REPUBLIC SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data) Ì (Continued)
incurred. In addition, costs historically accounted for as capital expenditures during the operating life of a
landÑll, such as cell development costs, are capitalized when incurred, and charged to expense using life cycle
accounting and the units-of-consumption method based on the consumption of cubic yards of available
airspace.
The Company deÑnes Ñnal capping as activities required to permanently cover a portion of a landÑll that
has been completely Ñlled with waste. Final capping occurs in phases throughout the life of a landÑll as
speciÑc areas are Ñlled to capacity and the Ñnal elevation for that speciÑc area is reached in accordance with
the provisions of the operating permit. The Company considers Ñnal capping events to be discrete activities
that are recognized as asset retirement obligations separately from other closure and post-closure obligations.
These capping events occur generally during the operating life of a landÑll and can be associated with waste
actually placed under an area to be capped. As a result, the Company uses a separate rate per ton for
recognizing the principal amount of the liability and related asset associated with each capping event. The
Company amortizes the asset recorded pursuant to this approach as waste volume equivalent to the capacity
covered by the capping event is placed into the landÑll based upon the consumption of cubic yards of available
airspace covered by the capping event.
The Company recognizes asset retirement obligations and the related amortization expense for closure
and post-closure (excluding obligations for Ñnal capping) using the units-of-consumption method over the
total remaining capacity of the landÑll. The total remaining capacity includes probable expansion airspace.
In general, the Company engages third parties to perform most of its Ñnal capping, closure and post-
closure activities. Accordingly, the fair market value of these obligations is based upon quoted and actual
prices paid for similar work. The Company does intend to perform some of its Ñnal capping, closure and post-
closure obligations using internal resources. Where internal resources are expected to be used to fulÑll an asset
retirement obligation, the Company has added a proÑt margin onto the estimated cost of such services to
better reÖect their fair market value as required by SFAS 143. These services primarily relate to managing
construction activities during Ñnal capping, and maintenance activities during closure and post-closure. If the
Company does perform these services internally, the added proÑt margin would be recognized as a component
of operating income in the period the obligation is settled.
SFAC 7 states that an estimate of fair value should include the price that marketplace participants are
able to receive for bearing the uncertainties in cash Öows. However, when utilizing discounted cash Öow
techniques, reliable estimates of market premiums may not be obtainable. In this situation, SFAC 7 indicates
that it is not necessary to consider a market risk premium in the determination of expected cash Öows. While
the cost of asset retirement obligations associated with Ñnal capping, closure and post-closure can be
quantiÑed and estimated, there is not an active market that can be utilized to determine the fair value of these
activities. In the case of the waste industry, no market exists for selling the responsibility for Ñnal capping,
closure and post-closure independent of selling the landÑll in its entirety. Accordingly, the Company believes
that it is not possible to develop a methodology to reliably estimate a market risk premium and has excluded a
market risk premium from its determination of expected cash Öow for landÑll asset retirement obligations in
accordance with SFAC 7.