Financial Instruments

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

FINANCIAL INSTRUMENTS

Fuel Hedges

We have entered into multiple swap agreements designated as cash flow hedges to mitigate some of our exposure related to changes in diesel fuel prices. These swaps qualified for, and were designated as, effective hedges of changes in the prices of forecasted diesel fuel purchases (fuel hedges).

The following table summarizes our outstanding fuel hedges as of June 30, 2016:

Year	Gallons Hedged	Weighted Average Contract  Price per Gallon
2016	13,500,000	3.57
2017	12,000,000	2.92

If the national U.S. on-highway average price for a gallon of diesel fuel as published by the Department of Energy exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional gallons) from the counterparty. If the average price is less than the contract price per gallon, we pay the difference to the counterparty.

The fair values of our fuel hedges are determined using standard option valuation models with assumptions about commodity prices based on those observed in underlying markets (Level 2 in the fair value hierarchy). The aggregate fair values of our outstanding fuel hedges as of June 30, 2016 and December 31, 2015 were current liabilities of $19.6 million and $37.8 million, respectively, and have been recorded in other accrued liabilities in our consolidated balance sheets. The ineffective portions of the changes in fair values resulted in gains of $0.3 million and $0.5 million for the three and six months ended June 30, 2016, respectively, and a gain (loss) of $0.2 million and $(0.1) million for the three and six months ended June 30, 2015, respectively, and have been recorded in other expense, net in our consolidated statements of income.

Total gain recognized in other comprehensive loss, net of tax, for fuel hedges (the effective portion) was $7.8 million and $5.6 million for the three months ended June 30, 2016 and 2015, respectively, and $10.7 million and $5.8 million for the six months ended June 30, 2016 and 2015. We classify cash inflows and outflows from our fuel hedges within operating activities in the unaudited consolidated statements of cash flows.

Recycling Commodity Hedges

Revenue from the sale of recycled commodities is primarily from sales of old corrugated cardboard and old newspaper. From time to time we use derivative instruments such as swaps and costless collars designated as cash flow hedges to manage our exposure to changes in prices of these commodities. We had no outstanding recycling commodity hedges as of June 30, 2016 and December 31, 2015.

Fair Value Measurements

In measuring the fair values of assets and liabilities, we use valuation techniques that maximize the use of observable inputs (Level 1) and minimize the use of unobservable inputs (Level 3). We also use market data or assumptions that we believe market participants would use in pricing an asset or liability, including assumptions about risk when appropriate.

The carrying value for certain of our financial instruments, including cash, accounts receivable, accounts payable and certain other accrued liabilities, approximates fair value because of their short-term nature.

As of June 30, 2016 and December 31, 2015, our assets and liabilities that are measured at fair value on a recurring basis include the following:

			Fair Value Measurements Using
	Carrying Amount		Total as of June 30, 2016		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market mutual funds	$	40.1	$	40.1	$	40.1	$	—	$	—
Bonds - restricted cash and marketable securities and other assets	54.2		54.2		—		54.2		—
Interest rate swaps - other assets	31.7		31.7		—		31.7		—
Total assets	$	126.0	$	126.0	$	40.1	$	85.9	$	—
Liabilities:
Fuel hedges - other accrued liabilities	$	19.6	$	19.6	$	—	$	19.6	$	—
Interest rate locks - other long-term liabilities	19.5		19.5		—		19.5		—
Contingent consideration - other long-term liabilities	69.3		69.3		—		—		69.3
Total liabilities	$	108.4	$	108.4	$	—	$	39.1	$	69.3

			Fair Value Measurements Using
	Carrying Amount		Total as of December 31, 2015		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market mutual funds	$	43.0	$	43.0	$	43.0	$	—	$	—
Bonds - restricted cash and marketable securities and other assets	56.3		56.3		—		56.3		—
Interest rate swaps - other assets	16.5		16.5		—		16.5		—
Total assets	$	115.8	$	115.8	$	43.0	$	72.8	$	—
Liabilities:
Fuel hedges - other accrued liabilities	$	37.8	$	37.8	$	—	$	37.8	$	—
Contingent consideration- other long-term liabilities	69.6		69.6		—		—		69.6
Total liabilities	$	107.4	$	107.4	$	—	$	37.8	$	69.6

Total Debt

As of June 30, 2016, the carrying value of our total debt was $7.6 billion and the fair value of our total debt was $8.7 billion. As of December 31, 2015, the carrying value of our total debt was $7.5 billion and the fair value of our total debt was $8.2 billion. The estimated fair value of our fixed rate senior notes and debentures is based on quoted market prices. The fair value of our remaining notes payable, tax-exempt financings and borrowings under our credit facilities approximates the carrying value because the interest rates are variable. The fair value estimates are based on Level 2 inputs of the fair value hierarchy as of June 30, 2016 and December 31, 2015, respectively. See Note 7, Debt, for further information related to our debt.

Contingent Consideration

In April 2015, we entered into a waste management contract with Sonoma County, California to operate the county's waste management facilities. As of June 30, 2016, the contingent consideration of $69.3 million represents the fair value of amounts payable to Sonoma County based on the achievement of future annual tonnage targets through the expected remaining capacity of the landfill, which we estimate to be approximately 30 years. The potential undiscounted amount of all future contingent payments that we could be required to make under the waste management contract is estimated to be between approximately $89 million and $178 million.

The fair value of the contingent consideration was determined using probability assessments of the expected future payments over the remaining useful life of the landfill, and applying a discount rate of 4.0%. The future payments are based on significant inputs that are not observable in the market. Key assumptions include annual volume of tons disposed at the landfill, the price paid per ton, and the discount rate that represent the best estimates of management, which are subject to remeasurement at each reporting date. The contingent consideration liability is classified within Level 3 of the fair value hierarchy.