Financial Instruments

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

FINANCIAL INSTRUMENTS

Fuel Hedges

We have historically 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).

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).

All of our fuel hedges settled on or before December 31, 2018, thus there is no related asset or liability as of December 31, 2018. The aggregate fair value of the outstanding fuel hedges as of December 31, 2017 was $3.0 million and was recorded in other current assets in our consolidated balance sheets. The ineffective portion of the changes in fair values was zero for the year ended December 31, 2018. The ineffective portions of the changes in fair values resulted in a gain of $0.1 million and $0.8 million for the years ended December 31, 2017 and 2016, respectively, and have been recorded in other income, net in our consolidated statement of income.

Total (loss) gains recognized in other comprehensive income for fuel hedges (the effective portion) was $(1.8) million, $3.4 million and $20.7 million, net of tax, for the years ended December 31, 2018, 2017 and 2016, respectively. We classify cash inflows and outflows from our fuel hedges within operating activities in the consolidated statement of cash flows.

Recycling Commodity Hedges

Revenue from the sale of recycled commodities is primarily from sales of OCC and ONP. From time to time we use derivative instruments such as swaps and costless collars designated as cash flow hedges to manage our exposure to changes in prices of these commodities. During 2017, we entered into multiple costless collar agreements on forecasted OCC sales. The agreements qualified for, and were designated as, effective hedges of changes in the prices of certain forecasted recycling commodity sales (commodity hedges). The agreements involve combining a purchased put option giving us the right to sell OCC at an established floor strike price with a written call option obligating us to deliver OCC at an established cap strike price. The puts and calls have the same settlement dates, are net settled in cash on such dates and have the same terms to expiration. The contemporaneous combination of options resulted in no net premium for us and represents costless collars. Under these agreements, we will make or receive no payments as long as the settlement price is between the floor price and cap price; however, if the settlement price is above the cap, we will pay the counterparty an amount equal to the excess of the settlement price over the cap times the monthly volumes hedged. If the settlement price is below the floor, the counterparty will pay us the deficit of the settlement price below the floor times the monthly volumes hedged. The objective of these agreements is to reduce variability of cash flows for forecasted sales of OCC between two designated strike prices.

Costless collar hedges are recorded in our consolidated balance sheets at fair value. Fair values of costless collars are determined using standard option valuation models with assumptions about commodity prices based upon forward commodity price curves in underlying markets (Level 2 in the fair value hierarchy).

All of our costless collar hedges for OCC settled on or before December 31, 2018, thus there is no related asset or liability as of December 31, 2018. The aggregate fair value of the outstanding recycling commodity hedges as of December 31, 2017 was $0.2 million and was recorded in other accrued liabilities in our consolidated balance sheets. No amounts were recognized in other income, net in our consolidated statement of income for the ineffective portion of the changes in fair values during the years ended December 31, 2018, 2017 and 2016.

Total gains (loss) recognized in other comprehensive income for recycling commodity hedges (the effective portion) were $0.1 million, $0.4 million, and $(0.5) million, net of tax, for the years ended December 31, 2018, 2017 and 2016, respectively. We classify cash inflows and outflows from our recycling commodity hedges within operating activities in the consolidated statement of cash flows.

Fair Value Measurements

In measuring 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 December 31, 2018 and 2017, our assets and liabilities that are measured at fair value on a recurring basis include the following:

	December 31, 2018
			Fair Value
	Carrying Amount		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market mutual funds	$	37.1	$	37.1	$	37.1	$	—	$	—
Bonds - restricted cash and marketable securities and other assets	47.8		47.8		—		47.8		—
Interest rate swaps - other assets	2.5		2.5		—		2.5		—
Interest rate locks - other assets	10.3		10.3		—		10.3		—
Total assets	$	97.7	$	97.7	$	37.1	$	60.6	$	—
Liabilities:
Contingent consideration - other long-term liabilities	$	70.9	$	70.9	$	—	$	—	$	70.9
Total liabilities	$	70.9	$	70.9	$	—	$	—	$	70.9

 

	December 31, 2017
			Fair Value
	Carrying Amount		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market mutual funds	$	30.3	$	30.3	$	30.3	$	—	$	—
Bonds - restricted cash and marketable securities and other assets	92.1		92.1		—		92.1		—
Fuel hedges - other current assets	3.0		3.0		—		3.0		—
Interest rate swaps - other assets	8.0		8.0		—		8.0		—
Interest rate locks - other assets	19.1		19.1		—		19.1		—
Total assets	$	152.5	$	152.5	$	30.3	$	122.2	$	—
Liabilities:
Commodity hedges - other accrued liabilities	$	0.2	$	0.2	$	—	$	0.2	$	—
Contingent consideration - other long-term liabilities	73.3		73.3		—		—		73.3
Total liabilities	$	73.5	$	73.5	$	—	$	0.2	$	73.3

Total Debt

As of December 31, 2018, the carrying value of our total debt was $8.3 billion and the fair value of our total debt was $8.7 billion. As of December 31, 2017, the carrying value of our total debt was $8.2 billion and the fair value of our total debt was $8.8 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 December 31, 2018 and December 31, 2017. See Note 9, Debt, for further information related to our debt.

Contingent Consideration

In April 2015, we entered into a waste management contract with the County of Sonoma, California to operate the county's waste management facilities. As of December 31, 2018, the Sonoma contingent consideration represents the fair value of $67.0 million payable to the County of Sonoma 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 $82 million and $171 million. During 2018, the activity in the contingent consideration liability included accretion, which was offset by concession payments made in the ordinary course of business. There were no changes to the estimate of fair value.

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

In 2017, we recognized additional contingent consideration associated with the acquisition of a landfill. As of December 31, 2018, the contingent consideration of $4.4 million represents the fair value of amounts payable to the seller based on annual volume of tons disposed at the landfill. During 2018, the activity in the contingent consideration liability included accretion, which was offset by concession payments made in the ordinary course of business. There were no changes to the estimate of fair value.

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 4.3%. 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, which are subject to remeasurement at each reporting date based on inbound tonnage. The contingent consideration liabilities are classified within Level 3 of the fair value hierarchy.