REPUBLIC SERVICES, INC. [RSG] Filings

10-Q 1 rsg-20230930.htm 10-Q rsg-20230930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________________

FORM 10-Q

_________________________________________________________

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-14267

_________________________________________________________

REPUBLIC SERVICES, INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________


Delaware		65-0716904
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

18500 North Allied Way		85054
Phoenix,	Arizona
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (480) 627-2700

_________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	RSG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Smaller reporting company

☐

Non-accelerated filer

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of October 19, 2023, the registrant had outstanding 314,636,503 shares of Common Stock, par value $0.01 per share (excluding treasury shares of 6,081,110).

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REPUBLIC SERVICES, INC.

INDEX


PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	3
	Unaudited Consolidated Statement of Income for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Unaudited Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Unaudited Consolidated Statement of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022	6
	Unaudited Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Equity Securities	52
Item 3.	Defaults upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
	Signatures	54

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

REPUBLIC SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)


	September 30,		December 31,
	2023		2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	157.5	$	143.4
Accounts receivable, less allowance for doubtful accounts and other of $83.5 and $51.9, respectively	1,829.7		1,677.2
Prepaid expenses and other current assets	361.2		536.5

Total current assets	2,348.4		2,357.1
Restricted cash and marketable securities	153.3		127.6
Property and equipment, net	10,701.4		10,744.0
Goodwill	15,290.7		14,451.5
Other intangible assets, net	447.2		347.2
Other assets	1,101.8		1,025.5
Total assets	$	30,042.8	$	29,052.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,198.2	$	1,221.8
Notes payable and current maturities of long-term debt	932.3		456.0
Deferred revenue	484.8		443.0
Accrued landfill and environmental costs, current portion	144.1		132.6
Accrued interest	87.8		79.0
Other accrued liabilities	1,221.6		1,058.3
Total current liabilities	4,068.8		3,390.7
Long-term debt, net of current maturities	10,992.8		11,329.5
Accrued landfill and environmental costs, net of current portion	2,225.6		2,141.3
Deferred income taxes and other long-term tax liabilities, net	1,474.9		1,528.8
Insurance reserves, net of current portion	352.6		315.1
Other long-term liabilities	595.7		660.7
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share; 50 shares authorized; none issued	—		—
Common stock, par value $0.01 per share; 750 shares authorized; 320.7 and 320.3 issued including shares held in treasury, respectively	3.2		3.2
Additional paid-in capital	2,887.6		2,843.2
Retained earnings	8,163.5		7,356.3
Treasury stock, at cost; 5.6 and 4.2 shares, respectively	(720.5)		(504.6)
Accumulated other comprehensive loss, net of tax	(2.5)		(12.1)
Total Republic Services, Inc. stockholders’ equity	10,331.3		9,686.0
Non-controlling interests in consolidated subsidiary	1.1		0.8
Total stockholders’ equity	10,332.4		9,686.8
Total liabilities and stockholders’ equity	$	30,042.8	$	29,052.9

The accompanying notes are an integral part of these statements.

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REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	3,825.9	$	3,597.8	$	11,132.9	$	9,981.5
Expenses:
Cost of operations	2,284.3		2,194.2		6,678.0		6,023.6
Depreciation, amortization and depletion	382.3		353.9		1,099.4		1,001.8
Accretion	24.6		22.8		73.2		66.9
Selling, general and administrative	402.1		361.0		1,177.3		1,059.0
Withdrawal costs - multiemployer pension funds	—		—		—		2.2
Gain on business divestitures and impairments, net	(1.5)		(5.2)		(1.5)		(5.3)
Restructuring charges	6.3		6.8		27.3		18.8
Operating income	727.8		664.3		2,079.2		1,814.5
Interest expense	(127.6)		(105.2)		(378.8)		(282.7)
Loss on extinguishment of debt	—		—		(0.2)		—
Income (loss) from unconsolidated equity method investments	2.8		(51.8)		0.2		(69.2)
Interest income	2.0		0.8		5.0		2.0
Other income (expense), net	1.3		(0.3)		3.2		(6.5)
Income before income taxes	606.3		507.8		1,708.6		1,458.1
Provision for income taxes	126.0		90.9		416.9		317.5
Net income	480.3		416.9		1,291.7		1,140.6
Net (loss) income attributable to non-controlling interests in consolidated subsidiary	(0.1)		—		(0.3)		0.2
Net income attributable to Republic Services, Inc.	$	480.2	$	416.9	$	1,291.4	$	1,140.8
Basic earnings per share attributable to Republic Services, Inc. stockholders:
Basic earnings per share	$	1.52	$	1.32	$	4.08	$	3.60
Weighted average common shares outstanding	316.1		316.5		316.5		316.5
Diluted earnings per share attributable to Republic Services, Inc. stockholders:
Diluted earnings per share	$	1.52	$	1.32	$	4.07	$	3.60
Weighted average common and common equivalent shares outstanding	316.6		317.0		317.0		317.1
Cash dividends per common share	$	0.535	$	0.495	$	1.525	$	1.415

The accompanying notes are an integral part of these statements.

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REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	480.3	$	416.9	$	1,291.7	$	1,140.6
Other comprehensive income (loss), net of tax
Hedging activity:

Realized (income) loss reclassified into earnings	(2.3)		—		(7.1)		2.1
Unrealized gain	4.1		9.1		16.6		8.1
Pension activity:
Change in funded status of pension plan obligations	—		—		0.2		—

Foreign currency activity:

Unrealized gain (loss) on foreign currency translation	2.4		(6.1)		(0.1)		(6.2)
Other comprehensive income, net of tax	4.2		3.0		9.6		4.0
Comprehensive income	484.5		419.9		1,301.3		1,144.6
Comprehensive (income) loss attributable to non-controlling interests	(0.1)		—		(0.3)		0.2
Comprehensive income attributable to Republic Services, Inc.	$	484.4	$	419.9	$	1,301.0	$	1,144.8

The accompanying notes are an integral part of these statements.

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REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions)


	Republic Services, Inc. Stockholders’ Equity
	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss, Net of Tax		Non-controlling Interests In Consolidated Subsidiary
	Shares	Amount						Shares	Amount						Total
Balance as of December 31, 2022	320.3	$	3.2	$	2,843.2	$	7,356.3	(4.2)	$	(504.6)	$	(12.1)	$	0.8	$	9,686.8

Net income	—	—		—		383.9		—	—		—		—		383.9
Other comprehensive income	—	—		—		—		—	—		2.8		—		2.8
Cash dividends declared	—	—		—		(156.5)		—	—		—		—		(156.5)
Issuances of common stock	0.3	—		2.9		—		(0.1)	(13.9)		—		—		(11.0)
Stock-based compensation	—	—		12.3		(1.0)		—	—		—		—		11.3


Balance as of March 31, 2023	320.6	3.2		2,858.4		7,582.7		(4.3)	(518.5)		(9.3)		0.8		9,917.3

Net income	—	—		—		427.4		—	—		—		0.2		427.6
Other comprehensive income	—	—		—		—		—	—		2.6		—		2.6
Cash dividends declared	—	—		—		(156.6)		—	—		—		—		(156.6)
Issuances of common stock	0.1	—		4.5		—		—	(0.5)		—		—		4.0
Stock-based compensation	—	—		10.6		(0.8)		—	—		—		—		9.8


Balance as of June 30, 2023	320.7	3.2		2,873.5		7,852.7		(4.3)	(519.0)		(6.7)		1.0		10,204.7

Net income	—	—		—		480.2		—	—		—		0.1		480.3
Other comprehensive income	—	—		—		—		—	—		4.2		—		4.2
Cash dividends declared	—	—		—		(168.5)		—	—		—		—		(168.5)
Issuances of common stock	—	—		3.1		—		—	(0.4)		—		—		2.7
Stock-based compensation	—	—		11.0		(0.9)		—	—		—		—		10.1
Purchase of common stock for treasury	—	—		—		—		(1.3)	(201.1)		—		—		(201.1)


Balance as of September 30, 2023	320.7	$	3.2	$	2,887.6	$	8,163.5	(5.6)	$	(720.5)	$	(2.5)	$	1.1	$	10,332.4

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	Republic Services, Inc. Stockholders’ Equity
	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss, Net of Tax		Non-controlling Interests In Consolidated Subsidiary
	Shares	Amount						Shares	Amount						Total
Balance as of December 31, 2021	319.6	$	3.2	$	2,789.5	$	6,475.6	(2.4)	$	(274.8)	$	(14.6)	$	0.8	$	8,979.7

Net income (loss)	—	—		—		352.0		—	—		—		(0.1)		351.9
Other comprehensive income	—	—		—		—		—	—		1.1		—		1.1
Cash dividends declared	—	—		—		(145.3)		—	—		—		—		(145.3)
Issuances of common stock	0.3	—		2.6		—		(0.1)	(14.1)		—		—		(11.5)
Stock-based compensation	—	—		13.2		(0.9)		—	—		—		—		12.3
Purchase of common stock for treasury	—	—		—		—		(1.6)	(203.5)		—		—		(203.5)

Balance as of March 31, 2022	319.9	3.2		2,805.3		6,681.4		(4.1)	(492.4)		(13.5)		0.7		8,984.7

Net income (loss)	—	—		—		371.9		—	—		—		(0.1)		371.8
Other comprehensive income	—	—		—		—		—	—		(0.1)		—		(0.1)
Cash dividends declared	—	—		—		(145.3)		—	—		—		—		(145.3)
Issuances of common stock	0.2	—		4.0		—		—	(8.0)		—		—		(4.0)
Stock-based compensation	—	—		9.6		(0.9)		—	—		—		—		8.7


Balance as of June 30, 2022	320.1	3.2		2,818.9		6,907.1		(4.1)	(500.4)		(13.6)		0.6		9,215.8

Net income	—	—		—		416.9		—	—		—		—		416.9
Other comprehensive income	—	—		—		—		—	—		3.0		—		3.0
Cash dividends declared	—	—		—		(156.4)		—	—		—		—		(156.4)
Issuances of common stock	0.1	—		2.9		—		(0.1)	(0.3)		—		—		2.6
Stock-based compensation	—	—		10.2		(0.8)		—	—		—		—		9.4

Distributions paid	—	—		(0.8)		—		—	—		—		—		(0.8)
Balance as of September 30, 2022	320.2	$	3.2	$	2,831.2	$	7,166.8	(4.2)	$	(500.7)	$	(10.6)	$	0.6	$	9,490.5

The accompanying notes are an integral part of these statements.

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REPUBLIC SERVICES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Nine Months Ended September 30,
	2023		2022
Cash provided by operating activities:
Net income	$	1,291.7	$	1,140.6
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, amortization, depletion and accretion	1,172.6		1,068.7
Non-cash interest expense	65.5		55.3

Stock-based compensation	31.7		30.8
Deferred tax provision	52.2		100.2
Provision for doubtful accounts, net of adjustments	38.6		27.8
Loss on extinguishment of debt	0.2		—
Gain on disposition of assets and asset impairments, net	(3.7)		(8.0)

Environmental adjustments	—		(0.1)
(Gain) loss from unconsolidated equity method investments	(0.2)		69.2

Other non-cash items	(0.6)		8.0
Change in assets and liabilities, net of effects from business acquisitions and divestitures:
Accounts receivable	(161.0)		(206.1)
Prepaid expenses and other assets	121.4		28.0
Accounts payable	93.5		97.7

Capping, closure and post-closure expenditures	(40.5)		(35.6)
Remediation expenditures	(31.4)		(37.3)
Other liabilities	86.9		40.8
Proceeds for retirement of certain hedging relationships	2.4		—
Cash provided by operating activities	2,719.3		2,380.0
Cash (used in) provided by investing activities:
Purchases of property and equipment	(1,083.2)		(924.8)
Proceeds from sales of property and equipment	25.0		24.0
Cash used in acquisitions and investments, net of cash and restricted cash acquired	(1,051.1)		(2,847.6)
Cash paid for business divestitures	1.7		50.1
Purchases of restricted marketable securities	(13.8)		(15.7)
Sales of restricted marketable securities	13.1		15.4
Other	7.5		(2.3)
Cash used in investing activities	(2,100.8)		(3,700.9)
Cash provided by (used in) financing activities:
Proceeds from credit facilities and notes payable, net of fees	27,940.2		10,496.5
Proceeds from issuance of senior notes, net of discount and fees	1,183.6		—
Payments of credit facilities and notes payable	(29,024.7)		(8,472.1)


Issuances of common stock, net	(4.3)		(12.9)

Purchases of common stock for treasury	(190.4)		(203.5)
Cash dividends paid	(469.5)		(436.5)
Distributions paid to non-controlling interests in consolidated subsidiary	—		(0.8)
Contingent consideration payments	(14.1)		(4.5)
Cash (used in) provided by financing activities	(579.2)		1,366.2
Effect of foreign exchange rate changes on cash	0.2		(3.1)
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents	39.5		42.2
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	214.3		105.6
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	253.8	$	147.8

The accompanying notes are an integral part of these statements.

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Republic Services, Inc., a Delaware corporation, and its consolidated subsidiaries (also referred to collectively as Republic, the Company, we, us, or our), is one of the largest providers of environmental services in the United States, as measured by revenue. Our senior management evaluates, oversees and manages the financial performance of our operations through three field groups, referred to as Group 1, Group 2 and Group 3. Group 1 is our recycling and solid waste business operating primarily in geographic areas located in the western United States. Group 2 is our recycling and solid waste business operating primarily in geographic areas located in the southeastern and mid-western United States, the eastern seaboard of the United States, and Canada. Group 3 is our environmental solutions business operating primarily in geographic areas located across the United States and Canada. These groups represent our reportable segments, which each provide integrated environmental services, including but not limited to collection, transfer, recycling, and disposal. Prior to the third quarter of 2022, our environmental services operating segment, now referred to as our Group 3 reportable segment, was aggregated with Corporate entities and other.

The unaudited consolidated financial statements include the accounts of Republic Services, Inc. and its wholly owned and majority owned subsidiaries in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We account for investments in entities in which we do not have a controlling financial interest under the equity method of accounting or, for investments that do not meet the criteria to be accounted for under the equity method, we reflect these investments at their fair value when it is readily determinable. If fair value is not readily determinable, we use an alternative measurement approach. All material intercompany accounts and transactions have been eliminated in consolidation.

We have prepared these unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, these financial statements include all adjustments that, unless otherwise disclosed, are of a normal recurring nature and necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of the results you can expect for a full year. You should read these financial statements in conjunction with our audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation. All dollar amounts in tabular presentations are in millions, except per share amounts and unless otherwise noted.

Management’s Estimates and Assumptions

In preparing our financial statements, we make numerous estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. We must make these estimates and assumptions because certain information we use is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methodologies. In preparing our financial statements, the more critical and subjective areas that deal with the greatest amount of uncertainty relate to our accounting for our long-lived assets, including recoverability, landfill development costs, and final capping, closure and post-closure costs; our valuation allowances for accounts receivable and deferred tax assets; our liabilities for potential litigation, claims and assessments; our liabilities for environmental remediation, multiemployer pension funds, employee benefit plans, deferred taxes, uncertain tax positions, and insurance reserves; and our estimates of the fair values of assets acquired and liabilities assumed in acquisitions. Each of these items is discussed in more detail in our description of our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Our actual results may differ significantly from our estimates.

New Accounting Pronouncements

Accounting Standards Adopted

Disclosure of Supplier Finance Program Obligations

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The ASU requires buyers to disclose information about their supplier finance programs. Interim and annual requirements include the disclosure of outstanding amounts under the obligations as of the end of the reporting period, and annual requirements include a rollforward of those obligations for the annual reporting period, as well as a description of payment and other key terms of the

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

programs. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective for fiscal years beginning after December 15, 2023. The adoption of ASU 2022-04 on January 1, 2023 did not have a material impact on our consolidated financial statements.

Through September 30, 2023, certain of our vendors chose to opt into our vendor supply finance agreement. This agreement allows a vendor to choose, on an invoice by invoice basis, to receive an earlier payment instead of a payment based on its original contracted terms (which, depending on the vendor, could extend up to 90 days or longer). As of September 30, 2023 and December 31, 2022, the amounts outstanding under these programs were not material.

Accounting Standards Updates Issued but not yet Adopted

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative

In October 2023, the FASB issued ASU 2023-06 to modify the disclosure or presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the SEC's requirements, and to align the requirements in the FASB accounting standard codification with the SEC's regulations. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements.

2. BUSINESS ACQUISITIONS, INVESTMENTS AND RESTRUCTURING CHARGES

Acquisitions

We acquired various environmental services businesses during the nine months ended September 30, 2023 and 2022. The aggregate purchase price paid for these business acquisitions and the allocations of the aggregate purchase price follows:


	2023		2022
Purchase price:
Cash used in acquisitions, net of cash acquired of $15.2 and $66.6, respectively	$	938.0	$	2,583.2

Holdbacks	9.4		12.6
Fair value, future minimum finance lease payments	0.6		15.6

Total	$	948.0	$	2,611.4
Allocated as follows:

Accounts receivable	$	25.5	$	249.2
Prepaid expenses	0.9		15.6
Landfill development costs	0.5		495.7
Property and equipment	223.9		730.6
Operating right-of-use lease assets	3.4		55.4
Interest rate swap	—		29.1

Other assets	0.1		42.3
Inventory	2.1		11.6
Accounts payable	(5.6)		(108.9)
Deferred revenue	(8.2)		(27.7)
Environmental remediation liabilities	(5.6)		(92.9)
Closure and post-closure liabilities	(10.5)		(89.3)
Operating right-of-use lease liabilities	(3.4)		(55.8)
Deferred income tax liabilities	(23.6)		(151.0)
Other liabilities	(0.3)		(54.7)
Fair value of tangible assets acquired and liabilities assumed	199.2		1,049.2
Excess purchase price to be allocated	$	748.8	$	1,562.2
Excess purchase price allocated as follows:
Other intangible assets	$	136.0	$	169.6
Goodwill	612.8		1,392.6
Total allocated	$	748.8	$	1,562.2

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Certain of the purchase price allocations are preliminary and based on information existing at the acquisition dates. Accordingly, the purchase price allocations are subject to change. For the acquisitions that closed during the nine months ended September 30, 2023, we expect that a majority of the goodwill and intangible assets recognized as a result of these acquisitions will be deductible for tax purposes.

These acquisitions are not material to the Company's results of operations, individually or in the aggregate. As a result, no pro forma financial information is provided.

On May 2, 2022, we acquired all outstanding equity of US Ecology, Inc. (US Ecology) in a transaction valued at $2.2 billion. US Ecology is a leading provider of environmental solutions offering treatment, recycling and disposal of hazardous, non-hazardous and specialty waste. As of June 30, 2023, we finalized the purchase price allocation. We did not step-up the tax basis of the assets recognized in connection with the US Ecology acquisition, and do not expect that the goodwill and intangible assets recognized will be deductible for tax purposes.

During the nine months ended September 30, 2023 and 2022, we incurred $24.3 million and $65.4 million, respectively, of acquisition integration and deal costs in connection with the acquisition of US Ecology. During the three months ended September 30, 2023 and 2022, we incurred $6.2 million and $8.7 million, respectively, of acquisition integration and deal costs in connection with the acquisition of US Ecology. The 2023 costs primarily related to the integration of certain software systems as well as rebranding of the business, and the 2022 costs included certain costs to close the acquisition and integrate the business.

In June 2023, we acquired a vertically-integrated set of operations located primarily in Colorado from GFL Environmental Inc., including recycling, hauling, transfer and landfill operations. The purchase price allocation is preliminary and remains subject to revision as additional information is obtained about the facts and circumstances that existed at the valuation date. The preliminary allocation of purchase price, including the value assigned to tangible and intangible assets acquired as well as certain landfill and environmental liabilities assumed, is based on the best estimates of management and is subject to revision based on the final valuations. We expect our valuations to be substantially complete by the end of 2023.

Investments

In 2023 and 2022, we acquired non-controlling equity interests in certain limited liability companies that qualified for investment tax credits under Section 48 of the Internal Revenue Code. In exchange for our non-controlling interests, we made capital contributions of $34.0 million and $121.0 million, which were recorded to other assets in our September 30, 2023 and 2022 consolidated balance sheets, respectively. During the three and nine months ended September 30, 2023, we decreased the carrying value of these investments by $3.7 million and $6.3 million, respectively, and during the three and nine months ended September 30, 2022, we decreased the carrying value of these investments by $49.5 million and $61.8 million, respectively, as a result of cash distributions and our share of income and loss pursuant to the terms of the limited liability company agreements. Additionally, our tax provisions reflect benefits of approximately $8 million for the three and nine months ended September 30, 2023, and benefits of approximately $35 million and $60 million, respectively, for the three and nine months ended September 30, 2022, due to the tax credits related to these investments. For further discussion of the income tax benefits, refer to Note 11, Income Taxes, in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Restructuring Charges

During the three and nine months ended September 30, 2023, we incurred restructuring charges of $6.3 million and $27.3 million, respectively, and during the three and nine months ended September 30, 2022, we incurred restructuring charges of $6.8 million and $18.8 million, respectively. Of the 2023 charges, $9.5 million related to the early termination of certain leases and $17.8 million related to the redesign of our asset management, and customer and order management software systems, and the 2022 charges primarily related to the redesign of our general ledger, budgeting and procurement enterprise resource planning systems which was completed with systems being placed into production in 2022. During the nine months ended September 30, 2023 and 2022, we paid $32.4 million and $17.0 million, respectively, related to these restructuring efforts.

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

3. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

A summary of the activity and balances in goodwill accounts by reporting segment follows:


	Balance as of December 31, 2022		Acquisitions		Divestitures		Adjustments to Acquisitions		Balance as of September 30, 2023
Group 1	$	6,637.9	$	445.5	$	—	$	(0.9)	$	7,082.5
Group 2	6,238.3		167.3		(0.6)		0.9		6,405.9
Group 3	1,575.3		—		—		227.0		1,802.3
Total	$	14,451.5	$	612.8	$	(0.6)	$	227.0	$	15,290.7

Adjustments to acquisitions during the nine months ended September 30, 2023 primarily related to changes in our valuation of assets acquired and liabilities assumed in connection with our acquisition of US Ecology.

Other Intangible Assets, Net

Other intangible assets, net, include values assigned to customer relationships, non-compete agreements and trade names, and are amortized over periods ranging from 1 to 15 years. A summary of the activity and balances by intangible asset type follows:


	Gross Intangible Assets								Accumulated Amortization
	Balance as of December 31, 2022		Acquisitions		Adjustments and Other		Balance as of September 30, 2023		Balance as of December 31, 2022		Additions Charged to Expense		Adjustments and Other		Balance as of September 30, 2023		Other Intangible Assets, Net as of September 30, 2023
Customer relationships	$	1,013.5	$	133.1	$	(572.6)	$	574.0	$	(709.1)	$	(37.5)	$	590.5	$	(156.1)	$	417.9
Non-compete agreements	67.9		1.6		(39.7)		29.8		(50.9)		(4.8)		39.7		(16.0)		13.8
Other intangible assets	77.0		1.3		(50.1)		28.2		(51.2)		(5.1)		43.6		(12.7)		15.5
Total	$	1,158.4	$	136.0	$	(662.4)	$	632.0	$	(811.2)	$	(47.4)	$	673.8	$	(184.8)	$	447.2

4. OTHER ASSETS

Prepaid Expenses and Other Current Assets

A summary of prepaid expenses and other current assets as of September 30, 2023 and December 31, 2022 follows:


	2023		2022
Prepaid expenses	$	135.0	$	114.3
Inventories	100.0		96.6
Other non-trade receivables	53.9		59.8
Reinsurance receivable	33.4		31.9
Prepaid fees for cloud-based hosting arrangements, current	14.0		14.4
Income taxes receivable	10.8		214.0

Derivative and hedging assets	10.5		—
Other current assets	3.6		5.5
Total	$	361.2	$	536.5

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Other Assets

A summary of other assets as of September 30, 2023 and December 31, 2022 follows:


	2023		2022
Investments	$	371.6	$	281.4
Operating right-of-use lease assets	238.0		275.1
Deferred compensation plan	104.8		100.6
Derivative and hedging assets	110.3		105.8
Reinsurance receivable	86.7		84.1
Deferred contract costs and sales commissions	82.2		80.2
Prepaid fees and capitalized implementation costs for cloud-based hosting arrangements	58.8		51.4
Amounts recoverable for capping, closure and post-closure obligations	22.1		20.5
Deferred financing costs	4.0		5.1
Other	23.3		21.3
Total	$	1,101.8	$	1,025.5

5. OTHER LIABILITIES

Other Accrued Liabilities

A summary of other accrued liabilities as of September 30, 2023 and December 31, 2022 follows:


	2023		2022
Accrued payroll and benefits	$	293.6	$	342.6
Insurance reserves, current	214.2		187.5
Accrued fees and taxes	179.7		168.5
Accrued dividends	168.5		156.4
Current tax liabilities	97.9		2.1
Operating right-of-use lease liabilities, current	52.5		57.9

Ceded insurance reserves, current	35.3		32.0
Accrued professional fees and legal settlement reserves	14.7		8.6
Derivative and hedging liabilities	14.4		1.2
Other	150.8		101.5
Total	$	1,221.6	$	1,058.3

Other Long-Term Liabilities

A summary of other long-term liabilities as of September 30, 2023 and December 31, 2022 follows:


	2023		2022
Operating right-of-use lease liabilities	$	195.7	$	238.0
Deferred compensation plan liability	102.6		98.6
Derivative and hedging liabilities	96.9		99.7
Ceded insurance reserves	84.8		84.1
Contingent purchase price and acquisition holdbacks	59.3		60.5
Withdrawal liability - multiemployer pension funds	19.7		20.0

Other	36.7		59.8
Total	$	595.7	$	660.7

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

6. LANDFILL AND ENVIRONMENTAL COSTS

As of September 30, 2023, we owned or operated 208 active landfills with total available disposal capacity estimated to be 5.1 billion in-place cubic yards. Additionally, we had post-closure responsibility for 126 closed landfills.

Accrued Landfill and Environmental Costs

A summary of accrued landfill and environmental liabilities as of September 30, 2023 and December 31, 2022 follows:


	2023		2022
Landfill final capping, closure and post-closure liabilities	$	1,867.7	$	1,786.4
Environmental remediation	502.0		487.5
Total accrued landfill and environmental costs	2,369.7		2,273.9
Less: current portion	(144.1)		(132.6)
Long-term portion	$	2,225.6	$	2,141.3

Final Capping, Closure and Post-Closure Costs

The following table summarizes the activity in our asset retirement obligation liabilities, which includes liabilities for final capping, closure and post-closure, for the nine months ended September 30, 2023 and 2022:


	2023		2022
Asset retirement obligation liabilities, beginning of year	$	1,786.4	$	1,507.3
Non-cash additions	46.4		43.2
Acquisitions, net of divestitures and other adjustments	11.8		88.5
Asset retirement obligation adjustments	(9.6)		7.2
Payments	(40.5)		(35.6)
Accretion expense	73.2		66.9

Asset retirement obligation liabilities, end of period	1,867.7		1,677.5
Less: current portion	(79.1)		(71.6)
Long-term portion	$	1,788.6	$	1,605.9

We review annually, in the fourth quarter, and update as necessary, our estimates of asset retirement obligation liabilities. However, if there are significant changes in the facts and circumstances related to a site during the year, we will update our assumptions prospectively in the period that we know all the relevant facts and circumstances and make adjustments as appropriate.

Landfill Operating Expenses

In the normal course of business, we incur various operating costs associated with environmental compliance. These costs include, among other things, leachate treatment and disposal, methane gas and groundwater monitoring, systems maintenance, interim cap maintenance, costs associated with the application of daily cover materials, and the legal and administrative costs of ongoing environmental compliance. These costs are expensed as cost of operations in the periods in which they are incurred.

Environmental Remediation Liabilities

We accrue for remediation costs when they become probable and can be reasonably estimated. There can sometimes be a range of reasonable estimates of the costs associated with remediation of a site. In these cases, we use the amount within the range that constitutes our best estimate. If no amount within the range appears to be a better estimate than any other, we use the amount that is at the low end of such range. It is reasonably possible that we will need to adjust the liabilities recorded for remediation to reflect the effects of new or additional information, to the extent such information impacts the costs, timing or duration of the required actions. If we used the reasonably possible high ends of our ranges, our aggregate potential remediation liability as of September 30, 2023 would be approximately $369 million higher than the amount recorded. Future changes in our estimates of the cost, timing or duration of the required actions could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table summarizes the activity in our environmental remediation liabilities for the nine months ended September 30, 2023 and 2022:


	2023		2022
Environmental remediation liabilities, beginning of year	$	487.5	$	454.9

Payments	(31.4)		(37.4)
Accretion expense (non-cash interest expense)	13.5		13.4
Acquisitions, net of divestitures and other adjustments	32.4		102.5
Environmental remediation liabilities, end of period	502.0		533.4
Less: current portion	(65.0)		(55.3)
Long-term portion	$	437.0	$	478.1

Bridgeton Landfill. During the nine months ended September 30, 2023, we paid $9.4 million related to management and monitoring of the remediation area for our closed Bridgeton Landfill in Missouri. We continue to work with state and federal regulatory agencies on our remediation efforts. From time to time, this may require us to modify our future operating timeline and procedures, which could result in changes to our expected liability. As of September 30, 2023, the remediation liability recorded for this site was $77.8 million, of which approximately $6 million is expected to be paid during the remainder of 2023.

West Lake Landfill Superfund Site. Our subsidiary Bridgeton Landfill, LLC is one of several currently designated Potentially Responsible Parties for the West Lake Landfill Superfund site (West Lake) in Missouri. On September 27, 2018, the U.S. Environmental Protection Agency (EPA) issued a Record of Decision Amendment for West Lake that includes a total undiscounted cost estimate of $229 million over a four to five year design and construction timeline. On March 11, 2019, the EPA issued special notice letters under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) to Bridgeton Landfill, LLC and the other currently designated Potentially Responsible Parties to initiate negotiations to implement the remedy. At this time, we are neither able to predict the final design of that remedy, nor estimate how much of the future response costs of the site our subsidiary may agree or be required to pay. During any subsequent administrative proceedings or litigation, our subsidiary will vigorously contest liability for the costs of remediating radiologically-impacted materials generated on behalf of the federal government during the Manhattan Project and delivered to the site by an Atomic Energy Commission licensee and its subcontractor. Currently, we believe we are adequately reserved for our expected remediation liability. However, subsequent events related to remedy design, divisibility, or allocation may require us to modify our expected remediation liability.

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REPUBLIC SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

7. DEBT

The carrying value of our credit facilities, finance leases and long-term debt as of September 30, 2023 and December 31, 2022 is listed in the following table, and is adjusted for the fair value of interest rate swaps, unamortized discounts, deferred issuance costs and the unamortized portion of adjustments to fair value recorded in purchase accounting. Original issue discounts, deferred issuance costs, and adjustments to fair value recorded in purchase accounting are amortized to interest expense over the term of the applicable instrument using the effective interest method.


		September 30, 2023						December 31, 2022
Maturity	Interest Rate	Principal		Adjustments		Carrying Value		Principal		Adjustments		Carrying Value
Credit facilities:
Uncommitted Credit Facility	Variable	$	9.9	$	—	$	9.9	$	—	$	—	$	—
$3.0 billion - August 2026	Variable	154.4		—		154.4		250.0		—		250.0
Term Loan	Variable	700.0		—		700.0		1,000.0		—		1,000.0
Commercial Paper	Variable	523.0		(0.2)		522.8		1,000.0		(1.8)		998.2
Senior notes:
May 2023	4.750	—		—		—		300.0		(2.5)		297.5
August 2024	2.500	900.0		(1.7)		898.3		900.0		(3.0)		897.0
March 2025	3.200	500.0		(1.0)		499.0		500.0		(1.6)		498.4
November 2025	0.875	350.0		(1.4)		348.6		350.0		(1.9)		348.1
July 2026	2.900	500.0		(1.8)		498.2		500.0		(2.2)		497.8
November 2027	3.375	650.0		(2.6)		647.4		650.0		(3.1)		646.9
May 2028	3.950	800.0		(9.4)		790.6		800.0		(