Republic Services, Inc. 10% Owner INVESTMENT LLC CASCADE bought 493,810 shares on 5-19-2012 at $ 27.4
We are the second largest provider of services in the domestic non-hazardous solid waste industry as measured by revenue. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 334 collection operations in 39 states and Puerto Rico. We own or operate 194 transfer stations, 191 active solid waste landfills and 74 materials recovery facilities. We also operate 69 landfill gas and renewable energy projects. We were incorporated as a Delaware corporation in 1996. On December 5, 2008, we acquired all the issued and outstanding shares of Allied Waste Industries, Inc. (Allied) in a stock-for-stock transaction for an aggregate purchase price of $12.1 billion, which included $5.4 billion of debt, at fair value.
Based on analystsâ€™ reports and industry trade publications, we believe the United States non-hazardous solid waste services industry generates annual revenue of approximately $54 billion, of which approximately 60% is generated by publicly owned waste companies. We believe that we and one other public waste company generated in excess of 60% of the publicly owned companiesâ€™ total revenue. Additionally, industry data indicates that the non-hazardous waste industry in the United States remains fragmented as privately held companies and municipal and other local governmental authorities generate approximately 17% and 22%, respectively, of total industry revenue. In general, growth in the solid waste industry is linked to growth in the overall economy, including the level of new household and business formation and changes in residential and commercial construction activity.
Our operations are national in scope, but the physical collection and disposal of waste is very much a local business and the dynamics and opportunities differ in each of our markets. By combining local operating management with standardized business practices, we can drive greater overall operating efficiency across the company, while maintaining day-to-day operating decisions at the local level, closest to the customer. We implement this strategy through an organizational structure that groups our operations within a corporate, region, area and division structure. We manage our operations through four geographic operating regions that are also our reportable segments: Eastern, Midwestern, Southern and Western. Each of our regions is organized into several operating areas and each area contains multiple divisions or operating locations. Each of our regions and substantially all our areas provide collection, transfer, recycling and disposal services. We believe this structure facilitates the integration of our operations within each region, which is a critical component of our operating strategy. It also allows us to maximize the growth opportunities in each of our markets and to operate the business efficiently, while maintaining effective controls and standards over operational and administrative matters, including financial reporting. See Note 14, Segment Reporting, to our consolidated financial statements in Item 8 of this Form 10-K for further discussion of our operating segments.
We had revenue of $8.2 billion, $8.1 billion and $8.2 billion and operating income of $1.6 billion, $1.5 billion and $1.6 billion for the years ended December 31, 2011, 2010 and 2009, respectively. A number of items impacted our 2011, 2010 and 2009 financial results. For a description of these items, see Item 7, Managementâ€™s Discussion and Analysis of Financial Condition and Results of Operations â€” Overview and Consolidated Results of Operations, in this Form 10-K.
We continue to focus on enhancing stockholder value by implementing our operating and cash utilization strategies. We have developed and implemented incentive programs that help focus our entire company on realizing key performance metrics, including increasing free cash flow, achieving targeted earnings, and maintaining and improving returns on invested capital. Our operating and cash utilization strategies are described further below.
Experienced Executive Management Team
We believe we have one of the most experienced executive management teams in the solid waste industry.
Donald W. Slager became our CEO and remained our President on January 1, 2011, after having served as our President and Chief Operating Officer (COO) from the Allied acquisition in December 2008 until then. Mr. Slager resumed the role of principal operating executive in November 2011. Prior to the Allied acquisition, Mr. Slager worked for Allied from 1992 through 2008 and served in various management positions, including President and COO from 2004 through 2008 and Executive Vice President and COO from 2003 to 2004. From 2001 to 2003, Mr. Slager served as Senior Vice President, Operations. Mr. Slager held various management positions at Allied from 1992 to 2003, and was previously General Manager at National Waste Services, where he served in various management positions since 1985. Mr. Slager has over 31 years of experience in the solid waste industry. Mr. Slager has been a member of our Board of Directors since June 24, 2010.
Tod C. Holmes has served as our Chief Financial Officer since August 1998. Mr. Holmes served as our Vice President of Finance from June 1998 until August 1998 and as Vice President of Finance of our former parent companyâ€™s Solid Waste Group from January 1998 until June 1998. From 1987 to 1998, Mr. Holmes served in various management positions with Browning-Ferris Industries, Inc., including Vice President, Investor Relations from 1996 to 1998, Divisional Vice President, Collection Operations from 1995 to 1996, Divisional Vice President and Regional Controller â€“ Northern Region from 1993 to 1995, and Divisional Vice President and Assistant Corporate Controller from 1991 to 1993. Mr. Holmes has over 24 years of experience in the solid waste industry.
Jeffrey A. Hughes was named Executive Vice President, Human Resources in December 2008. Before that, Mr. Hughes served as Senior Vice President, Eastern Region Operations for Allied from 2004 until Alliedâ€™s merger with Republic in December 2008. Mr. Hughes served as Assistant Vice President of Operations Support for Allied from 1999 to 2004 and as a District Manager for Allied from 1988 to 1999. Mr. Hughes has over 24 years of experience in the solid waste industry.
Michael P. Rissman has served as our Executive Vice President, General Counsel and Corporate Secretary since August 2009. Previously, Mr. Rissman had served as acting General Counsel and Corporate Secretary from March 2009. Mr. Rissman joined Allied as Vice President and Deputy General Counsel in July 2007 and continued in the same positions at Republic following the Allied acquisition in December 2008. Prior to joining Allied, Mr. Rissman was a partner at Mayer Brown LLP, in Chicago, where he worked from 1990 until coming to Allied in 2007.
Our regional senior vice presidents have an average of 26 years of experience in the industry.
Decentralized Management Structure
We rely on a decentralized management structure to minimize administrative overhead costs and to more efficiently manage our day-to-day operations. Our local management has extensive industry experience in growing, operating and managing solid waste companies and has substantial experience in their local geographic markets. This allows us to quickly respond to and meet our customersâ€™ needs and stay in touch with local businesses and municipalities. Each regional management team includes a senior vice president, vice president-controller, vice president of human resources, vice president of sales, vice president of operations support, director of safety, director of engineering and environmental management, and director of market planning and development. We believe that our strong regional management teams allow us to more effectively and efficiently drive our initiatives and help ensure consistency throughout the organization. Our regional management teams and area presidents have extensive authority, responsibility and autonomy for operations within their respective geographic markets. Compensation for area management teams is primarily based on improving operating income, free cash flow and return on invested capital generated in each managerâ€™s geographic area of responsibility. In addition, through long-term incentive programs, including stock options, we believe we have achieved one of the lowest turnover levels in the industry for our local management teams. As a result of retaining experienced managers with extensive knowledge of and involvement in their local communities, we are proactive in anticipating customersâ€™ needs and adjusting to changes in our markets. We also seek to implement the best practices of our various regions, areas and divisions throughout our operations to continue improving operating margins.
Strong, Integrated Operating Platform
We believe we have created a company with a strong, national operating platform. We seek to achieve a high rate of internalization by controlling waste streams from the point of collection through diversion to our materials recovery facilities for processing or disposal. Our fully integrated markets generally have a lower cost of operations and more favorable cash flows than our non-integrated markets. Through acquisitions, landfill operating agreements and other market development activities, we create market-specific, integrated operations typically consisting of one or more collection operations, transfer stations and landfills. We consider acquiring companies that own or operate landfills with significant permitted disposal capacity and appropriate levels of waste volumes.
We also seek to acquire solid waste collection operations in markets in which we own or operate landfills. In addition, we generate internal growth in our disposal operations by developing new landfills and expanding our existing landfills from time to time in markets in which we have significant collection operations or in markets that we determine lack sufficient disposal capacity. During the years ended December 31, 2011, 2010 and 2009, approximately 66%, 67% and 68%, respectively, of the total waste volume that we collected was disposed at landfill sites that we own or operate (internalization). In a number of our larger markets, we and our competitors are required to take waste to government-controlled disposal facilities (flow control). This provides us with an opportunity to effectively compete in these markets without investing in landfill capacity.
Internal Growth and Acquisitions
Within our markets, our goal is to deliver sustainable, long-term profitable growth while efficiently operating our assets to generate acceptable rates of return. We allocate capital to businesses, markets and development projects both to support growth and to achieve acceptable rates of return. We develop previously non-permitted materials recovery facilities, transfer stations and landfills. We also expand our existing materials recovery facilities, transfer stations and landfills, when possible. We supplement this organic growth with acquisitions of operating assets, such as landfills, transfer stations, materials recovery facilities and tuck-in acquisitions of collection and disposal operations in existing markets. We continuously evaluate our existing operating assets and their deployment within each market to determine if we have optimized our position and to ensure appropriate investment of capital. Where operations are not generating acceptable returns, we examine opportunities to achieve greater efficiencies and returns through integrating additional assets. If such enhancements are not possible, we may ultimately decide to divest the existing assets and reallocate resources to other markets.
In August 2011, our board of directors approved a share repurchase program pursuant to which we may repurchase up to $750 million of our outstanding shares of common stock through December 31, 2013. This authorization is in addition to the $400 million repurchase program authorized in November 2010. From November 2010 to December 31, 2011, we used $500.8 million under these programs to repurchase 17.1 million shares at a weighted average cost per share of $29.21. We expect to use the remaining funds, totaling $649.2 million, to repurchase our outstanding shares of common stock throughout 2012 and 2013.
In July 2003, our Board of Directors initiated a quarterly cash dividend of $0.04 per share. Our quarterly dividend has increased from time to time thereafter, the latest increase occurring in the third quarter of 2011 to $0.22 per share, representing a compound annual growth rate of approximately 24%. We expect to continue paying quarterly cash dividends and may consider additional dividend increases if we believe they will enhance stockholder value.
Strong Capital Structure
Debt. Following our December 5, 2008 Allied acquisition, we initiated a debt reduction program that, to date, has resulted in a net reduction in borrowings of $0.8 billion funded by cash flow from operations and proceeds from disposition of assets. We also refinanced $4.5 billion in senior notes and $869.4 million in tax-exempt financings, which reduced the average coupon rate on our senior notes and tax-exempt financings, on a weighted average basis, by more than 155 basis points while extending our debt maturities and giving greater stability to our capital structure. We anticipate taking further advantage of capital market opportunities to mitigate our financial risk by issuing new debt and using the proceeds to repay existing debt. Early extinguishment of debt will result in a charge in the period in which the debt is repaid.
Credit Ratings. We believe that a key component of our financial strategy includes maintaining investment grade ratings on our senior debt, which was rated BBB by Standard & Poorâ€™s, BBB by Fitch and Baa3 by Moodyâ€™s as of December 31, 2011. Such ratings have allowed us, and should continue to allow us, to readily access capital markets at competitive rates. Our cash utilization strategy will continue to focus on maintaining our investment grade credit ratings.
For certain risks related to our cash utilization strategy, see Item 1A, Risk Factors, in this Form 10-K.
Our operations primarily consist of providing collection, transfer station and disposal of non-hazardous solid waste and the recovery and recycling of certain materials.
Collection Services. We provide solid waste collection services to commercial, industrial, municipal and residential customers through 334 collection operations. In 2011, 75% of our revenue was derived from collection services. Within the collection line of business, 35% of our revenue is from services provided to municipal and residential customers, 40% is from services provided to commercial customers, and 25% is from services provided to industrial and other customers.
Our residential collection operations involve the curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. We typically perform residential solid waste collection services under contracts with municipalities, which we generally secure by competitive bid and which give us exclusive rights to service all or a portion of the homes in the respective municipalities. These contracts or franchises usually range in duration from one to five years, although some of our exclusive franchises are for significantly longer periods. We also perform residential solid waste collection services on a subscription basis, in which individual households contract directly with us. The fees received for subscription residential collection are based primarily on market factors, frequency and type of service, the distance to the disposal facility and the cost of disposal. In general, subscription residential collection fees are paid quarterly in advance by the residential customers receiving the service.
In our commercial and industrial collection operations, we supply our customers with waste containers of varying sizes. We also rent compactors to large waste generators. We typically perform commercial collection services under one- to three-year service agreements, and we determine fees by considerations such as market factors, collection frequency, type of equipment furnished, the type and volume or weight of the waste collected, transportation costs, the distance and cost of disposal.
We also provide waste collection services to industrial and construction facilities on a contractual basis with terms ranging from a single pickup to one year or longer. Our construction services are provided to the commercial construction and home building sectors. We collect the containers or compacted waste and transport the waste to either a landfill or a transfer station for disposal.
Transfer Services. We own or operate 194 transfer stations, and in 2011 transfer services accounted for 5% of our revenue. Revenue at transfer stations is primarily generated by charging tipping or disposal fee. Our collection operations deposit waste at these transfer stations, as do other private and municipal haulers, for compaction and transfer to disposal sites or materials recovery facilities. Essentially, transfer stations provide collection operations with a cost effective means to consolidate waste and reduce transportation costs while providing our landfill sites with an additional â€śgateâ€ť to extend the geographic reach of a particular landfill site with the goal of increased internalization.
Disposal Services. We own or operate 191 active landfills. We charge tipping fees to third parties, and in 2011 disposal services accounted for 13% of our revenue. We had approximately 37,000 permitted acres and total available permitted and probable expansion disposal capacity of approximately 4.8 billion in-place cubic yards. The in-place capacity of our landfills is subject to change based on engineering factors, requirements of regulatory authorities, our ability to continue to operate our landfills in compliance with applicable regulations, and our ability to successfully renew operating permits and obtain expansion permits at our sites. Some of our landfills accept non-hazardous special waste, including utility ash, asbestos and contaminated soils.
Most of our active landfill sites have the potential for expanded disposal capacity beyond the currently permitted acreage. We monitor the availability of permitted disposal capacity at each of our landfills and evaluate whether to pursue an expansion at a given landfill based on estimated future waste volumes and prices, market needs, remaining capacity and the likelihood of obtaining an expansion. To satisfy future disposal demand, we are currently seeking to expand permitted capacity at certain of our landfills. However, we cannot assure you that all proposed or future expansions will be permitted as designed.
We also have responsibility for 130 closed landfills, for which we have associated closure and post-closure obligations.
Recycling Services. We own or operate 74 materials recovery facilities and other recycling operations. These facilities generate revenue through the collection, processing, and sale of old corrugated cardboard (OCC), old newspaper (ONP), aluminum, glass and other materials. Most of these recyclable materials are internally collected by our residential and industrial collection operations.
Changing market demand for recyclable materials causes volatility in commodity prices. At current volumes and mix of materials, we believe a ten dollar per ton change in the price of recyclable materials will change annual revenue and operating income by approximately $27 million and $18 million, respectively, on an annual basis.
In certain instances we issue recycling rebates to municipalities or large industrial customers, which can be based on the price we receive upon the final sale of recyclable materials, a fixed contractual rate or other measures. We also receive rebates when we dispose of recyclable materials at third-party facilities.
Other Services. Other revenue consists primarily of National Accounts revenue generated from nationwide contracts in markets outside our operating areas, where the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.
Sales and Marketing
We seek to provide quality services that will enable us to maintain high levels of customer satisfaction. Our business is derived from a broad customer base, which we believe will enable us to experience stable growth. We focus our marketing efforts on continuing and expanding our business with existing customers, as well as attracting new customers.
Our sales and marketing strategy provides high-quality, comprehensive solid waste collection, recycling, transfer and disposal services to our customers at competitive prices. We target customers of all sizes, from small quantity generators to large â€śFortune 500â€ť companies and municipalities.
While most of our marketing activity is local in nature, we also provide a National Accounts program in response to the needs of national and regional customers. This National Accounts program is designed to provide the best total solution to our customersâ€™ evolving waste management needs in an environmentally responsible manner. We partner with national clients to reach their sustainability goals, optimize waste streams, balance equipment and service intervals, and provide customized reporting. The National Accounts program centralizes services to effectively manage customer needs, while helping minimize costs. With our extended geographic reach, this program effectively serves our customers nationwide. As industry leaders, our mission is to use our strengths and expertise to exceed customer expectations by consistently delivering the best national program available.
Historically we have not always changed the trade names of the local businesses we acquired, and therefore we do not operate nationally under any one mark or trade name.
We provide services to a broad base of commercial, industrial, municipal and residential customers. No single customer has individually accounted for more than 3% of our consolidated revenue or of our reportable segment revenue in any of the last three years.
James W. Crownover began serving a two-year term as our non-executive Chairman of the Board on May 12, 2011. Mr. Crownover was named a director in December 2008 upon the close of the merger between Republic and Allied Waste Industries, Inc. (â€śAlliedâ€ť). Prior to the merger, Mr. Crownover served as a director of Allied from December 2002 until December 2008. Mr. Crownover completed a 30-year career with McKinsey Company, Inc. (â€śMcKinseyâ€ť) when he retired in 1998. He led McKinseyâ€™s Southwest practice for many years, and also co-headed the firmâ€™s worldwide energy practice. In addition, he served as a member of McKinseyâ€™s board of directors. Mr. Crownover also currently serves as a director of Chemtura Corporation, Weingarten Realty Investors, and FTI Consulting, Inc. In the past, he served on the boards of Unocal Corporation from 1998 to 2003 and Great Lakes Chemical Company from 2000 to 2006. Mr. Crownover also chairs the Board of Trustees of Rice University.
Mr. Crownover brings a wealth of management experience and business understanding to our Board and to his role as Chairman of the Board. His 30 years in the management consulting industry have given him front-line exposure to many of the issues facing public companies, particularly on the strategic, operational and financial fronts. At Weingarten, he serves as chair of the Governance Committee and is a member of the Compensation Committee. At FTI, he serves as chair of the Compensation Committee and is a member of the Governance Committee. At Chemtura, he chairs the Environmental Safety Committee and is a member of the Nominating and Corporate Governance Committee and the Compensation Committee. We believe his experience on the boards of directors and board committees of several major public companies, as well as his service as a director of McKinsey and his leadership of its Southwest practice and his co-heading of its worldwide energy practice, give him an abundance of relevant experience to serve as a director and as our Chairman of the Board.
William J. Flynn was named a director in December 2008 upon the close of the merger between Republic and Allied. Prior to the merger, Mr. Flynn served as a director of Allied from February 2007 until December 2008. Mr. Flynn is the President and Chief Executive Officer of Atlas Air Worldwide Holdings, Inc. (â€śAtlasâ€ť). Prior to joining Atlas in 2006, Mr. Flynn served as President and Chief Executive Officer of GeoLogistics Corporation from 2002 until its sale in 2005. Mr. Flynn was a Senior Vice President with CSX Corporation from 2000 to 2002 and held various positions of increasing responsibility with Sea-Land Service Inc. from 1977 to 1999. Mr. Flynn also currently serves as a director of Atlas and Horizon Lines, Inc. and as a director of the Airlines for America Association.
Mr. Flynn is well-positioned to serve as a director, Chairman of our Management Development and Compensation Committee (the â€śCompensation Committeeâ€ť) and member of the Governance Committee. With his years of experience as Chief Executive Officer of AtlasAir and GeoLogistics, Mr. Flynn brings to the Board proven leadership and managerial experience at the most senior level and, with that, a keen appreciation of the financial, operational, compensation and other issues faced by public and private companies. His 32-year career in international supply chain management and freight transportation also gives him particular awareness of issues faced by companies such as ours. Mr. Flynn also has experience as both an inside and independent director, giving him perspective that he brings to his service on the Board.
Michael Larson was named a director in October 2009. Mr. Larson is the chief investment officer to William H. Gates III and is responsible for Mr. Gatesâ€™ non-Microsoft investments as well as the investments of the Bill & Melinda Gates Foundation Trust. Prior to working for Mr. Gates, Mr. Larson was at Harris Investment Management, Putnam Management Company and ARCO. Mr. Larson currently serves on the board of directors and the Compensation Committee of AutoNation, Inc., the board of directors and the Audit and Safety, Health and Environmental Committees of Ecolab, Inc., and the board of directors of Grupo Televisa, S.A.B. and Fomento Mexicano Economica, S.A.B.de C.V. In addition, he is Chairman of the Board of Trustees for Western Asset/Claymore Inflation-Linked Securities & Income Fund and Western Asset/Claymore Inflation-Linked Opportunities & Income Fund, and sits on their respective Audit Committees and Governance and Nominating Committees. Mr. Larson is a Trustee and Chairman of the Investment Committees at Claremont McKenna College and Lakeside School. Mr. Larson also serves on the Investment Committee for the University of Washington. Mr. Larson served as a director of Pan American Silver Corp. from November 1999 through December 2010.
Mr. Larson has 31 years of investment experience, giving him a broad understanding of the capital markets, business cycles, capital investment and allocation, and an appreciation of the interests of long-term stockholders. Mr. Larsonâ€™s service on our Board, as well as our Compensation and Governance Committees, offers the perspective of our largest stockholder, Mr. Gatesâ€™ Cascade Investment, L.L.C. Provided that he is re-elected to the Board at the Annual Meeting, Mr. Larson will become the Chairman of the Governance Committee following the Annual Meeting.
Nolan Lehmann was named a director in December 2008 upon the close of the merger between Republic and Allied. Prior to the merger, Mr. Lehmann served as a director of Allied from October 1990 until December 2008, and was the Lead Director of Allied from February 2007 until its merger with Republic. Since April 2007, Mr. Lehmann has been a Managing Director of Altazano Management, LLC, a private wealth management advisory firm. From 1983 until June 2005, Mr. Lehmann was President of Equus Capital Management Corporation, a registered investment advisor, and from 1991 to June 2005, he was President and a director of Equus II Incorporated, a registered public investment company. In July 2011, Mr. Lehmann became a director of Kanaly Trust Company, a corporate trustee for a number of trusts that also provides wealth management advisory services. Mr. Lehmann also currently serves as a director of several private corporations. In the past five years, Mr. Lehmann served as a director and member of the Audit and Compensation Committees of Synagro Technologies, Inc. Mr. Lehmann is a certified public accountant.
Mr. Lehmann has a long history with Allied, serving as a director for more than 20 years, including roles as Lead Director and Chairman of the Audit and Compensation Committees at different times during such period. As such, he offers our Board invaluable insight from experience gained being involved in the major, transformative changes Allied experienced over that period and a deep understanding of the issues faced by a waste management company. As a certified public accountant and with prior service on audit committees of five other public companies, Mr. Lehmann is well-positioned to serve on our Audit Committee. Mr. Lehmann also serves as a member of our Governance Committee. His career in asset management gives him valuable insight on the impact of general economic and market conditions and a keen understanding of key financial and accounting issues.
W. Lee Nutter was named a director in February 2004, and served as our Presiding Director from October 2006 through January 1, 2011, when we eliminated the Presiding Director role due to our decision to have a separate Chairman of the Board and Chief Executive Officer. Prior to his retirement in 2007, Mr. Nutter was Chairman, President and Chief Executive Officer of Rayonier, Inc., a leading international forest products company primarily engaged in activities associated with timberland management, the sale and entitlement of real estate, and the production and sale of high value specialty cellulose fibers. Mr. Nutter also served as a director of Rayonier, Inc. from 1996 to 2007 and of the North Florida Regional Board of SunTrust from 2004 to 2009. He continues to serve as a director of NiSource Inc. and as a non-executive Chairman of J.M. Huber Corporation. Mr. Nutter is a member of the University of Washington Foster School of Business Advisory Board.
Mr. Nutter was with Rayonier, Inc. for over 40 years, ultimately as its Chairman, President and Chief Executive Officer. As a result of this experience, Mr. Nutter has a thorough knowledge and understanding of the financial, operational, compensation and other issues faced by large public companies. Based on his experience and expertise in the global forest products industry with its focus on environmental compliance objectives similar to those of our company, we believe Mr. Nutter also brings a unique and valuable perspective to our Boardâ€™s consideration of environmental compliance. Mr. Nutterâ€™s appreciation of the role of directors through his experience as both an inside and independent director of other companies positions him well to serve as a director and on our Compensation and Integration Committees.
Ramon A. Rodriguez was named a director in March 1999. Mr. Rodriguez served as President and Chief Executive Officer of Madsen, Sapp, Mena, Rodriguez & Co., P.A., a firm of certified public accountants, from 1981 through 2006 when the firm was acquired by Crowe Horwath LLP. He is a past Chairman of the Florida Board of Accountancy and was also President of the Florida Institute of Certified Public Accountants. Mr. Rodriguez serves as a director and is the Audit Committee Chairman of Alico, Inc., a company involved in the agriculture business. Mr. Rodriguez served on the board of Swisher Hygiene, Inc., as Chairman of its Audit Committee and as a member of its Compensation Committee, from November 2010 through January 2011. In 1975 he was a founder and Treasurer of DME Corporation, a company involved in aerospace and defense that was sold in 2009.
Mr. Rodriguez is an experienced financial leader with the skills necessary to serve as a director, as the Chairman of our Audit Committee and as a member of our Integration Committee. In his 37-year career in public accounting, Mr. Rodriguez developed vast accounting and financial experience and particular insight regarding the external and internal audit functions for a multitude of companies. He combines this expertise with experience as a public company director through his board membership at Alico. Mr. Rodriguez also provides substantial management experience gained from his years as an executive of DME Corporation and as Chief Executive Officer of Madsen, Sapp, Mena, Rodriguez & Co., P.A.
Donald W. Slager was named a director in June 2010. Mr. Slager became our President and Chief Executive Officer on January 1, 2011, after having served as our President and Chief Operating Officer from the close of our merger with Allied in December 2008 until becoming our President and Chief Executive Officer. While with Allied, Mr. Slager served as President and Chief Operating Officer from January 2005 through December 2008 and as Executive Vice President and Chief Operating Officer from June 2003 through December 2004. Mr. Slager was Senior Vice President Operations from December 2001 to June 2003. Previously, Mr. Slager served as Vice President â€” Operations from February 1998 to December 2001, as Assistant Vice President â€” Operations from June 1997 to February 1998, and as Regional Vice President of the Western Region from June 1996 to June 1997. Mr. Slager also served as District Manager for the Chicago Metro District from 1992 to 1996. Before Alliedâ€™s acquisition of National Waste Services in 1992, he served at National Waste Services as General Manager from 1990 to 1992 and in other management positions with that company beginning in 1985. Mr. Slager also serves on the board of directors of UTi Worldwide, Inc. and as a member of its Compensation Committee, Nominating and Corporate Governance Committee, and Risk Committee.
Mr. Slager brings to our Board more than 31 years of experience in the waste and recycling industry, including 26 years with Republic or Allied. He served as Chief Operating Officer of Republic or Allied from 2003 through 2010, prior to becoming our Chief Executive Officer beginning in 2011. Mr. Slagerâ€™s proven track record as a leader and extensive experience in the industry position him well to serve as a director and as our President and Chief Executive Officer.
Allan C. Sorensen was named a director in November 1998. Mr. Sorensen is a co-founder of Interim Health Care, Inc., which Interim Services, Inc., later known as Spherion Corporation, spun off in October 1997. From October 1997 through the present, Mr. Sorensen served as Interim Health Careâ€™s Vice Chairman. From February 2004 through February 2007, Mr. Sorensen also served as Interim Healthcareâ€™s Chief Executive Officer and President. Before the spin-off, Mr. Sorensen served as a director and in various capacities as either President, Chief Executive Officer or Chairman of Interim Services from 1967 to 1997. He also was a member of the board of directors of H&R Block, Inc. from 1979 until 1993. In 1994, Mr. Sorensen became a minority owner and director of privately owned Letâ€™s Talk Cellular & Wireless, Inc., which completed an initial public offering in November 1997 and was purchased by Nextel Retail Stores, Inc. in 2001. In October 1999, Mr. Sorensen was elected to the board of directors of Corporate Staffing Resources, Inc. representing investors Wm. E. Simon & Sons, LLC and Mellon Ventures, L.P. The following year Mr. Sorensen was elected Chairperson and the company was sold in 2001. Mr. Sorensen was elected to the Board of Directors of Cape Success LLC, representing investor Deutsche Bank, in January 2003 and served until late 2007 when it was sold. Mr. Sorensen is also a five-term Chairman of the Home Health Services and Staffing Association and a past president and 14-year board member of the National Association of Temporary Staffing Services (now known as the American Staffing Association) and recipient of their 1992 Industry Leadership Award.
Mr. Sorensen is a demonstrated leader with a particular appreciation of staffing and personnel-related issues. Based on his years of experience as Chief Executive Officer of both Interim Health Care and Interim Services, during which time those companies accomplished the successful acquisition, integration and divestiture of a number of businesses, Mr. Sorensen is well-positioned to serve as Chairman of our Integration Committee and a member of our Compensation Committee. He also has served as both an inside and independent director of a public company, which allows him to offer valuable perspective on our Board.
John M. Trani was named a director in December 2008 upon the close of the merger between Republic and Allied. Prior to the merger, Mr. Trani served as a director of Allied from February 2007 until December 2008. Mr. Trani was Chairman of Accretive Commerce (formerly New Roads) from February 2004 until it was acquired in September 2007. Prior to that, Mr. Trani was Chairman and Chief Executive Officer of the Stanley Works from 1997 until his retirement in 2003. Prior to joining Stanley, Mr. Trani served in various positions of increasing responsibility with General Electric Company (â€śGEâ€ť) from 1978 to 1996. Mr. Trani was a Senior Vice President of GE and President and Chief Executive Officer of its Medical Systems Group from 1986 to 1996. Mr. Trani also is a Special Advisor to Young America Corporation.
Mr. Traniâ€™s extensive business experience in senior operational roles at both Stanley Works and GE make him a significant contributor to our Board. As Chairman and Chief Executive Officer of Stanley Works, Mr. Trani gained a keen awareness of the financial, compensation, accounting and other issues that face a large public company. His service as both an inside and independent director further position him well to serve on our Board and our Audit and Governance Committees.
Michael W. Wickham was named a director in October 2004. From 1996 to 2003, Mr. Wickham served as President and Chief Executive Officer of Roadway Corporation. He also served as Chairman of Roadway from 1998, and as a director from 1989, until his planned retirement in December 2003. He served as President of Roadway from July 1990 through March 1998. Mr. Wickham also serves as a director of C.H. Robinson Worldwide, Inc., a transportation, logistics and sourcing company, director and non-executive Chairman of Douglas Dynamics, Inc., a manufacturer of snow and ice control equipment for light trucks, and a director of several private companies.
Mr. Wickham brings to our Board his vast experience in the freight services industry, which is of particular relevance to a company such as ours. He is a proven leader, having served as the Chief Executive Officer of a large public company and as the non-executive Chairman of Douglas Dynamics, Inc. He currently serves as the Chairman of the Compensation Committee of C.H. Robinson Worldwide and as a member of the Audit Committee, Compensation Committee and Nominating and Governance Committee of Douglas Dynamics, Inc. We believe these experiences have given him significant governance- and compensation-related expertise and position him well to serve as a director and as a member of our Compensation and Integration Committees.
MANAGEMENT DISCUSSION FROM LATEST 10K
We are the second largest provider of services in the domestic non-hazardous solid waste industry, as measured by revenue. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 334 collection operations in 39 states and Puerto Rico. We own or operate 194 transfer stations, 191 active solid waste landfills and 74 materials recovery facilities. We also operate 69 landfill gas and renewable energy projects.
Revenue for the year ended December 31, 2011 was $8,192.9 million compared to $8,106.6 million for the same period in 2010. Core price for the year ended December 31, 2011 increased 0.8%, fuel recovery fees increased 1.0%, commodity revenue increased 1.0% and acquisitions, net of divestitures increased 0.1%. Offsetting this revenue growth of 2.9% were decreases of 1.4% due to the expiration of our San Mateo County contract and our transportation and disposal contract with the City of Toronto effective December 31, 2010 and 0.4% from volume declines.
Our provision for income taxes was $317.4 million, $369.5 million and $368.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. Our effective income tax rate was 35.0%, 42.1% and 42.6% for 2011, 2010 and 2009, respectively. Our 2011 effective tax rate was favorably impacted by our December 2011 settlement with the IRS related to Alliedâ€™s 2000 â€“ 2003 tax years, which contributed to a net favorable impact to our tax provision of approximately $23 million. Additionally, our 2011 tax provision was favorably impacted by the realization of tax credits and lower state rates due to changes in estimates of approximately $19 million. In 2010 and 2009 our effective income tax rate was adversely impacted by the disposition of assets that had little or no basis for tax and accruals for penalties and interest on uncertain tax positions.
Our effective income tax rate can be adversely impacted by expenses incurred that are non-deductible for tax purposes, disposition of assets that have little or no basis for tax, and accruals for penalties and interest on uncertain tax positions. In the future we may choose to divest of certain operating assets that have little or no tax basis, thereby resulting in a higher taxable gain than otherwise would be recognized. The higher taxable gain will increase our effective rate in the quarter in which the divestiture is consummated.
We made income tax payments (net of refunds received) of $173 million, $418 million and $444 million for 2011, 2010 and 2009, respectively. Income taxes paid in 2011 reflect the favorable tax depreciation provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) that was signed into law in December 2010 (Bonus Depreciation). The Tax Relief Act included 100% Bonus Depreciation for property placed in service after September 8, 2010 and through December 31, 2011 (and for certain long-term construction projects to be placed in service in 2012) and 50% Bonus Depreciation for property placed in service in 2012 (and for certain long-term construction projects to be placed in service in 2013). We anticipate our cash paid for income taxes for 2012 will be approximately $140 million higher than that of 2011.
For additional discussion and detail regarding our income taxes, see Note 10, Income Taxes, to our consolidated financial statements in Item 8 of this Form 10-K.
2011 compared to 2010
Revenue for 2011 benefited from core price growth in all lines of business, except residential collection, and an increase in commodity recycling revenue. Volume increases in our residential collection and landfill lines of business also helped to increase our revenue.
Operating margins were 23.4% in 2011 versus 23.5% in 2010. The decrease in operating margins is due primarily to higher fuel, commodities and sales and marketing costs. These unfavorable items were partially offset by the favorable adjustments to landfill amortization expense for asset retirement obligations of $11.9 million in 2011 compared to a favorable adjustment of $3.3 million in 2010. Operating margins for 2011 also were impacted by lower disposal, subcontract and transportation costs as a result of a decline in subcontracted volumes and a lower loss on the disposition of assets and impairments.
Revenue for 2011 benefited from core price growth in all lines of business and an increase in recycling commodity revenue. These increases were offset by volume declines in our residential collection, transfer station and disposal lines of business, in part due to the expiration of the City of Toronto transportation and disposal contract.
Operating margins were 20.8% in 2011 versus 22.8% in 2010. The decrease in operating margins is due primarily to the gain on disposition of assets of $9.3 million in 2010 compared to a loss of $0.2 million in 2011. Operating margins were also impacted by higher fuel costs and costs of commodities sold as well as sales and marketing costs and legal settlements. These decreases were partially offset by lower disposal, subcontract and transportation costs primarily due to the expiration of the City of Toronto contract.
Revenue for 2011 benefited from core price growth in all lines of business, except residential collection and transfer station, an increase in landfill volume and an increase in recycling commodity revenue. These increases were partially offset by volume declines in our commercial and residential collection lines of business.
Operating margins were 22.7% in 2011 versus 24.4% in 2010. The decrease in operating margins is due primarily to the early closure of a landfill resulting in an impairment charge of $28.7 million. The impairment was partially offset by a gain of $17.2 million relating to the disposition of businesses in three markets during the second quarter of 2011. Operating margins were also impacted by unfavorable adjustments to landfill amortization expense for asset retirement obligations of $2.4 million in 2011 compared to a favorable adjustment of $3.8 million in 2010. Additionally, operating margins were impacted by higher fuel, commodities and sales and marketing costs, partially offset by lower disposal costs, during 2011 versus 2010.
Revenue for 2011 benefited from core price growth in all lines of business and an increase in recycling commodity revenues. The increases were partially offset by volume declines in all lines of business, primarily due to the expiration of our San Mateo County contract.
Operating margins were 22.6% in 2011 versus 23.8% in 2010. The decrease in operating margins is due primarily to the losses on dispositions of assets and impairments during 2011 of $5.2 million from the divestiture of a business versus $0.9 million for 2010 and higher fuel costs in 2011. Additionally, in 2010, there was a favorable $6.0 million adjustment to landfill amortization expense for asset retirement obligations. These decreases were partially offset by lower labor, benefit and disposal costs due to the expiration of our San Mateo County contract.
Operating loss improved $91.9 million in 2011 versus 2010. During 2010, we incurred $33.3 million of incremental costs to achieve our synergy plan and $11.4 million of restructuring and integration charges related to our acquisition of Allied. Operating margins for 2010 also were impacted by higher litigation and management incentive plan costs. Additionally, during 2011 we recorded a gain on the disposition of assets and impairments of $1.1 million versus an impairment loss of $14.4 million related to certain long lived assets that were held and used for 2010.
2010 compared to 2009
Revenue for 2010 benefited from core price growth in all lines of business. However, the increase in revenue from core price was more than offset by volume declines in our collection and transfer station lines of business while our landfill line of business reflected a modest increase. 2010 includes revenue of $20.8 million associated with divested locations. 2009 includes revenue of $61.9 million associated with divested locations. Excluding the effect of the divested revenue, revenue increased $1.6 million for 2010 versus 2009.
Operating margins were 23.5% in 2010 versus 22.8% in 2009. The increase in operating margins is due primarily to lower labor, benefits, disposal, transportation, repair and maintenance expenses as a result of lower volumes and cost control measures. Operating margins for 2010 also were impacted by lower risk insurance costs. These increases were partially offset by the loss on the disposition of assets of $15.0 million in 2010 compared to the gain of $4.0 million in 2009 and by higher fuel costs and costs of commodities sold in 2010. We also recorded a $12.0 million recovery of insurance proceeds related to remediation costs at the Countywide facility that reduced our landfill operating costs during the third quarter of 2009.
Revenue for 2010 benefited from core price growth in all lines of business except landfill. While price associated with municipal solid waste volumes increased during 2010, this increase was offset by a higher mix of special waste volumes. However, the increase in revenue from core price for 2010 was more than offset by volume declines in our collection and transfer station lines of business. Landfill volumes increased for 2010 primarily due to special waste event driven work. 2010 includes revenues of $22.5 million associated with divested locations. 2009 includes revenue of $31.5 million associated with divested locations. Excluding the effect of the divested revenue, revenue decreased $1.1 million for 2010 versus 2009.
Operating margins were 22.8% in 2010 versus 20.7% in 2009. The increase in operating margins is due primarily to lower labor, benefits, disposal, transportation, and repair and maintenance expenses as a result of lower volumes and cost control measures. Operating margins for 2010 also were impacted by lower risk insurance costs and a favorable adjustment to amortization expense for asset retirement obligations of $10.6 million in 2010 compared to a favorable adjustment of $1.4 million in 2009. These increases were partially offset by the lower gain on the disposition of assets of $9.3 million in 2010 compared to a gain of $27.1 million in 2009 and higher fuel costs and costs of commodities sold in 2010.
Revenue for 2010 benefited from core price growth in all lines of business except transfer station. However, the increase in revenue from core price was more than offset by volume declines, especially in our collection and landfill lines of business. Contributing to the decline in revenue for 2009 was $30.4 million of revenue associated with divested locations. Excluding the effect of the divested revenue, revenue decreased $38.5 million for 2010 versus 2009.
Operating margins were 24.4% in 2010 versus 25.6% in 2009. The decrease in operating margins is due primarily to the gain on disposition of assets of $1.8 million in the 2010 period compared to the gain of $29.8 million in 2009. Operating margins for 2010 also were impacted by higher fuel costs and costs of commodities sold. These decreases were partially offset by lower labor, benefits, disposal and repair and maintenance expenses as a result of lower volumes and cost control measures and lower risk insurance costs.
Revenue for 2010 benefited from core price growth in all lines of business. However, the increase in revenue from core price was more than offset by volume declines, especially in our collection and transfer station lines of business. Landfill volumes in 2010 increased primarily due to special waste event driven work. 2009 includes revenues of $11.0 million associated with divested locations. Excluding the divested revenue, revenue increased $29.6 million for 2010 versus 2009.
Operating margins were 23.8% in 2010 versus 26.8% in 2009. The decrease in operating margins is primarily attributed to the loss on disposition of assets of $0.9 million in 2010 compared to the gain of $88.1 million in 2009. Operating margins for 2010 also were impacted by higher fuel costs and costs of commodities sold. These decreases were partially offset by lower risk insurance costs and a favorable adjustment to amortization expense for asset retirement obligations of $6.0 million in 2010 compared to an unfavorable adjustment of $6.4 million in 2009. We also recorded a $5.2 million remediation charge in 2009 related to environmental conditions at our closed disposal facility in California.
The changes in net revenue relates to our National Accounts program. Included in our gain (loss) on disposition of assets and impairments, net, for 2010 and 2009 are transaction related expenses from the disposition of assets in our other segments. Additionally, during 2010 we recorded an impairment loss of $14.4 million related to certain long-lived assets that are held and used.
Landfill and Environmental Matters
Our landfill costs include daily operating expenses, costs of capital for cell development, costs for final capping, closure and post-closure, and the legal and administrative costs of ongoing environmental compliance. Daily operating expenses include leachate treatment and disposal, methane gas and groundwater monitoring and system maintenance, interim cap maintenance, and costs associated with applying daily cover materials. We expense all indirect landfill development costs as they are incurred. We use life cycle accounting and the units-of-consumption method to recognize certain direct landfill costs related to landfill development. In life cycle accounting, certain direct costs are capitalized and charged to depletion expense based on the consumption of cubic yards of available airspace. These costs include all costs to acquire and construct a site, including excavation, natural and synthetic liners, construction of leachate collection systems, installation of methane gas collection and monitoring systems, installation of groundwater monitoring wells, and other costs associated with the acquisition and development of the site. Obligations associated with final capping, closure and post-closure are capitalized and amortized on a units-of-consumption basis as airspace is consumed.
Cost and airspace estimates are developed at least annually by engineers. These estimates are used by our operating and accounting personnel to adjust the rates we use to expense capitalized costs. Changes in these estimates primarily relate to changes in costs, available airspace, inflation and applicable regulations. Changes in available airspace include changes in engineering estimates, changes in design and changes due to the addition of airspace lying in expansion areas that we believe have a probable likelihood of being permitted.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
We are the second largest provider of services in the domestic non-hazardous solid waste industry, as measured by revenue. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 331 collection operations in 39 states and Puerto Rico. We own or operate 193 transfer stations, 191 active solid waste landfills and 74 materials recovery facilities. We also operate 70 landfill gas and renewable energy projects.
Revenue for the six months ended June 30, 2012 decreased to $4,043.0 million compared to $4,051.5 million for the same period in 2011 . This decrease in revenue of 0.2% is due to a decrease in volume of 0.6 % and recycling commodities decreases of 0.9% . Partially offsetting these decreases were increases in core price of 0.6% , fuel surcharges of 0.2% and acquisitions, net of divestitures of 0.5% .
Results of Operations
We generate revenue primarily from our solid waste collection operations. Our remaining revenue is from other services, including transfer stations, landfill disposal and recycling. Our revenue from collection operations consists of fees we receive from commercial, industrial, municipal and residential customers. Our residential and commercial 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 the consumer price index. We generally provide commercial and industrial collection services to customers under contracts with terms up to three years. Our transfer stations, landfills and, to a lesser extent, our material recovery facilities generate revenue from disposal or tipping fees charged to third parties. In general, we integrate our recycling operations with our collection operations and obtain revenue from the sale of recyclable materials. Other revenue consists primarily of revenue from National Accounts, which represents the portion of revenue generated from nationwide contracts in markets outside our operating areas, and, as such, the associated waste handling services are subcontracted to local operators. Consequently, substantially all of this revenue is offset with related subcontract costs, which are recorded in cost of operations.
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 who transport our waste to disposal facilities and costs for local operators who 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 credits; disposal franchise fees and taxes consisting of landfill taxes, municipal franchise fees, host community fees and royalties; landfill operating costs, which includes financial assurance, leachate disposal and other landfill maintenance costs; risk management, which includes casualty insurance premiums and claims; cost of goods sold, which includes material costs paid to suppliers associated with recycling commodities; and other, which includes expenses such as facility operating costs, equipment rent and gains or losses on sale of assets used in our operations.
Loss (Gain) on Disposition of Assets and Impairments, Net
During the six months ended June 30, 2012 , we recorded a net gain on disposition of assets and impairments of $3.6 million . During the three and six months ended June 30, 2011 , we recorded a net loss on disposition of assets and impairments of $19.4 million and $19.0 million , respectively. We disposed of businesses in three markets in our Southern Region during the three months ended June 30, 2011, resulting in a gain of $17.1 million. In connection with the disposition of these businesses, we closed a landfill site resulting in an asset impairment charge of $28.5 million for the remaining landfill assets and the acceleration of capping, closure and post-closure costs. Separately, during the three months ended June 30, 2011 we recorded asset impairments of $7.2 million for expected losses on the divestiture of certain businesses and related goodwill in our Western Region.
Revenue for the three and six months ended June 30, 2012 declined due primarily to declines in volume in our collection and transfer station lines of business, coupled with lower recycling commodity revenue. The volume declines were primarily due to the loss of a large national accounts contract and the loss of certain disposal contracts. These decreases were partially offset by an increase in volume in our landfill line of business.
For the three and six months ended June 30, 2012 , operating margins were 20.2 % and 21.0 %, respectively, versus 25.5 % and 24.5 % for the comparable 2011 periods. The decrease in operating margins is due primarily to higher labor, landfill operating, repair and maintenance, sales and marketing, and legal settlement expenses. These unfavorable items were partially offset by lower transfer and disposal costs primarily due to lower disposal prices and lower volumes disposed at third party sites during the three and six months ended June 30, 2012 . Operating margins for the six months ended June 30, 2012 were also unfavorably impacted due to higher fuel costs versus the comparable 2011 period.
Revenue for the three and six months ended June 30, 2012 declined due to a decline in volumes in our landfill and transfer station lines of business and a decline in recycling commodity revenue. The volume declines were primarily due to the loss of a large national accounts contract as well as special waste event work not recurring in the current period. These decreases were partially offset by an increase in core price growth in all lines of business and an increase in volumes in our collection lines of business.
For the three and six months ended June 30, 2012 , operating margins were 19.6 % and 18.6 %, respectively, versus 20.7 % and 20.0 % for the comparable 2011 periods. The decrease in operating margins is due primarily to increased labor costs due to wage increases and certain labor relations activities during the three and six months ended June 30, 2012 versus the comparable 2011 periods. Higher subcontract and transportation costs, repair and maintenance, and sales and marketing expenses also contributed to lower operating margins. These unfavorable items were partially offset by decreased legal settlement expenses during the six months ended June 30, 2012 .
Revenue for the three and six months ended June 30, 2012 benefited primarily from core price growth and increased volumes in all lines of business except transfer station. These increases were partially offset by a decrease in recycling commodity revenue.
For the three and six months ended June 30, 2012 , operating margins were 22.2 % and 21.4 %, respectively, versus 21.5 % and 22.8 % for the comparable 2011 periods. Operating margins for the three months ended June 30, 2012 increased primarily due to the impairment charge related to the disposition of businesses in three markets during the three months ended June 30, 2011. In connection with the disposition of these businesses, we closed a landfill site resulting in an asset impairment charge of $28.5 million for the remaining landfill assets and the acceleration of capping, closure and post-closure costs partially offset by a gain of $17.1 million. During the three and six months ended June 30, 2012 , margins were negatively impacted by higher labor, subcontract and transportation, and repair and maintenance expenses. For the six months ended June 30, 2012 , labor increased related to a new recycling center as well as acquisitions versus the comparable 2011 period.
Revenue for the three and six months ended June 30, 2012 declined due to a decline in volumes in our residential collection, landfill and transfer station lines of business as well as lower recycling commodity revenue. The volume declines were primarily due to the loss of certain residential contracts as well as competitive disposal pricing and special waste event work not recurring in the current period. These decreases were partially offset by an increase in core price growth in all lines of business and an increase in volumes in our commercial collection line of business.
For the three and six months ended June 30, 2012 , operating margins were 20.8 % and 20.2 %, respectively, versus 21.7 % and 22.5 % for the comparable 2011 periods. The decrease in operating margins is due primarily to the decrease in special waste event work not recurring during the three and six months ended June 30, 2012 . Additionally, franchise fees increased due to acquisitions in franchise markets. Higher labor, cost of goods sold, repair and maintenance, and sales and marketing expenses also contributed to lower operating margins. Partially offsetting these unfavorable items is lower impairment expense during the current period. During the three months ended June 30, 2011, we recorded a $7.2 million charge related to expected losses from the divestiture of a business and the write-off of goodwill associated with that business.
During the three and six months ended June 30, 2012 , the corporate entities had operating losses of $35.7 million and $99.2 million , respectively, versus $60.1 million and $124.6 million for the comparable 2011 periods. Operating losses for the three and six months ended June 30, 2012 were favorably impacted by adjustments related to certain legal matters and a favorable remediation adjustment. These favorable adjustments were partially offset by unfavorable adjustments to landfill amortization expense for asset retirement obligations at closed landfills. Corporate expenses also include general and administrative salary and benefit related expenses, legal, consulting and professional fees as well as other expenses.
Final Capping , Closure and Post-Closure Costs
As of June 30, 2012 , accrued final capping, closure and post-closure costs were $1,068.3 million , of which $94.5 million is current and $973.8 million is long-term as reflected in our unaudited consolidated balance sheet in accrued landfill costs.
Environmental Remediation Liabilities
The following is a discussion of certain of our significant remediation matters:
Countywide Landfill. In September 2009, Republic Services of Ohio II, LLC entered into Final Findings and Orders with the Ohio Environmental Protection Agency that require us to implement a comprehensive operation and maintenance program to manage the remediation area at the Countywide Recycling and Disposal Facility (Countywide). The remediation liability for the Countywide Landfill recorded as of June 30, 2012 is $ 54.3 million , of which $ 4.9 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $ 51 million to $ 73 million .
Congress Landfill. In August 2010, Congress Development Company agreed with the State of Illinois to have a Final Consent Order (Final Order) entered by the Circuit Court of Illinois, Cook County. Pursuant to the Final Order, we have agreed to continue to implement certain remedial activities at the Congress Landfill. The remediation liability for Congress recorded as of June 30, 2012 is $ 83.9 million , of which $ 7.8 million is expected to be paid during the next twelve months. We believe the reasonably possible range of loss for remediation costs is $ 53 million to $ 154 million .
It is reasonably possible that we will need to adjust the liabilities noted above 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 or cash flows.
Cash Flows Used in Investing Activities
The most significant items affecting the comparison of our cash flows used in investing activities for the six months ended June 30, 2012 and 2011 are summarized below:
Capital expenditures. Capital expenditures during the six months ended June 30, 2012 were $462.5 million , compared with $481.7 million in the comparable 2011 period. Property and equipment received during the six months ended June 30, 2012 and 2011 were $458.0 million and $387.6 million, respectively.
Cash used in acquisitions. During the six months ended June 30, 2012 , we paid $71.8 million for acquisitions of collection, recycling and transfer station businesses primarily in our Western and Eastern Regions. During the six months ended June 30, 2011 , we acquired various solid waste businesses for which we paid $28.0 million .
Cash proceeds from divestitures. During the six months ended June 30, 2012 , we divested of a collection business in our Eastern Region and certain assets associated with our rail logistics business for which we received $9.6 million . During the six months ended June 30, 2011 , we divested of certain assets in our Southern, Western and Eastern Regions for which we received $10.4 million .
Change in restricted cash and marketable securities. Changes in our restricted cash and marketable securities balances, which are related to the issuance of tax-exempt bonds for our capital needs, collateral for certain of our obligations and amounts held in trust as a guarantee of performance, provided $50.7 million and $12.7 million to our investing activities during the six months ended June 30, 2012 and 2011 , respectively. Funds received from issuances of tax-exempt bonds are deposited directly into trust accounts by the bonding authority at the time of issuance. As we do not have the ability to use these funds for general operating purposes, they are classified as restricted cash in our consolidated balance sheets. Reimbursements from the trust for qualifying expenditures or for repayments of the related tax-exempt bonds are presented as cash provided by investing activities in our consolidated statements of cash flows. Such reimbursements amounted to $20.3 million and $10.5 million during the six months ended June 30, 2012 and 2011, respectively. During the six months ended June 30, 2012 , we paid $29.5 million to settle the Livingston matter that was funded through a restricted escrow account in 2011.
We intend to finance capital expenditures and acquisitions through cash on hand, restricted cash held for capital expenditures, cash flows from operations, our various credit facilities, and tax-exempt bonds and other financings. We expect to use primarily cash for future business acquisitions.
Cash Flows Used in Financing Activities
The most significant items affecting the comparison of our cash flows used in financing activities for the six months ended June 30, 2012 and 2011 are summarized below:
Net debt repayments and borrowings. Proceeds from notes payable and long term debt were $99.4 million during the six months ended June 30, 2012 versus net proceeds of $436.1 million in the comparable 2011 period. For a more detailed discussion, see the Financial Condition section of this Managementâ€™s Discussion and Analysis of Financial Condition and Results of Operations.
Premiums and fees paid to issue and retire senior notes. Cash premiums and fees paid in connection with the issuance of our senior notes and tax exempt financings and refinancing of our credit facilities as well as purchasing and retiring certain indebtedness were $42.0 million during the six months ended June 30, 2012 versus $145.4 in the comparable 2011 period.
Purchases of common stock for treasury. In August 2011, our board of directors approved a share repurchase program pursuant to which we may repurchase up to $750.0 million of our outstanding shares of common stock through December 31, 2013. This authorization is in addition to the $400.0 million repurchase program authorized in November 2010. From November 2010 to June 30, 2012 , we repurchased 23.5 million shares of our stock for $672.6 million at a weighted average cost per share of $28.67. During the six months ended June 30, 2012 , we repurchased 6.3 million shares of our stock for $171.8 million at a weighted average cost per share of $27.19.
Cash dividends paid. We initiated a quarterly cash dividend in July 2003 and have increased it from time to time thereafter. In July 2012, the board of directors approved an increase in the quarterly dividend to $0.235 per share. Dividends paid were $163.0 million and $152.5 million during the six months ended June 30, 2012 and 2011 , respectively.
As of June 30, 2012 , we had $69.3 million of cash and cash equivalents and $138.9 million of restricted cash deposits and restricted marketable securities, including $2.2 million of restricted cash held for capital expenditures under certain debt facilities.
In May 2012, we amended and restated our $1.25 billion unsecured revolving credit facility due September 2013 (the Amended and Restated Credit Facility) to extend the maturity to May 2017. The Amended and Restated Credit Facility includes a feature that allows us to increase availability, at our option, by an aggregate amount up to $500 million through increased commitments from existing lenders or the addition of new lenders. At our option, borrowings under the Amended and Restated Credit Facility bear interest at a Base Rate, or a Eurodollar Rate, plus an applicable margin based on our Debt Ratings (all as defined in the agreements).
Contemporaneous with the execution of the Amended and Restated Credit Facility, we entered into Amendment No. 1 to our existing $1.25 billion unsecured credit facility (the Existing Credit Facility and, together with the Amended and Restated Credit Facility, the Credit Facilities), to reduce the commitments under the Existing Credit Facility to $1.0 billion and conform certain terms of the Existing Credit Facility to those of the Amended and Restated Credit Facility. Amendment No. 1 does not extend the maturity date under the Existing Credit Facility, which matures in April 2016.
In connection with entering into the Amended and Restated Credit Facility and Amendment No. 1 to the Existing Facility, the guarantees by our subsidiary guarantors with respect to the Amended and Restated Credit Facility and the Existing Credit Facility were released. As a result, the guarantees by our subsidiary guarantors with respect to all of Republic's outstanding senior notes also were automatically released. In addition, the guarantees by all of our subsidiary guarantors (other than Allied Waste Industries, Inc. and Allied Waste North America, Inc.) with respect to the 9.250% debentures and the 7.400% debentures issued by our subsidiary Browning-Ferris Industries, LLC (successor to Browning-Ferris Industries, Inc.) also were automatically released.
As of June 30, 2012 and December 31, 2011 , the interest rate for our borrowings under our Credit Facilities was 1.34% and 3.25% , respectively. Our Credit Facilities also are subject to facility fees based on applicable rates defined in the agreements and the aggregate commitments, regardless of usage. Availability under our Credit Facilities can be used for working capital, capital expenditures, letters of credit and other general corporate purposes. The agreements governing our Credit Facilities require us to comply with certain financial and other covenants. We may pay dividends and repurchase common stock if we are in compliance with these covenants. As of June 30, 2012 and December 31, 2011 , we had $51.5 million and $34.4 million of Eurodollar Rate borrowings. We had $919.5 million and $950.2 million of letters of credit using availability under our Credit Facilities, leaving $1,279.0 million and $1,515.4 million of availability under our Credit Facilities, at June 30, 2012 and December 31, 2011 , respectively.
In March 2012, we entered into a new $75.0 million uncommitted, unsecured credit facility agreement (the Uncommitted Credit Facility) bearing interest at LIBOR, plus an applicable margin. As of June 30, 2012 , the interest rate for our borrowings under our Uncommitted Credit Facility was 1.20% . Our Uncommitted Credit Facility also is subject to facility fees defined in the agreement, regardless of usage. We can use borrowings under the Uncommitted Credit Facility for working capital and other general corporate purposes. The agreements governing our Uncommitted Credit Facility require us to comply with certain covenants. As of June 30, 2012 , we had $68.7 million of LIBOR borrowings. The Uncommitted Credit Facility may be terminated at any time by either party.
The agreements governing our Credit Facilities require us to comply with certain financial and other covenants. We may pay dividends and repurchase common stock if we are in compliance with these covenants. Compliance with these covenants is a condition for any incremental borrowings under our Credit Facilities and failure to meet these covenants would enable the lenders to require repayment of any outstanding loans (which would adversely affect our liquidity). At June 30, 2012 , our EBITDA to interest ratio was 5.83 compared to the 3.00 minimum required by the covenants, and our total debt to EBITDA ratio was 2.93 compared to the 3.50 maximum allowed by the covenants. At June 30, 2012 , we were in compliance with the covenants of the Credit Facilities, and we expect to be in compliance throughout 2012.
EBITDA, which is a non-GAAP measure, is calculated as defined in our Credit Facility agreements. In this context, EBITDA is used solely to provide information regarding the extent to which we are in compliance with debt covenants and is not comparable to EBITDA used by other companies or used by us for other purposes.
Senior Notes and Debentures
During the three months ended June 30, 2012 , we issued $850.0 million of 3.550% senior notes due 2022 (the 3.550% Notes). The 3.550% Notes are our unsubordinated and unsecured obligations. We used the net proceeds from the 3.550% Notes to fund the redemption of our subsidiary's, Allied Waste of North America, Inc., $750.0 million 6.875% senior notes maturing in 2017 and the remainder for general corporate purposes.
As of June 30, 2012 and December 31, 2011, we had $1,060.2 million and $1,126.4 million , respectively, of fixed and variable rate tax-exempt financings outstanding with maturities ranging from 2012 to 2035. As of June 30, 2012 and December 31, 2011, the total of the unamortized adjustment to fair value recorded in purchase accounting for the tax-exempt financings assumed from Allied was $3.1 million and $15.8 million , respectively, which is being amortized to interest expense over the remaining terms of the debt.
As of June 30, 2012 , approximately 80% of our tax-exempt financings are remarketed quarterly, weekly or daily by remarketing agents to effectively maintain a variable yield. Certain of these variable rate tax-exempt financings are credit enhanced with letters of credit having terms in excess of one year issued by banks with investment grade credit ratings. The holders of the bonds can put them back to the remarketing agents at the end of each interest period. To date, the remarketing agents have been able to remarket our variable rate unsecured tax-exempt bonds. These bonds have been classified as long term because of our ability and intent to refinance them using availability under our revolving Credit Facilities, if necessary.
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 from 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 also may explore opportunities in capital markets to fund redemptions should market conditions be favorable. Any early extinguishment of debt may result in a charge to earnings in the period in which the debt is repurchased and retired related to premiums paid to effectuate the repurchase and the write off of the relative portion of unamortized note discounts and deferred issuance costs.
As of June 30, 2012 , we had $138.9 million of restricted cash and marketable securities, of which $2.2 million represented proceeds from the issuance of tax-exempt bonds and other tax-exempt financings and will be used to fund capital expenditures under the terms of the agreements. Restricted cash also includes amounts held in trust as a financial guarantee of our performance.
Edward A. Lang - Senior Vice President of Treasury and Risk Management
Thank you, Victor. Welcome, good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' Second Quarter 2012 Conference Call. Don Slager, our CEO; and Tod Holmes, our CFO, are joining me as we discuss our second quarter performance.
Before we get started, I would like to take a moment to remind everyone that some of the information that we discuss on today's call contains forward-looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations.
Additionally, the material that we discuss today is time-sensitive. If in the future you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is July 26, 2012. Please note that this call is the property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited.
With that, I would like to turn the call over to Don.
Donald W. Slager - Chief Executive Officer, President and Director
Thanks, Ed. Good afternoon, everyone, and thank you for joining us as we discuss Republic Services' second quarter performance.
I will now review our second quarter financial performance before discussing our updated 2012 guidance.
Revenue, approximately $2.1 billion. Core price growth in the quarter was 0.6%, which was in line with our expectations. MSW landfill price was 2.4%. Volumes decreased by 1.3%, a majority of the volume decline can be attributed to a loss of Oakleaf and the large national account, both of which we discussed in April.
Our second quarter adjusted earnings per share was $0.59. Approximately $0.09 of our earnings resulted from a favorable tax rate. All material tax disputes have now been resolved. Our adjusted free cash flow was $156 million. Our adjusted EBITDA margin was 30.3%, and SG&A was 9.6%. We repurchased 5.3 million shares in the second quarter for $141 million. We have approximately $480 million remaining under our authorization through 2013.
We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through share repurchase and dividends. Total cash returned to the shareholders was $223 million during the second quarter. Our Board of Directors has approved an increase in the quarterly dividend to $0.235 per share which is a 7% increase.
Some of our achievements during the second quarter include: Our safety performance continues to improve with a 3.5% favorable reduction in our frequency rate. We have closed on $73 million of acquisitions through June 30, that represents $47 million of annual run rate revenue. We remain on track to complete $100 million of acquisitions for the full year which was the high end of our guidance range. Our pipeline remains strong for future growth acquisition.
We continue to invest in fleet automation and converting the fleet to CNG. As of June 30, 61% of our residential routes are now automated, and we have placed 223 CNG vehicles into service. In April, we opened a single stream processing facility in Jacksonville, Florida, that increased our capacity in that market by 90,000 tons per year.
Our largest single stream recycling facility, which services the San Jose market, went into operation in July. This startup coincides with converting the city of San Jose commercial and industrial collection service offerings from open market to franchise. In May, we completed a debt refinancing and renewed our 5-year bank facility at lower rates, which, together reduce our annual interest expense by approximately $25 million. Republic does not have a material debt maturity until 2016.
Tod and Ed will now update our financial performance.
Tod C. Holmes - Chief Financial Officer and Executive Vice President
Thanks, Don. As Don indicated, second quarter revenue of approximately $2.1 billion reflects the following components of internal growth: First, core price growth of 0.6%. This level of core price was consistent with our Q1 performance and is also in line with our expectations. Core price is positive in both the collection and disposal businesses, [Audio Gap] higher prices in the disposal business due to landfill MSW price increases of 2.4%. We expect price levels to be comparable between the first and second quarters, which was the case, and we expect prices to modestly rise in the second half of the year as the impact from higher CPI-based pricing takes hold on our restricted customer base.
Our fuel recovery fee decreased by 0.1%. The decrease in fuel recovery fees relates to a decrease in fuel cost. The average price per gallon of diesel declined to $3.95 in Q2 2012 from $4.01 in the prior year, a decrease of 1.5%. Commodity revenue decreased 1%. Commodity prices decreased by 16% to an average price of $122 a ton in Q2 from $146 per ton in the prior year, due to recycling facility commodity volume of 540,000 tons was up 2.1% from the prior year and up 1.8% on a same-store basis. Our current commodity prices are approximately $112 per ton, which is down from the guidance we provided in April of $129 per ton. For reference purposes, a $10 per ton change in commodity values equals approximately $0.03 of full year EPS, which includes the impact of our recycling facility and collection businesses.
Turning to volume. Q2 volumes decreased by 130 basis points year-over-year. Most of the decline relates to a few specific losses including the Oakleaf business and a large national account. Our collection business volumes were down 0.3%. Excluding the losses I just mentioned, our total collection volume was actually positive.
Disposal volumes were down 4.7% versus the prior year, which relates primarily to MSW tons at our transfer stations and landfills. Again, this relates primarily to a lost municipal contracts in prior quarters and also the competitive pressures in our L.A. market, which we discussed back in April.
In Q2, special waste volumes were essentially flat with the prior year, and we did not see the typical seasonal increase in landfill C&D volumes.
Now, I will discuss the second quarter year-over-year margin. Q2 2012 adjusted EBITDA margin was 30.3% compared to 31.1% in the prior year. This is an 80-basis point decrease. Some of the more significant changes in margins include: First, labor. A 60 basis point increase in expense is mostly due to normal increases in wages and health care cost, and also a change in our revenue mix. Disposal volumes, commodity revenues and subcontract revenues are down which have little or no variable labor cost. Additionally, there is an increase of about 10 basis points related to work stoppages that occurred during the first quarter. Improvements in collection labor productivity partially offset the increase in labor cost, primarily in the residential business, through automation. Second, disposal. The improvement of 30 basis points relates to decreased disposal expense primarily due to an increase in internalization. Third, our maintenance cost. The 70 basis point increase in maintenance expense relates to implementation costs associated with our One Fleet maintenance initiative, an increase in the cost of tires across our supplier base and also the refurbishing of containers versus purchasing new containers which, from a cash standpoint, is an efficient operating practice.
Next, fuel. The 20 basis point improvement is due to a 1.5% decrease in the cost of diesel. After considering the impact of related fuel recovery fees, the net margin improvement was 10 basis points. The current cost of diesel is approximately $3.78 per gallon, which is down from guidance we provided in April of $4.13 per gallon. For reference purposes, a $0.10 change in diesel fuel per gallon is about $0.01 of full year EPS, which includes the impact of fuel recovery fees.
Finally, cost of goods sold. The 30 basis point improvement relates to a reduction in rebates paid for volumes delivered to our recycling facilities. Cost of goods sold decreased to an average of $39 per ton from $48 per ton in the prior year. While the change in cost was favorable, when you consider the decrease in related commodity revenues, there was a 40 basis point decline in EBITDA margin.
Our second quarter 2002 SG&A of 9.6% was consistent with the prior year. We expect our full year SG&A expense to be consistent with our previous guidance at slightly above 10% of revenue. DD&A, as a percentage of revenue, was 11.4% in the current quarter -- current year versus 10.9% in the prior year. The 50 basis point increase in expense primarily relates to a landfill liability adjustments recorded in the current quarter for sites that have already closed. Additionally, the prior year included the favorable impact of expansions granted, which should not repeat in the current quarter. DD&A is higher than capital expenditures as a percentage of revenue due to the amortization of intangibles.
Ed will now discuss interest expense, taxes and our free cash flow.
Edward A. Lang - Senior Vice President of Treasury and Risk Management
Thanks, Tod. Second quarter 2012 interest expense was $99 million, which included $15 million of noncash amortization. As Don mentioned, we called $750 million of senior notes due in 2017 and issued new debt for 10 years at a rate of 3.55%. This lower rate will reduce annual cash interest expense by approximately $23 million. We also renewed our 5-year bank facility at lower pricing that will generate over $2 million in annual savings.
Our EPS guidance included the favorable impact of refinancing this debt, but excluded any premiums paid or debt discounts written off in connection with early extinguishments. Our annual run rate interest expense, after the refinancing, is approximately $385 million, of which $55 million is noncash. Our refinancing activity since December 2008, which have benefited from our investment grade status in low rate environment, have reduced annual interest expense by approximately $230 million. We have now completed all significant refinancing transactions.
I will now discuss taxes. Our second quarter 2012 effective tax rate was favorably impacted by finalizing Allied's 2002 exchange of partnership interest matter, and favorably resolving other tax matters including closing out open federal tax years through 2008. In April, we guided to a 37% full year 2012 effective tax rate. This included the benefit from finalizing the exchange of partnership interest matter since we were in the late stages of negotiations with the IRS. We did not include the other tax matters, which resulted in about $0.03 of additional EPS. We now expect a full year 2012 tax rate of approximately 36%. We expect the second half of 2012 effective tax rate to be approximately 40%.
To summarize the tax impact, we saw a $0.09 benefit in the second quarter relative to the 37% full year tax rate we provided in April. We expect $0.06 of this benefit to flip in the second half of the year since we are expecting a second half tax rate of approximately 40%. The net impact versus the April guidance is a positive $0.03, which is the amount by which we raise the top end of our EPS guidance range.
I will now discuss free cash flow. Year-to-date 2012 adjusted free cash flow was $331 million, which consisted of cash provided by operating activities of $695 million, less property and equipment received of $458 million, plus proceeds from the sale of property of $21 million, plus merger-related expenditures net of tax of $41 million, plus Allied cash tax settlements of $34 million, less cash tax benefit from debt extinguishment of $5 million, plus divestiture-related tax payments of $1 million, plus central states cost net of tax of $2 million. Therefore, adjusted free cash flow equals $331 million.
Free cash flow timing tends to vary by quarter, in particular, due to the capital expenditures and changes in working capital. We remain comfortable with our guidance of approximately $775 million of full year 2012 adjusted free cash flow.
Now I will discuss the balance sheet. At June 30, our accounts receivable balance was $845 million, and our days sales outstanding was 37 days or 23 days net of deferred revenue. Reported debt was approximately $7.1 billion at June 30, and excess credit available under our bank facility was approximately $1.3 billion.
I will now turn the call back to Don.
Donald W. Slager - Chief Executive Officer, President and Director
Thanks, Ed. I would like to update our 2012 guidance. We are maintaining our free cash flow guidance of $775 million. This level of free cash flow is consistent with our original guidance and demonstrates a strong predictable cash flows generated by the business.
Due to the successful resolution of open tax years, we are raising our adjusted earnings per share guidance to a range of $1.91 to $1.93. We expect our full year tax rate to be approximately 36%.
To sum it all up, we are on track. I want to leave you with a couple of key points. In the beginning of the year, we anticipated a steadily improving economy as a backdrop for the price and volume growth. While the economy has not given us the support we expected, the industry remains rational and we have effectively managed cost to generate EBITDA margin in excess of 30%. Our free cash flow remains strong and predictable. We continue to invest in accretive tuck-in acquisitions and return substantial cash to our shareholders. Republic's business and financial strategies remain focused on return on capital and free cash flow improvement.
I would like to thank the Republic employees for their dedication to operational excellence they've shown throughout the year.
At this time, operator, we'll open the call for questions.