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 ended
December 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 in the 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 the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 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
In March 2020, the World 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.
In mid-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 of April 2020 and improved
sequentially through September 30, 2021.
In April 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. In December 2020, we recognized our frontline employees for their
commitment and contributions to their communities during the pandemic with a
$500 award that was paid in January 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.
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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 ending December 31, 2021. Adjusted diluted earnings per share is
not a measure determined in accordance with U.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 in the United
States, as measured by revenue. As of September 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 of September 30, 2021.
Revenue for the nine months ended September 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 ended September 30,
2021 as compared to the same period in 2020.
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The following table summarizes our revenue, expenses and operating income for
the three and nine months ended September 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 ended September 30, 2021, respectively, compared to $318.7 million
and $941.4 million for the same respective periods in 2020. Our net income
attributable to Republic Services, Inc. was $350.3 million and $977.3 million
for the three and nine months ended September 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 ended September 30, 2021 and 2020, we
recorded a number of charges, 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 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 ended September 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         

$ 1.10 $ 318.7 $ 260.0 $ 0.81
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



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                                                  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  

$ 3.06 $ 941.4 $ 731.8 $ 2.29
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 ended September 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 with 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, 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 ended September
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 due November
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, in
July 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 ended September 30, 2021, we incurred
restructuring charges of $4.6 million and $11.2 million, respectively, and
during the three and nine months ended September 30, 2020, we incurred
restructuring charges of $9.8 million and $15.8 million, respectively. During
the nine months ended September 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 ended September 30, 2021, we recorded a net gain on business divestitures
and impairments of $(0.2) million. During the three and nine months ended
September 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 ended
September 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 ended September 30, 2020,
we recognized an insurance recovery of $10.8 million related to our closed
Bridgeton Landfill in Missouri as a reduction of remediation expenses in our
cost of operations.
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Accelerated vesting of compensation expense for CEO transition. In June 2021,
Donald W. Slager retired as Chief Executive Officer (CEO) of Republic Services,
Inc. During the nine months ended September 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 ended September 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  %


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The following table reflects changes in components of our revenue, as a
percentage of total revenue, for the three and nine months ended September 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 ended
September 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 ended September 30, 2021, respectively,
and 4.8% and 5.1% for the same respective periods in 2020.
During the three and nine months ended September 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 ended September 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
ended September 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
ended September 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. In mid-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 of April 2020 and sequentially improved thereafter.
•Revenue decreased by 0.2% due to one less workday during the nine months ended
September 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 ended September 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 ended September 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 ended
September 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
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the nine months ended September 30, 2021 but remain below pre-COVID levels.
Consequently, environmental solutions revenue increased by 0.2% during the three
months ended September 30, 2021.
•Acquisitions, net of divestitures, increased revenue by 3.5% and 2.1% during
the three and nine months ended September 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 ended September 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 ended September 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
ended September 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 ended September 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
ended September 30, 2021 primarily due to higher collection and transfer station
volumes, acquisition-related activity, and increased subcontract work
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attributable to an increase in non-core revenues, partially offset by one less
workday during the nine months ended September 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 ended September 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 a twenty-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, a
twenty-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 ended
September 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 ended
September 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 ended September 30, 2020, which did
not recur in the same respective period in 2021.
•During the nine months ended September 30, 2020, we recognized a favorable
insurance recovery of $10.8 million related to our closed Bridgeton 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 ended September 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 ended September 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
ended September 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 ended September 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 ended September 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 ended September 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.
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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 ended September 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 ended September 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 ended September 30, 2021 largely due an increase in recruiting and
advertising costs. Consulting fees increased during the third quarter but
decreased for the nine months ended September 30, 2021. Additionally, we
recognized an unfavorable change in certain legal reserves during the nine
months ended September 30, 2020 that did not recur in 2021.
•In June 2021, Donald W. Slager retired as CEO of Republic Services, Inc. During
the nine months ended September 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 ended September 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 ended September 30, 2021, we recorded a net gain on
business divestitures and impairments of $0.2 million. During the three and nine
months ended September 30, 2020, we recorded a net loss on business divestitures
and impairments of $31.5 million and $32.9 million, respectively.
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Restructuring Charges
In 2020, we incurred costs related to the redesign of certain back-office
software systems, which continued into 2021. In addition, in July 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 ended September 30, 2021, we incurred restructuring
charges of $4.6 million and $11.2 million, respectively, and during the three
and nine months ended September 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 ended September 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 ended September 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 ended September 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 in November 2020 as well as the issuance of $650.0 million of
1.450% senior notes in August 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
ended September 30, 2021 and 2020, respectively.
Income Taxes
Our effective tax rate, exclusive of non-controlling interests, for the three
and nine months ended September 30, 2021 was 25.5% and 24.6%, respectively. Our
effective tax rate, exclusive of non-controlling interests, for the three and
nine months ended September 30, 2020 was 18.4% and 22.1%, respectively.
Cash paid for income taxes was $182.1 million for the nine months ended
September 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
In December 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 western
United States, and Group 2 primarily consists of geographic areas located in the
southeastern and mid-western United States, and the eastern seaboard of the
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.
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Summarized financial information concerning our reportable segments for the
three and nine months ended September 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 Ended September 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 Ended September 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 Ended September 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 Ended September 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 ended September 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 ended September 30, 2021 and 2020
are discussed below.


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Group 1
Revenue for the three and nine months ended September 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
ended September 30, 2020, or a 27.1% operating income margin, to $391.1 million
for the three months ended September 30, 2021, or a 27.1% operating income
margin. Operating income in Group 1 increased from $983.7 million for the nine
months ended September 30, 2020, or a 26.1% operating income margin, to $1,122.4
million for the nine months ended September 30, 2021, or a 27.2% operating
income margin. Operating income margin for the three and nine months ended
September 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 ended September 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
ended September 30, 2020, or a 19.9% operating income margin, to $294.0 million
for the three months ended September 30, 2021, or a 21.2% operating income
margin. Operating income in Group 2 increased from $698.5 million for the nine
months ended September 30, 2020, or a 19.5% operating income margin, to $839.4
million for the nine months ended September 30, 2021, or a 21.2% operating
income margin. Operating income margin for the three and nine months ended
September 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 ended September 30, 2020 to $120.9 million for the three
months ended September 30, 2021. The Corporate entities and other operating loss
decreased from $405.8 million for the nine months ended September 30, 2020 to
$387.3 million for the nine months ended September 30, 2021. The operating loss
for the three and nine months ended September 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 ended September 30, 2020, which did not recur
at the same magnitude in 2021.
Landfill and Environmental Matters
Available Airspace
As of September 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 September 30, 2021
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 $ (4,249.5) $ (276.9)

  $          -          $            -          $      (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)



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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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