REPUBLIC SERVICES, INC. You should read the following discussion in conjunction with the unaudited consolidated financial statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, you should refer to our audited consolidated financial statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . Disclosure Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain forward-looking information about us that is intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Words such as "guidance," "expect," "will," "may," "anticipate," "plan," "estimate," "project," "intend," "should," "can," "likely," "could," "outlook" and similar expressions are intended to identify forward-looking statements. In particular, information appearing in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements. These statements include information about our plans, strategies, expectations of future financial performance and prospects. Forward-looking statements are not guarantees of performance. These statements are based upon the current beliefs and expectations of our management and are subject to significant risk and uncertainties that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that the expectations will prove to be correct. Among the factors that could cause actual results to differ materially from the expectations expressed in the forward-looking statements are the effects of the COVID-19 pandemic and actions taken in response thereto, as well as acts of war, riots or terrorism, and the impact of these acts on economic, financial and social conditions inthe United States as well as our dependence on large, long-term collection, transfer and disposal contracts. More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the year endedDecember 31, 2020 , particularly under Part I, Item 1A - Risk Factors. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such risk factors, or to assess the impact such risk factors might have on our business. We undertake no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. Impact of the COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the outbreak of a new strain of coronavirus (COVID-19) 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, all of which are uncertain and cannot be predicted at this time. Inmid-March 2020 , certain customers in our small- and large-container businesses began adjusting their service levels, which included a decrease in the frequency of pickups or a temporary pause in service. In addition, we experienced a decline in volumes disposed at certain of our landfills and transfer stations. As service levels decreased, we also experienced a decrease in certain costs of our operations which are variable in nature. This decline in service activity peaked in the first half ofApril 2020 and improved sequentially throughMarch 31, 2021 . InApril 2020 , we launched our Committed to Serve initiative and committed$20 million to support frontline employees and their families, as well as small business customers in the local communities where we serve. In addition to this initiative, we have experienced an increase in certain costs of doing business as a direct result of the COVID-19 pandemic, including costs for additional safety equipment and hygiene products and increased facility and equipment cleaning. These costs are intended to assist in protecting the safety of our frontline employees as we continue to provide an essential service to our customers. InDecember 2020 , we recognized our frontline employees for their commitment and contributions to their communities during the pandemic with a$500 award that was paid inJanuary 2021 . In addition, we incurred incremental costs associated with expanding certain aspects of our existing healthcare programs. We expect to incur similar costs throughout 2021, and potentially into future years, although we expect the amount of such costs annually to be less than those incurred in 2020. The effects of the COVID-19 pandemic on our business are described in more detail in the Results of Operations discussion in this Management's Discussion and Analysis of Financial Condition and Results of Operations. 27 -------------------------------------------------------------------------------- Table of Contents Recent Developments Updated Full-Year 2021 Adjusted Earnings Per Share Guidance The following is a summary of anticipated adjusted diluted earnings per share for the year endingDecember 31, 2021 . Adjusted diluted earnings per share is not a measure determined in accordance withU.S. GAAP: (Anticipated) Year EndingDecember 31, 2021 Diluted earnings per share$ 3.65 to 3.69 Restructuring charges 0.03 to 0.04 Accelerated vesting of compensation expense for CEO transition 0.06 Adjusted diluted earnings per share$ 3.74 to 3.79 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. Overview Republic is one of the largest providers of environmental services inthe United States , as measured by revenue. As ofMarch 31, 2021 , we operated facilities in 41 states through 347 collection operations, 222 transfer stations, 186 active landfills, 73 recycling processing centers, 6 treatment, recovery and disposal facilities, 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 128 closed landfills as ofMarch 31, 2021 . Revenue for the three months endedMarch 31, 2021 increased by 1.7% to$2,596.4 million compared to$2,553.9 million for the same period in 2020. This change in revenue is due to increases in average yield of 2.3%, acquisitions, net of divestitures of 1.0%, and recycling processing and commodity sales of 0.8%, partially offset by decreased volumes of 0.8%, environmental solutions revenue of 0.7%, and fuel recovery fees of 0.4%. Additionally, revenue decreased 0.5% due to the impact of one less workday during the three months endedMarch 31, 2021 as compared to the same period in 2020. The following table summarizes our revenue, expenses and operating income for the three months endedMarch 31, 2021 and 2020 (in millions of dollars and as a percentage of revenue):
Three Months Ended
2021 2020
Revenue $ 2,596.4 100.0 % $ 2,553.9 100.0 %
Expenses:
Cost of operations 1,534.3 59.1 1,550.0 60.7Depreciation, amortization and depletion of property and equipment
264.8 10.2 253.8 9.9
Amortization of other intangible assets 7.3 0.3 5.3 0.2
Amortization of other assets 10.0 0.4 9.5 0.4
Accretion 20.5 0.8 20.9 0.8
Selling, general and administrative 265.4 10.2 277.1 10.9
Withdrawal costs - multiemployer pension funds - - 4.3 0.2
Gain on business divestitures and impairments, net (1.1) - (3.9) (0.2)
Restructuring charges 2.8 0.1 3.8 0.1
Operating income $ 492.4 18.9 % $ 433.1 17.0 %
Our pre-tax income was $400.1 million for the three months ended March 31, 2021
compared to $322.6 million for the same respective period in 2020. Our net
income attributable to Republic Services, Inc. was $295.9 million for the three
months ended March 31, 2021 , or $0.93 per diluted share, compared to $246.3
million , or $0.77 per diluted share, for the same period in 2020.
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During each of the three months ended March 31, 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 months ended March 31, 2021 and 2020.
Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
Net Diluted Net Diluted
Pre-tax Income - Earnings Pre-tax Income - Earnings
Income Republic per Share Income Republic per Share
As reported $ 400.1 $ 295.9 $ 0.93 $ 322.6 $ 246.3 $ 0.77
Restructuring charges(1) 2.8 2.1 - 3.8 2.8 0.01
Gain on business divestitures
and impairments, net(1) (1.1) (0.8) - (3.9) (2.9) (0.01)
Withdrawal costs -
multiemployer pension funds - - - 4.3 3.1 0.01
Bridgeton insurance recovery - - - (10.8) (8.2) (0.03)
Total adjustments 1.7 1.3 - (6.6) (5.2) (0.02)
As adjusted $ 401.8 $ 297.2 $ 0.93 $ 316.0 $ 241.1 $ 0.75
(1) The aggregate impact to adjusted diluted earnings per share totals to less
than $0.01 for the three months ended March 31, 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.
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 months ended March 31, 2021 and 2020, we incurred
restructuring charges of $2.8 million and $3.8 million , respectively. During the
same periods, we paid $4.0 million and $3.8 million , respectively, related to
these restructuring efforts.
During the remainder of 2021, we expect to incur additional restructuring
charges of approximately $10 million to $15 million primarily related to the
redesign of certain of our back-office software systems. Substantially all of
these restructuring charges will be recorded in our corporate entities and other
segment.
Gain on business divestitures and impairments, net. During the three months
ended March 31, 2021 and 2020, we recorded a net gain on business divestitures
and impairments of $1.1 million and $3.9 million , respectively.
Withdrawal costs - multiemployer pension funds. During the three months ended
March 31, 2020 , we recorded charges to earnings of $4.3 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 three months ended March 31, 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.
Results of Operations
Revenue
We generate revenue by providing environmental services to our customers,
including the collection and processing of recyclable materials, 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
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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
non-hazardous solid and liquid material and in-plant services, such as
transportation and logistics. Environmental solutions waste is generated from
the by-product of oil and natural gas exploration and production activity.
Additionally, it is generated by the daily operations of industrial,
petrochemical and refining facilities, including maintenance, plant turnarounds
and capital projects. 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 months
ended March 31, 2021 and 2020 (in millions of dollars and as a percentage of
revenue):
Three Months Ended
2021 2020
Collection:
Residential $ 593.1 22.8 % $ 568.5 22.3 %
Small-container 810.5 31.2 805.7 31.5
Large-container 540.1 20.8 552.4 21.6
Other 14.2 0.5 12.3 0.5
Total collection 1,957.9 75.3 1,938.9 75.9
Transfer 331.3 321.9
Less: intercompany (185.1) (185.6)
Transfer, net 146.2 5.6 136.3 5.3
Landfill 562.6 558.3
Less: intercompany (249.3) (252.3)
Landfill, net 313.3 12.1 306.0 12.0
Environmental solutions 30.0 1.2 46.8 1.8
Other:
Recycling processing and commodity sales 87.6 3.4 67.8 2.7 Other non-core 61.4 2.4 58.1 2.3 Total other 149.0 5.8 125.9 5.0 Total revenue$ 2,596.4 100.0 %$ 2,553.9 100.0 % 30
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Table of Contents The following table reflects changes in components of our revenue, as a percentage of total revenue, for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Average yield 2.3 % 2.9 % Fuel recovery fees (0.4) (0.2) Total price 1.9 2.7 Volume (0.8) (0.1) Change in workdays (0.5) 0.5 Recycling processing and commodity sales 0.8 (0.2) Environmental solutions (0.7) (0.5) Total internal growth 0.7 2.4 Acquisitions / divestitures, net 1.0 1.0 Total 1.7 % 3.4 % Core price 4.3 % 5.2 % 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 2.5% and 3.0% for the three months endedMarch 31, 2021 and 2020, respectively. Core price as a percentage of related-business revenue was 4.6% and 5.5% for the three months endedMarch 31, 2021 and 2020, respectively. During the three months endedMarch 31, 2021 , we experienced the following changes in our revenue as compared to the same respective periods in 2020: •Average yield increased revenue by 2.3% during the three months endedMarch 31, 2021 due to price increases in all lines of business. •The fuel recovery fee program, which mitigates our exposure to increases in fuel prices, decreased revenue by 0.4% primarily due to lower fuel recovery rates, resulting from the timing of implementing changes to the rates, during the three months endedMarch 31, 2021 as compared to the same period in 2020. •Volume decreased revenue by 0.8% during the three months endedMarch 31, 2021 , primarily due to volume declines in our small- and large-container collection lines of business. Inmid-March 2020 , certain customers in these lines of business began adjusting their service levels as a result of the COVID-19 pandemic. This decline in service activity peaked in the first half ofApril 2020 and sequentially improved thereafter, but volumes remained below pre-COVID levels during the three months endedMarch 31, 2021 . This volume decline was partially offset by volume growth in our transfer and landfill lines of business. The volume increase in our landfill line of business was primarily attributable to increased solid and special waste volumes, partially offset by a decrease in construction and demolition volumes. •Revenue decreased by 0.5% due to one less workday during the three months endedMarch 31, 2021 as compared to the same period in 2020, which drove a decline in volumes in our large-container collection, landfill and transfer lines of business. •Recycling processing and commodity sales increased revenue by 0.8% during the three months endedMarch 31, 2021 , primarily due to an increase in overall commodity prices as compared to the same period in 2020. The average price for recycled commodities, excluding glass and organics, for the three months endedMarch 31, 2021 was$133 per ton compared to$76 per ton for the same period 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 0.7% during the three months endedMarch 31, 2021 primarily due to a decrease in rig counts, drilling activity, and the delay of in-plant project work as a result of lower demand for crude oil. 31 -------------------------------------------------------------------------------- Table of Contents •Acquisitions, net of divestitures, increased revenue by 1.0% during the three months endedMarch 31, 2021 due to our continued growth strategy of acquiring privately held solid waste, recycling, and environmental services companies that complement 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 operatorswho 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 months endedMarch 31, 2021 and 2020 (in millions of dollars and as a percentage of revenue):
Three Months Ended
2021 2020
Labor and related benefits $ 555.7 21.4 % $ 556.9 21.8 %
Transfer and disposal costs 192.4 7.4 198.5 7.8
Maintenance and repairs 237.4 9.2 247.3 9.7
Transportation and subcontract costs 168.8 6.5 167.3 6.6
Fuel 78.9 3.0 79.6 3.1
Disposal fees and taxes 77.7 3.0 77.3 3.0
Landfill operating costs 57.4 2.2 64.7 2.5
Risk management 59.3 2.3 61.9 2.4
Other 106.7 4.1 107.3 4.2
Subtotal 1,534.3 59.1 1,560.8 61.1
Bridgeton insurance recovery - - (10.8) (0.4)
Total cost of operations $ 1,534.3 59.1 % $ 1,550.0 60.7 %
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.
Our cost of operations decreased for the three months ended March 31, 2021
compared to the same period in 2020 as a result of the following:
•Labor and related benefits decreased due to a decline in service levels
attributable to the COVID-19 pandemic and one less workday during the three
months ended March 31, 2021 as compared to the same period in 2020. This
decrease was partially offset by higher hourly and salaried wages as a result of
annual merit increases during the three months ended March 31, 2021 as compared
to the same period in 2020.
•Transfer and disposal costs decreased as a result of lower collection volumes,
partially offset by an increase in third party disposal rates.
During the three months ended March 31, 2021 and 2020, approximately 68% and
69%, respectively, of the total solid waste volume we collected was disposed at
landfill sites that we own or operate (internalization).
•Maintenance and repairs expense decreased due to a decrease in service levels
attributable to the COVID-19 pandemic along with the effective execution of our
fleet strategy.
•Transportation and subcontract costs increased in aggregate dollars during the
three months ended March 31, 2021 primarily due to acquisition-related activity
and increased subcontract work attributable to an increase in non-core revenues,
partially offset by a decline in demand for our environmental solutions business
and one less workday during the three months ended March 31, 2021 as compared to
the same period in 2020.
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•Fuel costs remained relatively unchanged due to the fuel cost per gallon
remaining relatively consistent. The national average diesel fuel cost per
gallon for the three months ended March 31, 2021 was $2.91 as compared to $2.88
for the same period 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.
•Landfill operating costs decreased due to a decline in leachate treatment,
transportation and disposal costs due in part to decreased rainfall in select
geographic regions.
•Risk management expenses decreased during the three months ended March 31, 2021
primarily due to favorable actuarial development in our workers' compensation
programs, partially offset by unfavorable actuarial development in our auto
liability prior year programs.
•During the three months ended March 31, 2020 , we recognized a favorable
insurance recovery of $10.8 million related to our closed Bridgeton Landfill as
a reduction of remediation expenses in our consolidated statement of income for
the applicable period.
Depreciation, Amortization and Depletion of Property and Equipment
The following table summarizes depreciation, amortization and depletion of
property and equipment for the three months ended March 31, 2021 and 2020 (in
millions of dollars and as a percentage of revenue):
Three Months Ended
2021 2020
Depreciation and amortization of property and equipment
6.8 %$ 170.8 6.7 % Landfill depletion and amortization 87.1 3.4 83.0 3.2 Depreciation, amortization and depletion expense$ 264.8 10.2 %$ 253.8 9.9 % Depreciation and amortization of property and equipment increased for the three months endedMarch 31, 2021 primarily due to additional assets acquired with our acquisitions. Landfill depletion and amortization expense increased primarily due to an unfavorable amortization adjustment related to the asset retirement obligation at one of our closed landfills which was recognized during the three months endedMarch 31, 2021 . Amortization of Other Intangible Assets Our other intangible assets primarily relate to customer relationships and, to a lesser extent, non-compete agreements. Expenses for amortization of other intangible assets were$7.3 million , or 0.3% of revenue, for the three months endedMarch 31, 2021 compared to$5.3 million , or 0.2% of revenue, for the same respective period in 2020. Amortization expense increased due to additional assets acquired with our 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$10.0 million , or 0.4% of revenue, for the three months endedMarch 31, 2021 , compared to$9.5 million , or 0.4% of revenue, for the same respective period in 2020. Accretion Expense Accretion expense was$20.5 million , or 0.8% of revenue, for the three months endedMarch 31, 2021 , compared to$20.9 million , or 0.8% of revenue, for the same respective period in 2020. Accretion expense has remained relatively unchanged as our asset retirement obligations have remained relatively consistent period over period. 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. 33 -------------------------------------------------------------------------------- Table of Contents The following table summarizes our selling, general and administrative expenses for the three months endedMarch 31, 2021 and 2020 (in millions of dollars and as a percentage of revenue):
Three Months Ended
2021 2020
Salaries and related benefits $ 194.3 7.4 % $ 191.3 7.5 %
Provision for doubtful accounts 4.3 0.2 4.9 0.2
Other 66.8 2.6 80.9 3.2
Total selling, general and administrative expenses $ 265.4 10.2 % $ 277.1 10.9 %
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 months ended March 31, 2021 and 2020 are summarized
below:
•Salaries and related benefits increased in aggregate dollars primarily due to
higher incentive pay and wages, benefits, and other payroll related items
resulting from annual merit increases.
•Other selling, general and administrative expenses decreased for the three
months ended March 31, 2021 , primarily due to a decrease in consulting fees as
well as travel and advertising costs as a result of the COVID-19 pandemic. These
decreases were partially offset by a one-time favorable legal settlement
recognized during the three months ended March 31, 2020 , which did not recur in
2021.
In March 2021 , Donald W. Slager , Chief Executive Officer, announced his
retirement from Republic Services, Inc. effective June 25, 2021 . As a result of
his retirement, we expect to incur a charge of approximately $20 million during
the second quarter of 2021 related to the accelerated vesting of his
compensation awards.
Withdrawal Costs - Multiemployer Pension Funds
During the three months ended March 31, 2020 , we recorded charges to earnings of
$4.3 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.
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 three months ended March 31, 2021 and 2020, we recorded a net gain on
business divestitures and impairments of $1.1 million and $3.9 million ,
respectively.
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 months ended March 31, 2021 and 2020, we incurred restructuring charges of
$2.8 million and $3.8 million , respectively. During the same periods, we paid
$4.0 million and $3.8 million , respectively, related to these restructuring
efforts.
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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 months ended March 31, 2021 and 2020:
Three Months Ended March 31,
2021 2020
Interest expense on debt $ 62.9 $ 82.5
Non-cash interest 16.0 15.0
Less: capitalized interest (0.5) (0.8)
Total interest expense $ 78.4 $ 96.7
Total interest expense for the three months ended March 31, 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 , $650.0 million of 1.450% senior notes in August 2020 , as well
as the issuance of $600.0 million of 2.300% senior notes and $400.0 million of
3.050% senior notes in February 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 $66.2 million and $78.1 million for the three months
ended March 31, 2021 and 2020, respectively.
Income Taxes
Our effective tax rate, exclusive of non-controlling interests, for the three
months ended March 31, 2021 and 2020 was 25.9% and 23.5%, respectively.
Cash paid for income taxes was a net refund of $0.4 million and a net payment of
$1.4 million , respectively, for the three months ended March 31, 2021 and 2020.
For additional discussion and detail regarding our income taxes, see Note 8,
Income Taxes, to our unaudited consolidated financial statements included in
Part I, Item 1 of this Quarterly Report on Form 10-Q.
Reportable Segments
In December 2020 , our senior management began evaluating, overseeing and
managing the financial performance of our operations through three operating
segments. Group 1 primarily consists of geographic areas located in the western
United States , and Group 2 primarily consists of geographic areas located in the
southeastern and mid-western United States , and the eastern seaboard of the
United States . Our environmental solutions operating segment, which provides
environmental solutions for daily operations of industrial, petrochemical and
refining facilities, is aggregated with Corporate entities and other as it only
represents approximately 1% of our consolidated revenue. Each of our operating
segments provides integrated environmental services, including collection,
transfer, recycling, and disposal.
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Summarized financial information concerning our reportable segments for the
three months ended
Depreciation,
Amortization, Adjustments to Gain on
Depletion and Amortization Business
Accretion Before Expense for Depreciation, Divestitures
Adjustments for Asset Amortization, and
Asset Retirement Retirement Depletion and Impairments, Operating
Net Revenue Obligations Obligations Accretion Net Income(Loss) Operating Margin
Three Months EndedMarch 31, 2021 Group 1$ 1,299.1 $ 133.1 $ (1.0) $ 132.1 $ -$ 351.5 27.1 % Group 2 1,222.0 128.1 0.6 128.7 - 261.8 21.4 % Corporate entities and other 75.3 37.6 4.2 41.8 (1.1) (120.9) - Total$ 2,596.4 $ 298.8 $ 3.8 $ 302.6 $ (1.1) $ 492.4 19.0 % Three Months EndedMarch 31, 2020 Group 1$ 1,254.6 $ 128.7 $ (0.2) $ 128.5 $ -$ 313.6 25.0 % Group 2 1,208.1 125.3 (0.2) 125.1 - 229.3 19.0 % Corporate entities and other 91.2 35.9 - 35.9 (3.9) (109.8) - Total$ 2,553.9 $ 289.9 $ (0.4) $ 289.5 $ (3.9) $ 433.1 17.0 % Financial information for the three months endedMarch 31, 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, environmental solutions, and other administrative functions. 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 months endedMarch 31, 2021 and 2020 are discussed below. Group 1 Revenue for the three months endedMarch 31, 2021 increased 3.5% due to an increase in average yield in all lines of business and an increase in volume in our transfer station line of business as well as an increase in solid and special waste volumes in our landfill line of business. These increases were partially offset by volume declines in our small- and large-container collection lines of business, a decline in construction and demolition volumes in our landfill line of business, and one less workday for the three months endedMarch 31, 2021 as compared to the same period in 2020. Operating income in Group 1 increased from$313.6 million for the three months endedMarch 31, 2020 , or a 25.0% operating income margin, to$351.5 million for the three months endedMarch 31, 2021 , or a 27.1% operating income margin. The following cost categories impacted operating income margin: •Cost of operations favorably impacted operating income margin for the three months endedMarch 31, 2021 , primarily due to a decrease in labor and related benefits and maintenance and repairs expenses as a result of decreased service levels attributable to the COVID-19 pandemic, decreased landfill operating costs, and one less workday as compared to the same period in 2020. •Depreciation unfavorably impacted operating income margin for the three months endedMarch 31, 2021 , primarily due to additional assets acquired with our acquisitions. Group 2 Revenue for the three months endedMarch 31, 2021 increased 1.2%, due to an increase in average yield in all lines of business and volume increases in our transfer station line of business as well as an increase in municipal solid waste volumes in our landfill line of business. This increase was partially offset by volume declines in our collection lines of business and one less workday for the three months endedMarch 31, 2021 as compared to the same period in 2020. 36 -------------------------------------------------------------------------------- Table of Contents Operating income in Group 2 increased from$229.3 million for the three months endedMarch 31, 2020 , or a 19.0% operating income margin, to$261.8 million for the three months endedMarch 31, 2021 , or a 21.4% operating income margin. The following cost categories impacted operating income margin: •Cost of operations favorably impacted operating income margin for the three months endedMarch 31, 2021 , primarily due to a decrease in labor and related benefits, transfer and disposal costs, and maintenance and repairs expenses as a result of decreased service levels attributable to the COVID-19 pandemic, decreased landfill operating costs, and one less workday as compared to the same period in 2020. •Depreciation unfavorably impacted operating income margin during the three months endedMarch 31, 2021 , primarily due to additional assets acquired with our acquisitions. Corporate Entities and Other Operating loss in our Corporate entities and other segment increased from$109.8 million for the three months endedMarch 31, 2020 to$120.9 million for the three months endedMarch 31, 2021 . The operating loss for the three months endedMarch 31, 2021 was unfavorably impacted by revenue declines related to our environmental solutions business, an unfavorable amortization adjustment related to the asset retirement obligation at one of our closed landfills, and favorable remediation adjustments recognized during the three months endedMarch 31, 2020 , which did not recur in 2021, partially offset by net favorable actuarial developments recognized during the period. Landfill and Environmental Matters Available Airspace As ofMarch 31, 2021 , we owned or operated 186 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 MarchDecember 31, 2020 New Expansions Undertaken Divestitures Net of Closures Consumed Engineering Estimates 31, 2021 Cubic yards (in millions): Permitted airspace 4,792.5 - - 32.6 (17.9) 1.2 4,808.4 Probable expansion airspace 196.4 15.0 - (27.3) - - 184.1 Total cubic yards (in millions) 4,988.9 15.0 - 5.3 (17.9) 1.2 4,992.5 Number of sites: Permitted airspace 186 - - - 186 Probable expansion airspace 11 1 - (1) 11 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. As ofMarch 31, 2021 , 11 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 36 years, including probable expansion airspace. The average estimated remaining life of all of our landfills is 63 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. 37 -------------------------------------------------------------------------------- Table of Contents Property and Equipment The following tables reflect the activity in our property and equipment accounts for the three months endedMarch 31, 2021 : Gross Property and Equipment Non-cash Additions Adjustments Impairments, Balance as of Acquisitions, for Asset for Asset TransfersDecember 31 , Capital Net of Retirement Retirement and Other Balance as of 2020 Additions Retirements Divestitures Obligations Obligations AdjustmentsMarch 31, 2021 Land$ 467.1 $ - $ - $ 0.3 $ - $ -$ 0.1 $ 467.5 Non-depletable landfill land 166.3 0.1 - - - - - 166.4 Landfill development costs 7,991.7 0.6 - - 10.4 3.4 125.3 8,131.4 Vehicles and equipment 8,119.0 129.6 (60.1) 2.4 - - 23.7 8,214.6 Buildings and improvements 1,402.5 2.1 (0.1) 1.2 0.4 - 11.9 1,418.0 Construction-in-progress - landfill 303.8 42.4 - - - - (126.0) 220.2 Construction-in-progress - other 107.4 27.8 - - - - (36.2) 99.0 Total$ 18,557.8 $ 202.6 $ (60.2) $ 3.9$ 10.8 $ 3.4 $ (1.2) $ 18,717.1 Accumulated Depreciation, Amortization and Depletion Additions Adjustments Impairments, Balance as of Charged Acquisitions, for Asset Transfers December 31, to Net of Retirement and Other Balance as of 2020 Expense Retirements Divestitures Obligations Adjustments March 31, 2021 Landfill development costs$ (4,249.5) $ (83.2) $ - $ -$ (3.8) $ -$ (4,336.5) Vehicles and equipment (4,953.4) (161.5) 58.8 - - - (5,056.1) Buildings and improvements (628.7) (16.7) 0.1 - - - (645.3) Total$ (9,831.6) $ (261.4) $ 58.9 $ -$ (3.8) $ -$ (10,037.9) 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: March 31, 2021 December 31, 2020 Cash and cash equivalents $ 23.2 $ 38.2 Restricted cash and marketable securities 134.6 149.1 Less: restricted marketable securities (69.5) (73.1)
Cash, cash equivalents, restricted cash and restricted cash equivalents
$ 88.3 $ 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.
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Table of Contents The following table summarizes our restricted cash and marketable securities:
March 31, 2021 December 31, 2020
Capping, closure and post-closure obligations $ 31.6 $ 31.5
Insurance 103.0
117.6
Total restricted cash and marketable securities
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 three months endedMarch 31, 2021 and 2020:
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