Financial Instruments

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

The effect of our derivative instruments in fair value and cash flow hedging relationships on the consolidated statements of income for the three and six months ended June 30, 2019 and 2018 is as follows (in millions):


	Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
	Interest Expense		Interest Expense		Interest Expense		Interest Expense

Total amounts of expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	(98.5)	$	(96.5)	$	(198.9)	$	(191.3)

The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships:
Interest rate swaps:
Net swap settlements	$	0.1	$	0.5	$	0.2	$	1.4
Net periodic earnings⁽¹⁾	$	0.2	$	(0.2)	$	0.2	$	(0.2)
Gain (loss) on cash flow hedging relationships:
Interest rate swap locks:
Amount of gain (loss) reclassified from AOCI into income	$	0.3	$	(0.3)	$	0.4	$	(0.8)

(1) During 2018 (prior to adoption of ASU 2017-12), all net periodic earnings for fair value hedges were recorded to other income, net. To align the effect of the hedging relationship with the activity of the hedged item, beginning January 1, 2019, all net periodic earnings on fair value hedges are presented within interest expense in our consolidated statement of income.

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 June 30, 2019 and December 31, 2018, our assets and liabilities that are measured at fair value on a recurring basis include the following:


	June 30, 2019
			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	$	38.6	$	38.6	$	38.6	$	—	$	—
Bonds - restricted cash and marketable securities and other assets	50.5		50.5		—		50.5		—


Interest rate swaps - other assets	11.6		11.6		—		11.6		—
Interest rate locks - prepaid expenses and other current assets	0.3		0.3		—		0.3		—
Total assets	$	101.0	$	101.0	$	38.6	$	62.4	$	—
Liabilities:




Interest rate locks - other accrued liabilities and other long-term liabilities	$	32.4	$	32.4	$	—	$	32.4	$	—
Contingent consideration - other accrued liabilities and other long-term liabilities	72.1		72.1		—		—		72.1
Total liabilities	$	104.5	$	104.5	$	—	$	32.4	$	72.1


	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	$	71.4	$	71.4	$	—	$	—	$	71.4


Total liabilities	$	71.4	$	71.4	$	—	$	—	$	71.4

Total Debt

As of June 30, 2019 and December 31, 2018, the carrying value of our total debt was $8.4 billion and $8.3 billion, respectively and the fair value of our total debt was $9.1 billion and $8.7 billion, respectively. 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, 2019 and December 31, 2018. See Note 7, 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 June 30, 2019, the Sonoma contingent consideration represents the fair value of $66.3 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 $79 million and $168 million. During the six months ended June 30, 2019, 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 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 June 30, 2019, the contingent consideration of $4.2 million represents the fair value of amounts payable to the seller based on annual volume of tons disposed at the landfill. During the six months ended June 30, 2019, 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 contingent consideration liabilities are classified within Level 3 of the fair value hierarchy.

In June 2019, we recognized additional contingent consideration associated with the acquisition of a collection business. As of June 30, 2019, the contingent consideration of $1.6 million represents the fair value of amounts payable to the seller based on annual volume of tons collected from certain customers of the business. The fair value of the contingent consideration was determined using probability assessments of the expected future payments over the estimated customer relationships, and applying a discount rate. The future payments are based on significant inputs that are not observable in the market. Key assumptions include annual collection volumes, which are subject to remeasurement at each reporting date. The contingent consideration liabilities are classified within Level 3 of the fair value hierarchy.