You should read the following discussion in conjunction with the unaudited consolidated financial statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, you should refer to our audited consolidated financial statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . Disclosure Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q 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" and similar expressions are intended to identify forward-looking statements. In particular, information appearing in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements, including, but not limited to, the information set forth under the caption "Recent Developments - Updated Full-Year 2021 Adjusted Earnings Per Share Guidance." These statements include information about our plans, strategies, expectations of future financial performance and prospects. Forward-looking statements are not guarantees of performance. These statements are based upon the current beliefs and expectations of our management and are subject to significant risk and uncertainties that 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. Among the factors that could cause actual results to differ materially from the expectations expressed in the forward-looking statements are the effects of the COVID-19 pandemic and actions taken in response thereto, as well as acts of war, riots or terrorism, and the impact of these acts on economic, financial and social conditions inthe United States as well as our dependence on large, long-term collection, transfer and disposal contracts. More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the year endedDecember 31, 2020 , particularly under Part I, Item 1A - Risk Factors. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such risk factors, or to assess the impact such risk factors might have on our business. We undertake no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. Impact of the COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the outbreak of a new strain of coronavirus (COVID-19) a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The full extent of the impact of the COVID-19 pandemic on our operations and financial performance will depend on future developments, including the duration and spread of the pandemic and the impact of COVID-19 variants, all of which are uncertain and cannot be predicted at this time. Inmid-March 2020 , certain customers in our small- and large-container businesses began adjusting their service levels, which included a decrease in the frequency of pickups or a temporary pause in service. In addition, we experienced a decline in volumes disposed at certain of our landfills and transfer stations. As service levels decreased, we also experienced a decrease in certain costs of our operations which are variable in nature. This decline in service activity peaked in the first half ofApril 2020 and improved sequentially throughSeptember 30, 2021 . InApril 2020 , we launched our Committed to Serve initiative and committed$20 million to support frontline employees and their families, as well as small business customers in the local communities where we serve. In addition to this initiative, we have experienced an increase in certain costs of doing business as a direct result of the COVID-19 pandemic, including costs for additional safety equipment and hygiene products and increased facility and equipment cleaning. These costs are intended to assist in protecting the safety of our frontline employees as we continue to provide an essential service to our customers. InDecember 2020 , we recognized our frontline employees for their commitment and contributions to their communities during the pandemic with a$500 award that was paid inJanuary 2021 . In addition, we incurred incremental costs associated with expanding certain aspects of our existing healthcare programs. We expect to incur similar costs throughout 2021, and potentially into future years, although we expect the amount of such costs annually to be less than those incurred in 2020. The effects of the COVID-19 pandemic on our business are described in more detail in the Results of Operations discussion in this Management's Discussion and Analysis of Financial Condition and Results of Operations. 29 -------------------------------------------------------------------------------- Table of Contents Recent Developments Updated Full-Year 2021 Adjusted Earnings Per Share Guidance The following is a summary of anticipated adjusted diluted earnings per share for the year endingDecember 31, 2021 . Adjusted diluted earnings per share is not a measure determined in accordance withU.S. GAAP: (Anticipated) Year Ending December 31, 2021 Diluted earnings per share$4.01 to$4.04 Restructuring charges 0.04 Accelerated vesting of compensation expense for CEO transition 0.05 Adjusted diluted earnings per share$4.10 to$4.13 We believe that presenting adjusted diluted earnings per share provides an understanding of operational activities before the financial impact of certain items. We use this measure, and believe investors will find it helpful, in understanding the ongoing performance of our operations separate from items that have a disproportionate impact on our results for a particular period. We have incurred comparable charges, costs and recoveries in prior periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Our definition of adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies. The guidance set forth above constitutes forward-looking information and is not a guarantee of future performance. The guidance is based upon the current beliefs and expectations of our management and is subject to significant risk and uncertainties that could cause actual results to differ materially from those shown above. See "Disclosure Regarding Forward-Looking Statements." Overview Republic is one of the largest providers of environmental services inthe United States , as measured by revenue. As ofSeptember 30, 2021 , we operated facilities in 41 states through 355 collection operations, 238 transfer stations, 198 active landfills, 73 recycling processing centers, 3 treatment, recovery and disposal facilities, 2 treatment, storage and disposal facilities (TSDF), 6 salt water disposal wells and 7 deep injection wells. We are engaged in 75 landfill gas to energy and renewable energy projects and had post-closure responsibility for 129 closed landfills as ofSeptember 30, 2021 . Revenue for the nine months endedSeptember 30, 2021 increased by 10.0% to$8,342.2 million compared to$7,580.4 million for the same period in 2020. This change in revenue is due to increased volume of 3.8%, average yield of 2.7%, acquisitions, net of divestitures of 2.1%, recycling processing and commodity sales of 1.2%, and fuel recovery fees of 0.6%, partially offset by decreased environmental solutions revenue of 0.2%. Additionally, revenue decreased 0.2% due to the impact of one less workday during the nine months endedSeptember 30, 2021 as compared to the same period in 2020. 30 -------------------------------------------------------------------------------- Table of Contents The following table summarizes our revenue, expenses and operating income for the three and nine months endedSeptember 30, 2021 and 2020 (in millions of dollars and as a percentage of revenue): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue$ 2,933.9 100.0 %$ 2,572.1 100.0 %$ 8,342.2 100.0 %$ 7,580.4 100.0 %
Expenses:
Cost of operations 1,744.0 59.4 1,535.4 59.7 4,928.0 59.1 4,553.3 60.1 Depreciation, amortization and depletion of property and equipment 282.7 9.6 255.5 9.9 832.8 10.0 763.7 10.1 Amortization of other intangible assets 8.5 0.3 5.3 0.2 23.5 0.3 15.8 0.2 Amortization of other assets 10.1 0.4 9.9 0.4 30.2 0.4 28.9 0.4 Accretion 20.8 0.7 20.7 0.8 61.9 0.7 62.4 0.8 Selling, general and administrative 299.0 10.2 256.1 10.0 880.3 10.6 795.3 10.5 Withdrawal costs - multiemployer pension funds - - - - - - 35.9 0.5 Loss (gain) on business divestitures and impairments, net - - 31.5 1.2 (0.2) - 32.9 0.4 Restructuring charges 4.6 0.2 9.8 0.4 11.2 0.1 15.8 0.2 Operating income $ 564.2 19.2 %$ 447.9 17.4 %$ 1,574.5 18.8 %$ 1,276.4 16.8 % Our pre-tax income was$470.7 million and$1,298.2 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to$318.7 million and$941.4 million for the same respective periods in 2020. Our net income attributable toRepublic Services, Inc. was$350.3 million and$977.3 million for the three and nine months endedSeptember 30, 2021 , or$1.10 and$3.06 per diluted share, respectively, compared to$260.0 million and$731.8 million , or$0.81 and$2.29 per diluted share, for the same periods in 2020, respectively. During each of the three and nine months endedSeptember 30, 2021 and 2020, we recorded a number of charges, other expenses and benefits that impacted our pre-tax income, net income attributable toRepublic Services, Inc. (net income - Republic) and diluted earnings per share as noted in the following table (in millions, except per share data). Additionally, see our Results of Operations discussion in this Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of other items that impacted our earnings during the three and nine months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 Net Diluted Net Diluted Pre-tax Income - Earnings Pre-tax Income - Earnings Income Republic per Share Income Republic per Share As reported$ 470.7 $ 350.3
Loss on extinction of debt
- - - 34.5 25.5 0.08 Restructuring charges 4.6 3.4 0.01 9.8 7.2 0.02 Loss on business divestitures and impairments, net - - - 31.5 26.6 0.09 Total adjustments 4.6 3.4 0.01 75.8 59.3 0.19 As adjusted$ 475.3 $ 353.7 $ 1.11 $ 394.5 $ 319.3 $ 1.00 31
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Table of Contents
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
Net Diluted Net Diluted
Pre-tax Income - Earnings Pre-tax Income - Earnings
Income Republic per Share Income Republic per Share
As reported $ 1,298.2 $ 977.3
Loss on extinction of debt
- - - 34.5 25.5 0.08 Restructuring charges 11.2 8.2 0.02 15.8 11.7 0.04 (Gain) loss on business divestitures and impairments, net(1) (0.2) (0.1) - 32.9 30.1 0.10 Withdrawal costs - multiemployer pension funds - - - 35.9 26.5 0.08 Bridgeton insurance recovery - - - (10.8) (8.2) (0.03) Accelerated vesting of compensation expense for CEO transition 15.4 15.4 0.05 - - - Total adjustments 26.4 23.5 0.07 108.3 85.6 0.27 As adjusted$ 1,324.6 $ 1,000.8 $ 3.13 $ 1,049.7 $ 817.4 $ 2.56 (1) The aggregate impact to adjusted diluted earnings per share totals to less than$0.01 for the nine months endedSeptember 30, 2021 . We believe that presenting adjusted pre-tax income, adjusted net income - Republic, and adjusted diluted earnings per share, which are not measures determined in accordance withU.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, costs and recoveries in prior periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Our definitions of adjusted pre-tax income, adjusted net income - Republic, and adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies. Further information on each of these adjustments is included below. Loss on extinguishment of debt. During the three and nine months endedSeptember 30, 2020 , we incurred a$34.5 million loss on the early extinguishment of debt related to the redemption of our$600.0 million 5.250% senior notes dueNovember 2021 . We paid a cash premium of$34.0 million and incurred a non-cash charge related to the unamortized deferred issuance costs of$0.5 million . Restructuring charges. In 2020, we incurred costs related to the redesign of certain back-office software systems, which continued into 2021. In addition, inJuly 2020 , we eliminated certain back-office support positions in response to a decline in the underlying demand for services resulting from the COVID-19 pandemic. During the three and nine months endedSeptember 30, 2021 , we incurred restructuring charges of$4.6 million and$11.2 million , respectively, and during the three and nine months endedSeptember 30, 2020 , we incurred restructuring charges of$9.8 million and$15.8 million , respectively. During the nine months endedSeptember 30, 2021 and 2020, we paid$12.1 million and$11.9 million , respectively, related to these restructuring efforts. During the remainder of 2021, we expect to incur additional restructuring charges of approximately$5 million primarily related to the redesign of certain of our back-office software systems. Substantially all of these restructuring charges will be recorded in Corporate entities and other. Loss (gain) on business divestitures and impairments, net. During the nine months endedSeptember 30, 2021 , we recorded a net gain on business divestitures and impairments of$(0.2) million . During the three and nine months endedSeptember 30, 2020 , we recorded a net loss on business divestitures and impairments of$31.5 million and$32.9 million , respectively. Withdrawal costs - multiemployer pension funds. During the nine months endedSeptember 30, 2020 , we recorded charges to earnings of$35.9 million for withdrawal events at multiemployer pension funds to which we contribute. As we obtain updated information regarding multiemployer pension funds, the factors used in deriving our estimated withdrawal liabilities will be subject to change, which may adversely impact our reserves for withdrawal costs.Bridgeton insurance recovery. During the nine months endedSeptember 30, 2020 , we recognized an insurance recovery of$10.8 million related to our closedBridgeton Landfill inMissouri as a reduction of remediation expenses in our cost of operations. 32 -------------------------------------------------------------------------------- Table of Contents Accelerated vesting of compensation expense for CEO transition. InJune 2021 ,Donald W. Slager retired as Chief Executive Officer (CEO) ofRepublic Services, Inc. During the nine months endedSeptember 30, 2021 , we recognized a charge of$15.4 million related to the accelerated vesting of his compensation awards that were previously scheduled to vest in 2022 and beyond. Results of Operations Revenue We generate revenue by providing environmental services to our customers, including the collection and processing of recyclable materials, the collection, transfer and disposal of non-hazardous solid waste, and other environmental solutions. Our residential, small-container and large-container collection operations in some markets are based on long-term contracts with municipalities. Certain of our municipal contracts have annual price escalation clauses that are tied to changes in an underlying base index such as a consumer price index. We generally provide small-container and large-container collection services to customers under contracts with terms up to three years. Our transfer stations and landfills generate revenue from disposal or tipping fees charged to third parties. Our recycling processing centers generate revenue from tipping fees charged to third parties and the sale of recycled commodities. Our revenue from environmental solutions consists mainly of fees we charge for disposal of hazardous and non-hazardous solid and liquid material and in-plant services, such as transportation and logistics, including at our TSDFs. Other non-core revenue consists primarily of revenue from National Accounts, which represents the portion of revenue generated from nationwide or regional contracts in markets outside our operating areas where the associated material handling is subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations. The following table reflects our revenue by service line for the three and nine months endedSeptember 30, 2021 and 2020 (in millions of dollars and as a percentage of revenue): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Collection: Residential $ 626.7 21.4 %$ 581.2 22.6 %$ 1,831.3 22.0 %$ 1,723.3 22.8 % Small-container 871.9 29.7 773.7 30.1 2,525.3 30.3 2,321.8 30.6 Large-container 621.7 21.2 553.1 21.5 1,762.0 21.1 1,606.8 21.2 Other 15.3 0.5 13.1 0.5 44.4 0.5 38.0 0.5 Total collection 2,135.6 72.8 1,921.1 74.7 6,163.0 73.9 5,689.9 75.1 Transfer 395.3 352.4 1,110.4 1,004.8 Less: intercompany (212.6) (190.9) (605.9) (556.9) Transfer, net 182.7 6.2 161.5 6.3 504.5 6.0 447.9 5.9 Landfill 657.6 597.3 1,871.6 1,719.6 Less: intercompany (285.6) (263.4) (818.1) (763.9) Landfill, net 372.0 12.7 333.9 13.0 1,053.5 12.6 955.7 12.6 Environmental solutions 51.4 1.7 24.1 0.9 110.8 1.3 101.0 1.3
Other:
Recycling processing and commodity sales 119.9 4.1 75.0 2.9 310.6 3.8 216.2 2.9 Other non-core 72.3 2.5 56.5 2.2 199.8 2.4 169.7 2.2 Total other 192.2 6.6 131.5 5.1 510.4 6.2 385.9 5.1 Total revenue$ 2,933.9 100.0 %$ 2,572.1 100.0 %$ 8,342.2 100.0 %$ 7,580.4 100.0 % 33
-------------------------------------------------------------------------------- Table of Contents The following table reflects changes in components of our revenue, as a percentage of total revenue, for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Average yield 3.2 % 2.6 % 2.7 % 2.7 % Fuel recovery fees 1.3 (0.9) 0.6 (0.6) Total price 4.5 1.7 3.3 2.1 Volume 4.3 (3.4) 3.8 (3.7) Change in workdays - - (0.2) 0.1 Recycling processing and commodity sales 1.6 0.3 1.2 0.1 Environmental solutions 0.2 (1.3) (0.2) (0.9) Total internal growth 10.6 (2.7) 7.9 (2.3) Acquisitions / divestitures, net 3.5 (0.1) 2.1 0.5 Total 14.1 % (2.8) % 10.0 % (1.8) % Core price 5.2 % 4.5 % 4.9 % 4.8 % Average yield is defined as revenue growth from the change in average price per unit of service, expressed as a percentage. Core price is defined as price increases to our customers and fees, excluding fuel recovery fees, net of price decreases to retain customers. We also measure changes in average yield and core price as a percentage of related-business revenue, defined as total revenue excluding recycled commodities and fuel recovery fees, to determine the effectiveness of our pricing strategies. Average yield as a percentage of related-business revenue was 3.4% and 2.9% for the three and nine months endedSeptember 30, 2021 , respectively, and 2.8% for each of the same respective periods in 2020. Core price as a percentage of related-business revenue was 5.4% and 5.1% for the three and nine months endedSeptember 30, 2021 , respectively, and 4.8% and 5.1% for the same respective periods in 2020. During the three and nine months endedSeptember 30, 2021 , we experienced the following changes in our revenue as compared to the same respective periods in 2020: •Average yield increased revenue by 3.2% and 2.7% during the three months and nine months endedSeptember 30, 2021 , respectively, due to price increases in all lines of business. •The fuel recovery fee program, which mitigates our exposure to increases in fuel prices, increased revenue by 1.3% and 0.6% during the three and nine months endedSeptember 30, 2021 , respectively, primarily due to an increase in fuel prices compared to the same periods in 2020. •Volume increased revenue by 4.3% and 3.8% during the three and nine months endedSeptember 30, 2021 , respectively, primarily due to volume growth in our landfill, transfer, and small- and large-container collection lines of business. The volume increase in our landfill line of business is primarily attributable to increased solid and special waste volumes. Inmid-March 2020 , certain customers in these lines of business began adjusting their service levels as a result of the COVID-19 pandemic. This decline in service activity peaked in the first half ofApril 2020 and sequentially improved thereafter. •Revenue decreased by 0.2% due to one less workday during the nine months endedSeptember 30, 2021 as compared to the same period in 2020. •Recycling processing and commodity sales increased revenue by 1.6% and 1.2% during the three and nine months endedSeptember 30, 2021 , respectively, primarily due to an increase in overall commodity prices as compared to the same periods in 2020. The average price for recycled commodities, excluding glass and organics, for the three and nine months endedSeptember 30, 2021 was$230 and$178 per ton, respectively, compared to$99 and$92 per ton for the same respective periods in 2020. Changing market demand for recycled commodities causes volatility in commodity prices. At current volumes and mix of materials, we believe a$10 per ton change in the price of recycled commodities would change both annual revenue and operating income by approximately$12 million . •Environmental solutions revenue decreased by 0.2% during the nine months endedSeptember 30, 2021 primarily due to a decrease in rig counts, drilling activity, and the delay of in-plant project work that began during the second quarter of 2020 as a result of lower demand for crude oil. Rig counts and drilling activity have sequentially improved during 34 -------------------------------------------------------------------------------- Table of Contents the nine months endedSeptember 30, 2021 but remain below pre-COVID levels. Consequently, environmental solutions revenue increased by 0.2% during the three months endedSeptember 30, 2021 . •Acquisitions, net of divestitures, increased revenue by 3.5% and 2.1% during the three and nine months endedSeptember 30, 2021 , respectively, reflecting our continued growth strategy of acquiring privately held solid waste, recycling, and environmental services companies that complement and expand our existing business platform. Cost of Operations Cost of operations includes labor and related benefits, which consists of salaries and wages, health and welfare benefits, incentive compensation and payroll taxes. It also includes transfer and disposal costs representing tipping fees paid to third party disposal facilities and transfer stations; maintenance and repairs relating to our vehicles, equipment and containers, including related labor and benefit costs; transportation and subcontractor costs, which include costs for independent haulers that transport our waste to disposal facilities and costs for local operators that 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 fees and taxes, consisting of landfill taxes, host community fees and royalties; landfill operating costs, which includes financial assurance, leachate disposal, remediation charges and other landfill maintenance costs; risk management costs, which include insurance premiums and claims; cost of goods sold, which includes material costs paid to suppliers; and other, which includes expenses such as facility operating costs, equipment rent and gains or losses on sale of assets used in our operations. The following table summarizes the major components of our cost of operations for the three and nine months endedSeptember 30, 2021 and 2020 (in millions of dollars and as a percentage of revenue): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Labor and related benefits $ 588.2 20.0 %$ 546.0 21.2 %$ 1,715.4 20.6 %$ 1,617.1 21.3 % Transfer and disposal costs 228.9 7.8 206.9 8.0 641.3 7.7 594.7 7.9 Maintenance and repairs 273.9 9.3 246.5 9.6 770.9 9.2 726.0 9.6 Transportation and subcontract costs 206.2 7.0 172.7 6.7 565.5 6.8 501.0 6.6 Fuel 100.4 3.4 66.1 2.6 271.7 3.3 204.4 2.7 Disposal fees and taxes 87.0 3.0 79.7 3.1 252.4 3.0 234.0 3.1 Landfill operating costs 61.9 2.1 60.0 2.4 188.2 2.3 190.1 2.5 Risk management 74.8 2.6 48.8 1.9 186.8 2.2 162.3 2.1 Other 122.7 4.2 108.7 4.2 335.8 4.0 334.5 4.4 Subtotal 1,744.0 59.4 1,535.4 59.7 4,928.0 59.1 4,564.1 60.2 Bridgeton insurance recovery - - - - - - (10.8) (0.1) Total cost of operations$ 1,744.0 59.4 %$ 1,535.4 59.7 %$ 4,928.0 59.1 %$ 4,553.3 60.1 % These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies. As such, you should take care when comparing our cost of operations by component to that of other companies and of ours for prior periods. The most significant items impacting our cost of operations during the three and nine months endedSeptember 30, 2021 and 2020 are summarized below: •Labor and related benefits increased in aggregate dollars due to higher hourly and salaried wages as a result of annual merit increases and an increase in service levels attributable to the economic recovery from the COVID-19 pandemic. These increases were partially offset by one less workday during the nine months endedSeptember 30, 2021 as compared to the same period in 2020. •Transfer and disposal costs increased in aggregate dollars as a result of higher collection volumes and an increase in third party disposal rates. During both the three and nine months endedSeptember 30, 2021 and 2020, approximately 68% of the total solid waste volume we collected was disposed at landfill sites that we own or operate (internalization). •Maintenance and repairs expense increased in aggregate dollars due to an increase in service levels attributable to the economic recovery from the COVID-19 pandemic. •Transportation and subcontract costs increased during the three and nine months endedSeptember 30, 2021 primarily due to higher collection and transfer station volumes, acquisition-related activity, and increased subcontract work 35 -------------------------------------------------------------------------------- Table of Contents attributable to an increase in non-core revenues, partially offset by one less workday during the nine months endedSeptember 30, 2021 as compared to the same period in 2020. •Our fuel costs increased due to an increase in the average diesel fuel cost per gallon. The national average diesel fuel cost per gallon for the three and nine months endedSeptember 30, 2021 was$3.36 and$3.16 , respectively, as compared to$2.43 and$2.58 for the same respective periods in 2020. At current consumption levels, we believe atwenty-cent per gallon change in the price of diesel fuel would change our fuel costs by approximately$25 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, atwenty-cent per gallon change in the price of diesel fuel would change our fuel recovery fee by approximately$25 million per year. •Risk management expenses increased during the three and nine months endedSeptember 30, 2021 primarily due to unfavorable actuarial development in our auto liability claims as well as higher premium costs, partially offset by favorable workers compensation development in prior year programs. •Other costs of operations increased during the three and nine months endedSeptember 30, 2021 due to increased occupancy and facility related expenses partially offset by certain costs associated with our Committed to Serve initiative recognized during the nine months endedSeptember 30, 2020 , which did not recur in the same respective period in 2021. •During the nine months endedSeptember 30, 2020 , we recognized a favorable insurance recovery of$10.8 million related to our closedBridgeton Landfill as a reduction of remediation expenses in our consolidated statement of income for the applicable period. Depreciation, Amortization and Depletion of Property and Equipment The following table summarizes depreciation, amortization and depletion of property and equipment for the three and nine months endedSeptember 30, 2021 and 2020 (in millions of dollars and as a percentage of revenue): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Depreciation and amortization of property and equipment$ 184.9 6.3 %$ 174.9 6.8 %$ 543.6 6.5 %$ 518.8 6.9 % Landfill depletion and amortization 97.8 3.3 80.6 3.1 289.2 3.5 244.9 3.2 Depreciation, amortization and depletion expense$ 282.7 9.6 %$ 255.5 9.9 %$ 832.8 10.0 %$ 763.7 10.1 % Depreciation and amortization of property and equipment increased for the three and nine months endedSeptember 30, 2021 primarily due to assets added through acquisitions. Landfill depletion and amortization expense increased due to higher landfill disposal volumes primarily driven by special and solid waste volumes coupled with an increase in our overall average depletion rate. Additionally, we recognized unfavorable amortization adjustments related to the asset retirement obligation at certain of our closed landfills during the three and nine months endedSeptember 30, 2021 . Amortization of Other Intangible Assets Amortization of other intangible assets primarily relates to customer relationships and, to a lesser extent, non-compete agreements. Expenses for amortization of other intangible assets were$8.5 million and$23.5 million , or 0.3% of revenue, for the three and nine months endedSeptember 30, 2021 , respectively, compared to$5.3 million and$15.8 million , or 0.2% of revenue, for the same respective periods in 2020. Amortization expense increased due to assets added through acquisitions. Amortization of Other Assets Our other assets primarily relate to the prepayment of fees and capitalized implementation costs associated with cloud-based hosting arrangements. Expenses for amortization of other assets were$10.1 million and$30.2 million , or 0.4% of revenue, for the three and nine months endedSeptember 30, 2021 , respectively, compared to$9.9 million and$28.9 million , or 0.4% of revenue, for the same respective periods in 2020. Accretion Expense Accretion expense was$20.8 million and$61.9 million , or 0.7% of revenue, for the three and nine months endedSeptember 30, 2021 , respectively, compared to$20.7 million and$62.4 million , or 0.8% of revenue, for the same respective periods in 2020. Accretion expense has remained relatively unchanged as our asset retirement obligations have remained relatively consistent period over period. 36 -------------------------------------------------------------------------------- Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses include salaries, health and welfare benefits, and incentive compensation for corporate and field general management, field support functions, sales force, accounting and finance, legal, management information systems, and clerical and administrative departments. Other expenses include rent and office costs, fees for professional services provided by third parties, legal settlements, marketing, investor and community relations services, directors' and officers' insurance, general employee relocation, travel, entertainment and bank charges. Restructuring charges are excluded from selling, general and administrative expenses and are discussed separately. The following table summarizes our selling, general and administrative expenses for the three and nine months endedSeptember 30, 2021 and 2020 (in millions of dollars and as a percentage of revenue): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Salaries and related benefits$ 210.1 7.2 %$ 183.4 7.1 %$ 626.9 7.5 %$ 555.8 7.3 % Provision for doubtful accounts 7.2 0.2 6.1 0.3 18.7 0.2 22.0 0.3 Other 81.7 2.8 66.6 2.6 219.3 2.7 217.5 2.9 Subtotal 299.0 10.2 256.1 10.0 864.9 10.4 795.3 10.5 Accelerated vesting of compensation expense for CEO transition - - - - 15.4 0.2 - - Total selling, general and administrative expenses$ 299.0 10.2 %$ 256.1 10.0 %$ 880.3 10.6 %$ 795.3 10.5 % These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies. As such, you should take care when comparing our selling, general and administrative expenses by cost component to those of other companies and of ours for prior periods. The most significant items affecting our selling, general and administrative expenses during the three and nine months endedSeptember 30, 2021 and 2020 are summarized below: •Salaries and related benefits increased primarily due to higher management incentive expenses. •Other selling, general and administrative expenses increased for the three months endedSeptember 30, 2021 largely due an increase in recruiting and advertising costs. Consulting fees increased during the third quarter but decreased for the nine months endedSeptember 30, 2021 . Additionally, we recognized an unfavorable change in certain legal reserves during the nine months endedSeptember 30, 2020 that did not recur in 2021. •InJune 2021 ,Donald W. Slager retired as CEO ofRepublic Services, Inc. During the nine months endedSeptember 30, 2021 , we recognized a charge of$15.4 million related to the accelerated vesting of his compensation awards that were previously scheduled to vest in 2022 and beyond. Withdrawal Costs - Multiemployer Pension Funds During the nine months endedSeptember 30, 2020 , we recorded charges to earnings of$35.9 million for withdrawal events at multiemployer pension funds to which we contribute. As we obtain updated information regarding multiemployer pension funds, the factors used in deriving our estimated withdrawal liabilities will be subject to change, which may adversely impact our reserves for withdrawal costs. Loss (Gain) on Business Divestitures and Impairments, Net We strive to have a number one or number two market position in each of the markets we serve, or have a clear path on how we will achieve a leading market position over time. Where we cannot establish a leading market position, or where operations are not generating acceptable returns, we may decide to divest certain assets and reallocate resources to other markets. Business divestitures could result in gains, losses or impairment charges that may be material to our results of operations in a given period. During the nine months endedSeptember 30, 2021 , we recorded a net gain on business divestitures and impairments of$0.2 million . During the three and nine months endedSeptember 30, 2020 , we recorded a net loss on business divestitures and impairments of$31.5 million and$32.9 million , respectively. 37 -------------------------------------------------------------------------------- Table of Contents Restructuring Charges In 2020, we incurred costs related to the redesign of certain back-office software systems, which continued into 2021. In addition, inJuly 2020 , we eliminated certain back-office support positions in response to a decline in the underlying demand for services resulting from the COVID-19 pandemic. During the three and nine months endedSeptember 30, 2021 , we incurred restructuring charges of$4.6 million and$11.2 million , respectively, and during the three and nine months endedSeptember 30, 2020 , we incurred restructuring charges of$9.8 million and$15.8 million , respectively, that primarily related to these efforts. During the nine months endedSeptember 30, 2021 and 2020, we paid$12.1 million and$11.9 million , respectively, related to these restructuring efforts. Interest Expense The following table provides the components of interest expense, including accretion of debt discounts and accretion of discounts primarily associated with environmental and risk insurance liabilities assumed in acquisitions, for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended Nine Months Ended September September 30, 30, 2021 2020 2021 2020 Interest expense on debt$ 61.3 $ 74.2 $ 185.3 $ 233.6 Non-cash interest 18.1 16.6 52.4 47.8 Less: capitalized interest (1.3) (1.9) (2.8) (4.0) Total interest expense$ 78.1 $ 88.9 $ 234.9 $ 277.4 Total interest expense for the three and nine months endedSeptember 30, 2021 decreased primarily due to lower interest rates on our floating and fixed rate debt. The decrease attributable to our fixed rate debt is primarily due to the issuance of$350.0 million of 0.875% senior notes and$750.0 million of 1.750% senior notes inNovember 2020 as well as the issuance of$650.0 million of 1.450% senior notes inAugust 2020 , the proceeds of which were used to repay outstanding senior notes with coupons ranging from 3.550% to 5.250%. Cash paid for interest, excluding net swap settlements for our fixed-to-floating interest rate swaps, was$193.8 million and$246.1 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Income Taxes Our effective tax rate, exclusive of non-controlling interests, for the three and nine months endedSeptember 30, 2021 was 25.5% and 24.6%, respectively. Our effective tax rate, exclusive of non-controlling interests, for the three and nine months endedSeptember 30, 2020 was 18.4% and 22.1%, respectively. Cash paid for income taxes was$182.1 million for the nine months endedSeptember 30, 2021 and$34.2 million for the same period in 2020. The year over year increase results from tax refunds received in the prior year that did not recur in 2021 and higher projected taxable income in the current year. For additional discussion and detail regarding our income taxes, see Note 8, Income Taxes, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Reportable Segments InDecember 2020 , our senior management began evaluating, overseeing and managing the financial performance of our operations through three operating segments. Group 1 primarily consists of geographic areas located in the westernUnited States , and Group 2 primarily consists of geographic areas located in the southeastern and mid-westernUnited States , and the eastern seaboard ofthe United States . Our Environmental Solutions operating segment, which provides environmental solutions for daily operations of industrial, petrochemical and refining facilities, is aggregated with Corporate entities and other as it only represents approximately 1% of our consolidated revenue. Each of our operating segments provides integrated environmental services, including collection, transfer, recycling, and disposal. 38 -------------------------------------------------------------------------------- Table of Contents Summarized financial information concerning our reportable segments for the three and nine months endedSeptember 30, 2021 and 2020 (in millions of dollars and as a percentage of revenue in the case of operating margin) follows: Depreciation, Amortization, Adjustments to Loss (Gain) on Depletion and Amortization Business Accretion Before Expense for Depreciation, Divestitures Adjustments for Asset Amortization, and Asset Retirement Retirement Depletion and Impairments, Operating Net Revenue Obligations Obligations Accretion Net Income
(Loss) Operating margin
Three Months EndedSeptember 30, 2021 Group 1$ 1,441.6 $ 140.7 $ -$ 140.7 $ -$ 391.1 27.1 % Group 2 1,388.0 139.4 - 139.4 - 294.0 21.2 % Corporate entities and other 104.3 41.0 1.0 42.0 - (120.9) - Total$ 2,933.9 $ 321.1 $ 1.0 $ 322.1 $ -$ 564.2 19.2 % Three Months EndedSeptember 30, 2020 Group 1$ 1,290.1 $ 131.7 $ (0.5) $ 131.2 $ -$ 349.7 27.1 % Group 2 1,215.1 128.4 (3.4) 125.0 - 241.9 19.9 % Corporate entities and other 66.9 35.9 (0.7) 35.2 31.5 (143.7) - Total$ 2,572.1 $ 296.0 $ (4.6) $ 291.4 $ 31.5 $ 447.9 17.4 % Depreciation, Amortization, Adjustments to Loss (Gain) on Depletion and Amortization Business Accretion Before Expense for Depreciation, Divestitures Adjustments for Asset Amortization, and Asset Retirement Retirement Depletion and Impairments, Operating Net Revenue Obligations Obligations Accretion Net Income (Loss) Operating Margin Nine Months EndedSeptember 30, 2021 Group 1$ 4,133.5 $ 413.0 $ (1.5) $ 411.5 $ -$ 1,122.4 27.2 % Group 2 3,951.9 405.7 0.5 406.2 - 839.4 21.2 % Corporate entities and other 256.8 117.4 13.3 130.7 (0.2) (387.3) - Total$ 8,342.2 $ 936.1 $ 12.3 $ 948.4 $ (0.2) $ 1,574.5 18.9 % Nine Months EndedSeptember 30, 2020 Group 1$ 3,774.8 $ 391.2 $ (0.7) $ 390.5 $ -$ 983.7 26.1 % Group 2 3,573.3 379.3 (5.1) 374.2 - 698.5 19.5 % Corporate entities and other 232.3 106.7 (0.6) 106.1 32.9 (405.8) -$ 7,580.4 $ 877.2 $ (6.4) $ 870.8 $ 32.9 $ 1,276.4 16.8 % Financial information for the three and nine months endedSeptember 30, 2020 reflects the transfer of our Environmental Solutions operating segment from Group 2 to Corporate entities and other. Corporate entities and other include legal, tax, treasury, information technology, risk management, human resources, closed landfills, other administrative functions, and environmental solutions. National Accounts revenue included in Corporate entities and other represents the portion of revenue generated from nationwide and regional contracts in markets outside our operating areas where the associated material handling is subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations. Significant changes in the revenue and operating margins of our reportable segments comparing the three and nine months endedSeptember 30, 2021 and 2020 are discussed below. 39
-------------------------------------------------------------------------------- Table of Contents Group 1 Revenue for the three and nine months endedSeptember 30, 2021 increased 11.7% and 9.5%, respectively, due to an increase in both average yield and volume in all lines of business. Operating income in Group 1 increased from$349.7 million for the three months endedSeptember 30, 2020 , or a 27.1% operating income margin, to$391.1 million for the three months endedSeptember 30, 2021 , or a 27.1% operating income margin. Operating income in Group 1 increased from$983.7 million for the nine months endedSeptember 30, 2020 , or a 26.1% operating income margin, to$1,122.4 million for the nine months endedSeptember 30, 2021 , or a 27.2% operating income margin. Operating income margin for the three and nine months endedSeptember 30, 2021 was favorably impacted by the increase in revenue attributable to economic recovery coupled with the effective management of certain operating costs. This benefit was partially offset by an increase in fuel costs. Group 2 Revenue for the three and nine months endedSeptember 30, 2021 increased 14.2% and 10.6%, respectively, due to an increase in average yield in all lines of business. Additionally, volume increased in our landfill, transfer station, and small- and large-container collection lines of business, partially offset by volume declines in our residential line of business. Operating income in Group 2 increased from$241.9 million for the three months endedSeptember 30, 2020 , or a 19.9% operating income margin, to$294.0 million for the three months endedSeptember 30, 2021 , or a 21.2% operating income margin. Operating income in Group 2 increased from$698.5 million for the nine months endedSeptember 30, 2020 , or a 19.5% operating income margin, to$839.4 million for the nine months endedSeptember 30, 2021 , or a 21.2% operating income margin. Operating income margin for the three and nine months endedSeptember 30, 2021 was favorably impacted by the increase in revenue attributable to economic recovery coupled with the effective management of certain operating costs. This benefit was partially offset by an increase in fuel costs. Corporate Entities and Other The Corporate entities and other operating loss decreased from$143.7 million for the three months endedSeptember 30, 2020 to$120.9 million for the three months endedSeptember 30, 2021 . The Corporate entities and other operating loss decreased from$405.8 million for the nine months endedSeptember 30, 2020 to$387.3 million for the nine months endedSeptember 30, 2021 . The operating loss for the three and nine months endedSeptember 30, 2021 was impacted by favorable CNG tax credits recognized during the respective periods as well as a net loss on business divestitures and impairments and favorable remediation adjustments recognized during the nine months endedSeptember 30, 2020 , which did not recur at the same magnitude in 2021. Landfill and Environmental Matters Available Airspace As ofSeptember 30, 2021 , we owned or operated 198 active solid waste landfills with total available disposal capacity estimated to be 5.0 billion in-place cubic yards. For these landfills, the following table reflects changes in capacity and remaining capacity, as measured in cubic yards of airspace: Landfills Permits Granted / Balance as of Acquired, Net of New Sites, Airspace Changes in Balance as of December 31, 2020 New Expansions Undertaken Divestitures Net of Closures
Engineering estimates consumed
Cubic yards (in millions): Airspace authorized
4,792.5 - 67.2 34.2 (59.1) 1.4 4,836.2
Probable expansion airspace 196.4 20.5 - (27.3) - - 189.6
Total cubic yards (in millions) 4,988.9 20.5 67.2 6.9 (59.1) 1.4 5,025.8
Number of sites:
Permitted airspace 186 - 13 (1) 198
Probable expansion airspace 11 2 - (1) 12
Total available disposal capacity represents the sum of estimated permitted
airspace plus an estimate of probable expansion airspace. Engineers develop
these estimates at least annually using information provided by annual aerial
surveys. Before airspace included in an expansion area is determined to be
probable expansion airspace and, therefore, included in our calculation of total
available disposal capacity, it must meet all of our expansion criteria.
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As of September 30, 2021 , 12 of our landfills met all of our criteria for
including their probable expansion airspace in their total available disposal
capacity. At projected annual volumes, these landfills have an estimated
remaining average site life of 34 years, including probable expansion airspace.
The average estimated remaining life of all of our landfills is 61 years. We
have other expansion opportunities that are not included in our total available
airspace because they do not meet all of our criteria for treatment as probable
expansion airspace.
Remediation and Other Charges for Landfill Matters
It is reasonably possible that we will need to adjust our accrued landfill and
environmental liabilities to reflect the effects of new or additional
information, to the extent that such information impacts the costs, timing or
duration of the required actions. Future changes in our estimates of the costs,
timing or duration of the required actions could have a material adverse effect
on our consolidated financial position, results of operations and cash flows.
For a description of our significant remediation matters, see Note 6, Landfill
and Environmental Costs, of the notes to our unaudited consolidated financial
statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Property and Equipment
The following tables reflect the activity in our property and equipment accounts
for the nine months ended September 30, 2021 :
Gross Property and Equipment
Non-cash
Additions Adjustments Impairments,
Balance as of Acquisitions, for Asset for Asset Transfers Balance as of
December 31 , Capital Net of Retirement Retirement and Other September 30,
2020 Additions Retirements Divestitures Obligations Obligations Adjustments 2021
Land $ 467.1 $ 12.5 $ (0.9) $ 15.2 $ - $ - $ (0.2) $ 493.7
Non-depletable landfill land 166.3 0.1 - (0.4) - - 0.8 166.8
Landfill development costs 7,991.7 6.3 - 65.9 34.9 10.2 176.4 8,285.4
Vehicles and equipment 8,119.0 429.2 (309.0) 103.6 - - 62.2 8,405.0
Buildings and improvements 1,402.5 3.7 (1.9) 16.6 0.5 - 23.1 1,444.5
Construction-in-progress - landfill 303.8 232.8 - - - - (178.2) 358.4
Construction-in-progress - other 107.4 118.0 - 5.3 - - (90.7) 140.0
Total $ 18,557.8 $ 802.6 $ (311.8) $ 206.2 $ 35.4 $ 10.2 $ (6.6) $ 19,293.8
Accumulated Depreciation, Amortization and Depletion
Additions Adjustments Impairments,
Balance as of Charged Acquisitions, for Asset Transfers Balance as of
December 31, to Net of Retirement and Other September 30,
2020 Expense Retirements Divestitures Obligations Adjustments 2021
Landfill development costs
$ - $ -$ (12.3) $ -$ (4,538.7) Vehicles and equipment (4,953.4) (490.8) 303.0 - - 2.6 (5,138.6) Buildings and improvements (628.7) (50.3) 1.5 0.3 - (0.4) (677.6) Total$ (9,831.6) $ (818.0) $ 304.5 $ 0.3$ (12.3) $ 2.2$ (10,354.9) 41
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Liquidity and Capital Resources
Cash and Cash Equivalents
The following is a summary of our cash and cash equivalents and restricted cash
and marketable securities balances as of:
September 30, 2021 December 31, 2020
Cash and cash equivalents $ 40.1 $ 38.2
Restricted cash and marketable securities 155.6 149.1
Less: restricted marketable securities (72.8) (73.1)
Cash, cash equivalents, restricted cash and restricted cash equivalents
$ 122.9 $ 114.2
Our restricted cash and marketable securities include, among other things,
restricted cash and marketable securities pledged to regulatory agencies and
governmental entities as financial guarantees of our performance under certain
collection, landfill and transfer station contracts and permits, and relating to
our final capping, closure and post-closure obligations at our landfills as well
as restricted cash and marketable securities related to our insurance
obligations.
The following table summarizes our restricted cash and marketable securities:
September 30, 2021 December 31, 2020
Capping, closure and post-closure obligations $ 42.2 $ 31.5
Insurance 113.4 117.6
Total restricted cash and marketable securities $ 155.6 $ 149.1
Intended Uses of Cash
We intend to use excess cash on hand and cash from operating activities to fund
capital expenditures, acquisitions, dividend payments, share repurchases and
debt repayments. Debt repayments may include purchases of our outstanding
indebtedness in the secondary market or otherwise. We believe that our excess
cash, cash from operating activities and our availability to draw on our credit
facilities provide us with sufficient financial resources to meet our
anticipated capital requirements and maturing obligations as they come due.
We may choose to voluntarily retire certain portions of our outstanding debt
before their maturity dates using cash from operations or additional borrowings.
We may also explore opportunities in the capital markets to fund redemptions
should market conditions be favorable. Early extinguishment of debt will result
in an impairment charge in the period in which the debt is repaid. The loss on
early extinguishment of debt relates to premiums paid to effectuate the
repurchase and the relative portion of unamortized note discounts and debt issue
costs.
Summary of Cash Flow Activity
The major components of changes in cash flows are discussed in the following
paragraphs. The following table summarizes our cash flow from operating
activities, investing activities and financing activities for the nine months
ended September 30, 2021 and 2020:
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