
$
2.1

 
$
2.1

2012:
 
 
 
 
 
 
 
Amendments to credit facilities
$

 
$

 
$
1.5

 
$
1.5

$750.0 million 6.875% senior notes due June 2017
750.0

 
25.8

 
71.0

 
96.8

Tax-exempt financings
94.0

 

 
14.2

 
14.2

Ineffective portion of interest rate lock settlements

 
0.1

 

 
0.1

Loss on extinguishment of debt for the year ended
   December 31, 2012
 
 
$
25.9

 
$
86.7

 
$
112.6

Income Taxes
Our provision for income taxes was $337.4 million, $262.1 million and $251.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. Our effective income tax rate was 38.1%, 30.8% and 30.6% for 2014, 2013 and 2012, respectively. Our 2014 effective tax rate was favorably impacted by the realization of tax credits and lower state rates due to changes in estimates of approximately $5.1 million. Our 2013 effective tax rate was favorably impacted by approximately $42 million for adjustments to our valuation allowance, primarily due to the determination it was more likely than not the Company would be able to realize certain state loss carryforwards. In addition, our 2013 effective tax rate was favorably impacted by approximately $14 million due to a settlement for tax years 2009 to 2010 with the Internal Revenue Service (IRS) appeals division and the Joint Committee of Taxation. Lastly, our 2013 effective tax rate was favorably impacted by the realization of tax credits and lower state rates due to changes in estimates of approximately $9.6 million.
Our 2012 effective tax rate was favorably impacted by the settlement with the IRS appeals division for tax years 2004 to 2008. This settlement benefited our 2012 tax provision by approximately $35 million. The 2012 effective tax rate was also favorably impacted by the realization of tax credits and lower state rates due to changes in estimates of $16.0 million.
We made income tax payments (net of refunds received) of approximately $382 million, $288 million and $185 million for 2014, 2013 and 2012, respectively. Cash paid for income taxes increased over the periods primarily due to higher expected taxable income and the related deductible timing differences associated with certain remediation charges.
Income taxes paid in 2014 reflect the favorable tax depreciation provisions of the Tax Increase Protection Act of 2014, signed into law on December 16, 2014. This legislation extended 50% bonus depreciation for property placed in service during 2014.
Income taxes paid in 2013 reflect the favorable tax depreciation provisions of the American Tax Relief Act of 2012 signed into law on January 2, 2013. This legislation extended 50% bonus depreciation for property placed in service during 2013. Income taxes paid in 2012 reflect the favorable tax depreciation provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act). The Tax Relief Act included 50% bonus depreciation for property placed in service in 2012.
For additional discussion and detail regarding our income taxes, see Note 10, Income Taxes, to our consolidated financial statements in Item 8 of this Form 10-K.

37


Reportable Segments
We manage and evaluate our operations through three regions: East, Central and West. These three regions are presented below as our reportable segments, which provide integrated waste management services consisting of collection, transfer, recycling and disposal of domestic non-hazardous solid waste. Summarized financial information concerning our reportable segments for the years ended December 31, 2014, 2013 and 2012 is shown in the following table (in millions of dollars and as a percentage of revenue):
 
Net
Revenue
 
Depreciation, Amortization, Depletion and
Accretion Before
Adjustments for
Asset  Retirement
Obligations
 
Adjustments to Amortization
Expense
for Asset
Retirement
Obligations
 
Depreciation,
Amortization,
Depletion and
Accretion
 
(Loss) Gain on
Disposition of
Assets and Impairments, Net
 
Operating
Income
(Loss)
 
Operating
Margin
2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
East
$
2,498.1

 
$
269.4

 
$
(3.2
)
 
$
266.2

 
$

 
$
429.6

 
17.2
%
Central
2,622.4

 
324.7

 
(6.1
)
 
318.6

 

 
503.6

 
19.2

West
3,489.4

 
360.7

 
(5.6
)
 
355.1

 

 
825.7

 
23.7

Corporate entities
178.4

 
43.4

 
1.6

 
45.0

 
(20.0
)
 
(525.8
)
 
 
Total
$
8,788.3

 
$
998.2

 
$
(13.3
)
 
$
984.9

 
$
(20.0
)
 
$
1,233.1

 
14.0
%
2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
East
$
2,456.0

 
$
252.9

 
$
4.7

 
$
257.6

 
$

 
$
451.0

 
18.4
%
Central
2,512.1

 
307.4

 
(2.8
)
 
304.6

 

 
494.5

 
19.7

West
3,324.4

 
345.8

 
(3.0
)
 
342.8

 
1.9

 
766.6

 
23.1

Corporate entities
124.7

 
48.2

 
0.8

 
49.0

 

 
(501.8
)
 
 
Total
$
8,417.2

 
$
954.3

 
$
(0.3
)
 
$
954.0

 
$
1.9

 
$
1,210.3

 
14.4
%
2012:
 
 
 
 
 
 
 
 
 
 
 
 
 
East
$
2,445.8

 
$
247.6

 
$
(3.0
)
 
$
244.6

 
$
5.3

 
$
474.6

 
19.4
%
Central
2,424.8

 
289.6

 
(4.6
)
 
285.0

 
(0.3
)
 
474.5

 
19.6

West
3,158.0

 
333.5

 
(0.8
)
 
332.7

 
0.1

 
685.9

 
21.7

Corporate entities
89.7

 
51.3

 
13.3

 
64.6

 
(2.4
)
 
(314.4
)
 
 
Total
$
8,118.3

 
$
922.0

 
$
4.9

 
$
926.9

 
$
2.7

 
$
1,320.6

 
16.3
%
Corporate entities include legal, tax, treasury, information technology, risk management, human resources, corporate accounts, closed landfills and other administrative functions. National Accounts revenue included in corporate entities represents the portion of revenue generated from nationwide contracts in markets outside our operating areas where the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.
Significant changes in the revenue and operating margins of our reportable segments for 2014 compared to 2013 and 2013 compared to 2012 are discussed in the following paragraphs.
2014 compared to 2013    
East Region
Revenue for 2014 increased 1.7% from 2013, due primarily to increases in average yield in all lines of business, except for landfill construction and demolition. Volumes increased in our commercial and industrial collection, transfer station, and landfill special waste and construction and demolition lines of business but were partially offset by the decline in volume in our residential collection line of business. These increases were also partially offset by lower recycled commodity revenue.
Operating income in our East Region decreased from $451.0 million for 2013, or an 18.4% operating margin, to $429.6 million for 2014, or a 17.2% operating margin. The following cost categories impacted operating income:
Cost of operations unfavorably impacted operating income margin primarily due to higher repair and maintenance costs, increased labor and benefits and utility costs resulting largely from unfavorable weather conditions during the first quarter of 2014. These unfavorable items were partially offset by lower cost of goods sold and decreased fuel costs due to lower diesel fuel prices.


38


Depreciation and amortization of property and equipment unfavorably impacted operating income margin due to higher acquisition costs of replacement vehicles. Landfill depletion and amortization also unfavorably impacted operating income margin due to an overall increase in the average depletion rate, partially offset by favorable adjustments for asset retirement obligations of $3.2 million, compared to net unfavorable adjustments of $4.7 million in 2013.
Selling, general and administrative expenses unfavorably impacted operating income primarily due to $10.6 million of legal settlement charges from matters occurring in the ordinary course of business, compared to $3.1 million of legal settlement charges in 2013 .
Central Region
Revenue for 2014 increased 4.4% from 2013 primarily due to average yield increases in our commercial and industrial collection and transfer station lines of business, as well as volume increases in all collection and landfill lines of business, except for construction and demolition. These increases were partially offset by lowered recycled commodity revenue and a decrease in volume in our transfer station line of business.
Operating income increased and operating margin decreased in our Central Region from $494.5 million for 2013, or a 19.7% operating margin, to $503.6 million for 2014, or a 19.2% operating margin. The following cost categories impacted operating income:
Cost of operations favorably impacted operating income margin due primarily to decreased fuel costs resulting from lower diesel fuel prices, partially offset by higher repair and maintenance costs and cost of goods sold.
For 2014, the depreciation and amortization of property and equipment margin impact was flat.
Selling, general and administrative expenses unfavorably impacted operating income margin primarily due to $0.5 million of legal settlement charges, compared to favorable legal settlements recorded during 2013 of $16.7 million, which resulted from legal matters occurring in the ordinary course of business.
West Region
Revenue for 2014 increased 5.0% from 2013 due to increases in average yield in all core lines of business, and increases in volume in our collection and landfill lines of business. Volume increases in our landfill line of business were primarily attributable to increased special waste volumes.
Operating income in our West Region increased from $766.6 million for 2013, or a 23.1% operating margin, to $825.7 million for 2014, or a 23.7% operating margin, primarily as a result of increased revenue and the following:
Cost of operations favorably impacted operating income margin due primarily to decreased fuel costs resulting from lower diesel fuel prices, partially offset by higher cost of goods sold.
Landfill depletion was favorably impacted by the amortization adjustments of $5.6 million due primarily to an increase in deemed probable airspace expansion at one of our active solid waste landfills in 2014. Partially offsetting this favorable impact was higher depletion rates resulting from the acquisition of the San Angelo Landfill in the third quarter of 2014.
Selling, general and administrative expenses favorably impacted operating income margin during 2014 due to $7.6 million of legal settlement charges incurred, compared to $13.8 million of legal settlement charges incurred during 2013, from matters occurring in the ordinary course of business.
Gain on disposition of assets and impairments, net unfavorably impacted operating income margin during 2014 primarily due to contingent sale price of $1.0 million received in 2013 on a 2011 business divestiture.
Corporate Entities
Operating loss in our corporate region increased from $501.8 million for 2013 to $525.8 million for 2014. The increase in operating loss primarily relates to unfavorable remediation and litigation adjustments in 2014 of $227.1 million recorded at our closed Bridgeton Landfill in Missouri, compared to $108.7 million recorded in 2013. Additionally, during 2013, we recorded a net favorable adjustment of $8.3 million resulting from a change in our estimated future bad debts, favorable remediation adjustments of $17.1 million relating to changes in the estimated timing of payments for our remediation obligations and a favorable remediation adjustment for a closed landfill site of $12.1 million, which did not recur in 2014. Partially offsetting this increase in operating loss was a charge to earnings of $140.7 million in 2013 for our partial withdrawal liability from the Fund and Puerto Rico multiemployer pension plans, which also did not recur in 2014.

39


2013 compared to 2012    
East Region
Revenue for 2013 increased 0.4% from 2012, primarily due to average yield and volume increases in our commercial and industrial collection lines of business and an average yield increase in our landfill line of business. These increases were partially offset by declines in volume in our residential collection, landfill and transfer station lines of business. The volume declines in our residential collection line of business were primarily due to the loss of certain municipal contracts, and the volume decreases in our disposal lines of business were primarily related to the loss of certain disposal contracts.
Operating income in our East Region decreased from $474.6 million for 2012, or a 19.4% operating margin, to $451.0 million for 2013, or an 18.4% operating margin, primarily as a result of the following:
Cost of operations unfavorably impacted operating income during 2013 compared to 2012, primarily due to higher labor and benefits and repair and maintenance costs. These unfavorable items were partially offset by lower fuel expenses due to lower prices of diesel fuel and reduced risk management expenses. Cost of goods sold increased for 2013 from 2012 primarily due to a higher volume of commodities sold.
Depreciation, amortization, depletion and accretion unfavorably impacted operating income during 2013 compared to 2012 primarily due to unfavorable adjustments for asset retirement obligations of $4.7 million in 2013 compared to net favorable adjustments of $3.0 million in 2012.
Selling, general and administrative expenses favorably impacted operating income, primarily due to higher provisions for doubtful accounts in 2012 compared to 2013.
Net gains on disposition of assets and impairments unfavorably impacted operating income during 2013 compared to 2012, primarily as a result of a $5.5 million net gain on the divestiture of a collection business and the sale of certain assets associated with our rail logistics business in 2012.
Central Region
Revenue for 2013 increased 3.6% from 2012, primarily due to average yield and volume increases in our commercial and industrial collection lines of business, increased volumes in our residential collection line of business, increased municipal solid waste landfill volume and increased average yield for our disposal lines of business. These increases were partially offset by declines in transfer station volumes.
Operating income in our Central Region increased from $474.5 million for 2012, or a 19.6% operating margin, to $494.5 million for 2013, or a 19.7% operating margin, primarily as a result of the following:
Cost of operations unfavorably impacted operating income due to higher labor and benefits, repair and maintenance, and cost of goods sold. Cost of goods sold increased for 2013 from 2012 primarily due to a higher volume of commodities sold.
Selling, general and administrative expenses favorably impacted operating income for 2013 compared to 2012, primarily due to lower legal settlement and legal fee expenses, offset by increased provisions for doubtful accounts.
West Region
Revenue for 2013 increased 5.3% from 2012, primarily due to increases in average yield and volume in substantially all core lines of business. Volume increases in the landfill line of business were primarily due to increased special waste event work.
Operating income in our West Region increased from $685.9 million for 2012, or a 21.7% operating margin, to $766.6 million for 2013, or a 23.1% operating margin, primarily as a result of the following:
Cost of operations favorably impacted operating income margin primarily due to lower fuel costs, which were primarily driven by increased usage of CNG and alternative fuel credits, offset by other operating cost increases.
During 2013, we recorded a net gain on disposition of assets and impairments of $1.9 million, primarily related to contingent sale price of $1.0 million received during the first quarter of 2013 in connection with a 2011 business divestiture and the disposal of a business in one market, which resulted in a gain of $0.9 million and proceeds of $1.7 million.

40


Corporate Entities
During 2013, the corporate entities had operating loss of $501.8 million compared to $314.4 million for 2012. Operating loss for 2013 was adversely impacted by a $108.7 million charge recorded in connection with remediation at our closed Bridgeton Landfill in Missouri, as compared to $74.1 million of charges recorded in 2012, a charge to earnings of $140.7 million during 2013 for our withdrawal liability from the Fund and Puerto Rico multiemployer pension plans, as compared to $30.7 million of charges recorded in 2012, and certain legal settlement charges in 2013 of $31.3 million.
Landfill and Environmental Matters
Our landfill costs include daily operating expenses, costs of capital for cell development, costs for final capping, closure and post-closure, and the legal and administrative costs of ongoing environmental compliance. Daily operating expenses include leachate treatment and disposal, methane gas and groundwater monitoring and system maintenance, interim cap maintenance, and costs associated with applying daily cover materials. We expense all indirect landfill development costs as they are incurred. We use life cycle accounting and the units-of-consumption method to recognize certain direct landfill costs related to landfill development. In life cycle accounting, certain direct costs are capitalized and charged to depletion expense based on the consumption of cubic yards of available airspace. These costs include all costs to acquire and construct a site, including excavation, natural and synthetic liners, construction of leachate collection systems, installation of methane gas collection and monitoring systems, installation of groundwater monitoring wells, and other costs associated with 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 costs, available airspace, inflation and applicable regulations. Changes in available airspace include changes in engineering estimates, changes in design and changes due to the addition of airspace lying in expansion areas that we believe have a probable likelihood of being permitted.


41


Available Airspace
 
Balance
as of
December 31,
2013
 
New
Expansions
Undertaken
 
Landfills
Acquired,
Net of
Divestitures
 
Permits
Granted,
Net of
Closures
 
Airspace
Consumed
 
Changes
in
Engineering
Estimates
 
Balance
as of
December 31,
2014
Cubic yards (in millions):
 
 
 
 
 
 
 
 
 
 
 
 
 
Permitted airspace
4,650.6

 

 

 
79.8

 
(74.6
)
 
(71.7
)
 
4,584.1

Probable expansion airspace
222.9

 
66.5

 

 
(59.4
)
 

 
31.7

 
261.7

Total cubic yards (in millions)
4,873.5