REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data) Ì (Continued)
The Company's estimates of costs to discharge asset retirement obligations for landÑlls are developed in
today's dollars. These costs are inÖated each year to reÖect a normal escalation of prices up to the year they
are expected to be paid. The Company uses a 2.5% inÖation rate, which is based upon the ten year average
increase in the consumer price index and is the rate used by most waste industry participants.
These estimated costs are then discounted to their present value using a credit-adjusted, risk-free rate.
The Company's credit-adjusted, risk-free rate was determined to be 6.50% and 6.75% for years ended
December 31, 2004 and 2003, respectively, based upon the estimated all-in yield the Company believes it
would need to oÅer to sell thirty-year debt in the public market. Changes in asset retirement obligations due to
the passage of time are measured by recognizing accretion expense in a manner that results in a constant
eÅective interest rate being applied to the average carrying amount of the liability. The eÅective interest rate
used to calculate accretion expense is the Company's credit-adjusted, risk-free rate.
In accordance with SFAS 143, changes due to revision of the estimates of the amount or timing of the
original undiscounted cash Öows used to record a liability are recognized by increasing or decreasing the
carrying amount of the asset retirement obligation liability and the carrying amount of the related asset.
Upward revisions in the amount of undiscounted estimated cash Öows used to record a liability must be
discounted using the credit-adjusted, risk-free rate in eÅect at the time of the change. Downward revisions in
the amount of undiscounted estimated cash Öows used to record a liability must be discounted using the
credit-adjusted, risk-free rate that existed when the original liability was recognized.
The Company reviews its calculations with respect to landÑll asset retirement obligations at least
annually. If there is a signiÑcant change in the facts and circumstances related to a landÑll during the year, the
Company will review its calculations for the landÑll as soon as practical after the signiÑcant change has
occurred.
The following table summarizes the actual activity in the Company's asset retirement obligation liabilities
for the years ended December 31, 2004 and 2003 and the pro forma activity for the years ended December 31,
2003 and 2002 assuming SFAS 143 were eÅective as of January 1, 2002:
Years Ended December 31,
2004 2003 2003 2002
Actual Actual Pro Forma Pro Forma
Asset retirement obligation liability, beginning of year $204.7 $196.9 $182.4 $167.8
Cumulative eÅect of change in accounting principleÏÏ Ì (14.5) Ì Ì
Non-cash asset additionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19.6 Ì Ì Ì
Revisions in estimate of future cash Öows ÏÏÏÏÏÏÏÏÏÏ (4.3) Ì Ì Ì
Acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .6 Ì Ì Ì
Additions incurred during the periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 17.9 17.9 18.9
Amounts settled during the periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (17.5) (8.3) (8.3) (14.8)
Accretion expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13.7 12.7 12.7 10.5
Asset retirement obligation liability, end of year ÏÏÏÏÏ 216.8 204.7 204.7 182.4
Less: Current portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (14.6) (29.5) (29.5) (22.1)
Long-term portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $202.2 $175.2 $175.2 $160.3
The fair value of assets that are legally restricted for purposes of settling Ñnal capping, closure and post-
closure obligations was approximately $7.5 million at December 31, 2004 and are included as restricted cash in
the Company's Consolidated Balance Sheets.
72