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EX-4.2 - EXHIBIT 4.2 - Advanced Disposal Services, Inc.ads20171231ex42.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
 
FORM 10-K
 
 
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file no: 001-37904
 
 
Advanced Disposal Services, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
90-0875845
(State or other jurisdiction of
incorporation)
 
(IRS Employer
Identification No.)
90 Fort Wade Road
Ponte Vedra, Florida 32081
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (904) 737-7900
 
Securities registered pursuant to Section 12(b) of the Act:
  Title of Each Class
Common Stock, $0.01 par value
 
Name of Exchange on Which Registered
New York Stock Exchange
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý

 
 
 
Accelerated filer
 
¨
 
 
 
 
 
Non-accelerated filer
 
¨

 
(Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2017 was approximately $972.8 million. The aggregate market value was computed by using the closing price of the common stock as of that date on the New York Stock Exchange (“NYSE”). (For purposes of calculating this amount only, all directors and executive officers of the registrant have been treated as affiliates.)
The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at February 9, 2018 was 88,508,468 shares.

Documents Incorporated by Reference:
 Document
Proxy Statement for the 2018
Annual Shareholders Meeting
 
Incorporated as to
Part III
 



Advanced Disposal Services, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2017
Table of Contents
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. All statements other than statements of historical facts in this document, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), are forward-looking statements. Many, but not all, of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” “intend,” “future” and similar words. Statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended and are subject to safe harbor created by those sections. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements.

Examples of these risks, uncertainties and other factors include, but are not limited to:

our ability to achieve future profitability will depend on us executing our strategy and controlling costs;

future results may be impacted by the expiration of net operating losses (NOLs);

our tax position may be affected by recent changes in U.S. tax law;       

we operate in a highly competitive industry and the inability to compete effectively with larger and better capitalized companies and governmental service providers;

our results are vulnerable to economic conditions;

we may lose contracts through competitive bidding, early termination or governmental action;

some of our customers, including governmental entities, have suffered financial difficulties affecting their credit risk, which could negatively impact our operating results;

our financial and operating performance may be affected by the inability in some instances to renew or expand existing landfill permits or acquire new landfills. Further, the cost of operation and/or future construction of our existing landfills may become economically unfeasible causing us to abandon or cease operations;

we could be precluded from maintaining permits or entering into certain contracts if we are unable to obtain sufficient third-party financial assurance or adequate insurance coverage;

our accruals for our landfill site closure, post-closure and contamination related costs may be inadequate;

our cash flow may not be sufficient to finance our high level of capital expenditures;

our acquisitions, including our ability to integrate acquired businesses, or that the acquired businesses may have unexpected risks or liabilities;

the seasonal nature of our business and "event-driven" waste projects that could cause our results to fluctuate;

adverse and destructive weather conditions that could result in higher fuel costs, higher labor costs, reduced municipal contract productivity and higher disposal costs;

we may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, result in adverse judgments, settlements or fines and create negative publicity;

3




fuel supply and prices may fluctuate significantly and we may not be able to pass on cost increases to our customers;

fluctuations in the prices of commodities may adversely affect our financial condition, results of operations and cash flows;

increases in labor and disposal costs and related transportation costs could adversely impact our financial results;

efforts by labor unions could divert management attention and adversely affect operating results;

we depend significantly on the services of the members of our senior, regional and local management teams, and the departure of any of those persons could cause our operating results to suffer;

we are increasingly dependent on technology in our operations and, if our technology fails, our business could be adversely affected;

a cybersecurity incident could negatively impact our business and our relationships with customers;

operational and safety risks, including the risk of personal injury to employees and others;

we are subject to substantial governmental regulation and failure to comply with these requirements, as well as enforcement actions and litigation arising from an actual or perceived breach of such requirements, could subject us to fines, penalties and judgments, and impose limits on our ability to operate and expand;

our operations being subject to environmental, health and safety laws and regulations, as well as contractual obligations that may result in significant liabilities;

future changes in laws or renewed enforcement of laws regulating the flow of solid waste in interstate commerce could adversely affect our operating results;

fundamental change in the waste management industry as traditional waste streams are increasingly viewed as renewable resources and changes in laws and environmental policies may limit the items that enter the waste stream, any of which may adversely impact volumes and tipping fees at our landfills. Alternatives to landfill disposal may cause our revenues and operating results to decline;

risks associated with our substantial indebtedness and working capital deficit;

risks associated with our ability to implement our growth strategy as and when planned; and

the other risks described in "Risk Factors."
The above examples are not exhaustive and new risks may emerge from time to time. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we will operate in the future. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based.

4



ITEM 1. BUSINESS
(All dollar amounts are presented in millions, unless otherwise noted)

Advanced Disposal Services, Inc. (hereafter referred to as the "Company") is a leading integrated provider of non-hazardous solid waste collection, transfer, recycling and disposal services operating primarily in secondary markets or under exclusive arrangements. We have a presence in 16 states across the Midwest, South and East regions of the United States as well as in the Commonwealth of the Bahamas, serving approximately 2.8 million residential customers and over 200,000 commercial and industrial ("C&I") customers through our extensive network of 93 collection operations, 73 transfer stations, 22 owned or operated recycling facilities and 40 owned or operated active landfills. Our headquarters are located in Ponte Vedra, Florida.
Our Strategy
We seek to drive financial performance in markets in which we own or operate a landfill or in certain disposal-neutral markets, where the landfill is owned by a municipality. In markets in which we own or operate a landfill, we aim to create and maintain vertically integrated operations through which we manage a majority of our customers' waste from the point of collection through the point of disposal, a process we refer to as internalization. By internalizing a majority of the waste in these markets, we are able to deliver high quality customer service while also ensuring a stable revenue stream and maximizing profitability and cash flow from operations. In disposal-neutral markets, we focus selectively on opportunities where we can negotiate exclusive arrangements with a municipal owned disposal site, facilitating highly-efficient and profitable collection operations with lower capital requirements. Geographically, we focus our business principally in secondary, or less densely populated non-urban, markets where the presence of large national providers is generally more limited. We also compete selectively in primary, or densely populated urban, markets where we can capitalize on opportunities for vertical integration through our high-quality transfer and disposal infrastructure and where we can benefit from highly-efficient collection route density.
Operations
Our vertically integrated environmental services operations can be broadly classified into three lines of business: (i) collection services; (ii) disposal services, which include transfer stations and landfills; and (iii) recycling services. The solid waste management business is locally executed where the geographic footprint, density of collection routes, degree of vertical integration, and regional demographic trends drive success. We serve both primary (densely populated) and secondary (less populated) markets. While primary markets typically offer highly efficient route densities, secondary markets provide other important advantages, such as less large national provider presence, greater opportunities to gain market share through new business and consolidation, and generally higher and more stable pricing.
Our operations are managed through three regional offices located in the South, Midwest and East regions of the United States. Each of the regions has a diversified portfolio of collection, transfer, landfill and recycling operations. The collection, transfer, landfill, and recycling operations within each of these operating regions are supervised by regional vice presidents with extensive experience in growing, operating and managing solid waste management companies within their local markets. Each regional vice president works with and supervises several district and general managers who manage facilities and operations.
The services we provide include non-hazardous solid waste collection, transfer, recycling and disposal services for residential, commercial and industrial customers, as described below. The following table shows revenues contributed by these services for each of the three years presented:
 
Year ended December 31,
 
2017
 
2016
 
2015
Collection
$
1,017.4

 
67.5
 %
 
$
977.4

 
69.6
 %
 
$
971.4

 
69.6
 %
Disposal
542.5

 
36.0
 %
 
517.9

 
36.9
 %
 
499.0

 
35.7
 %
Sale of recyclables
33.2

 
2.2
 %
 
22.6

 
1.6
 %
 
24.8

 
1.8
 %
Fuel and environmental charges
103.9

 
6.9
 %
 
88.5

 
6.3
 %
 
85.8

 
6.1
 %
Other
104.4

 
6.9
 %
 
74.7

 
5.3
 %
 
82.2

 
5.9
 %
Intercompany eliminations
(293.8
)
 
(19.5
)%
 
(276.5
)
 
(19.7
)%
 
(266.8
)
 
(19.1
)%
Total
$
1,507.6

 
100.0
 %
 
$
1,404.6

 
100.0
 %
 
$
1,396.4

 
100.0
 %




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Collection Services
We serve approximately 2.8 million residential customers, over 200,000 C&I customers and over 800 municipalities through our 93 collection operations. We internalized 63% of the waste collected into our own landfills for the year ended December 31, 2017. A total of 18% of our routed fleet uses compressed natural gas ("CNG"), which significantly reduces carbon emissions compared to diesel-fueled collection trucks. A total of 57% of our routed residential collection fleet uses automated side load trucks, which helps to reduce employee injuries. Collection revenue represents approximately 68% of our overall revenue.

Our residential collection operations consist of curbside collection of residential refuse from small carts or containers into collection vehicles for transport to a disposal/recycling site. These services are typically performed either under long-term contracts with local government entities or on a subscription basis, whereby individual households contract directly with us for our collection services. Our municipal residential contracts generally allow for annual rate increases.

We generally secure our contracts with municipalities through a competitive bid process and such contracts give us exclusive rights to service all or a portion of the homes in the respective municipalities. These contracts generally range in term from three to ten years. Municipal contracts can be designed as either mandatory or non-mandatory franchises. Mandatory franchises allow us to become the exclusive provider of waste management services for the areas of the municipality included in the contract, which requires all residential customers within those areas to use our services for solid waste collection and disposal. Non-mandatory franchises allow us to retain the exclusive right to service the specified areas of the municipality, with no competitor permitted to offer services to residential customers, but residential customers may choose not to use our services.

The fees that we receive for residential collection on an individual subscription basis 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 or monthly in advance by the residential customers receiving the service and other residential services are paid in arrears. Residential revenue represents approximately 39% of our collection revenue.

For C&I operations, we supply our customers with waste containers suitable for their needs and rent or sell compactors to large waste generators. Standard service agreements with C&I customers are typically three to five years in length with pricing based on estimated disposal weight and time required to service the account. We generally bill commercial customers monthly in advance. Industrial customers are generally billed in arrears for our services. The customer generally may not cancel C&I standard service agreements for a period of five years from the start of service without incurring a cancellation penalty. In addition, contracts typically are renewed automatically unless the customer specifically requests cancellation. Our standard C&I service contracts generally allow for rate increases and represent approximately 37% of our overall collection revenue.

Our construction and demolition ("C&D") waste services provide C&D sites with rolloff containers and waste collection, transportation and disposal services. C&D services are typically provided pursuant to arrangements in which the customer provides 24-hour advance notice of its disposal needs and is billed on a "per pull" plus disposal basis. While the majority of our rolloff services are provided to customers under long-term contracts, we generally do not enter into contracts with our C&D customers that utilize temporary rolloff containers due to the relatively short-term nature of most C&D projects. Our temporary rolloff customers pay us in arrears for our services. Our construction and demolition ("C&D") waste services represent approximately 24% of our overall collection revenue.
Disposal Services
Landfill disposal services represent the final stage in our vertically integrated waste collection and disposal services solution. We own or operate 33 active municipal solid waste ("MSW") landfills, and 7 active C&D landfills as of December 31, 2017, enabling us to offer comprehensive service to our customers. For the year ended December 31, 2017, our landfills accepted 16.8 million tons of waste. We charge tipping fees to third parties. Third party disposal revenue represents approximately 18% of our overall revenue.
As of December 31, 2017, our landfills had approximately 351.3 million cubic yards of utilized airspace and total permitted and deemed permitted airspace of approximately 990.9 million cubic yards. Our active landfills that are currently accepting waste have an average of 36.7 years of aggregate remaining permitted and deemed permitted life. 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.

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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 15 of our landfills and we may seek expanded permitted capacity at other landfills in the future. However, we cannot assure you that all proposed or future expansions will be permitted as designed.
We also have responsibility for 3 C&D and 2 MSW closed landfills, for which we have associated closure and post-closure obligations. The post-closure period generally runs for 30 years after final site closure for landfills.
As part of our vertically integrated solid waste disposal services, we operate 73 transfer stations. Transfer stations receive, consolidate and transfer solid waste to landfills and recycling facilities. Transfer stations enable us to:
 
increase the operational reach of our landfill operations;
increase the volume of disposal revenue at our landfills;
achieve greater leverage in negotiating more favorable disposal rates at landfills that we do not operate;
improve efficiency of collection, personnel and equipment; and
build relationships with municipalities and other operators that deliver waste to our transfer stations, leading to additional growth and acquisition opportunities.

Revenue at transfer stations is primarily generated by charging tipping or disposal fees. Our collection operations deposit waste at these transfer stations, as do other private and municipal haulers, for compaction and transfer to disposal sites or material recycling facilities ("MRFs"). 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 “gate” to extend the geographic reach of a particular landfill site with the goal of increased internalization.
Recycling Services
We are focused on opportunistically developing our base of recycling facilities. There has been a growing interest in recycling, which is driven by public and private markets that are placing environmental stewardship as a top priority. This is evidenced by requests for proposals that incorporate alternate methods to manage the collection, processing and disposal of waste.
We have a network of 22 recycling facilities that we manage or operate. These facilities generate revenue through the collection, processing and sale of old corrugated cardboard, old newspaper, mixed paper, aluminum, glass and other materials. These recyclable materials are internally collected by our residential, commercial and industrial collection operations as well as third-party haulers.
Fuel and Environmental Charges
The amounts charged for collection, disposal, transfer, and recycling services may include fuel charges and environmental charges. Fuel charges and environmental charges are not designed to be specific to the direct costs to service an individual customer’s account, but rather are designed to help recover changes in our overall cost structure and to achieve an acceptable operating margin.
Other Services
Other revenue is comprised of ancillary revenue-generating activities, such as landfill gas-to-energy operations at MSW landfills, management of third-party owned landfills, customer service charges relating to overdue payments and customer administrative fees relating to customers who request paper copies of invoices rather than opting for electronic invoices, and broker revenue.
Customers
We provide services to a broad base of commercial, industrial, municipal and residential customers. No single customer individually accounted for more than 2% of our consolidated revenue in fiscal 2017.
Competition
Although we operate in a highly competitive industry, entry into our business and the ability to operate profitably requires substantial amounts of capital and managerial experience. Competition in the non-hazardous solid waste industry comes from a few large, national publicly owned companies, several regional publicly and privately owned solid waste companies, and thousands of small privately owned companies. In any given market, competitors may have larger operations and greater resources. In addition to national and regional firms and numerous local companies, we compete with municipalities that maintain waste collection or disposal operations. These municipalities may have financial advantages due to the availability of tax revenue and tax-exempt financing.

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We compete for collection accounts primarily on the basis of price and the quality of our services. From time to time, our competitors reduce the price of their services in an effort to expand market share or to win a competitively bid municipal contract. Our ability to maintain and increase prices in certain markets may be impacted by our competitors’ pricing policies. This may have an impact on our future revenue and profitability.
Seasonality and Severe Weather
Based on historic trends, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters, and lower in the fourth quarter than in the second and third quarters. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during the winter months in the U.S. and reduced drilling activity during harsh weather conditions. Conversely, mild winter weather conditions may reduce demand for oil and natural gas, which may cause some of our mining and exploration customers to curtail their drilling programs, which could result in production of lower volumes of waste.
Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs. Greater precipitation in the winter increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis and increased leachate disposal costs. Certain destructive weather conditions that tend to occur during the second half of the year, such as hurricanes that most often impact the South region, can increase the Company’s revenues in the areas affected. While weather-related and other occurrences can boost revenues through additional work, the earnings generated can be moderated as a result of higher labor costs and other factors, resulting in earnings at comparatively lower margins. These destructive weather conditions can result in higher fuel costs, higher labor costs, reduced municipal contract productivity and higher disposal costs in disposal neutral markets. These factors impact period-to-period comparisons of financial results.
Regulation
Our facilities and operations are subject to a variety of federal, state and local requirements that regulate the environment, public health, safety, zoning and land use. Operating and other permits, licenses and other approvals are required for landfills and transfer stations, recycling facilities, certain solid waste collection vehicles, fuel storage tanks and other facilities that we own or operate. These permits are subject to denial, revocation, suspension, modification and renewal in certain circumstances. Federal, state and local laws and regulations vary, but generally govern wastewater or storm water discharges, air emissions, the handling, transportation, treatment, storage and disposal of hazardous and non-hazardous waste, and the remediation of contamination associated with the release or threatened release of hazardous substances. These laws and regulations provide governmental authorities with strict powers of enforcement, which include the ability to revoke or decline to renew environmental or other permits, obtain injunctions, or impose fines or penalties in the event of violations, including criminal penalties. The United States Environmental Protection Agency (the “EPA”) and various other federal, state and local authorities administer these regulations.
We strive to conduct our operations in compliance with applicable laws, regulations and permits. However, from time to time we have been issued notices and citations from governmental authorities that have resulted in fines, penalties, the need to expend funds for compliance with environmental laws and regulations, remedial work and related activities at various landfills and other facilities. We cannot assure you that citations and notices will not be issued in the future or that any such notice or citation will not have a material effect on our operations or results.
Federal Regulation
The following summarizes the primary federal environmental and occupational health and safety-related statutes that affect our facilities and operations:
 
The Resource Conservation and Recovery Act ("RCRA"), as amended, regulates handling, transporting and disposing of hazardous and non-hazardous waste and delegates authority to states to develop programs to ensure the safe disposal of solid waste. In 1991, the EPA issued its final regulations under Subtitle D of RCRA, which set forth minimum federal performance and design criteria for solid waste landfills. These regulations are typically implemented by the states, although states can impose requirements that are more stringent than the Subtitle D standards. Occasionally, the condensates or other materials generated during our operations may be classified as a "regulated hazardous waste," and require special handling, transport and treatment. As a result, some of our operations are subject to RCRA, and comparable state laws, which impose requirements for the handling, storage, treatment and disposal of hazardous waste. Owners and operators of facilities that generate hazardous waste must obtain an EPA ID number and comply with generator requirements, including proper containerization, storage, handling, transportation and disposal. RCRA also imposes extensive recordkeeping and reporting obligations. We incur costs in complying with these standards in the ordinary course of our operations.


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The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, ("CERCLA") which is also known as Superfund, provides for authorized federal authorities to respond directly to releases or threatened releases of hazardous substances into the environment that have created actual or potential environmental hazards. CERCLA's primary means for addressing such releases is to impose strict liability for cleanup of certain contaminated or disposal sites upon current and former site owners and operators, generators of the hazardous substances at the site and transporters who selected the disposal site and transported substances thereto. Liability under CERCLA is strict, joint and several and not dependent on the intentional release of hazardous substances; it can be based upon the release or threatened release, even as a result of lawful, unintentional and non-negligent action, of hazardous substances as the term is defined by CERCLA and other applicable statutes and regulations. The EPA may issue orders requiring responsible parties to perform response actions at sites, or the EPA may seek recovery of funds expended or to be expended in the future at sites. Liability may include contribution for cleanup costs incurred by a defendant in a CERCLA civil action or by an entity that has previously resolved its liability to federal or state regulators in an administrative or judicially-approved settlement. Liability under CERCLA could also include obligations to a potentially responsible party that voluntarily expends site clean-up costs. Further, liability for damage to publicly-owned natural resources may also be imposed. We are subject to potential liability under CERCLA as an owner or operator of facilities at which hazardous substances have been disposed and as an arranger, generator or transporter of hazardous substances disposed of at other locations.

The Federal Water Pollution Control Act of 1972, as amended, known as the Clean Water Act, regulates the discharge of pollutants into streams, rivers, groundwater, or other surface waters from a variety of sources, including solid and hazardous waste disposal sites. If run-off from our operations may be discharged into surface waters, the Clean Water Act requires us to apply for and obtain discharge permits, conduct sampling and monitoring, and, under certain circumstances, reduce the quantity of pollutants in those discharges. In 1990, the EPA issued additional standards for management of storm water runoff that require landfills and other waste-handling facilities to obtain storm water discharge permits. In addition, if a landfill or other facility discharges wastewater through a sewage system to a publicly-owned treatment works, the facility must comply with discharge limits imposed by the treatment works. Also, before the development or expansion of a landfill can alter or affect wetlands, a permit may have to be obtained providing for mitigation or replacement wetlands. The Clean Water Act provides for civil, criminal and administrative penalties for violations of its provisions.

The Clean Air Act provides for increased federal, state and local regulation of the emission of air pollutants. Certain of our operations are subject to the requirements of the Clean Air Act, including large MSW landfills and landfill gas-to-energy facilities. In 1996 the EPA issued new source performance standards (“NSPS”) and emission guidelines (“EG”) controlling landfill gases from new and existing large landfills. In January 2003, the EPA issued Maximum Achievable Control Technology (“MACT”) standards for MSW landfills subject to the NSPS. These regulations impose limits on air emissions from large MSW landfills, subject most of our large MSW landfills to certain operating permit requirements under Title V of the Clean Air Act and, in many instances, require installation of landfill gas collection and control systems to control emissions or to treat and utilize landfill gas on- or off-site. The EPA entered into a settlement agreement with the Environmental Defense Fund to evaluate the 1996 NSPS for new landfills as required by the Clean Air Act every eight years and revise them if deemed necessary. The EPA issued a new NSPS rule in fiscal 2016. In May 2017, EPA issued a 90-day administrative stay of these new NSPS rules, but after environmental groups challenged the stay in the D.C. Court of Appeals, EPA decided not to further extend the stay. The new NSPS rule applies to landfills constructed or modified after July 17, 2014, and imposes requirements on independent operators of landfill gas and renewable natural gas facilities. We assessed the capital and operating cost impact to our operations of the new NSPS rule. The regulatory changes did not have a material adverse impact on our business as a whole.
In 2010, the EPA issued the Prevention of Significant Deterioration (“PSD”) and Title V Green House Gases (“GHG”) Tailoring Rule, which expanded the EPA’s federal air permitting authority to include the six GHGs, including methane and carbon dioxide. The rule sets new thresholds for GHG emissions that define when Clean Air Act permits are required. The requirements of these rules have not significantly affected our operations or cash flows, due to the tailored thresholds and exclusions of certain emissions from regulation.
In June 2014, however, the U.S. Supreme Court issued a decision that significantly limited the applicability and scope of EPA permitting requirements for GHGs from stationary sources, concluding that the EPA may not treat GHGs as an air pollutant for purposes of determining whether a source is required to obtain a PSD or Title V permit, although the court also concluded that the EPA can continue to require that PSD permits, which are otherwise required based on emissions of conventional pollutants, contain limitations on GHG emissions based on Best Available Control Technology. In November 2014, the EPA issued a policy memorandum advising that it intends to propose exempting biogenic carbon dioxide emissions from waste-derived feedstocks (MSW and landfill gas) from PSD and Title V air permitting. The EPA based this proposal on the rationale that those emissions are likely to have minimal or no net atmospheric contributions, or even reduce such impacts, when compared to an alternate method of disposal. In August 2017, EPA’s Science Advisory Board announced in the Federal Register a public meeting to discuss a draft report on the November 2014 policy memorandum. As a result of this U.S. Supreme Court ruling and EPA

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policy action, the anticipated impact of the PSD and Title V GHG Tailoring Rule on our air permits, compliance and results of operations is not expected to have a material impact on our operations or results.
On August 3, 2015, the EPA published the final Clean Power Plan setting C02 emission performance standards for affected electric generating units and requiring states to submit State Implementation Plans for reducing GHG emissions from affected sources and for meeting their C02 emission reduction goals. At the time, the Clean Power Plan contemplated that states may choose to meet their emission reduction obligations through a variety of measures including landfill gas. The final Clean Power Plan and the Proposed Federal Implementation Plan notes that states may choose to rely on waste derived biogenic feedstocks in their future proposed compliance plans, which, if it went forward, could create new or expanded opportunities for renewable energy projects.
There is a great deal of uncertainty, however, regarding the fate of the Clean Power Plan and, more broadly, the future of the regulation of GHG emissions from electric generating units. On February 10, 2016, the Supreme Court granted a petition to stay the plan pending the resolution of challenges being heard in the D.C. Circuit Court of Appeals. On March 28, 2017, President Trump signed an executive order that called for the review of the plan. In October 2017, the EPA took the first administrative steps to repeal the plan, and, in December 2017, the EPA announced it would also replace the plan. It is anticipated that the EPA’s efforts to repeal and replace the Clean Power Plan will be challenged by various states and environmental groups. At this time, it is unclear to us whether the Clean Power Plan will be implemented or effectively repealed and replaced, what the provisions of any replacement might require, and how any replacement might treat waste derived biogenic feedstocks or otherwise impact our business.
Other recent final and proposed rules to increase the stringency of certain National Ambient Air Quality Standards, such as the Ozone rule promulgated in October 2015, and related PSD increment/significance thresholds could affect the cost, timeliness and availability of air permits for new and modified large MSW landfills and landfill gas to energy facilities. In general, controlling emissions involves installing collection wells in a landfill and routing the gas to a suitable energy recovery system or combustion device. As of December 31, 2017, we owned five landfill gas to energy facilities and we had eleven active projects at solid waste landfills where landfill gas is captured and utilized for its renewable energy value rather than flared. Efforts to curtail the emission of GHGs and to ameliorate the effect of climate change may require our landfills to deploy more stringent emission controls, with associated capital or operating costs; however, we do not believe that such regulations will have a material adverse impact on our business as a whole. The adoption of climate change legislation or regulations restricting emissions of GHGs could increase our costs to operate.
Potential climate change and GHG regulatory initiatives have influenced our business strategy to provide low-carbon services to our customers, and we increasingly view our ability to offer lower carbon services as a key component of our business growth. If the U.S. were to impose a carbon tax or other form of GHG regulation increasing demand for low-carbon service offerings in the future, the services we are developing will be increasingly valuable.
In 2011, the EPA published the Non-Hazardous Secondary Materials (“NHSM”) Rule, which provides the standards and procedures for identifying whether NHSM are solid waste under RCRA when used as fuels or ingredients in combustion units. The EPA published clarifications and amendments to these rules in February 2013, and then issued a further amendment in February 2016, adding three additional categories of non-waste fuels. In 2011, the EPA also published NSPS and EGS for commercial and industrial solid waste incineration units (CISWI), and MACT Standards for commercial and industrial boilers. As a result of litigation surrounding the CISWI rules, EPA took additional regulatory actions in 2013 and 2016. Although the recently published amendments are generally favorable to our industry, some of the potential regulatory interpretations are undergoing review and other regulatory outcomes may be dependent on case-by-case administrative determinations. These could have a significant impact on some of our projects in which we are seeking to convert biomass or other secondary materials into products, fuels or energy. Therefore, it is not possible to quantify the financial impact of these rulemakings or pending administrative determinations at the present time. However, we believe the rules and administrative determinations will not have a material adverse impact on our business as a whole and are more likely to facilitate our efforts to reuse or recover energy value from secondary material streams.
In April 2015, the EPA issued a final rule regulating the disposal and beneficial use of coal and combustion residuals (“CCR”) as a solid waste (as opposed to a hazardous waste) under the Resource Conservations and Recovery Act. Then, in July 2016, EPA issued a related direct final rule on CCR. In September 2017, EPA announced it would reconsider parts of the rule and litigation is currently pending in the D.C. Court of Appeals as a result of lawsuits brought by both industry and environmental groups. The regulations encourage beneficial use of CCR in encapsulated uses (e.g. used in cement or wallboard), and use according to established industry standards (e.g. application of sludge for agricultural enrichment). The EPA also deemed disposal and beneficial use of CCR at permitted MSW landfills exempt from the new regulations because the RCRA Subtitle D standards applicable at MSW landfills provide at least equivalent protection. The new standards are consistent with our approach to handling CCR at our sites currently, and we believe the new standards will provide a potential growth opportunity for us. States may impose standards more stringent than the federal program, and we will be monitoring state implementation to determine impact.

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Additionally, emission and fuel economy standards have been imposed on manufacturers of transportation vehicles (including waste collection vehicles). The EPA continues to evaluate and develop regulations to increase fuel economy standards and reduce vehicle emissions. Such regulations could increase the costs of operating our fleet, but we do not believe any such regulations would have a material adverse impact on our business as a whole.
The Occupational Safety and Health Act of 1970, as amended, establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Safety and Health Administration (“OSHA”), and various reporting and record keeping obligations as well as disclosure and procedural requirements. Various standards for notices of hazards, safety in excavation and demolition work and the handling of asbestos, may apply to our operations. The Department of Transportation and OSHA, along with other federal agencies, have jurisdiction over certain aspects of hazardous materials and hazardous waste, including safety, movement and disposal. Various state and local agencies with jurisdiction over disposal of hazardous waste may seek to regulate movement of hazardous materials in areas not otherwise preempted by federal law.
State and Local Regulation
Each state in which we operate has its own laws and regulations governing solid waste disposal, water and air pollution, and, in most cases, releases and cleanup of hazardous substances and liabilities for such matters. States also have adopted regulations governing the design, operation, maintenance and closure of landfills and transfer stations. Some counties, municipalities and other local governments have adopted similar laws and regulations. In addition, our operations may be affected by the trend in many states toward requiring solid waste reduction and recycling programs. For example, several states have enacted laws that require counties or municipalities to adopt comprehensive plans to reduce, through solid waste planning, composting, recycling or other programs, the volume of solid waste deposited in landfills. Additionally, laws and regulations restricting the disposal of certain waste in solid waste landfills, including yard waste, newspapers, beverage containers, unshredded tires, lead-acid batteries, electronic wastes and household appliances, have been adopted in several states and are being considered in others. Legislative and regulatory measures to mandate or encourage waste reduction at the source and waste recycling also have been or are under consideration by the U.S. Congress and the EPA.
To construct, operate and expand a landfill, we must obtain one or more construction or operating permits, as well as zoning and land use approvals. These permits and approvals may be burdensome to obtain and to comply with, are often opposed by neighboring landowners and citizens’ and environmental groups, may be subject to periodic renewal, and are subject to denial, modification, non-renewal and revocation by the issuing agency. Significant compliance disclosure obligations often accompany these processes. In connection with our acquisition of existing landfills, we may be required to spend considerable time, effort and money to bring the acquired facilities into compliance with applicable requirements and to obtain the permits and approvals necessary to increase their capacity. While we typically take into account the costs to bring an asset into compliance with applicable requirements during the acquisition process, we may incur costs beyond those estimated in the pre-acquisition stage.
Other Regulations
Many of our facilities own and operate above ground or underground storage tanks that are generally used to store petroleum-based products. These tanks are subject to federal, state and local laws and regulations that mandate their periodic testing, upgrading, closure and removal. In the event of leaks or releases from these tanks, these regulations require that polluted groundwater and soils be remediated. While we believe that all of our underground storage tanks currently meet applicable regulatory requirements in all material respects, there can be no guarantee that some tanks will not fail to meet such requirements in the future. We maintain a storage tank liability policy which, subject to limitations and exclusions, provides coverage for first-party remediation and third-party claims.
With regard to our solid waste transportation operations, we are subject to the jurisdiction of the Surface Transportation Board and are regulated by the Federal Highway Administration, Office of Motor Carriers, and by regulatory agencies in states that regulate such matters. Various state and local government authorities have adopted, or are considering adopting, laws and regulations that would restrict the transportation of solid waste across state, county, or other jurisdiction lines. In 1978, the U.S. Supreme Court ruled that a law that restricts the importation of out-of-state solid waste is unconstitutional; however, states have attempted to distinguish proposed laws from those involved in and implicated by that ruling. In 1994, the U.S. Supreme Court ruled that a flow control law, which attempted to restrict solid waste from leaving its place of generation, imposes an impermissible burden upon interstate commerce and is unconstitutional. However, in 2007, the U.S. Supreme Court upheld the right of a local government to direct the flow of solid waste to a publicly owned and publicly operated waste facility. A number of county and other local jurisdictions have enacted ordinances or other regulations restricting the free movement of solid waste across jurisdictional boundaries. Other governments may enact similar regulations in the future. These regulations may, in some cases, cause a decline in volumes of waste delivered to our landfills or transfer stations and may increase our costs of disposal.


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Emissions from Natural Gas Fueling and Infrastructure
We operate a fleet of 444 CNG vehicles and we plan to continue to transition a portion of our collection fleet from diesel fuel to CNG, in locations where it is cost beneficial. We have constructed and operate natural gas fueling stations. Concerns have been raised about the potential for emissions from the fueling stations and infrastructure that serve natural gas-fueled vehicles. Additional regulation of, or restrictions on, CNG fueling infrastructure could increase our operating costs. We are not yet able to evaluate potential operating changes or costs associated with such regulations, but we do not anticipate that such regulations would have a material adverse impact on our business as a whole or our current plan to continue transitioning to CNG vehicles.
Liabilities Established for Landfill and Environmental Costs
We have established reserves for landfill and environmental costs, which include landfill site final capping, closure and post-closure costs and costs for contamination-related obligations. We periodically reassess such costs based on various methods and assumptions regarding landfill airspace and the technical requirements of Subtitle D of RCRA, and we adjust our rates used to expense final capping, closure and post-closure costs accordingly. Based on current information and regulatory requirements, we believe that our recorded reserves for such landfill and environmental expenditures are adequate. However, environmental laws and regulations may change, and we cannot assure you that our recorded reserves will be adequate to cover requirements under existing or new environmental laws and regulations, future changes or interpretations of existing laws and regulations, or adverse environmental conditions previously unknown to us.
Liability Insurance and Bonding
The nature of our business exposes us to the risk of liabilities arising out of our operations, including possible damages to the environment. Such potential liabilities could involve, for example, claims for remediation costs, personal injury, property damage and damage to the environment, claims of employees, customers or third parties for personal injury or property damage occurring in the course of our operations, or claims alleging negligence or other wrongdoing in the planning or performance of work. We also could be subject to fines and civil and criminal penalties in connection with alleged violations of regulatory requirements which could be significant. Our solid waste operations have third-party environmental liability insurance with limits in excess of those required by permit regulations, subject to certain limitations and exclusions. However, we cannot assure you that our environmental liability insurance would be adequate, in scope or amount, in the event of a major loss, nor can we assure you that we would continue to carry excess environmental liability insurance should market conditions in the insurance industry make such coverage costs prohibitive.
We maintain general liability, vehicle liability, employment practices liability, fiduciary liability, pollution liability, directors and officers’ liability, workers’ compensation and employer’s liability coverage, as well as umbrella liability policies to provide excess coverage over the underlying limits contained in these primary policies. We also carry property insurance. Although we try to operate safely and prudently and we have, subject to limitations and exclusions, substantial liability insurance, we cannot assure you that we will not be exposed to uninsured liabilities that could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

Our insurance programs for workers’ compensation, general liability, vehicle liability and employee-related health care benefits are effectively self-insured. Claims in excess of self-insurance levels are insured subject to the excess policy limits and exclusions. Accruals are based on claims filed and actuarial estimates of claims development and claims incurred but not reported ("IBNR"). Due to the variable condition of the insurance market, we have experienced, and may experience in the future, increased self-insurance retention levels and increased premiums. As we assume more risk for self-insurance through higher retention levels, we may experience more variability in our self-insurance reserves and expense.
In the normal course of business, we post performance bonds, insurance policies, letters of credit, or cash or marketable securities deposits in connection with municipal residential collection contracts, closure and post-closure of landfills, environmental remediation, environmental permits and business licenses and permits as a financial guarantee of our performance. To date, we have satisfied financial responsibility requirements by making cash or marketable securities deposits or by obtaining bank letters of credit, insurance policies or surety bonds. The amount of surety bonds issued by third parties at December 31, 2017 was $749.2 and our outstanding letters of credit amounted to $39.3.
Employees
As of December 31, 2017, we had approximately 5,939 employees, approximately 14% of whom were covered by collective bargaining agreements. From time to time, our operating locations may experience union organizing efforts. We have not historically experienced any significant work stoppages. We currently have no disputes or bargaining circumstances that we believe could cause significant disruptions in our business. Our management believes we have good relations with our employees.


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AVAILABLE INFORMATION
We were incorporated in fiscal 2012 in the state of Delaware. Our corporate website address is http://www.advanceddisposal.com. The information on our website is not incorporated by reference in this annual report on Form 10-K. We make our reports on Forms 10-K, 10-Q and 8-K and any amendments to such reports available on our website free of charge as soon as reasonably practicable after we file them with or furnish them to the Securities and Exchange Commission ("SEC"). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC, 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A.     RISK FACTORS

Our ability to achieve future profitability will depend on us executing on our strategy and controlling costs; future results may be impacted by expiration of NOLs.
Although our business generates significant Adjusted EBITDA and free cash flow, we have significant non-cash expenses, such as depreciation, depletion and amortization, that are common in waste management businesses and can be increased substantially by acquisitions. These non-cash expense items have had, and may continue to have, a significant impact on our reported pre-tax and after-tax profit or loss. In addition, our ability to continue to achieve profitability will depend on our successfully executing on our strategy of developing vertically integrated geographic operations while maintaining a consistent operational focus on prudent cost management and pricing discipline. If we fail to achieve and maintain profitability, we may be unable to utilize all of our net operating losses prior to expiration, which may affect after-tax results in subsequent periods.
Our tax position may be affected by recent changes in U.S. tax law.         
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA” or the “Act”) was signed into law making significant changes to the Internal Revenue Code. These changes include, but are not limited to, reducing the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017, allowing an immediate expensing of certain tangible assets placed in service before 2023, limiting the deduction for net interest expense, limiting the use of newly-generated net operating losses to offset 80% of future taxable income, repealing the corporate alternative minimum tax, providing for the refund of Alternative Minimum Tax Credits, and making substantial changes to the U.S. taxation of foreign operations. The limitations on deductions for net interest expense and net operating loss utilization could cause us to have higher taxable income in subsequent years.
In response to the TCJA, the states in which we are subject to income tax may enact changes to their tax law. Any state tax law changes may materially impact our provision for income taxes in the periods in which the changes are enacted.
We operate in a highly competitive industry and may not be able to compete effectively with larger and better capitalized companies and governmental service providers.
Our industry is highly competitive and requires substantial labor and capital resources. Some of the markets in which we compete or plan to compete are served by one or more large, national companies, as well as by regional and local companies of varying sizes and resources, some of which may have accumulated substantial goodwill in their markets. Some of our competitors may also be better capitalized than we are, have greater name recognition than we do or be able to provide or be willing to bid their services at a lower price than we may be willing to offer. Our inability to compete effectively could hinder our growth or adversely impact our operating results.
We also compete with counties, municipalities and solid waste districts that maintain or could in the future choose to maintain their own waste collection and disposal operations, including through the implementation of flow control ordinances or similar legislation. These operators may have financial advantages over us because of their access to user fees and similar charges, tax revenues, tax-exempt financing or government subsidies
We may lose contracts through competitive bidding, early termination or governmental action.
We derive a significant portion of our revenues from markets in which we have exclusive arrangements, including municipal contracts. Our municipal contracts are for a specified term and are or will be subject to competitive bidding in the future. Although we intend to bid on additional municipal contracts in our target markets, we may not always, or ever, be the successful bidder. In addition, some or all of our customers, including municipalities, may terminate their contracts with us prior to their scheduled expiration dates. Similar risks may affect contracts that we are awarded to operate municipally owned assets, such as landfills.

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Governmental action may also affect our exclusive arrangements. Municipalities may annex unincorporated areas within counties where we provide collection services. As a result, our customers in such annexed areas may be required to obtain services from competitors that have been franchised by the annexing municipalities to provide those services. In addition, municipalities in which we provide services on a competitive basis may elect to franchise those services. Unless we are
awarded franchises by these municipalities, we will lose customers. Municipalities may also decide to directly provide services to their residents, on an optional or mandatory basis, which may cause us to lose customers. If we are not able to replace lost revenues resulting from unsuccessful competitive bidding, early termination or the renegotiation of existing contracts with other revenues within a reasonable time period, our results of operations and financial condition could be adversely affected. Additionally, the loss of municipal contracts through competitive bidding, early termination or governmental action could cause long lived tangible and intangible assets to be impaired and require a charge against earnings.
Our results are vulnerable to economic conditions.
Our business and financial results would be harmed by downturns in the general economy, or in the economy of the regions in which we operate as well as other factors affecting those regions. In an economic slowdown, we experience the negative effects of decreased waste generation, increased competitive pricing pressure, customer turnover, reductions in customer service requirements, and customer business closings and bankruptcies. Two lines of business that could see a more immediate impact would be 1) construction and demolition waste collection and disposal and 2) special waste disposal. In addition, a weaker economy may result in declines in recycled commodity prices. Worsening economic conditions or a prolonged or recurring economic recession could adversely affect our operating results and expected seasonal fluctuations. Further, we cannot assure you that any improvement in economic conditions after such a downturn will result in positive improvement in our operating results or cash flows.
Some of our customers, including governmental entities, have suffered financial difficulties affecting their credit risk, which could negatively impact our operating results.
We provide service to a number of governmental entities and municipalities, some of which have suffered significant financial difficulties due to the downturn in the economy, reduced tax revenue and/or high cost structures. Some of these entities could be unable to pay amounts owed to us or renew contracts with us at previous or increased rates. Many non-governmental customers have also suffered serious financial difficulties, including bankruptcy in some cases. Purchasers of our recyclable commodities can be particularly vulnerable to financial difficulties in times of commodity price volatility. The inability of our customers to pay us in a timely manner or to pay increased rates, particularly large national accounts, could negatively affect our operating results.
Our financial and operating performance may be affected by the inability in some instances to renew or expand existing landfill permits or acquire new landfills. Further, the cost of operation and/or future construction of our existing landfills may become economically unfeasible causing us to abandon or cease operations.
We currently own or operate 40 active landfills. Our ability to meet our financial and operating objectives may depend in part on our ability to acquire, lease or renew landfill permits, expand existing landfills and develop new landfill sites. It has become increasingly difficult and expensive to obtain required permits and approvals to build, operate and expand solid waste management facilities, including landfills and transfer stations. Operating permits for landfills in states where we operate generally must be renewed periodically (typically, every five to ten years). These operating permits often must be renewed several times during the permitted life of a landfill pursuant to a process that is often time-consuming, requires numerous hearings and compliance with zoning, environmental and other requirements, is frequently challenged by special interest and other groups and may result in the denial of a permit or renewal, the award of a permit or renewal for a shorter duration than we believed was otherwise required by law or the imposition of burdensome terms and conditions that may adversely affect our results of operations. We may not be able to obtain new landfill sites in order to expand into new, non-exclusive markets or expand existing landfill sites in order to support acquisitions and internal growth in our existing markets because increased volumes would further shorten the lives of these landfills. It is also possible that the operation or expansion of existing landfills may become economically infeasible based on management's assessment of permitting issues, acceptable waste streams, available volumes and operating costs, in which case we may abandon expansion plans or abandon or cease operations entirely at a particular landfill. Any such decision could result in impairment charges as well as ongoing costs for closure and site remediation. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Landfill Accounting—Amortization of Landfill Assets.’’
We could be precluded from entering into or maintaining permits or certain contracts if we are unable to obtain sufficient third-party financial assurance or adequate insurance coverage.
Public solid waste collection, recycling and disposal contracts, and obligations associated with landfill closure and post-closure monitoring typically require us to obtain performance or surety bonds, letters of credit or other means of financial assurance to secure our contractual performance. We currently obtain performance and surety bonds from multiple financial institutions. However, if we are unable to obtain financial assurance in the future in sufficient amounts from appropriately rated sureties or

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at acceptable rates, we could be precluded from entering into additional municipal contracts or from obtaining or retaining landfill management contracts or operating permits. Any future difficulty in obtaining insurance could also impair our ability to secure future contracts conditioned upon having adequate insurance coverage.
Our accruals for our landfill site closure and post-closure costs and contamination-related costs may be inadequate.
We are required to pay capping, closure and post-closure maintenance costs for all of our landfill sites. Our obligations to pay closure or post-closure costs or other contamination-related costs may exceed the amount we have accrued and reserved, amounts we can recover from compensating price adjustments and other amounts available from funds or reserves established to pay such costs. In addition, subsequent to the completion or closure of a landfill site, we may be liable for unforeseen environmental issues, which could result in our payment of substantial remediation costs that could adversely affect our financial condition or operating results. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Landfill Accounting—Amortization of Landfill Assets.’’
Our business requires a high level of capital expenditures.
Our business is capital-intensive. We must use a substantial portion of our cash flows from operating activities toward capital expenditures, which reduces our flexibility to use such cash flows for other purposes, such as reducing our indebtedness. Our capital expenditures could increase if we make acquisitions or further expand our operations or as a result of factors beyond our control, such as changes in federal, state, local or non-U.S. governmental requirements. The amount that we spend on capital expenditures may exceed current expectations, which may require us to obtain additional funding for our operations or impair our ability to grow our business.
We may engage in strategic acquisitions in the future, which may pose significant risks and could have an adverse effect on our operations.
We seek to grow through strategic acquisitions in addition to organic growth. We may engage in acquisitions in order to acquire or develop additional disposal capacity or businesses that are complementary to our core business strategy. We expect that increased consolidation in the solid waste services industry will continue to reduce the number of attractive acquisition candidates. If we identify suitable acquisition candidates, we may be unable to negotiate successfully their acquisition at a price or on terms and conditions acceptable to us, including as a result of the limitations imposed by our debt obligations. We may have to borrow money or incur liabilities in order to finance any future obligations and we may not be able to do so on terms favorable to us or at all. In addition, we may be unable to obtain the necessary regulatory approvals to complete potential acquisitions. The integration of acquired businesses and other assets may require significant management time and resources that would otherwise be available for the ongoing management of our existing operations. Furthermore, acquired assets may be subject to liabilities and risks that were not identified at the time they were acquired.
A portion of our growth and future financial performance depends on our ability to integrate acquired businesses and the success of our acquisitions.
One component of our growth strategy involves achieving economies of scale and operating efficiencies by growing through acquisitions. We may not achieve these goals unless we are able to effectively combine the operations of acquired businesses with our existing operations. Similar risks may affect contracts that we are awarded to operate municipally-owned assets, such as landfills. In addition, we are not always able to control the timing of our acquisitions. Our inability to complete acquisitions within the time frames that we expect may cause our operating results to be less favorable than expected.
Even if we are able to make acquisitions on advantageous terms and are able to integrate them successfully into our operations and organization, some acquisitions may not fulfill our anticipated financial or strategic objectives in a given market due to factors that we cannot control, such as the price of crude oil, market position, competition, customer base, loss of key employees, third-party legal challenges or governmental actions. In addition, we may change our strategy with respect to a market or acquired businesses and decide to sell such operations at a loss, or keep those operations and recognize an impairment of goodwill and/or intangible assets. Additionally, the loss of municipal contracts through competitive bidding, early termination or governmental action could cause long lived tangible and intangible assets to be impaired and require a charge against earnings. Similar risks may affect contracts that we are awarded to operate municipally owned assets, such as landfills.
Each business that we acquire or have acquired may have liabilities or risks that we fail or are unable to discover, or that become more adverse to our business than we anticipated at the time of acquisition.
It is possible that the operations or sites we have acquired in the past, or which we may acquire in the future, have liabilities or risks with respect to former or existing operations or properties, or otherwise, which we have not been able to identify and assess through our due diligence investigations. As a successor owner, we may be legally responsible for those liabilities that arise from businesses that we acquire. Even if we obtain legally enforceable representations, warranties and indemnities from the sellers of such businesses, they may not cover the liabilities fully or the sellers may not have sufficient funds to perform

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their obligations. Some environmental liabilities, even if we do not expressly assume them, may be imposed on us under various regulatory schemes and other applicable laws regardless of whether we caused or contributed to any conditions that result in such liabilities. In addition, our insurance program may not cover such sites and will not cover liabilities associated with some environmental issues that may have existed prior to attachment of coverage. A successful uninsured claim against us could harm our financial condition or operating results. Furthermore, risks or liabilities of which we are unaware or we judge to be not material or remote at the time of acquisition may develop into more serious risks to our business. Any adverse outcome resulting from such risks or liabilities could harm our operations and financial results and create negative publicity, which could damage our reputation and competitive position.
The seasonal nature of our business and "event-driven" waste projects cause our results to fluctuate.
Based on historic trends, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters, and lower in the fourth quarter than in the second and third quarters. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during the winter months in the U.S. and reduced drilling activity during harsh weather conditions. Conversely, mild winter weather conditions may reduce demand for oil and natural gas, which may cause our customers to curtail their drilling programs, which could result in production of lower volumes of waste.
Our business is located mainly in the Southern, Midwestern and Eastern United States. Therefore, our business, financial condition and results of operations are susceptible to downturns in the general economy in these geographic regions and other factors affecting the regions, such as state regulations and severe weather conditions.
Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs. Greater precipitation in the winter increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis and increased leachate disposal costs. Certain destructive weather conditions that tend to occur during the second half of the year, such as hurricanes that most often impact the South region, can increase the Company’s revenues in the areas affected. While weather-related and other occurrences can boost revenues through additional work, the earnings generated can be moderated as a result of significant start-up costs and other factors, resulting in earnings at comparatively lower margins. These destructive weather conditions can result in higher fuel costs, higher labor costs, reduced municipal contract productivity and higher disposal costs in disposal neutral markets. These factors impact period-to-period comparisons of financial results.
We may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, result in adverse judgments, settlements or fines and create negative publicity.
Individuals, citizens groups, trade associations, community groups or environmental activists may bring actions against us in connection with our operations that could interrupt or limit the scope of our business. Many of these matters raise difficult and complicated factual and legal issues and are subject to uncertainties and complexities. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is uncertain. Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments or other financial obligations. Any adverse outcome in such proceedings could harm our operations and financial results and create negative publicity, which could damage our reputation and competitive position.
Fuel supply and prices may fluctuate significantly and we may not be able to pass on cost increases to our customers.
The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances, as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries and other gas producers, regional production patterns, weather conditions, political instability in oil and gas producing regions and environmental concerns. We rely on fuel to run our collection and transfer trucks and our equipment used in our transfer stations and landfill operations. Supply shortages could substantially increase our operating expenses. Additionally, as fuel prices increase, our direct and indirect operating expenses increase and many of our vendors raise their prices as a means to offset their own rising costs.
Over the last several years, regulations have been adopted mandating changes in the composition of fuels for motor vehicles. The renewable fuel standards that the EPA sets annually affect the type of fuel our motor vehicle fleet uses. Pursuant to the Energy Independence and Security Act of 2007, the EPA establishes annual renewable fuel volume requirements and separate volume requirements for four different categories of renewable fuels (renewable fuel, advanced biofuel, cellulosic biofuel and biomass-based diesel). These volume requirements set standards for the proportion of refiners' or importers' total fuel volume that must be renewable and must take into account the fuels' impact on GHG emissions. These regulations are one of many factors that may affect the cost of the fuel we use.
Our operations also require the use of products (such as liners at our landfills), the costs of which may vary with the price of petrochemicals. An increase in the price of petrochemicals could increase the cost of those products, which would increase our operating and capital costs. We are also susceptible to increases in indirect fuel surcharges from our vendors.

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We are expanding our CNG truck fleet, which makes us increasingly dependent on the availability of CNG and CNG fueling infrastructure and vulnerable to CNG prices.
We currently operate CNG trucks which make up a portion of our fleet. We plan to continue to transition an additional portion of our collection fleet from diesel fuel to CNG. However, CNG is not yet broadly available in North America; as a result, we have constructed and operate natural gas fueling stations, some of which also serve the public or pre-approved third parties. Until the public and third parties in North America broadly adopt CNG, which may not be on the timetable we anticipate, it will remain necessary for us to invest capital in CNG fueling infrastructure in order to power our CNG fleet. Concerns have been raised about the potential for emissions from fueling infrastructure that serve natural gas-fueled vehicles. New regulation of, or restrictions on, CNG fueling infrastructure or reductions in associated tax incentives could increase our operating costs.
Additionally, fluctuations in the price and supply of CNG could substantially increase our operating expenses, and a reduction in the existing cost differential between CNG and diesel fuel could materially reduce the benefits we anticipate from our investment in CNG vehicles.
Fluctuations in the prices of commodities may adversely affect our financial condition, results of operations and cash flows.
We collect and process recyclable materials such as paper, cardboard, plastics, aluminum and other metals for sale to third parties. Our results of operations may be affected by changing prices or market requirements for recyclable materials. The resale and purchase prices of, and market demand for, recyclable materials fluctuate due to changes in economic conditions and numerous other factors beyond our control. These fluctuations may affect our financial condition, results of operations and cash flows.
Increases in labor and disposal and related transportation costs could impact our financial results.
Our continued success will depend on our ability to attract and retain qualified personnel. We compete with other businesses in our markets for qualified employees. From time to time, the labor supply is tight in some of our markets. A shortage of qualified employees, such as truck drivers or mechanics, would require us to enhance our wage and benefits packages to compete more effectively for employees, to hire more expensive temporary employees or to contract for services with more expensive third-party vendors. Labor is one of our highest costs and relatively small increases in labor costs per employee could materially affect our cost structure. If we fail to attract and retain qualified employees, control our labor costs during periods of declining volumes or recover any increased labor costs through increased prices we charge for our services or otherwise offset such increases with cost savings in other areas, our operating margins could suffer. Disposal and related transportation costs are a significant cost category for us. If we incur increased disposal and related transportation costs to dispose of solid waste and if we are unable to pass these costs on to our customers, our operating results would suffer.
Efforts by labor unions could divert management attention and adversely affect operating results.
From time to time, labor unions attempt to organize our employees. Some groups of our employees are represented by unions, and we have negotiated collective bargaining agreements with most of these groups. We are currently engaged in negotiations with other groups of employees represented by unions. Additional groups of employees may seek union representation in the future. From time to time, we are subject to unfair labor practice charges, complaints and other legal, administrative and arbitration proceedings initiated against us by unions, the National Labor Relations Board or our employees, which could negatively impact our operating results. Negotiating collective bargaining agreements could divert management attention, which could also adversely affect operating results. If we are unable to negotiate acceptable collective bargaining agreements, we may be subject to labor disruptions, such as union-initiated work stoppages, including strikes. Depending on the type and duration of any labor disruptions, our operating expenses could increase significantly, which could adversely affect our financial condition, results of operations and cash flows.
We could face significant withdrawal liability if we withdraw either individually or as part of a mass withdrawal from participation in any underfunded multiemployer pension plans in which we participate.
We participate in a number of "multiemployer" pension plans administered by employer and employee trustees. We make periodic contributions to these plans pursuant to our various contractual obligations to do so. In the event that we withdraw from participation in or otherwise cease our contributions to one of these plans, then applicable law regarding withdrawal liability could require us to make additional contributions to the plan if it is underfunded, and we would have to reflect that as an expense in our consolidated statement of operations and as a liability on our consolidated balance sheet. Our withdrawal liability that would be paid to any multiemployer plan would depend on the extent of the plan's funding of vested benefits. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that participate in these plans, we may decide to discontinue participation in a plan, and in that event, we could face a withdrawal liability. Some multiemployer plans in which we participate may from time to time have significant underfunded liabilities. Such underfunding could increase the size of our potential withdrawal liability.

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Increases in insurance costs and the amount that we self-insure for various risks could reduce our operating margins and reported earnings.
We maintain high deductible insurance policies for automobile, general, employer's, environmental, directors' and officers', employment practices and fiduciary liability as well as for employee group health insurance, property insurance and workers' compensation. We carry umbrella policies for certain types of claims to provide excess coverage over the underlying policies and per incident deductibles. The amounts that we self-insure could cause significant volatility in our operating margins and reported earnings based on the occurrence and claim costs of incidents, accidents, injuries and adverse judgments. Our insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by our management with assistance from our third-party actuary and our third-party claims administrator. To the extent these estimates are inaccurate, we may recognize substantial additional expenses in future periods that would reduce operating margins and reported earnings. From time to time, actions filed against us include claims for punitive damages, which are generally excluded from coverage under all of our liability insurance policies. A punitive damage award could have an adverse effect on our reported earnings in the period in which it occurs. Significant increases in premiums on insurance that we retain also could reduce our margins.
We may record material charges against our earnings due to any number of events that could cause impairments to our assets.
In accordance with Generally Accepted Accounting Principles ("GAAP"), we capitalize certain expenditures and advances relating to disposal site development, expansion projects, acquisitions, software development costs and other projects. Additionally, we record long term tangible and intangible assets in relation to businesses we acquire. Events that could, in some circumstances, lead to an impairment of these assets include, but are not limited to, shutting down a facility or operation, abandoning a development project, the denial of an expansion permit or the loss of a municipal contract through the competitive bidding process, early termination or government action. Additionally, declining waste volumes and development of, and customer preference for, alternatives to traditional waste disposal could warrant asset impairments. If we determine an asset or expansion project is impaired, we will charge against earnings any unamortized capitalized expenditures and advances relating to such asset or project reduced by any portion of the capitalized costs that we estimate will be recoverable, through sale or otherwise. We also carry a significant amount of goodwill on our Consolidated Balance Sheet, which is required to be assessed for impairment annually, and more frequently in the case of certain triggering events. We may be required to incur charges against earnings if such impairment tests indicate that the fair value of a reporting unit is below its carrying value. Any such charges could have a material adverse effect on our results of operations.
We depend significantly on the services of the members of our senior, regional and local management teams, and the departure of any of those persons could cause our operating results to suffer.
Our success depends significantly on the continued individual and collective contributions of our senior, regional and local management teams. The loss of the services of any member of our senior, regional or local management or the inability to hire and retain experienced management personnel could have a material adverse effect on us.
If we are not able to develop new service offerings or if a competitor develops or obtains exclusive rights to a breakthrough technology, our financial results may suffer.
Our existing and proposed service offerings to customers may require that we invest in, develop or license, and protect, new technologies. We may experience difficulties or delays in the research, development, production or marketing of new services, which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to bring new services to market. We and others in the industry are increasingly focusing on new technologies that provide alternatives to traditional disposal and maximize the resource value of waste. If a competitor develops or obtains exclusive rights to a breakthrough technology that provides a revolutionary change in traditional waste management, our financial results may suffer.
Our business is subject to operational and safety risks, including the risk of personal injury to employees and others.
Provision of environmental and waste management services involves risks such as truck accidents, equipment defects, malfunctions and failures, structural landfill failures, fires and natural disasters, which could potentially result in releases of hazardous materials, injury or death of employees and others or a need to shut down or reduce operation of our facilities while remedial actions are undertaken. These risks expose us to potential liability for pollution and other environmental damages, personal injury, loss of life, business interruption and property damage or destruction.
While we seek to minimize our exposure to such risks through comprehensive training and compliance programs, as well as vehicle and equipment maintenance programs, if we were to incur substantial liabilities in excess of any applicable insurance, our business, results of operations and financial condition could be adversely affected.


18



The adoption of new accounting standards or interpretations could adversely affect our financial results.
Our implementation of and compliance with changes in accounting rules and interpretations could adversely affect our operating results or cause unanticipated fluctuations in our results in future periods. The accounting rules and regulations that we must comply with are complex and continually changing. Recent actions and public comments from the SEC have focused on the integrity of financial reporting. The Financial Accounting Standards Board (the "FASB") has recently introduced several new or proposed accounting standards, or is developing new proposed standards, which would represent a significant change from current industry practice. In addition, many companies' accounting policies are being subjected to heightened scrutiny by regulators and the public. While our financial statements have been prepared in accordance with GAAP, we cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements in the future.
We are subject to substantial governmental regulation and failure to comply with these requirements, as well as enforcement actions and litigation arising from an actual or perceived breach of such requirements, could subject us to fines, penalties and judgments, and impose limits on our ability to operate and expand.
We are subject to potential liability and restrictions under environmental laws and regulations, including those relating to the transportation, recycling, treatment, storage and disposal of wastes, discharges of pollutants to air and water, and the remediation of contaminated soil, surface water and groundwater. The waste management industry has been and will continue to be subject to regulation, including permitting and related financial assurance requirements, as well as attempts to further regulate the industry, including efforts to regulate the emission of GHG. Our operations are subject to a wide range of federal, state and, in some cases, local environmental, odor and noise and land use restrictions. Further restrictions could include:
limitations on siting and constructing new waste disposal, transfer, recycling or processing facilities or on expanding existing facilities;

regulations or levies on collection and disposal prices, rates and volumes;

limitations or bans on disposal or transportation of out-of-state waste or certain categories of waste;

mandates regarding the management of solid waste, including requirements to recycle, divert or otherwise process certain waste, recycling and other streams; or

limitations or restrictions on the recycling, processing or transformation of waste, recycling and other streams.
Regulations affecting the siting, design and closure of landfills could require us to undertake investigatory or remedial activities, curtail operations or close landfills temporarily or permanently. Future changes in these regulations may require us to modify, supplement or replace equipment or facilities. The costs of complying with these regulations could be substantial. In order to develop, expand or operate a landfill or other waste management facility, we must have various facility permits and other governmental approvals, including those relating to zoning, environmental protection and land use. These permits and approvals are often difficult, time consuming and costly to obtain and could contain conditions that limit our operations.
We also have significant financial obligations relating to final capping, closure, post-closure and environmental remediation at our existing landfills. We establish accruals for these estimated costs, but we could underestimate such accruals. Environmental regulatory changes could accelerate or increase capping, closure, post-closure and remediation costs, requiring our expenditures to materially exceed our current accruals.
Legislation allowing restrictions on interstate transportation of out-of-state or out-of-jurisdiction waste and certain types of flow control, or judicial interpretations of interstate waste and flow control legislation, could adversely affect our solid and hazardous waste management services.
Additionally, regulations establishing extended producer responsibility ("EPR") are being considered or implemented in many places around the world, including in the U.S. EPR regulations are designed to place either partial or total responsibility on producers to fund the post-use life cycle of the products they create. Along with the funding responsibility, producers may be required to take over management of local recycling programs by taking back their products from end users or managing the collection operations and recycling processing infrastructure. There is no federal law establishing EPR in the U.S.; however, state and local governments could, and in some cases have, taken steps to implement EPR regulations. If wide-ranging EPR regulations were adopted, they could have a fundamental impact on the waste streams we manage and how we operate our business, including contract terms and pricing. A significant reduction in the waste, recycling and other streams we manage could have a material adverse effect on our financial condition, results of operations and cash flows.
Enforcement or implementation of foreign regulations can affect our ability to export products. In 2013, the Chinese government began to strictly enforce regulations that establish limits on moisture and non-conforming materials that may be contained in imported recycled paper and plastics. The higher quality expectations resulting from initiatives such as Operation

19



Green Fence can drive up operating costs in the recycling industry, particularly for single stream MRFs. Single stream MRFs process a wide range of commingled materials and tend to receive a higher percentage of non-recyclables, which results in increased processing and residual disposal costs. If Operation Green Fence or other similar initiatives or new regulations increase our operating costs in the future, and we are not able to recapture those costs from our customers, such regulations could have a material adverse effect on our results of operations.
If we are not able to comply with the requirements that apply to a particular facility or if we operate without the necessary approvals or permits, we could be subject to administrative or civil, and possibly criminal, fines and penalties, and we may be required to spend substantial capital to bring an operation into compliance, to temporarily or permanently discontinue activities and/or take corrective actions, possibly including the removal or relocation of landfilled materials. We may be liable for any environmental damage that our current or former facilities cause, including damage to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, and especially drinking water, or to natural resources. We may also be liable for any on-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal we or our predecessors arranged or conducted. Those costs or actions could be significant to us and impact our results of operations, cash flows and available capital. We may not have sufficient insurance coverage for our environmental liabilities, such coverage may not cover all of the potential liabilities to which we may be subject and we may not be able to obtain insurance coverage in the future at reasonable expense or at all.
We may make additional acquisitions from time to time in the future, and we have tried and will continue to try to evaluate and limit environmental risks and liabilities presented by businesses to be acquired prior to the acquisition. It is possible that some liabilities, including ones that may exist only because of the past operations of an acquired business, may prove to be more difficult or costly to address than we anticipate.
It is also possible that government officials responsible for enforcing environmental laws and regulations may believe an issue is more serious than we expect, or that we will fail to identify or fully appreciate an existing liability before we become legally responsible for addressing it. Some of the legal sanctions to which we could become subject could cause the suspension or revocation of a needed permit, prevent us from, or delay us in, obtaining or renewing permits to operate or expand our facilities, or harm our reputation.
Future changes in regulations applicable to oil and gas drilling and production could adversely affect our energy services business.
Our energy services business may be adversely affected if drilling activity slows due to industry conditions beyond our control, in addition to changes in oil and gas prices. Changes in laws or government regulations regarding GHG emissions from oil and gas operations and/or hydraulic fracturing could increase our customer's costs of doing business and reduce oil and gas exploration and production by customers. Recently, there has been increased attention from the public, some states and the EPA to the alleged potential for hydraulic fracturing to impact drinking water supplies. There is also heightened regulatory focus on emissions of methane that occur during drilling and transportation of natural gas, as well as protective disposal of drilling residuals. Increased regulation of oil and gas exploration and production and new rules regarding the treatment and disposal of wastes associated with exploration and production operations could increase our costs to provide oilfield services, decrease demand for our energy services business and reduce our margins and revenue from such services.
Our operations are subject to environmental, health and safety laws and regulations, as well as contractual obligations that may result in significant liabilities.
There is risk of incurring significant environmental, health and safety liabilities in the use, treatment, storage, transfer and disposal of waste materials. Under applicable environmental laws and regulations, we could be liable if our operations have a negative impact on human health or cause environmental damage to our properties or to the property of other landowners, particularly as a result of the contamination of air, drinking water or soil. Under current law, we could also be held liable for damage caused by conditions that existed before we acquired the assets or operations involved. This risk is of particular concern as we execute our growth strategy, partially through acquisitions, because we may be unsuccessful in identifying and assessing potential liabilities during our due diligence investigations. Further, the counterparties in such transactions may be unable to perform their indemnification obligations owed to us. Our operations include the hauling of medical waste and the hauling and disposal of asbestos. If, notwithstanding our efforts, we inadvertently arrange for the transportation, disposal or treatment of hazardous substances that cause environmental contamination, or if a predecessor owner made such arrangements and, under applicable law, we are treated as a successor to the prior owner, we could be held liable. Any substantial liability for environmental damage or violations of health and safety laws and regulations could have a material adverse effect on our financial condition, results of operations and cash flows.
In the ordinary course of our business, we have in the past, we are currently, and we may in the future, become involved in legal and administrative proceedings relating to land use and environmental laws and regulations. These include proceedings in which:

20



agencies of federal, state, local or foreign governments seek to impose liability on us under applicable statutes, sometimes involving civil or criminal penalties for violations, or to revoke or deny renewal of a permit we need;

local communities, citizen groups, landowners or governmental agencies oppose the issuance of a permit or approval we need, allege violations of the permits under which we operate or laws or regulations to which we are subject or seek to impose liability on us for environmental damage.
We generally seek to work with the authorities or other persons involved in these proceedings to resolve any issues raised. If we are not successful, the adverse outcome of one or more of these proceedings could result in, among other things, material increases in our costs or liabilities as well as material charges for asset impairments.
The adoption of climate change legislation or regulations restricting emissions of GHGs could increase our costs to operate.
Our landfill operations emit methane, which is identified as a GHG. There are a number of legislative and regulatory efforts at the state, regional and federal levels to curtail the emission of GHGs to ameliorate the effect of climate change, though the Trump administration has pulled back from these initiatives on a federal level. In 2010, the EPA published a PSD and Title V GHG Tailoring Rule, which expanded the EPA’s federal air permitting authority to include the six GHGs. The rule set new thresholds for GHG emissions that define when the Clean Air Act of 1970, as amended (the “Clean Air Act”), permits are required. The U.S. Supreme Court, however, in June 2014, issued a decision limiting the applicability and scope of EPA permitting requirements for GHGs from stationary sources. On August 3, 2015, the EPA finalized the Clean Power Plan rule, which regulates C02 emissions from existing power plants, and the Carbon Pollution Standards for new, modified, and reconstructed power plants. The implementation of the Clean Power Plan, however, has been stayed by the U.S. Supreme Court, and the EPA has proposed repealing and replacing the plan. On July 15, 2016, the EPA published updates to its 1996 Emission Guidelines for existing MSW landfills that further reduce methane emissions. In a simultaneous rulemaking, the EPA published updated requirements for reducing methane emissions from new and modified landfills. In 2017, under the Trump Administration, the EPA announced a 90-day administrative stay delaying the implementation of the methane rules. In January 2018, the EPA decided not to extend the stay, but it is also not currently imposing any compliance deadlines.

Moreover, in August 2016, the EPA and the Department of Transportation’s National Highway Traffic Safety Administration (“NHTSA”) finalized a national program that would establish the next phase of GHG emissions and fuel efficiency standards for medium and heavy-duty vehicles. Industry groups have filed legal challenges to the rulemaking before the D.C. Circuit Court of Appeals. On May 8, 2017, the D.C. Circuit Court of Appeals granted a motion by the EPA and the NHTSA to hold the litigation challenging the rule in abeyance while the agencies evaluate a petition to reconsider the rule filed by one of the rule’s challengers. The current requirements of these rules have not significantly affected our operations or cash flows, due to the tailored thresholds and exclusions of certain emissions from regulation. However, if certain changes to these regulations were enacted, such as lowering the thresholds or the inclusion of biogenic emissions, then the amendments could have an adverse effect on our operating costs. More broadly, comprehensive federal climate change legislation could impose costs on our operations that might not be offset by the revenue increases associated with our lower-carbon service options, the materiality of which we cannot predict.
Future changes in laws or renewed enforcement of laws regulating the flow of solid waste in interstate commerce could adversely affect our operating results.
Various state and local governments have enacted, or are considering enacting, laws and regulations that restrict the disposal within the jurisdiction of solid waste generated outside the jurisdiction. In addition, some state and local governments have promulgated, or are considering promulgating, laws and regulations which govern the flow of waste generated within their respective jurisdictions. These "flow control" laws and regulations typically require that waste generated within the jurisdiction be directed to specified facilities for disposal or processing, which could limit or prohibit the disposal or processing of waste in our transfer stations and landfills. Such flow control laws and regulations could also require us to deliver waste collected by us within a particular jurisdiction to facilities not owned or controlled by us, which could increase our costs and reduce our revenues. In addition, such laws and regulations could require us to obtain additional costly licenses or authorizations to be deemed an authorized hauler or disposal facility.
The waste management industry is undergoing fundamental change as traditional waste streams are increasingly viewed as renewable resources and changes in laws and environmental policies may limit the items that enter the waste stream, any of which may adversely impact volumes and tipping fees at our landfills. Alternatives to landfill disposal may cause our revenues and operating results to decline.
As we have continued to develop our landfill capacity, the waste management industry has increasingly recognized the value of the waste stream as a renewable resource and new alternatives to landfilling are being developed that seek to maximize the renewable energy and other resource benefits of waste. We are increasingly competing with companies that seek to use parts of the waste stream as feedstock for renewable energy supplies. In addition, environmental initiatives, such as product stewardship

21



and EPR, which hold manufacturers or other actors in the product life cycle responsible for the disposal of manufactured goods, may reduce the volume of products that enter the waste stream. Further, there may be changes in the laws that reclassify items in the waste stream as hazardous or that prohibit the disposal of certain wastes in our landfills. These alternatives and changes in laws may impact the demand for landfill space, which may affect our ability to operate our landfills at full capacity, as well as the tipping fees and prices that we can charge for utilization of landfill space. As a result, our revenues and operating margins could be adversely affected.
Counties and municipalities in which we own and operate landfills may be required to formulate and implement comprehensive plans to reduce the volume of solid waste deposited in landfills through waste planning, composting, recycling or other programs. Some state and local governments prohibit the disposal of certain types of wastes, such as yard waste, at landfills. Such actions have reduced and may in the future further reduce the volume of waste going to landfills in certain areas, which may affect our ability to operate our landfills at full capacity and could adversely affect our operating results.
We rely on computer systems to run our business and security breaches could disrupt or damage our internal operations, information technology systems or reputation and expose us to litigation risk.
We may experience problems with the operation of our current information technology systems or the technology systems of third parties on which we rely, as well as the development and deployment of new information technology systems, that could adversely affect, or even temporarily disrupt, all or a portion of our operations until resolved. Inabilities and delays in implementing new systems can also affect our ability to realize projected or expected cost savings.
We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking and other online activities to connect with our employees and our customers. Such uses give rise to cyber security risks, including security breach, espionage, system disruption, hacking, cyber-attack, theft and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers' personal information, private information about employees, and our financial and strategic information. Further, as we pursue our strategy to grow through strategic acquisitions in addition to internal growth, our technological presence and corresponding exposure to cyber security risk will increase. If we fail to assess and identify cyber security risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks.
Despite our implementation of network security measures, computer programmers and hackers, or even internal users, may be able to penetrate, create systems disruptions or cause shutdowns of our network security or that of third-party companies with which we have contracted. As a result, we could experience significant disruptions of our operations and incur significant expenses addressing problems created by these breaches. Such unauthorized access could disrupt our business and could result in a loss of revenue or assets and any compromise of customer information could subject us to customer or government litigation and harm our reputation, which could adversely affect our business and growth.
Many states have adopted breach of data security statutes or regulations that require notification to consumers if the security of their personal information is breached. Governmental focus on data security may lead to additional legislative action, and the increased emphasis on information security may lead customers to request that we take additional measures to enhance security. As a result, we may have to modify our business with the goal of further improving data security, which would result in increased expenses and operating complexity.
Risks Related to Our Indebtedness
Our indebtedness could adversely affect our financial condition and limit our financial flexibility.
As of December 31, 2017, we had approximately $1,989.7 of indebtedness outstanding and made cash interest payments of $86.2 for fiscal 2017. We may incur additional debt in the future. This amount of our indebtedness could:

increase our vulnerability to general adverse economic and industry conditions or increases in interest rates;

limit our ability to obtain additional financing or refinancing at attractive rates;

require the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our growth strategy, working capital, capital expenditures, dividends, share repurchases and other general corporate purposes;

limit our flexibility in planning for, or reacting to, changes in our business and the industry; and

place us at a competitive disadvantage relative to our competitors with less debt.

22



Further, our outstanding indebtedness is subject to financial and other covenants, which may be affected by changes in economic or business conditions or other events that are beyond our control. If we fail to comply with the covenants under any of our indebtedness, we may be in default under the documents governing such indebtedness, which may entitle the lenders thereunder to accelerate the debt obligations. A default under any of our indebtedness could result in cross-defaults under our other indebtedness. In order to avoid defaulting on our indebtedness, we may be required to take actions such as reducing or delaying capital expenditures, reducing or eliminating dividends or stock repurchases, selling assets, restructuring or refinancing all or part of our existing debt or seeking additional equity capital, any of which may not be available on terms that are favorable to us, if at all.
Despite our high indebtedness level, we and our subsidiaries may still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the agreements governing our indebtedness contain restrictions on incurring additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
The agreements governing our outstanding indebtedness and our existing Senior Secured Credit Facilities contain various covenants that limit our ability to engage in specified types of transactions. These covenants may limit our ability and the ability of our restricted subsidiaries, under certain circumstances, to, among other things:

incur additional indebtedness and issue certain preferred stock;

pay dividends on, repurchase or make distributions in respect of capital stock or make other restricted payments;

place limitations on distributions from restricted subsidiaries;

issue or sell capital stock of restricted subsidiaries;

guarantee certain indebtedness;

make certain investments;

sell or exchange assets;

enter into transactions with affiliates;

create certain liens; and

consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.
A breach of any of these covenants could result in a default under one or more of these agreements, including as a result of cross default provisions, and, in the case of our existing revolving credit facility, permit the lenders to call the loans or cease making loans to us.
We may utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness and we will be exposed to risks related to counterparty credit worthiness or non-performance of these instruments.
We may enter into interest rate caps to limit our exposure to changes in variable interest rates. Such instruments will result in economic losses should interest rates not rise above the strike price in the derivative contracts. We will be exposed to credit-related losses which could impact the results of operations in the event of fluctuations in the fair value of the interest rate caps due to a change in the credit worthiness or non-performance by the counterparties to the interest rate caps. See Note 7, Derivative Instruments and Hedging Activities, to our audited consolidated financial statements included elsewhere in this Form 10-K.



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Risks Related to Ownership of Our Common Stock
Because we have no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than what you paid for it.  
We intend to retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends is limited by covenants contained in our existing indebtedness and may be limited by covenants contained in any future indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than what you paid for it.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of us or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline.
The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
Certain provisions of our certificate of incorporation and bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.
These provisions will provide for, among other things:

a classified board of directors with staggered three-year terms;

the ability of our board of directors to issue one or more series of preferred stock;

advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;

certain limitations on convening special stockholder meetings;

the removal of directors for cause and only upon the affirmative vote of holders of a majority of the shares of common stock entitled to vote in the election of directors; and

that certain provisions may be amended only by the affirmative vote of at least 66 2/3% of the shares of common stock entitled to vote.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third-party's offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.

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A few significant shareholders may influence our policies and decisions and their interests may conflict with ours or yours in the future.

A few significant shareholders who, while they do not act as a group, may influence or control the direction of our business. If the ownership of our shares continues to be highly concentrated, it may limit your ability and the ability of other shareholders to influence significant corporate decisions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located at 90 Fort Wade Rd, Ponte Vedra, Florida 32081, where we currently lease approximately 63,000 square feet of office space under a lease expiring through 2020. We also maintain regional administrative offices in North Carolina, Georgia and Illinois.
Our principal property and equipment consists of land, landfills, buildings, vehicles and equipment. We own or lease real property in the states in which we conduct operations. At December 31, 2017, we owned or operated 93 collection operations, 73 transfer stations, 40 active solid waste landfills and 22 recycling facilities in 16 states and the Bahamas. In aggregate, our active solid waste landfills total approximately 20,100 acres, including approximately 11,600 permitted and expansion acres. “Expansion acreage” consists of unpermitted acreage where the related expansion efforts meet our criteria to be included as expansion airspace. A discussion of the related criteria is included within the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Assumptions section included herein. We also own or have responsibilities for five closed landfills. We believe that our property and equipment are adequate for our current needs.
ITEM 3. LEGAL PROCEEDINGS
Information regarding our legal proceedings can be found under the “Commitments and Contingencies” section of Note 19 of our consolidated financial statements included in Item 8 of this report and is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “ADSW.” The following table sets forth the range of the high and low per share sales prices for our common stock as reported on the NYSE:


High
Low
2016




Fourth Quarter
$
22.42

$
18.32

2017




First Quarter
$
24.10

$
21.17


Second Quarter
$
24.07

$
20.94


Third Quarter
$
25.38

$
22.35


Fourth Quarter
$
25.71

$
22.06

2018




First Quarter (through February 9, 2018)
$
24.81

$
22.65

On February 9, 2018, the closing sales price as reported on the NYSE was $23.21 per share. The number of holders of record of our common stock on February 9, 2018 was 9. The number of beneficial owners of our common stock is substantially greater than the number of record holders, because a large portion of our common stock is held in "street name" by banks and brokers.


































26



The graph below shows the relative investment performance of Advanced Disposal Services, Inc. common stock, the S&P 500 Index and the Dow Jones Waste & Disposal Services Index since the close of trading on the first day subsequent to our initial public offering. The initial public offering price of our common stock was $18 compared to the closing price on the first day of trading subsequent to our initial public offering of $20. No dividends have been paid on our common stock. The graph is presented pursuant to SEC rules and is not meant to be an indication of our future performance.

chart-ec8ffedf33195f1c98f.jpg


10/6/2016
12/31/2016
12/31/2017
Advanced Disposal Services, Inc.
$
100.00

$
111.10

$
119.70

S&P 500 Index
$
100.00

$
103.61

$
123.73

Dow Jones Waste & Disposal Services Index
$
100.00

$
111.76

$
128.34

No dividends have been paid on our common stock and we do not currently have any future plans to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from funds we receive from our subsidiaries. In addition, our ability to pay dividends will be limited by covenants in our existing indebtedness and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future. We have not adopted any plans to repurchase shares of our common stock and we do not currently have any future plans to repurchase shares of our common stock. Our ability to repurchase any shares of our common stock will be limited by covenants in our existing indebtedness and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.

27



ITEM 6. SELECTED FINANCIAL DATA
The information below was derived from the audited Consolidated Financial Statements included in this report and in previous reports we filed with the SEC. This information should be read together with those Consolidated Financial Statements and the notes thereto. The adoption of new accounting pronouncements, changes in certain accounting policies and certain reclassifications impact the comparability of the financial information presented below. These historical results are not necessarily indicative of the results to be expected in the future.

(In millions of dollars) 
 
For the Year Ended December 31,
 
2017

2016

2015

2014

2013
Consolidated Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Service revenues
$
1,507.6

 
$
1,404.6

 
$
1,396.4

 
$
1,403.0

 
$
1,319.1

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating
962.1

 
865.5

 
866.6

 
896.1

 
832.8

Selling, general and administrative
169.5

 
157.0

 
152.6

 
154.9

 
170.9

Depreciation and amortization
269.8

 
246.9

 
259.1

 
271.4

 
278.9

Acquisition and development costs
1.3

 
0.7

 
1.4

 
0.1

 
1.2

Loss on disposal of assets and asset impairments (a)
11.4

 
1.8

 
21.6

 
6.5

 
3.2

Restructuring
3.4

 
0.8

 

 
4.6

 
10.0

 
1,417.5

 
1,272.7

 
1,301.3

 
1,333.6

 
1,297.0

Operating income
90.1

 
131.9

 
95.1

 
69.4

 
22.1

Interest expense
(93.0
)
 
(130.2
)
 
(138.0
)
 
(141.5
)
 
(163.1
)
Loss on debt extinguishments and modifications
(3.7
)

(64.7
)






Other income (expense), net (b)
3.7

 
6.9

 
(10.1
)
 
(25.9
)
 
0.3

Loss before income taxes
(2.9
)
 
(56.1
)
 
(53.0
)
 
(98.0
)
 
(140.7
)
Benefit from income taxes (c)
(41.2
)
 
(25.7
)
 
(19.4
)
 
(80.6
)
 
(45.4
)
Net income (loss) from continuing operations
38.3

 
(30.4
)
 
(33.6
)
 
(17.4
)
 
(95.3
)
Income (loss) from discontinued operations, net of tax

 

 

 
0.3

 
(22.5
)
Net income (loss) from continuing operations
38.3

 
(30.4
)
 
(33.6
)
 
(17.1
)
 
(117.8
)
Basic income (loss) per share from continuing operations
$
0.43


$
(0.44
)
 
$
(0.52
)
 
$
(0.27
)
 
$
(1.48
)
Diluted income (loss) per share from continuing operations
$
0.43


$
(0.44
)
 
$
(0.52
)
 
$
(0.27
)
 
$
(1.48
)
Consolidated Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
308.8

 
$
237.0

 
$
244.5

 
$
243.2

 
$
180.3

Net cash used in investing activities
$
(287.6
)
 
$
(170.6
)
 
$
(197.4
)
 
$
(201.2
)
 
$
(154.8
)
Net cash used in financing activities
$
(15.6
)
 
$
(65.8
)
 
$
(47.5
)
 
$
(53.0
)
 
$
(32.3
)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
3,493.3

 
$
3,369.9

 
$
3,422.3

 
$
3,489.5

 
$
3,554.2

Debt, including current portion
$
1,958.3

 
$
1,923.5

 
$
2,247.1

 
$
2,243.0

 
$
2,259.3

Total stockholders’ equity
$
884.6

 
$
829.5

 
$
489.8

 
$
528.9

 
$
551.5

 
(a)
We have collection operations in South Carolina which operate in a competitor-owned disposal market that does not align with our long-term market strategy of vertically integrated operations with Company-owned disposal sites or marketplace neutral disposal sites. During April of 2017, changes in facts and circumstances led us to re-evaluate the expected cash flows provided by this market and we determined it appropriate to impair $13.0 of certain intangible assets that were recorded as part of the purchase accounting when these entities were acquired. We disposed of certain businesses in the South segment for strategic reasons in June 2015 and recorded a loss on disposal of $10.9 for the twelve months ending December 31, 2015. Additionally, we recorded an impairment of $6.4 in fiscal 2015 in connection with the strategic decision to divest certain businesses in the South segment and the decision not to pursue a landfill permit. In fiscal 2014, we recorded an impairment charge of $5.3 in connection with the decision to divest a small brokerage business.
(b)
Amounts included in other income (expense) net for fiscal 2017, 2016, 2015 and 2014 contain unrealized and realized gains/losses related to derivative instruments including a loss of $0.5, a gain of $3.5, a loss of $15.4 and a loss of $27.3, respectively. A gain on the sale of a debt investment security of $2.5 is included in other income (expense) net for fiscal 2015.
(c)
Due to the enactment of the Tax Cuts and Jobs Act (the "Act") in the fourth quarter of fiscal 2017, our 2017 financial results included a $40.5 non-cash tax benefit, primarily resulting from revaluing our net deferred tax assets, liabilities, and certain associated valuation allowances to reflect the recently enacted 21% federal corporate tax rate. Due to the Act's taxation of deemed repatriation on foreign earnings, we expect to pay a one-time tax of $0.1 related to our Bahamas operations. We completed a legal entity reorganization to achieve administrative efficiencies and as such recorded a valuation allowance release of $0.9 and $51.4 for fiscal 2015 and fiscal 2014, respectively, related to certain NOLs that are more likely than not to be utilized.



28



ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the “Selected Financial Data” included in Item 6 of this Annual Report on Form 10-K, our consolidated financial statements and the related notes included elsewhere in this report.
Overview

We are a leading integrated provider of non-hazardous solid waste collection, transfer, recycling and disposal services, operating primarily in secondary markets or under exclusive municipal arrangements. We have a presence in 16 states across the Midwest, South and East regions of the United States, serving approximately 2.8 million residential customers and over 200,000 C&I customers through our extensive network of 93 collection operations, 73 transfer stations, 22 owned or operated recycling facilities and 40 owned or operated active landfills. We seek to drive financial performance in markets in which we own or operate a landfill or in certain disposal-neutral markets, where the landfill is owned by our municipal customer. In markets in which we own or operate a landfill, we aim to create and maintain vertically integrated operations through which we manage a majority of our customers' waste from the point of collection through the point of disposal, a process we refer to as internalization. By internalizing a majority of the waste in these markets, we are able to deliver high quality customer service while also ensuring a stable revenue stream and maximizing profitability and cash flow from operations. In disposal-neutral markets, we focus selectively on opportunities where we can negotiate exclusive arrangements with our municipal customers, facilitating highly-efficient and profitable collection operations with lower capital requirements.

Geographically, we focus our business principally in secondary, or less densely populated non-urban, markets where the presence of large national providers is generally more limited. We also compete selectively in primary, or densely populated urban, markets where we can capitalize on opportunities for vertical integration through our high-quality transfer and disposal infrastructure and where we can benefit from highly-efficient collection route density. We maintain an attractive mix of revenue from varying sources, including residential collections, C&I collections, landfill gas and special waste streams, and fees charged to third parties for disposal in our network of transfer stations and landfills, with limited exposure to commodity sales. We also benefit from a high degree of customer diversification, with no single customer accounting for more than 2% of revenue for the year ended December 31, 2017. Our business mix and large and diverse customer base, combined with our long term contracts and historically high renewal rates, provide us with significant revenue and earnings stability and visibility.

We intend to grow our business and expand the scope of our operations by adding new C&I customers, securing additional exclusive municipal contracts and executing value enhancing, tuck-in acquisitions, while maintaining a relentless focus on prudent cost management and pricing discipline. To this end, we are committed to investing in strategic infrastructure including the development and enhancement of our landfills, the conversion of our residential collection fleet to automated vehicles and the conversion of our collection fleet to CNG-fueled vehicles in certain markets in which we can achieve an attractive return on our investment. In addition to our focus on growing revenues and enhancing profitability, we remain financially disciplined through our careful management of returns on equity and capital deployed.

Our fiscal year ends December 31 of each year and we refer to the fiscal year ended December 31, 2017 as "fiscal 2017," the fiscal year ended December 31, 2016 as "fiscal 2016" and the fiscal year ended December 31, 2015 as "fiscal 2015".

How We Generate Revenue

Through our subsidiaries, we generate revenue primarily by providing collection and disposal services to commercial, industrial, municipal and residential customers. Our remaining revenue is generated from recycling, fuel surcharges and environmental charges, landfill gas-to-energy operations and other ancillary revenue-generating activities. Revenues from our collection operations consist of fees we receive from municipal, subscription, residential and C&I customers and are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the recycling, transfer station or disposal facilities and our disposal costs. Our standard C&I service agreement is a five-year renewable agreement. Management believes we maintain strong relationships with our C&I customers. Our municipal customer relationships are generally supported by exclusive contracts ranging from three to ten years in initial duration, with subsequent renewal periods, and we have historically achieved a renewal rate of approximately 80% to 85% with these customers. 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 provide commercial front load and temporary and permanent rolloff service offerings to our customers. While the majority of our rolloff services are provided to customers under long-term service agreements, we generally do not enter into contracts with our temporary rolloff customers due to the relatively short-term nature of most C&D projects.


29



Our transfer stations and landfills generate revenue from disposal or tipping fees. Revenues from our landfill operations consist of fees which are generally based on the type and weight or volume of waste being disposed at our disposal facilities. Fees charged at transfer stations are generally based on the weight or volume of waste deposited, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site. Recycling facility revenue consists of disposal or tipping fees and proceeds from the sale of recyclable commodities to third parties.

The amounts charged for collection, disposal, and recycling services may include fuel charges and environmental charges. Fuel charges and environmental charges are not designed to be specific to the direct costs and expenses to service an individual customer's account, but rather are designed to address and to help recover for changes in our overall cost structure and to achieve an operating margin acceptable to us.

Other revenue is comprised of ancillary revenue-generating activities, such as trucking, landfill gas-to-energy operations at MSW landfills, management of third-party owned landfills, brokerage revenue, customer service charges relating to overdue payments and customer administrative fees relating to customers who request paper copies of invoices rather than opting for electronic invoices.

Key Factors Affecting Our Results of Operations

Our results of operations are affected by our ability to complete tuck-in acquisitions and retain existing and win new municipal contracts at favorable margins. When we determine to pursue a new acquisition or contract, we focus particularly on operational efficiencies, including route optimization and our ability to leverage our network of landfills and transfer stations. We also seek to divest lower margin businesses that do not conform to our strategic operations model which may result in impairment charges in the period of sale but benefit us by allowing us to redeploy capital to higher margin businesses.

Our results of operations are also affected by the strength of the economy and the level of C&I activity near our collection operations. Economic conditions have a direct effect on construction, demolition, new business formations and roll-off activity which impacts volumes of C&I waste. Residential waste volumes are also impacted by economic conditions, although to a lesser extent. Special waste volume, such as coal ash, energy waste, soil projects and other industrial process waste, which is driven by C&I projects and other general economic conditions, can vary substantially year to year based on economic and industrial conditions as well as the timing and size of projects in proximity to our collection or disposal operations. During periods of strong GDP growth, our business is fueled by increases in the C&D business, new business formations and new residential housing.

Our ability to maintain or increase the price of our services has a significant effect on our results of operations. Our focus on secondary markets enhances our ability to maintain or increase prices. We also intend to enter into contracts or service agreements that permit rate increases and contain favorable pricing structures.

We maintain a focus on prudent cost management and efficiency. We have implemented programs to increase sales productivity and pricing effectiveness, driver productivity, route optimization, maintenance efficiency and effective purchasing. Our ability to manage costs is a significant driver of our results.
Fuel costs represent a significant operating expense. When available, we implement a fuel surcharge that is designed to recover a portion of our direct and indirect increases in fuel costs. Furthermore, we seek to minimize fuel costs through route optimization and the adoption of more CNG vehicles in our fleet. See "Quantitative and Qualitative Disclosures About Market Risk-Fuel Price Risk."
Seasonality and Severe Weather
Based on historic trends, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters, and lower in the fourth quarter than in the second and third quarters. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during the winter months in the U.S., and lower volumes of energy waste due to reduced drilling activity during harsh weather conditions. Conversely, mild winter weather conditions may reduce demand for oil and natural gas, which may cause some of our mining and exploration customers to curtail their drilling programs, which could result in production of lower volumes of waste.
Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs. Greater precipitation in the winter increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis and increased leachate disposal costs. Certain destructive weather conditions that tend to occur during the second

30



half of the year primarily impacting the South region, such as hurricanes, can increase the Company’s revenues in the areas affected. While weather-related and other occurrences can boost revenues through additional work, the earnings generated can be moderated as a result of significant start-up costs and other factors, resulting in earnings at comparatively lower margins. These destructive weather conditions can result in higher fuel costs, higher labor costs, reduced municipal contract productivity and higher disposal costs in disposal neutral markets. These factors impact period-to-period comparisons of financial results.

Results of Operations
The following table sets forth for the periods indicated our consolidated results of operations and the percentage relationship that certain items from our consolidated financial statements bear to revenue (in millions and as a percentage of our revenue).
 
 
Year ended December 31,
 
2017
 
2016
 
2015
Service revenues
$
1,507.6

 
100.0
%
 
$
1,404.6

 
100.0
%
 
$
1,396.4

 
100.0
%
Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Operating
962.1

 
63.8
%
 
865.5

 
61.6
%
 
866.6

 
62.1
%
Selling, general and administrative
169.5

 
11.2
%
 
157.0

 
11.2
%
 
152.6

 
10.9
%
Depreciation and amortization
269.8

 
17.9
%
 
246.9

 
17.6
%
 
259.1

 
18.6
%
Acquisition and development costs
1.3

 
0.1
%
 
0.7

 
%
 
1.4

 
0.1
%
Loss on disposal of assets and asset impairments
11.4

 
0.8
%
 
1.8

 
0.1
%
 
21.6

 
1.5
%
Restructuring charges
3.4

 
0.2
%
 
0.8

 
0.1
%
 

 
%
Total operating costs and expenses
1,417.5

 
94.0
%
 
1,272.7

 
90.6
%
 
1,301.3

 
93.2
%
Operating income
$
90.1

 
6.0
%
 
$
131.9

 
9.4
%
 
$
95.1

 
6.8
%
Fiscal Year Ended December 31, 2017 compared to 2016
Operating income decreased $41.8 or 31.7% in fiscal 2017 from fiscal 2016. The variance was primarily the result of the following:
As discussed in Note 1 to the audited consolidated financial statements, we recorded an intangible asset impairment charge of $13.0 during fiscal 2017;
As discussed in Note 19 to the audited consolidated financial statements, we recorded charges in operating expenses of $11.1 related to the Greentree landfill waste slide that occurred in the first quarter of fiscal 2017;
As discussed in Note 14 to the audited consolidated financial statements, stock based compensation expense increased by $4.3 primarily due to the impact of initial public offering related awards and a larger portion of the Company's compensation structure shifting to stock based awards;
As discussed in Note 20 to the audited consolidated financial statements, we recorded restructuring charges of $3.4 during fiscal 2017 due to the elimination of positions at the corporate office. Of the $3.4 of restructuring charges, $2.1 relates to the acceleration of stock based compensation expense and $1.3 relates to severance expense.
Operating income, net of the items above, decreased $10.0 or 7.6% to $121.9 for fiscal 2017. The decrease was primarily the result of the following:
An increase in operating costs of $85.5, net of the $11.1 in costs associated with the Greentree landfill waste slide, which includes the following: an increase in salary and wage expense of $16.8 due to merit increases, acquisition activity, higher workers' compensation cost due to less favorable actuarial development and higher temporary labor costs as we transitioned to new customer service call centers in fiscal 2017; an increase in transfer and disposal costs of $16.1 to support the increase in our service revenue and higher container weights; an increase in fuel expense of $13.1 impacted by an increase in diesel fuel prices and the expiration of CNG credits; an increase in maintenance and repairs expense of $9.9 primarily due to acquisition activity; an increase in maintenance costs of $5.5 for landfill gas control, leachate and sulfate treatment; an increase in facility maintenance costs of $5.4 due to acquisition activity and site repairs at certain landfills; an

31



increase in insurance expenses of $4.7 primarily due to higher automobile and property insurance costs and the favorable settlement of legacy claims in fiscal 2016 that did not recur in fiscal 2017; an increase in healthcare costs of $4.0 due to an increase in the severity and frequency of medical claims; an increase in accretion expense of $2.5 due to the assumption of post-closure liabilities of a closed portion of a landfill during the first quarter of fiscal 2017; an increase in franchise fees and taxes of $2.6 to support the increase in our service revenue; an increase in material costs of $2.3 to support an acquired aggregate and asphalt operation; and an increase in vehicle operating expense of $1.7 due to acquisition activity and hurricane related costs in the South segment;
An increase in depreciation and amortization expense of $22.9 as a result of acquisition activity, higher disposal volumes and unfavorable adjustments in fiscal 2017 as a result of our annual landfill life of site analysis;
An increase in selling, general and administrative expenses of $8.2, net of the $4.3 increase in stock based compensation expense, primarily due to the following: an increase in wages and benefits of $5.4 as a result of merit increases, hiring additional sales representatives, higher severance expense and higher healthcare costs; an increase in bad debt expense of $1.5 due to the impact of acquired businesses on collection activities; and an increase in insurance costs of $0.7 as a result of being a publicly traded company.
The increase in operating costs and expenses for fiscal 2017 was largely offset by the following:
An increase in service revenues of $103.0 as detailed further in the "Revenue" section below.
Fiscal Year Ended December 31, 2016 compared to 2015
Operating income increased $36.8 or 38.7% in fiscal 2016 from fiscal 2015. The variance was primarily the result of the following:
A decrease in losses on disposal of assets and asset impairments primarily due to $17.3 recorded in fiscal 2015 relating to strategic decisions regarding divestitures in our South segment and discontinuing the pursuit of permitting at one landfill site in our East segment;
Higher revenue of $8.2 primarily due to an increase in average yield and revenue from prior year acquisitions partially offset by lower fuel surcharge revenue, a decrease in organic volume and lower revenue due to divestitures;
Lower depreciation and amortization of $12.2 primarily due to a reduction in landfill depletion and amortization as a result of an increase in deemed permitted expansion airspace at several of our landfills and favorable adjustments of $5.3 that were recognized in the fourth quarter of 2016 relative to asset retirement obligations, compared to favorable adjustments of $1.4 in the fourth quarter of 2015;
Higher expenses of $7.1 related to the launch of the February 2016 initial public offering process.
Revenue
The following table sets forth our consolidated revenues for the periods indicated (in millions and as a percentage of our total revenue).
 
Year ended December 31,
 
2017
 
2016
 
2015
Collection
$
1,017.4

 
67.5
 %
 
$
977.4

 
69.6
 %
 
$
971.4

 
69.6
 %
Disposal
542.5

 
36.0
 %
 
517.9

 
36.9
 %
 
499.0

 
35.7
 %
Sale of recyclables
33.2

 
2.2
 %
 
22.6

 
1.6
 %
 
24.8

 
1.8
 %
Fuel and environmental charges
103.9

 
6.9
 %
 
88.5

 
6.3
 %
 
85.8

 
6.1
 %
Other
104.4

 
6.9
 %
 
74.7

 
5.3
 %
 
82.2

 
5.9
 %
Intercompany eliminations
(293.8
)
 
(19.5
)%
 
(276.5
)
 
(19.7
)%
 
(266.8
)
 
(19.1
)%
Total
$
1,507.6

 
100.0
 %
 
$
1,404.6

 
100.0
 %
 
$
1,396.4

 
100.0
 %


32



The following table reflects changes in components of our revenue, as a percentage of total revenue, for fiscal 2017, 2016 and 2015:

Year Ended December 31,

2017

2016

2015
Average yield
1.2
 %

2.2
 %

2.2
 %
Recycling
0.8
 %

0.1
 %

(0.5
)%
Fuel charge revenue
0.4
 %

(0.7
)%

(1.3
)%
Total yield
2.4
 %

1.6
 %

0.4
 %
Organic volume
1.4
 %

(1.7
)%

(0.8
)%
Acquisitions
3.9
 %

1.8
 %

1.2
 %
Divestitures
(0.4
)%

(1.1
)%

(1.3
)%
Total revenue growth
7.3
 %

0.6
 %

(0.5
)%
Average yield is defined as aggregate contribution of price changes excluding recycled commodities and fuel surcharge revenue.
Fiscal Year Ended December 31, 2017 compared to 2016
During fiscal 2017, we experienced the following changes in components of our revenue as compared to the same period in fiscal 2016:
Average yield increased revenue by 1.2% driven by higher price yield in our municipal residential collection business due to the positive impact of higher CPI contract resets and a higher open market price yield as we continue to focus on disciplined pricing. The increase in average yield was partially offset by the mix of business due to increases in special waste and project based C&D volumes which generally price at a lower rate per ton than other waste streams;
Recycling revenue increased revenue by 0.8% due to an increase in recycled commodity prices;
Fuel surcharge revenue increased revenue by 0.4%. These charges fluctuate in response to changes in prices for diesel fuel on which the surcharge is based and, consequently, any increase in fuel prices results in an increase in our revenue. Our fuel surcharges reset on a monthly basis, therefore an increase in our fuel surcharge revenue is delayed in comparison to the increase in our fuel expense when diesel fuel prices increase;
Organic volume increased revenue by 1.4% primarily due to an increase in MSW, C&D and special waste landfill disposal volumes, an increase in third party trucking revenue due to special waste and C&D project activity and an increase related to a volume commitment settlement associated with a landfill gas contract. Volumes in the commercial and rolloff collection businesses increased slightly with residential volume decreasing as we continue to cycle through certain municipal contract losses. Organic volume was negatively impacted by one less work day in fiscal 2017 compared to fiscal 2016;
Acquisitions increased revenue by 3.9% due to our execution of acquisition opportunities that further enhance our vertical integration strategy;
Divestitures decreased revenue by 0.4% due to our strategic decision to divest of our Charlotte collection operations in the second quarter of fiscal 2017.

Fiscal Year Ended December 31, 2016 compared to 2015
During fiscal 2016, we experienced the following changes in components of our revenue as compared to the same period in fiscal 2015:
Average yield increased revenue by 2.2% for fiscal 2016 primarily due to positive pricing in our commercial collection business, rolloff collection business, MSW disposal business and special waste disposal business. Additionally, our environmental charge contributed to the increase due to rate increases that went into effect in July 2015 and July 2016.
Fuel surcharge revenue decreased by 0.7% during fiscal 2016. These charges fluctuate in response to changes in prices for diesel fuel on which the surcharge is based and, consequently, any decrease in fuel prices results in a decrease in our revenue. Lower fuel surcharge revenue for fiscal 2016 resulted from a decrease in diesel fuel prices.

33



Organic volume decreased revenue by 1.7% during fiscal 2016 primarily due to the loss of residential contracts in our Midwest segment and lower shale volumes in our East segment partially offset by increased disposal volume across our MSW and C&D waste streams, most notably in our South and East segments.
Acquisitions increased revenue by 1.8% during fiscal 2016 due to our execution of acquisition opportunities that further enhance our vertical integration strategy.
Divestitures decreased revenue by 1.1% during fiscal 2016 due to our strategic decisions to divest low margin businesses.
Operating Expenses
The following table summarizes our operating expenses (in millions and as a percentage of our revenue).
 
 
Year ended December 31,
 
2017
 
2016
 
2015
Operating
$
946.7

 
62.8
%
 
$
852.5

 
60.7
%
 
$
853.5

 
61.1
%
Accretion of landfill retirement obligations
15.4

 
1.0
%
 
13.0

 
0.9
%
 
13.1

 
0.9
%
Operating expenses
$
962.1

 
63.8
%
 
$
865.5

 
61.6
%
 
$
866.6

 
62.0
%
Our operating expenses include the following:
 
Labor and related benefits consist of salaries and wages, health and welfare benefits, incentive compensation and payroll taxes;
Transfer and disposal costs include tipping fees paid to third-party disposal facilities and transfer stations and transportation and subcontractor costs (which include costs for independent haulers who transport waste from transfer stations to our disposal facilities);
Maintenance and repairs expenses include labor, maintenance and repairs to our vehicles, equipment and containers.
Fuel costs, which include the direct cost of fuel used by our vehicles, net of fuel tax credits. We also incur certain indirect fuel costs in our operations;
Franchise fees and taxes, which consist of municipal franchise fees, host community fees and royalties;
Risk management expenses, which include casualty insurance premiums and claim payments and estimates for claims incurred but not reported;
Other expenses, which include expenses such as facility operating costs, equipment rent, leachate treatment and disposal, and other landfill maintenance costs;
Accretion expense related to landfill capping, closure and post-closure is included in “Operating Expenses” in our consolidated income statements, however, it is excluded from the table below (refer to discussion below “Accretion of Landfill Retirement Obligations” for a detailed discussion of the changes in amounts).










34



The following table summarizes the major components of our operating expenses, excluding accretion expense on our landfill retirement obligations (in millions and as a percentage of our revenue):
 
Year ended December 31,
 
2017
 
2016
 
2015
Labor and related benefits
$
313.2

 
20.8
%
 
$
292.4

 
20.8
%
 
$
286.7

 
20.5
%
Transfer and disposal costs
205.0

 
13.6
%
 
188.9

 
13.4
%
 
195.2

 
14.0
%
Maintenance and repairs
139.3

 
9.2
%
 
129.4

 
9.2
%
 
123.7

 
8.9
%
Fuel
68.3

 
4.5
%
 
55.2

 
3.9
%
 
66.6

 
4.8
%
Franchise fees and taxes
67.8

 
4.5
%
 
65.2

 
4.6
%
 
67.1

 
4.8
%
Risk management
33.8

 
2.2
%
 
28.7

 
2.1
%
 
25.9

 
1.9
%
Other
108.2

 
7.3
%
 
92.7

 
6.7
%
 
88.3

 
6.3
%
Subtotal
$
935.6

 
62.1
%
 
$
852.5

 
60.7
%
 
$
853.5

 
61.1
%
Greentree expenses, net of estimated insurance recoveries
11.1


0.7
%








Total operating expenses, excluding accretion expense
$
946.7


62.8
%

$
852.5


60.7
%

$
853.5


61.1
%
The cost categories shown above may not be comparable to similarly titled categories used by other companies.
Fiscal Year Ended December 31, 2017 compared to 2016
Operating expenses increased by $94.2, or 11.0%, to $946.7 for fiscal 2017 from $852.5 in fiscal 2016. Operating expenses, net of the Greentree waste slide expenses, increased $83.1, or 9.7% to $935.6 for fiscal 2017 from $852.5 in fiscal 2016. The change was due to the following:
 
Labor and related benefits increased by $20.8, or 7.1%, to $313.2, however remained consistent with fiscal 2016 at 20.8% of revenue. The increase was primarily attributable to merit increases, acquisition activity, higher health care costs due to an increase in the severity and frequency of medical claims, higher workers' compensation costs due to less favorable actuarial development and higher temporary labor costs as we transitioned to new customer service call centers in fiscal 2017;
Transfer and disposal costs increased by $16.1, or 8.5%, to $205.0, which was a 20 basis point increase as a percent of revenue from fiscal 2016. The increase was due to increased disposal volumes and container weights, acquisition activity, increased third party trucking costs and higher recycling rebates due to the increase in recycled commodity prices;
Maintenance and repairs expense increased by $9.9, or 7.7%, to $139.3, however remained consistent with fiscal 2016 at 9.2% of revenue. The increase was driven by increased labor costs primarily attributable to merit increases, acquisition activity and higher health care costs as well as an increase in maintenance and repair material costs partially due to deferred maintenance related to acquired entities;
Fuel costs increased $13.1, or 23.7%, to $68.3, which was a 60 basis point increase as a percent of revenue from fiscal 2016. The increase was primarily resulting from acquisition activity, the expiration of CNG tax credits as of December 31, 2016 and increases in diesel fuel prices, partially due to hurricane related supply disruptions;
Franchise fees and taxes increased $2.6, or 4.0%, to $67.8 which was a 10 basis point decrease as a percent of revenue from fiscal 2016. The increase was primarily due to increased disposal volumes and acquisition activity;
Risk management expenses increased $5.1, or 17.8%, to $33.8, which was a 10 basis point increase as a percent of revenue from fiscal 2016. The increase was primarily due to higher automobile and property insurance costs, the favorable settlement of legacy claims in fiscal 2016 that did not recur in fiscal 2017, less favorable actuarial development in fiscal 2017 compared to fiscal 2016 and property damage in the South segment from a tornado and a hurricane;
Other operating costs increased $15.5, or 16.7%, to $108.2, which was a 60 basis points increase as a percent of revenue from fiscal 2016. The increase was primarily due to an increase in maintenance costs related to landfill gas control, leachate and sulfate treatment, an increase in vehicle and facility operating costs due to acquisition activity and site repairs at certain landfills and increased costs to operate an asphalt plant associated with a recent acquisition;


35



Fiscal Year Ended December 31, 2016 compared to 2015
Operating expenses decreased by $1.0, or 0.1%, to $852.5 for fiscal 2016 from $853.5 in fiscal 2015. Operating expenses, as a percentage of revenue, decreased by 40 basis points in fiscal 2016 from fiscal 2015. The change was due to the following:
 
Labor and related benefits increased by $5.7, or 2.0%, to $292.4, which was primarily attributable to merit increases, acquisition activity and startup costs for new municipal contracts and acquisitions. The increases were partially offset by disposals of certain businesses and a reduction in workers compensation costs;
Transfer and disposal costs decreased by $6.3, or 3.2%, to $188.9 due to the sale of a small brokerage business in April 2015, the divestiture of three transfer stations in April 2016 and lower costs due to decreased shale related disposal activity;
Maintenance and repairs expense increased by $5.7, or 4.6%, to $129.4. The increase was driven primarily by the implementation of a standardized maintenance plan on our collection fleet and landfill equipment which resulted in increased labor and material costs. Additionally, costs increased as a result of start up costs for new municipal contracts and acquisitions;
Fuel costs decreased $11.4, or 17.1%, to $55.2 primarily resulting from decreases in fuel prices and converting trucks to compressed natural gas fuel, which is less expensive than diesel fuel;
Franchise fees and taxes decreased $1.9, or 2.8%, to $65.2 in 2016 primarily due to changes in the mix of waste in the Midwest and East segments, partially offset by higher costs in our South segment due mainly to increased volumes;
Risk management expenses increased $2.8, or 10.8%, to $28.7. Fiscal 2015 benefited from the favorable settlement of legacy claims and favorable actuarial development in our vehicle liability insurance programs which did not reoccur at the same level in fiscal 2016;
Other operating costs increased $4.4, or 5.0%, to $92.7 in 2016 primarily due to increased landfill site and other facility maintenance costs and increased costs related to leachate treatment and disposal due to wet weather.
Accretion of Landfill Retirement Obligations
Accretion expense was $15.4, $13.0 and $13.1 for fiscal 2017, 2016 and 2015, respectively. Accretion expense increased by $2.4 in fiscal 2017 from fiscal 2016 which was primarily attributable to the assumption of post-closure responsibility at one of our landfills during the first quarter of fiscal 2017 and the acquisition of a landfill during the first quarter of fiscal 2017. Accretion expense decreased by $0.1 in fiscal 2016 from fiscal 2015 primarily due to the timing of certain capping obligations.

Selling, General and Administrative
Selling, general and administrative expenses include salaries, legal and professional fees, rebranding and integration costs and other expenses. Salaries expenses include salaries and wages, health and welfare benefits and incentive compensation for corporate and field general management, field support functions, sales force, accounting and finance, legal, management information systems, and clerical and administrative departments. Other expenses include rent and office costs, fees for professional services provided by third parties, marketing, directors’ and officers’ insurance, general employee relocation, travel, entertainment and bank charges, but excludes any such amounts recorded as restructuring charges.
The following table provides the components of our selling, general and administrative expenses for the periods indicated (in millions and as a percentage of our revenue):
 
 
Year ended December 31,
 
2017
 
2016
 
2015
Salaries
$
105.5

 
7.0
%
 
$
95.8

 
6.8
%
 
$
92.7

 
6.6
%
Legal and professional
13.9

 
0.9
%
 
16.2

 
1.2
%
 
15.1

 
1.1
%
Other
50.1

 
3.3
%
 
45.0

 
3.2
%
 
44.8

 
3.2
%
Total selling, general and administrative expenses
$
169.5

 
11.2
%
 
$
157.0

 
11.2
%
 
$
152.6

 
10.9
%



36



Fiscal Year Ended December 31, 2017 compared to 2016
Salaries expenses increased by $9.7, or 10.1%, primarily due to the following: an increase in wages and benefits of $5.4 as a result of merit increases, hiring additional sales representatives, higher severance expense and higher healthcare costs; and a $4.3 increase in stock based compensation expense due to the impact of initial public offering related awards and a larger portion of the Company's compensation structure shifting to stock based awards.
Legal and professional fees decreased by $2.3, or 14.2%, primarily due to $7.1 of expenses incurred during fiscal 2016 related to the February launch of the initial public offering process that was not completed that did not recur in fiscal 2017. This decrease was partially offset by $2.2 of costs associated with new accounting standard implementation and higher Sarbanes-Oxley costs, $1.7 of increased costs associated with being a public company and an increase in legal fees of $1.0 primarily due to litigation associated with the fuel, environmental and administrative charge cases as discussed in Note 19 to the audited consolidated financial statements.
Other selling, general and administrative expenses increased by $5.1, or 11.3% primarily due to increased bad debt expense due to the impact of acquired businesses on collection activities, increased software maintenance cost and increased insurance costs as a result of being a publicly traded company.
Fiscal Year Ended December 31, 2016 compared to 2015
Salaries expenses increased by $3.1, or 3.3%, in fiscal 2016 compared to fiscal 2015 primarily attributable to higher stock based compensation expense of $2.4 as a result of a larger portion of our compensation structure shifting to stock based awards. The remainder of the variance is primarily due to merit increases and acquisition activity, partially offset by lower severance and incentive compensation expense.
Legal and professional fees increased by $1.1, or 7.3%, in fiscal 2016 compared to fiscal 2015 which was primarily the result of expenses related to the February 2016 launch of the initial public offering process partially offset by a reduction in consulting fees associated with internal control evaluation and implementation and a decrease in legal fees due to reduced legal claim activity.
Other selling, general and administrative expenses increased by $0.2, or 0.4% which is relatively consistent with fiscal 2015.
Depreciation and Amortization
The following table summarizes the components of depreciation and amortization expense by asset type (in millions and as a percentage of our revenue). For a detailed discussion of depreciation and amortization by asset type refer to the discussion included in the following two sections herein.
 
 
Year ended December 31,
 
2017
 
2016
 
2015
Depreciation, amortization and depletion of property and equipment
$
228.2

 
15.1
%
 
$
204.3

 
14.5
%
 
$
216.3

 
15.5
%
Amortization of other intangible assets and other assets
41.6

 
2.8
%
 
42.6

 
3.1
%
 
42.8

 
3.1
%
Depreciation and amortization
$
269.8

 
17.9
%
 
$
246.9

 
17.6
%
 
$
259.1

 
18.6
%
Depreciation, Amortization and Depletion of Property and Equipment
Depreciation, amortization and depletion expense includes depreciation of fixed assets over the estimated useful life of the assets using the straight-line method, and amortization and depletion of landfill airspace assets under the units-of-consumption method. We depreciate all fixed assets to a zero net book value, and do not apply salvage values.



37



The following table summarizes depreciation, amortization and depletion of property and equipment for the periods indicated (in millions and as a percentage of our revenue):
 
Year ended December 31,
 
2017
 
2016
 
2015
Depreciation and amortization of property and equipment
$
135.6

 
9.0
%
 
$
127.7

 
9.1
%
 
$
127.5

 
9.1
%
Landfill depletion and amortization
92.6

 
6.1
%
 
76.6

 
5.4
%
 
88.8

 
6.4
%
Depreciation, amortization and depletion of property and equipment
$
228.2

 
15.1
%
 
$
204.3

 
14.5
%
 
$
216.3

 
15.5
%
Fiscal Year Ended December 31, 2017 compared to 2016
Depreciation and amortization of property and equipment increased by $7.9, or 6.2%, for fiscal 2017 to $135.6, due mainly to acquisition activity.
Landfill depletion and amortization increased by $16.0, or 20.9%, for fiscal 2017 as compared to fiscal 2016 primarily due to acquisition activity, increased disposal volumes, unfavorable adjustments in fiscal 2017 of $6.0 as a result of our annual landfill life of site analysis and favorable adjustments of $5.3 that were recognized in the fourth quarter of 2016 relative to asset retirement obligations compared to favorable adjustments of only $1.9 in the fourth quarter of 2017.
Fiscal Year Ended December 31, 2016 compared to 2015
Depreciation and amortization of property and equipment increased by $0.2, or 0.2%, for fiscal 2016 to $127.7, which is relatively consistent with fiscal 2015.
Landfill depletion and amortization decreased by $12.2, or 13.7%, for fiscal 2016 as compared to fiscal 2015 primarily due to an increase in deemed permitted expansion airspace at several of our landfills and favorable adjustments of $5.3 that were recognized in the fourth quarter of 2016 relative to asset retirement obligations compared to favorable adjustments of $1.4 in the fourth quarter of 2015.
Amortization of Other Intangible Assets and Other Assets
Amortization of other intangibles and other assets was $41.6, $42.6 and $42.8 for fiscal 2017, 2016 and 2015, respectively, or as a percentage of revenue, 2.8% to 3.1% for all years presented. The decrease in amortization expense in fiscal 2017 is attributable to certain intangible assets becoming fully amortized partially offset by increased acquisition activity. Our other intangible assets and other assets primarily relate to customer lists, municipal and customer contracts, operating permits and non-compete agreements.

Acquisitions

We completed fourteen acquisitions during fiscal 2017 for aggregate consideration, net of cash acquired, of $115.9, of which$4.0 will be paid in years subsequent to fiscal 2017. Transaction costs related to these acquisitions were not significant for fiscal 2017.

In fiscal 2016, we completed the acquisitions of eight collection companies for aggregate consideration of approximately $5.4, of which $0.1 will be paid in years subsequent to fiscal 2017. Transaction costs related to these acquisitions were not significant for fiscal 2016. Purchase price adjustments related to acquisitions in prior years amounted to approximately $0.1 for fiscal 2016.

In fiscal 2015, we completed the acquisitions of twelve collection companies for aggregate consideration of approximately $56.3, of which $6.6 was paid in years subsequent to fiscal 2015. Transaction costs related to these acquisitions were not significant for fiscal 2015. Purchase price adjustments related to acquisitions in prior years amounted to approximately $0.3 for fiscal 2015.


38



The amount of goodwill deductible for tax purposes was $79.7, $88.9 and $100.8 at December 31, 2017, 2016 and 2015, respectively.

Asset Impairments and Divestitures
From time to time, we may divest certain components of our business. Such divestitures may be undertaken for a number of reasons, including as a result of a determination that a specified asset will no longer provide adequate returns to us or will no longer serve a strategic purpose in connection with our business.
During fiscal 2017, we divested of our non-integrated collection services operation in Charlotte, North Carolina for consideration received of $8.7. A $1.4 gain on the sale of that business is included in our consolidated statements of operations for fiscal 2017.
We also have non-integrated collection operations in South Carolina which operate in a competitor-owned disposal market that does not align with our long-term market strategy of vertically integrated operations with Company owned disposal sites or marketplace neutral disposal sites. During April of fiscal 2017, changes in facts and circumstances led us to evaluate the long-term market for South Carolina collection operations and re-evaluate the expected cash flows provided by this market. We determined it appropriate to impair certain intangible assets that were recorded as part of the purchase accounting when these entities were acquired. Based on our evaluation, we recorded an intangible asset impairment of $13.0 during fiscal 2017.
We disposed of certain businesses in June 2015 and recorded a loss on disposal of $10.9 for fiscal 2015. In connection with the sale in June 2015, we impaired certain assets in the amount of $4.3. Further, we strategically allowed an inactive landfill permit to lapse and in connection with the permit lapse recorded a non-cash impairment charge of $2.1 primarily for permitting costs in fiscal 2015.
Restructuring Charges
For fiscal 2017, we incurred restructuring charges of $3.4 due to the elimination of positions at the corporate office. Of the $3.4 of restructuring charges, $2.1 relates to the acceleration of stock based compensation expense and $1.3 relates to severance expense.
For fiscal 2016, we incurred $0.8 of restructuring costs related to the consolidation of districts in the Midwest region and the resignation of one corporate executive.
For fiscal 2015, no new restructuring plans were adopted and no restructuring costs were incurred.
Interest Expense
The following table provides the components of interest expense for the periods indicated (in millions and as a percentage of our revenue):
 
Year ended December 31,
 
2017
 
2016
 
2015
Interest expense on debt and capital lease obligations
$
87.5

 
5.8
 %
 
$
113.5

 
8.1
 %
 
$
119.4

 
8.6
 %
Accretion of original issue discounts and loan costs
6.3

 
0.4
 %
 
17.5

 
1.2
 %
 
19.5

 
1.4
 %
Less: Capitalized interest
(0.8
)
 
(0.1
)%
 
(0.8
)
 
(0.1
)%
 
(0.9
)
 
(0.1
)%
Total Interest Expense
$
93.0

 
6.1
 %
 
$
130.2

 
9.2
 %
 
$
138.0

 
9.9
 %
Interest expense decreased in fiscal 2017 from fiscal 2016 due to the benefit from lower debt levels as a result of paying down debt with our initial public offering proceeds in the fourth quarter of fiscal 2016 and lower interest rates due to refinancing our debt structure in November 2016. Additionally, we further lowered our interest rate on the Term Loan B due to a repricing in November of fiscal 2017. See Note 12, Long-Term Debt, to our audited consolidated financial statements included elsewhere in this Form 10-K for further details on our debt refinancing. Interest expense decreased in fiscal 2016 from fiscal 2015 due to the benefit from lower debt levels as a result of paying down debt with our initial public offering proceeds in the fourth quarter of fiscal 2016 and lower interest rates due to refinancing our debt structure in November 2016.


39



Loss on Debt Extinguishments and Modifications
In November 2017, we repriced our Term Loan B under the existing credit agreement ("Existing Term Loan B") and as a result, we recorded $3.7 of losses on extinguishments and modifications of debt. See Debt Modifications and Extinguishments section below for further details.
In October 2016, we prepaid approximately $326.0 of our existing Term Loan B with our initial public offering proceeds and in November 2016, we refinanced our Term Loan B and Senior Notes. As a result, we recorded $64.7 of losses on extinguishments and modifications of debt. See Debt Modifications and Extinguishments section below for further details.
Other, Net
Changes in the fair value and settlements of fuel derivative instruments and our 2016 interest rate caps are recorded in other income (expense), net in the audited consolidated statements of operations and amounted to expense of $0.5, income of $3.5 and expense of $15.4 for fiscal 2017, 2016 and 2015, respectively. The expense in fiscal 2017 was driven by premium payments associated with the 2016 interest rate caps partially offset by the impact of increasing interest rates. The income in fiscal 2016 was driven by the increase in interest rates and moderate increase in diesel fuel prices. The expense in fiscal 2015 was driven by a reduction in diesel fuel prices. Income from equity investee for fiscal 2017, 2016 and 2015 was $1.6, $1.8 and $1.3, respectively. We realized a gain on sale of $2.5 from the disposition of an investment security in fiscal 2015.
Debt Extinguishments and Modifications
Fiscal 2017
When we repriced our Term Loan B facility in November 2017, 93% was accounted for as a modification and 7% was accounted for as an extinguishment based on an analysis of the participation of each lender in the syndicate before and after the repricing. As a result of the 7% that was accounted for as an extinguishment, $1.9 of the unamortized original issue discount and deferred debt issuance costs were recorded as a loss on extinguishment of debt. In relation to the modification, we incurred $1.8 of third party fees which were recorded as a loss on modification of debt. We incurred $0.1 of third party fees related to new lenders in the syndicate which were recorded as a reduction to the carrying value of debt which is being amortized to interest expense using the effective interest method.
Fiscal 2016
In fiscal 2016, the Company recorded $64.7 of losses on extinguishments and modifications of debt as follows:
In October of fiscal 2016, we prepaid $326.0 of our Existing Term Loan B with our initial public offering proceeds and recorded a loss on extinguishment of debt of $8.3 for unamortized original issue discount and debt issuance costs.
When we refinanced our Term Loan B facility in November 2016, 95% was accounted for as a modification and 5% was accounted for as an extinguishment based on an analysis of the participation of each lender in the syndicate before and after the refinancing. As a result of the 5% that was accounted for as an extinguishment, $1.5 of the unamortized original issue discount and deferred debt issuance costs were recorded as a loss on extinguishment of debt. In relation to the modification, we incurred $15.2 of third party fees which were recorded as a loss on modification of debt. We incurred $1.3 of third party fees related to new lenders in the syndicate which were recorded as a reduction to the carrying value of debt and will be amortized to interest expense using the effective interest method. Additionally, we recorded $3.8 of original issue discount as a reduction to the carrying value of debt which is being amortized to interest expense using the effective interest method.
When we amended our Revolving Credit Facility ("Revolver") in November 2016, we incurred $0.3 in third party financing fees which were recorded as an other long term asset and will be amortized to interest expense on a straight line basis over the term of the Revolver.
When we redeemed our $550.0 of 8.25% Senior Notes during the fourth quarter of fiscal 2016, we paid call premiums totaling $24.0. We recorded the call premium as a loss on extinguishment of debt during the fourth quarter of fiscal 2016. Additionally, we recorded $15.3 of loss on extinguishment of debt related to unamortized original issue discount and deferred debt issuance costs.
In November of fiscal 2016 when we issued $425.0 of 5.625% Senior Notes due 2024, we incurred $6.5 in debt issuance costs which were recorded as a reduction to the carrying value of debt and will be amortized to interest expense using the effective interest method.
In December of fiscal 2016, we prepaid $20.0 of our new Term Loan B and recorded a loss on extinguishment of debt of $0.4.

40



Income Taxes
Our benefit for income taxes was $41.2, $25.7 and $19.4, for fiscal 2017, 2016, and 2015, respectively. Our effective income tax rate was 1,420.7%, 45.8%, and 36.6% for fiscal 2017, 2016 and 2015, respectively. We expect our effective income tax rate for fiscal 2018 to be 27% based on current tax laws and regulations as modified by the Tax Cuts and Jobs Act. Our tax rate is affected by recurring items, such as differences in tax rates in state jurisdictions and the relative amount of income we earn in each jurisdiction, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state income taxes, the following items had the most significant impact on the difference between our statutory U.S. federal income tax rate and our effective tax rate:

2017:

Our effective income tax rate for fiscal 2017 was significantly higher than the enacted statutory rate primarily due to the enactment of the Tax Cuts and Jobs Act during the fourth quarter of fiscal 2017. Our financial results included a $40.5 non-cash tax benefit, primarily resulting from revaluing the Company's net deferred tax assets, liabilities, and certain associated valuation allowances to reflect the recently enacted 21% federal corporate tax rate. Due to the Act's taxation of deemed repatriation on foreign earnings, the Company expects to pay a one-time tax of $0.1 related to our Bahamas operations. Our effective income tax rate for fiscal 2017 is further disproportionate to the statutory rate in effect for fiscal 2017 of 35% due to the level of our pre-tax loss.
2016:
Our effective income tax rate for fiscal 2016 was higher than the enacted statutory rate primarily due to the favorable impact of state and local taxes and the benefit from stock option exercises. The increase in our effective tax rate was partially offset by an increase to our valuation allowance for certain state tax NOLs.
2015:
Our effective income tax rate for fiscal 2015 was higher than the enacted statutory rate due to the favorable impact of state and local taxes. Additionally, the favorable impact of a $0.9 release in recorded valuation allowance was recognized as we continued our plan of legal entity restructuring, designed to drive administrative and legal efficiencies. These favorable benefits were partially offset by the unfavorable impact of changes in state tax rates and non deductible transaction costs.
For additional discussion and detail regarding our income taxes, see Note 17, Income Taxes, to our consolidated financial statements.

























41




Reportable Segments

Our operations are managed through three geographic regions (South, East and Midwest) that we designate as our reportable segments. During the fourth quarter of fiscal 2016, the Company reorganized its internal organizational structure by moving two business units from the East segment to the South segment. Segment revenue, operating income and depreciation and amortization below for fiscal 2015 has been reclassified to reflect the changes to our operating segments in fiscal 2016.
Revenues and operating income (loss) for our reportable segments for the periods indicated, is shown in the following tables (in millions): 
 
Services
Revenues
 
Operating
Income (Loss)
 
Depreciation
and
Amortization
For the Year Ended December 31,
 
 
 
 
 
2017
 
 
 
 
 
South
$
570.5

 
$
89.8

 
$
85.0

East
380.2

 
(1.5
)
 
76.8

Midwest
556.9

 
71.7

 
98.9

Corporate

 
(69.9
)
 
9.1

 
$
1,507.6

 
$
90.1

 
$
269.8

For the Year Ended December 31,
 
 
 
 
 
2016
 
 
 
 
 
South
$
522.3

 
$
91.7

 
$
75.2

East
347.7

 
25.8

 
71.7

Midwest
534.6

 
78.3

 
91.5

Corporate

 
(63.9
)
 
8.5

 
$
1,404.6

 
$
131.9

 
$
246.9

For the Year Ended December 31,
 
 
 
 
 
2015
 
 
 
 
 
South
$
510.2

 
$
69.4

 
$
75.9

East
344.7

 
22.5

 
71.3

Midwest
541.6

 
61.1

 
103.8

Corporate
(0.1
)
 
(57.9
)
 
8.1

 
$
1,396.4

 
$
95.1

 
$
259.1

Comparison of Reportable Segments—Fiscal 2017 compared to Fiscal 2016
South Segment
Revenue for fiscal 2017 increased $48.2 or 9.2% from fiscal 2016. The increase in revenue was due to the following: an increase in acquisition related revenue of $19.9; an increase in residential, commercial and rolloff collection pricing of $9.7; an increase in revenue from transfer station disposal operations of $5.0; an increase in MSW and C&D disposal volume of $4.7; an increase in environmental charges of $3.3 due to rate increases that went into effect in July of 2016 and August 2017; an increase in sale of recyclable pricing of $2.5 due to an increase in commodity prices; an increase in commercial collection volume of $2.2; an increase in fuel surcharge revenue of $1.9 due to the increase in diesel fuel prices; and an increase in MSW, C&D and special waste landfill disposal pricing of $1.7. The increases were partially offset by a reduction in rolloff collection volume of $2.2 and a reduction in sale of recyclable volume of $1.9 due to the loss of a high volume customer.
Operating income from our South Segment decreased by $1.9 or 2.1% from fiscal 2016. The decrease was primarily due to the following: an increase in salary and wages of $11.2 due to merit increases, acquisition activity, higher healthcare costs, higher workers' compensation costs due to less favorable actuarial development and higher temporary labor costs as we transitioned to new customer service call centers in fiscal 2017; disposal and transportation costs of $9.2 to support the increase in our service revenue; an increase in depletion expense of $8.6 due to unfavorable adjustments in fiscal 2017 as a result of our annual landfill life of site analysis and an increase in disposal volumes; an increase in fuel costs of $5.9 impacted by the increase in diesel fuel

42



prices, partially due to hurricane related supply disruptions and the expiration of CNG credits; an increase in maintenance and repairs expense of $5.4 due mainly to acquisition activity; an increase in vehicle and facility maintenance costs of $4.5 due to acquisition activity and site repairs at certain landfills; an increase in various general and administrative expenses of $3.0; higher automobile and property insurance costs of $2.1 partially due to tornado and hurricane impact in the third quarter of fiscal 2017; and an increase in franchise fees of $0.9 to support the increase in our service revenue. The decrease was largely offset by the increase in revenue as described above.
East Segment
Revenue for fiscal 2017 increased $32.5, or 9.3% from fiscal 2016. The increase was primarily due to the following: an increase in acquisition related revenue of $31.6; an increase in third party trucking revenue of $5.4 due to special waste project activity; an increase in C&D and special waste disposal volume of $3.1; an increase in rolloff collection volume of $2.2; an increase in the sale of landfill gas of $2.2 primarily due to acquiring the gas rights from a third party at one of our landfills; an increase in broker related revenue of $1.8 associated with a recent acquisition; an increase in fuel surcharge revenue of $1.4 due to the increase in diesel fuel prices; an increase in environmental charges of $1.3 due to rate increases that went into effect in July of 2016 and August 2017; and an increase in sale of recyclable pricing of $1.0 due to an increase in commodity prices. These increases were partially offset by decreases in the following: a decrease in revenue from divestitures of $5.5; a decrease in shale related revenue of $5.4; a decrease in residential and rolloff collection pricing of $2.5; a decrease in special waste disposal pricing of $1.5; a decrease in residential collection volume of $1.4; and a decrease in MSW disposal volume of $1.4.
Operating income from our East Segment decreased by $27.3 for fiscal 2017 compared to fiscal 2016. Operating income from our East Segment, net of the $13.0 South Carolina intangible asset impairment and $11.1 of costs associated with the Greentree landfill waste slide, decreased $3.2 or 12.4% for fiscal 2017 compared to fiscal 2016. The decrease was primarily due to the following: an increase in salary and wages of $7.0 due to acquisition activity, merit increases, higher healthcare costs, higher workers' compensation costs due to less favorable actuarial development and higher temporary labor costs as we transitioned to new customer service call centers in fiscal 2017; an increase in depreciation and amortization expense of $5.1 due to acquisition activity; an increase in general and administrative expenses of $4.5 due to acquisition activity and increased bad debt expense due to the impact of acquired businesses on collection activities; an increase in fuel costs of $4.1 due to the increase in diesel fuel prices and the expiration of CNG credits; an increase in maintenance and repairs expense of $2.8 due to acquisition activity; an increase in maintenance costs for landfill gas control, leachate and sulfate treatment of $2.6; an increase in costs of $2.4 to operate an asphalt plant associated with a recent acquisition; an increase in disposal and transportation costs of $2.3 due to increased container weights; an increase in accretion expense of $1.9 attributable to the assumption of postclosure responsibility at one of our landfills during the first quarter of fiscal 2017 and the acquisition of a landfill during the first quarter of fiscal 2017; an increase in vehicle and facility maintenance costs of $1.7 due to acquisition activity; and higher automobile and property insurance costs of $1.1. The decreases were largely offset by the increase in revenue as described above.
Midwest Segment
Revenue for fiscal 2017 increased $22.3 or 4.2% from fiscal 2016. The increase was primarily due to the following: an increase in MSW, C&D and special waste landfill disposal volumes of $8.4; an increase in sale of recyclables of $8.2 due to an increase in commodity prices; higher pricing in our residential and rolloff collection operations of $5.3; an increase in environmental charges of $4.5 due to rate increases that went into effect in July of fiscal 2016 and August of fiscal 2017; an increase in acquisition related revenue of $3.3; higher rolloff collection volumes of $2.9; an increase in fuel surcharge revenue of $2.4 due to the increase in diesel fuel prices; and an increase of $1.9 primarily related to a volume commitment settlement associated with a landfill gas contract. The increases were partially offset by a reduction in residential revenue of $8.9 due to the loss of municipal contracts in fiscal 2016, a reduction in commercial collection pricing of $3.1 and a decrease in C&D and special waste disposal pricing of $1.9.
Operating income for 2017 decreased $6.6 or 8.4% from fiscal 2016. The decrease was primarily due to the following: an increase in depletion expense of $6.6 due to favorable adjustments that were recognized in the fourth quarter of 2016 relative to asset retirement obligations that did not recur in fiscal 2017, higher disposal and transportation cost of $4.5 to support the increase in our service revenue; an increase in fuel expense of $3.2 due to the increase in diesel fuel prices and the expiration of CNG credits; higher salary and wages of $3.0 due to merit increases, higher healthcare costs, higher workers' compensation costs due to less favorable actuarial development and higher temporary labor costs as we transitioned to new customer service call centers in fiscal 2017; an increase in maintenance costs of $2.8 related to landfill gas control, leachate and sulfate treatment; an increase in maintenance and repair expense of $1.9 due to increased labor costs; an increase in sales and marketing expense of $1.3 due to hiring additional sales representatives; an increase in vehicle and facility maintenance costs

43



of $1.3; higher automobile and property insurance costs of $1.3; and an increase in franchise fees of $1.1 as a result of higher disposal volumes. The decreases were largely offset by the increase in revenue as described above.
Corporate Segment
Operating loss increased by $6.0, or 9.4%, to a loss of $69.9 in fiscal 2017 primarily due to the following: an increase in stock based compensation expense of $4.3 due to the impact of initial public offering related awards and a larger portion of the Company's compensation structure shifting to stock based awards; an increase in professional fees of $3.3 which includes higher Sarbanes-Oxley costs, new accounting standard implementation costs, costs associated with being a public company and higher legal fees; an increase in salary and wage expense of $3.0 due to merit increases, higher healthcare costs and higher severance expense; and an increase in restructuring expense of $2.6 due to the elimination of positions at the corporate office in fiscal 2017. The increase in operating loss was partially offset by expenses incurred of $7.1 during fiscal 2016 related to the February launch of the initial public offering process that was not completed that did not recur in fiscal 2017.
Comparison of Reportable Segments—Fiscal 2016 compared to Fiscal 2015
South Segment
Revenue for fiscal 2016 increased $12.1 or 2.4% from fiscal 2015. The increase was primarily due to the impact of prior year acquisitions across all lines of business of $12.8, higher prices and volume for our MSW and special waste streams of $8.6, higher commercial collection and rolloff revenue due to higher prices and volume of $7.7 and higher environmental charges of $3.5. The increase was partially offset by decreases in revenue related to prior year divestitures of $11.5, lower residential collection revenue due to lower prices and volume of $4.4, lower fuel surcharge revenue of $2.3 due to the decrease in diesel fuel prices and lower trucking revenue of $1.6 due to lower volume of special waste projects.
Operating income from our South Segment increased by $22.3 or 32.1% from fiscal 2015. The increase was primarily due to lower losses on disposal of assets and asset impairments of $15.2 recorded in fiscal 2015 related to strategic divestitures which did not recur in 2016, higher revenue of $12.1 as described above and lower subcontract costs of $5.1 impacted by a prior year divestiture. The increase was partially offset by higher labor costs due to increased headcount, merit increases, and start up costs related to acquisitions and new municipal contracts of $6.0 and higher repairs and maintenance expense of $3.9 due to start up costs for new municipal contracts and acquisitions and the implementation of a standardized preventative maintenance plan on our collection fleet and landfill equipment.
East Segment
Revenue for fiscal 2016 increased $3.0, or 0.9% from fiscal 2015. The increase was primarily due to the impact of prior year acquisitions across all lines of business of $8.5, higher pricing across all collection lines of business of $4.3 and increased volume in our MSW and C&D disposal waste streams of $4.0. The increase was partially offset by lower volume in our commercial and rolloff collection businesses of $2.7, lower revenue associated to shale volumes of $6.5 and lower revenue due to prior year divestitures of $3.5.
Operating income from our East Segment increased by $3.3, or 14.7%, from fiscal 2015 to $25.8 in fiscal 2016. The increase was due to higher revenue of $3.0 as described above and lower fuel expense of $2.5 due to the decrease in diesel fuel prices. The increase was partially offset by higher labor costs due to merit increases and prior year acquisitions of $3.0.
Midwest Segment
Revenue for fiscal 2016 decreased $7.0 or 1.3% from fiscal 2015. The decrease was primarily due to lower revenue of $17.2 from reduced volumes in all of our collections lines of business and lower fuel surcharge revenue of $6.3 due to the decrease in diesel fuel prices. The decrease was partially offset by positive pricing in our commercial and residential collections lines of business of $5.2, positive pricing in our MSW disposal waste stream of $2.9, higher environmental charges of $6.6 and higher revenue due to prior year acquisitions of $3.6.
Operating income for 2016 increased $17.2 or 28.2% from fiscal 2015. The increase was primarily due to a reduction in landfill depletion and amortization of $11.7 as a result of an increase in deemed permitted expansion airspace at several of our landfills, lower fuel expense of $4.9 due to the decrease in diesel fuel prices and lower MSW disposal costs of $6.2 due to reduced volumes. The increase was partially offset by lower revenue of $7.0 as described above.


44



Corporate Segment
Operating loss increased by $6.0, or 10.4%, to a loss of $63.9 in fiscal 2016 primarily due to $7.1 in expenses related to the February launch of the initial public offering process and the evaluation of strategic alternatives.
Liquidity and Capital Resources
Our primary sources of cash are cash flows from operations, bank borrowings, debt offerings and equity offerings. We intend to use excess cash on hand and cash from operating activities, together with bank borrowings, to fund purchases of equipment, working capital and acquisitions. Excess cash from operating activities is also used to make debt repayments. Actual 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 funds available under our Revolving Credit Facility will provide us with sufficient financial resources to meet our anticipated capital requirements and maturing obligations as they come due. Prior to our initial public offering, we made certain distributions to our former parent company. For fiscal 2016 and 2015, those payments totaled approximately $21.8 and $7.5, respectively. At December 31, 2017, we had negative working capital which was driven by cash used for acquisitions during fiscal 2017. At December 31, 2016, we had negative working capital which was driven by repayments on the Term Loan B Facility and cash used for initial public offering costs. We expect to have a working capital deficit for the foreseeable future as excess cash flows from operations are utilized to either complete acquisitions or pay additional amounts on our Term Loan B Facility.
We have more than adequate availability under our Revolving Credit Facility, which was $231.7, $257.9 and $222.1 at December 31, 2017, 2016 and 2015, respectively, to fund short term working capital requirements.
Summary of Cash and Cash Equivalents and Debt Obligations
The table below presents a summary of our cash and cash equivalents and debt balances as of December 31, 2017 and 2016 (in millions):
 
 
December 31,
 
2017
 
2016
Cash and cash equivalents
$
6.8

 
$
1.2

Debt:
 
 
 
Current portion
$
74.1

 
$
36.5

Long-term portion
1,884.2

 
1,887.0

Total debt
$
1,958.3

 
$
1,923.5

Cash and cash equivalents increased due to the timing of cash receipts and cash disbursements. The current portion of debt increased due to an increase in borrowings on the Revolving Credit Facility of $29.0 and an $9.4 increase in the short term portion of capital lease obligations. Long-term debt decreased slightly due to $20.0 in principal payments made on the Term Loan B largely offset by amortization of deferred financing fees and original issue discount in fiscal 2017 and an increase of $12.1 in long term capital lease obligations.
Summary of Cash Flow Activity
The following table sets forth for the periods indicated a summary of our cash flows (in millions):
 
For the Years Ended December 31,
 
2017
 
2016
 
2015
Net cash provided by operating activities
$
308.8

 
$
237.0

 
$
244.5

Net cash used in investing activities
$
(287.6
)
 
$
(170.6
)
 
$
(197.4
)
Net cash used in financing activities
$
(15.6
)
 
$
(65.8
)
 
$
(47.5
)







45



Cash Flows Provided by Operating Activities
In fiscal 2017, we generated $308.8 of cash flows from operating activities compared to $237.0 in fiscal 2016, representing a increase of $71.8. The increase is primarily the result of the following:
A decrease in cash paid for interest of $33.2 due to the benefit from lower debt levels as a result of paying down debt with our initial public offering proceeds and lower interest rates due to refinancing our debt structure in November of fiscal 2016;
During fiscal 2017, we entered into an Asset Transfer and Liability Assumption Agreement with BFI Waste Systems of North America, LLC. We received a cash payment of $24.0 which was recorded as an operating cash flow. In exchange for this payment, we assumed certain post-closure liabilities of a closed portion of a landfill and became responsible for expenditures related to a gas infrastructure system. The present value of the assumed post-closure liabilities and expenditures related to the gas infrastructure system over the life of the landfill approximate the amount of the cash payment. The Company paid $4.0 million of these costs during fiscal 2017. The remaining payments related to the assumed post-closure liabilities and gas infrastructure system expenditures will be made in future periods;
A decrease in cash payments related to derivative instruments of $13.0;
A reduction in capital market costs of $6.1 primarily due to costs incurred during fiscal 2016 related to the February 2016 launch of the initial public offering process that was not completed that did not recur in fiscal 2017;
An increase in the change in accounts payable of $5.0 mainly due to the timing of payments.
The increase in cash flows provided by operating activities for fiscal 2017 was partially offset by the following:
An increase in the change in accounts receivable of $8.9 due primarily to an increase in revenue and the timing of payments related to special waste projects;
Net cash payments related to remediation of the Greentree landfill waste slide of $5.7.
Cash flows from operating activities are used to fund capital expenditures, acquisitions, interest payments and debt.
In fiscal 2016, we generated $237.0 of cash flows from operating activities compared to $244.5 in fiscal 2015, representing a decrease of $7.5. The decrease is primarily the result of the impact on accounts receivable from emphasis placed on collection activities in late fiscal 2014 that resulted in significant improvements in days sales outstanding throughout fiscal 2015, higher bonus payments made in fiscal 2016 for the fiscal 2015 management incentive plan compared to fiscal 2015 for the fiscal 2014 management incentive plan and higher cash paid for interest in fiscal 2016 compared to fiscal 2015 due to the timing of payments as a result of the debt refinancing in the fourth quarter of fiscal 2016. The decrease was partially offset by lower realized losses on fuel derivatives and a lower net loss.
Cash Flows Used in Investing Activities
We used $287.6 of cash in fiscal 2017 for investing activities, of which $186.6 was utilized to acquire property and equipment and for landfill cell construction and development and $111.9 was utilized for acquisitions. We received $10.9 in proceeds from the sale of property and equipment and businesses. Purchases of property and equipment and cash used for landfill construction and development in fiscal 2017 was impacted by the acquisition of a facility related to a municipal contract of $8.7 and land purchased for future airspace at one of our landfills of $3.1.
We used $170.6 of cash in fiscal 2016 for investing activities, of which $171.0 was utilized to acquire property and equipment and for landfill cell construction and development and $5.4 was utilized for acquisitions. We received $5.8 in proceeds from the sale of property and equipment and businesses.
We used $197.4 of cash in fiscal 2015 for investing activities, of which $179.7 was utilized to acquire property and equipment and for landfill cell construction and development and $50.0 was utilized for acquisitions. Further, we divested certain businesses and received $14.7 in cash and we redeemed an investment and received $15.0 in proceeds.

46



A breakdown of our capital expenditures to acquire property and equipment and for landfill cell construction and development are as follows:
 
For the Years Ended December 31,

2017

2016

2015
Infrastructure
$
39.1


$
28.8


$
17.1

Replacement
122.1


120.7


144.9

Growth
25.4


21.5


17.7

Total Capital Expenditures
$
186.6


$
171.0


$
179.7

Cash Flows Used in Financing Activities
Cash flows used in financing activities in fiscal 2017 were $15.6, as compared to $65.8 in fiscal 2016. We made payments on our Revolving Credit Facility and long-term debt obligations in the amount of $347.0 and borrowed approximately $326.2 in fiscal 2017. We received proceeds from the exercise of stock options of $7.0. We incurred $1.8 of costs in relation to refinancing our Term Loan B.
Cash flows used in financing activities in fiscal 2016 were $65.8, as compared to $47.5 in fiscal 2015. We made payments on our Revolving Credit Facility and long-term debt obligations in the amount of $1,164.4 and borrowed approximately $782.8 in fiscal 2016. We received proceeds from our initial public offering of $375.6 and proceeds from the exercise of stock options of $17.4. We incurred $50.9 of costs in relation to refinancing our debt structure and returned capital to our former parent of $21.8 prior to our initial public offering.
Cash flows used in financing activities in fiscal 2015 were $47.5, as compared to $53.0 in fiscal 2014. We made payments on our Revolving Credit Facility and long-term debt obligations in the amount of $153.4 and borrowed approximately $114.0 in fiscal 2015. Borrowings on the Revolving Credit Facility were utilized to fund working capital, acquisition of businesses and for interest payments on debt. Additionally, $7.5 of capital was returned to our former parent during fiscal 2015.
Senior Secured Credit Facilities

On November 21, 2017, we entered into Amendment No. 1 (the “Amendment”) to our Credit Agreement, dated as of October 9, 2012 (as amended and restated as of November 10, 2016, the “Amended and Restated Credit Agreement”) among the Company, the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent and as collateral agent. The Amendment reduces our applicable margin on the Term Loan B by 0.50% per annum.

On November 10, 2016, we entered into the Amended and Restated Credit Agreement by and among the Company, the guarantors party thereto, the lenders party thereto (the “Lenders”) and Deutsche Bank AG New York Branch, as administrative agent and collateral agent (respectively, the “Administrative Agent” and the “Collateral Agent”), to the Credit Agreement, by and among the Company, the lenders party thereto, the Administrative Agent and the Collateral Agent, dated as of October 9, 2012 (as amended, supplemented or modified from time to time prior to the date hereof, the “Existing Credit Agreement” and as amended and restated in accordance with the Amended and Restated Credit Agreement).
 
The Amended and Restated Credit Agreement includes a $1.5 billion Term Loan B facility maturing 2023, and a $300.0 Revolving Credit Facility maturing 2021 (together our "Senior Secured Credit Facilities"). The Revolving Credit Facility allows for up to $100.0 million of letters of credit outstanding. The proceeds were used to repay borrowings under the Existing Credit Agreement and to call a portion of our 8.25% Senior Notes due 2020. All outstanding borrowings under the Existing Credit Agreement were either repaid in full or converted to the new Senior Secured Credit Facility. At the Company’s option, borrowings under the Amended and Restated Credit Agreement will bear interest at an alternate base rate or adjusted LIBOR rate in each case plus an applicable margin. The alternate base rate is defined as the greater of the prime rate, the federal funds rate plus 50 basis points, or the adjusted LIBOR rate plus 100 basis points. The LIBOR base rate is subject to a 0.75% floor.

In the case of the Term Loan B, the applicable margin, as amended, is 1.25% per annum for ABR Loans and 2.25% per annum for Eurodollar Loans. In the case of the Revolving Credit Facility, the applicable margin is 1.75% per annum for ABR Loans and 2.75% per annum for Eurodollar Loans if our total net leverage ratio is greater than 4.0:1.0. If our total net leverage ratio is less than 4.0:1.0, the applicable margin on the Revolving Credit Facility is 1.25% per annum for ABR Loans and 2.25% per annum for Eurodollar Loans.

47



 
Obligations under the Amended and Restated Credit Agreement are guaranteed by our existing and future domestic restricted subsidiaries (subject to certain exceptions) and are secured by a first-priority security interest in substantially all our personal property assets, and certain real property assets, including all or a portion of the equity interests of certain of our domestic subsidiaries (in each cases, subject to certain limited exceptions).
 
Borrowings under the Amended and Restated Credit Agreement may be prepaid at any time without premium. The Amended and Restated Credit Agreement contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as a total net leverage ratio financial covenant (for the benefit of lenders under the revolving credit facility only). The Amended and Restated Credit Agreement also contains usual and customary events of default, including non-payment of principal, interest, fees and other amounts, material breach of a representation or warranty, nonperformance of covenants and obligations, default on other material debt, bankruptcy or insolvency, material judgments, incurrence of certain material ERISA liabilities, impairment of loan documentation or security and change of control. Compliance with these covenants is a condition to any incremental borrowings under our Senior Secured 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).
The Term Loan B has payments due quarterly of $3.75 with mandatory prepayments due to the extent net cash proceeds from the sale of assets exceed $25.0 in any fiscal year and are not reinvested in the business within 365 days from the date of sale, upon notification of our intent to take such action or in accordance with excess cash flow, as defined. Further prepayments are due when there is excess cash flow, as defined.

Borrowings under our Senior Secured Credit Facilities can be used for working capital, capital expenditures, acquisitions and other general corporate purposes. As of December 31, 2017 and 2016, we had $29.0 and $0.0 in borrowings outstanding under our Revolving Credit Facility. As of December 31, 2017 and 2016, we had an aggregate of approximately $39.3 and $42.1 of letters of credit outstanding under our Senior Secured Credit Facilities. As of December 31, 2017 and 2016, we had remaining capacity under our Revolving Credit Facility of $231.7 and $257.9, respectively. As of December 31, 2017, we were in compliance with the covenants under the Senior Secured Credit Facilities. Our ability to maintain compliance with our covenants will be highly dependent on our results of operations and, to the extent necessary, our ability to implement remedial measures such as reductions in operating costs. The Revolving Credit Facility has an annual commitment fee equal to 0.50% per annum if the total net leverage ratio is greater than 4.0:1.0, or if otherwise, 0.375% per annum. The amount of commitment fees for 2017, 2016 and 2015 were not significant.
We are subject to a maximum total net leverage ratio of 6.8:1.0. The actual total net leverage ratio at December 31, 2017 and 2016 was 4.7:1.0 and 4.8:1.0, respectively.
5.625% Senior Notes due 2024

On November 10, 2016, we closed a 144A offering (the “Notes Offering”) exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), of $425.0 aggregate principal amount of 5.625% senior notes due 2024 (the “Notes”).
 
We issued the Notes under an indenture dated November 10, 2016 (the “Indenture”) among the Company, the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The Notes will bear interest at the rate of 5.625% per year. Interest on the Notes is payable on May 15 and November 15 of each year, beginning on May 15, 2017. The Notes will mature on November 15, 2024. Before November 15, 2019, we may redeem the Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a make-whole premium and accrued and unpaid interest to the date of redemption. At any time on or after November 15, 2019, we may redeem the Notes, in whole or in part, at the applicable redemption prices set forth in the Indenture, plus accrued interest. In addition, before November 15, 2019, we may, from time to time, redeem up to 40% of the aggregate principal amount of the Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 105.625% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. The redemption prices set forth in the indenture for the twelve month periods beginning on November 15 of the years indicated below are as follows:

48



Year
Percentage

2019
104.219
%
2020
102.813
%
2021
101.406
%
2022 and thereafter
100.000
%

The Indenture contains covenants that, among other things, restrict our ability to incur additional debt or issue certain preferred stock; pay dividends (subject to certain exceptions) or make certain redemptions, repurchases or distributions or make certain other restricted payments or investments; create liens; enter into transactions with affiliates; merge, consolidate or sell, transfer or otherwise dispose of all or substantially all of our assets; transfer and sell assets; and create restrictions on dividends or other payments by our restricted subsidiaries. Certain covenants will cease to apply to the Notes for so long as the Notes have investment grade ratings. The Notes will be unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of our current and future U.S. subsidiaries that guarantee the Amended and Restated Credit Agreement. As of December 31, 2017, we were in compliance with the covenants under the Indenture.
8.25% Senior Notes due 2020
On October 9, 2012, we issued $550.0 aggregate principal amount of 8.25% Senior Notes, which were scheduled to mature in October 2020. The 8.25% Senior Notes were redeemed and repaid in full during the fourth quarter of fiscal 2016 with funds obtained from the new Term Loan B and the issuance of the 5.625% Senior Notes.
Off-Balance Sheet Arrangements
As of December 31, 2017, we had no off-balance sheet debt or similar obligations, other than financial assurance instruments and operating leases, which are not classified as debt. We do not guarantee any third-party debt.
Liquidity Impacts of Income Tax Items

Uncertain Tax Positions - As of December 31, 2017, we have $27.5 of liabilities associated with unrecognized tax benefits.
These liabilities are included as components of other liabilities and deferred income taxes in the Company's consolidated balance sheet because we generally do not anticipate that settlement of the liabilities will require payment of cash within the next 12 months. We are not able to reasonably estimate when we would make any cash payments required to settle these liabilities, but we do not believe that the ultimate settlement of our obligations will materially affect our liquidity.
Changes made by the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act, signed into law in fiscal 2017, makes significant changes to the U.S. federal income tax rules. These changes include reducing the U.S. corporate income tax rate from 35% to 21%, allowing an immediate expensing of certain tangible assets placed in service before 2023, limiting the deduction for net interest expense, limiting the use of newly-generated net operating losses to offset 80% of future taxable income and substantial changes to the U.S. taxation of foreign operations. While we continue to monitor the impact of these changes on the Company, we do not anticipate that these changes will materially affect our liquidity.
Financial Assurance
We must provide financial assurance to governmental agencies and a variety of other entities under applicable environmental regulations relating to our landfill operations for capping, closure and post-closure costs, and related to our performance under certain collection, landfill and transfer station contracts. We satisfy these financial assurance requirements by providing surety bonds, letters of credit or trust deposits, which are included in restricted cash and marketable securities. The amount of the financial assurance requirements for capping, closure and post-closure costs is determined by applicable state environmental regulations. The financial assurance requirements for capping, closure and post-closure costs may be associated with a portion of the landfill or the entire landfill. Generally, states require a third-party engineering specialist to determine the estimated capping, closure and post-closure costs that are used to determine the required amount of financial assurance for a landfill. The amount of financial assurance required can, and generally will, differ from the obligation determined and recorded under GAAP. The amount of the financial assurance requirements related to contract performance varies by contract. Additionally, we must provide financial assurance for our insurance program and collateral for certain performance obligations. We do not

49



expect a material increase in financial assurance requirements in the foreseeable future, although the mix of financial assurance instruments may change.
These financial instruments are issued in the normal course of business and are not considered company indebtedness. Because we currently have no liability for these financial assurance instruments, they are not reflected in our consolidated balance sheets. However, we record capping, closure and post-closure liabilities and self-insurance liabilities as they are incurred. The underlying obligations of the financial assurance instruments, in excess of those already reflected in our consolidated balance sheets, would be recorded if it is probable that we would be unable to fulfill our related obligations. We do not expect this to occur.
Contractual Commitments
We have various contractual obligations in the normal course of our operations and financing activities. The following table summarizes our contractual cash obligations as of December 31, 2017 (in millions):
 
 
Operating
Leases
 
Final Capping,
Closure and
Post-Closure
(a)
 
Debt
Payments
(b) (c)
 
Scheduled Interest Payment Obligations
(d)
 
Unconditional
Purchase
Commitments
(e)
 
Total
2018
$
6.3

 
$
20.2

 
$
45.1

 
$
80.1

 
$
26.9

 
$
178.6

2019
5.2

 
36.1

 
37.3

 
78.5

 
7.4

 
164.5

2020
4.4

 
28.4

 
27.4

 
77.2

 
6.7

 
144.1

2021
3.0

 
28.5

 
17.5

 
76.4

 
6.1

 
131.5

2022
2.4

 
28.0

 
18.3

 
75.8

 
4.3

 
128.8

Thereafter
21.8

 
282.6

 
1,844.1

 
61.6

 
59.8

 
2,269.9

Total
$
43.1

 
$
423.8

 
$
1,989.7

 
$
449.6

 
$
111.2

 
$
3,017.4

 
(a)
The estimated remaining final capping, closure and post-closure expenditures presented above are not inflated or discounted and reflect the estimated future payments for liabilities incurred and recorded as of December 31, 2017.
(b)
Debt payments include principal payments on debt and capital lease obligations.
(c)
Our recorded debt obligations include non-cash adjustments associated with discounts and deferred loan costs. These amounts have been excluded as they will not impact our liquidity in future periods.
(d)
Interest on variable rate debt was calculated at 3.7%, which is the 1 week LIBOR rate plus applicable margin in effect as of December 31, 2017.
(e)
Unconditional purchase commitments consist of disposal related agreements that include fixed or minimum royalty payments, disposal related host agreements, capital expenditure commitments, payments for premiums on interest rate caps and waste relocation obligations.
Critical Accounting Policies and Estimates
General
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We believe the following accounting policies and estimates are the most critical and could have the most impact on our results of operations. For a discussion of these and other accounting policies, see the notes to the Consolidated Financial Statements included elsewhere in this Form 10-K.
We have noted examples of the residual accounting and business risks inherent in the accounting for these areas. Residual accounting and business risks are defined as the inherent risks that we face after the application of our policies and processes that are generally outside of our control or ability to forecast.