Republic Services (RSG) FY2025 Earnings Quality Report

Grade: F — Near-Zero Cash Against $13.8B Debt

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed February 18, 2026, FY ended December 31, 2025) + Yahoo Finance

Auditor: Ernst & Young LLP — Unqualified opinion (2 critical audit matters: landfill development asset depletion, and landfill final capping/closure/post-closure costs)

One-line verdict: Republic Services is the #2 U.S. solid waste company, behind Waste Management. FY2025 revenue grew 3.5% to $16.59 billion with CFFO of $4.30 billion and FCF of $2.41 billion. Operating income of $3.30 billion grew 3.3%, and net income of $2.14 billion grew 4.6%. CFFO/NI of 2.01 reflects the massive non-cash depreciation, depletion, amortization and accretion expenses that characterize landfill-heavy business models — $1.93 billion of D&A + accretion in 2025 alone. The earnings quality is strong: 17 out of 18 checks pass, and the M-Score of -2.74 is the cleanest in this screen. But the balance sheet shows what you'd expect from a consolidator: $16.7 billion of goodwill, $655M of intangibles, $13.8B of debt, and only $76M of cash (0.5% of debt). That cash position is the lowest in our entire screen and is a mechanical fail on C4. Debt/EBITDA of 2.7x is healthy and the company has investment-grade credit, so the cash thinness is strategic — not distress — but the framework still flags it.

Business Model: Landfill-Heavy Waste Company

Republic Services operates three integrated businesses: (1) collection (residential, small-container commercial, large-container industrial), (2) transfer and disposal (transfer stations and landfills), and (3) environmental services including recycling and hazardous waste handling. The company operates in all 50 states and Puerto Rico.

The landfill business is the key economic engine. From the critical audit matters, landfill development asset depletion expense was $433 million in 2025 (a non-cash charge that flows through D&A), and the asset retirement obligation for landfill final capping, closure and post-closure totals $2,313 million on the balance sheet. These reflect the long-dated (often 30+ year) nature of landfill financial obligations.

Financial Performance: Steady Compounding

From the Consolidated Statements of Income:

Revenue growth of 3.5% reflects pricing power — waste companies typically get 4-5% price increases annually through multi-year service contracts, offset by modest volume decline. The MD&A will attribute growth to "pricing" as the dominant driver.

Loss from Unconsolidated Equity Method Investments of $163M is notable — this is likely Republic's share of losses from a joint venture investment. The $255M loss in FY2024 and $94M loss in FY2023 show this is a recurring drag. This line reflects minority stakes (likely in renewable natural gas projects or landfill-gas-to-energy ventures) that are investing in capacity but not yet profitable.

Effective tax rate climbed 160 bps to 17.5% — the low rate reflects deferred tax benefits and federal tax credits. Both FY2024 and FY2025 ETRs are below the 21% statutory rate.

Cash Flow: The Landfill Engine

CFFO/NI of 2.01 is structurally high because of the massive non-cash D&A ($1.81B) plus accretion ($114M) plus equity method losses ($163M) — these are all added back. This is the correct reading for a landfill-heavy business.

FCF of $2.41B grew 16% YoY — healthy for a mature, slow-growing industry. The company can fund dividends (~$750M) and modest share buybacks from FCF without needing to take on net new debt.

Balance Sheet: Capital-Heavy, Cash-Light

From the Consolidated Balance Sheets:

Goodwill of $16.7B, up from $16.0B — a $733M increase reflecting acquisitions during 2025 (minor tuck-ins; no mega-deals disclosed in risk factors or MD&A). Combined with $655M of intangibles, total G&I is $17.4B.

Goodwill + intangibles of $17.4B = 145% of equity of $12.0B. Every dollar of equity is backed by $1.45 of acquisition goodwill.

Long-term debt of $12,985M + current portion $596M = $13,581M (the yfinance figure of $13,810M includes commercial paper and a few other line items). Against this, cash is just $76M plus $259M of restricted cash = $335M total liquid. Cash-to-debt ratio is 0.5% — by far the lowest in this screen.

Landfill and environmental accruals of $2.6B (noncurrent) + $148M (current) = $2.76B. These are the asset retirement obligations for landfill closure. The critical audit matter specifically cites $2,313M of final capping/closure/post-closure costs.

Multi-employer pension plan contributions are a contingent liability disclosed in Risk Factors: "our ability to provide additional funding to any multiemployer pension plan to which we contribute or if a withdrawal event (including our voluntary withdrawal, which we consider from time to time, or the mass withdrawal of all contributing employers from any underfunded multiemployer pension plan) occurs with respect to any such plan."

Critical Audit Matters: Landfill Accounting

EY identified two critical audit matters, both about landfill accounting judgments:

CAM #1: Landfill Development Asset Depletion

"Landfill development asset depletion expense for the year ended December 31, 2025 was $433 million. As discussed in Note 2, management updates the assumptions used to estimate the landfill development asset depletion expense at least annually… Significant assumptions used in the calculation of the expense include estimated future development costs and available disposal capacity. Auditing landfill development asset depletion expense is complex due to the highly judgmental nature of the significant assumptions."

The depletion expense runs ~$433M/year — a material component of total D&A. The judgment is in estimating how much future landfill capacity is available and how much development cost will be incurred. If management under-estimates future costs or over-estimates capacity, current depletion is under-stated and earnings are inflated.

EY's procedures included:

CAM #2: Final Capping, Closure and Post-Closure Costs

"At December 31, 2025, the carrying value of the Company's landfill final capping, closure and post-closure costs totaled $2,313 million… These assumptions include estimated future costs associated with the final capping, closure and post-closure activities at each landfill, projected timing of future cash outflows, and estimated inflation rate. Auditing the landfill asset retirement obligations is complex due to the highly judgmental nature of the significant assumptions."

The $2.31B liability accretes at roughly 5% per year ($114M in 2025), reflecting the time value of long-dated cash outflows. If management under-estimates future costs, the liability is too small and future periods will see sudden catch-up charges.

Both CAMs reflect the inherent accounting judgment in landfill operations — a set of estimates about events 30+ years in the future. The audit procedures look robust, but these are the primary risk areas for any solid waste company.

The 18-Point Screening

Revenue Quality

Expense Quality

Cash Flow Quality

Balance Sheet

Acquisition Risk

Manipulation Score

Components: DSRI 1.007, GMI 0.993, AQI 1.001, SGI 1.035 (3.5% growth), DEPI 0.984, SGAI 0.98 (SG&A decelerating), TATA -0.0628 (very high quality accruals), LVGI 0.998 (leverage stable).

TATA of -0.0628 is the cleanest in this screen — cash is exceeding accruals by 6.3%, meaning cash generation is meaningfully ahead of reported earnings. This is the opposite of the manipulation pattern.

Key Risks from the 10-K

1. Landfill Accounting Judgment (Critical Audit Matters)

Both EY critical audit matters focus on landfill accounting judgment. If future development costs are higher than management estimates, current depletion is understated and earnings are overstated. If landfill closure costs are higher than estimated, the $2.31B liability is understated. These are not signs of manipulation — they are the core judgment areas in this industry.

2. Multi-Employer Pension Plans

From Item 1A: "potential increases in our costs if we are required to provide additional funding to any multiemployer pension plan to which we contribute or if a withdrawal event (including our voluntary withdrawal, which we consider from time to time, or the mass withdrawal of all contributing employers from any underfunded multiemployer pension plan) occurs with respect to any such plan."

Republic participates in several Teamsters and other multi-employer pension plans. If any becomes underfunded, the company could face withdrawal liability payments. The fact that the risk factor explicitly mentions voluntary withdrawal consideration suggests this is an active management discussion.

3. Fuel Cost Volatility

From Item 1A: "Our fuel costs were $466 million in 2025, or 2.8% of revenue, compared to $470 million in 2024, or 2.9% of revenue. At current consumption levels, a twenty-cent per gallon change in the price of diesel fuel changes our fuel costs by approximately $26 million on an annual basis."

The company passes most of this through fuel surcharges, but timing lags exist. "At current participation rates, we believe a twenty-cent per gallon change in the price of diesel fuel changes our fuel recovery fee by approximately $42 million."

4. PFAS and Chemical Regulation

From Item 1A forward-looking statements: "compliance with existing and future legal and regulatory requirements, including changes relating to per- and polyfluoroalkyl substances (commonly referred to as PFAS) and other chemicals of emerging concern and limitations or bans on disposal of certain types of wastes."

PFAS ("forever chemicals") regulation is an emerging liability for waste companies. The EPA's Superfund designations and state-level rules could impose retroactive cleanup costs on landfills where PFAS was disposed. The industry faces a potentially multi-billion-dollar contingent liability.

5. Recycled Commodity Price Volatility

From Item 1A: "Fluctuations in prices and demand for recycled commodities that we sell to customers may adversely affect our consolidated financial condition." Recycled cardboard, paper, plastics and metals are sold at market prices that can swing significantly. Republic has implemented "SRA" (Sustainability Recycling Adjustment) fees to pass through commodity volatility.

6. Large Customer Contract Dependence

From the forward-looking statements: "our dependence on large, long-term collection, transfer and disposal contracts." Municipal waste contracts are awarded through competitive bidding. Losing a major city contract in a renewal cycle could materially impact the local market P&L.

7. Equity Method Investment Losses

$163M of equity method losses in 2025 (improving from $255M in FY2024) reflects a joint venture investment that is currently cash-burning. This is likely a renewable energy / landfill gas project that needs to reach scale. If it fails to achieve profitability, it would be an impairment candidate.

Summary

Grade: F. Two critical fails — C4 (cash $76M vs debt $13.8B = 1% coverage, the lowest in this screen) and D1 (goodwill+intangibles 145% of equity) — plus a D3 watch on soft asset growth.

Republic Services has perhaps the best operating quality metrics in this screen: M-Score of -2.74 (cleanest), CFFO/NI of 2.01, TATA of -0.0628, FCF of $2.4B, and 17 out of 18 checks passing. The business is a durable compounder with pricing power, predictable cash flows, and strategic landfill assets.

The F grade is mechanical: 1% cash-to-debt is so far below the threshold that no amount of operating quality can offset it. But for a solid waste company with investment-grade credit and $2.4B of annual free cash flow, running with $76M of cash is strategic — it minimizes drag on ROE and borrowing is cheap. Moody's and S&P both rate Republic investment grade.

The real risks are elsewhere: PFAS contingent liabilities that could emerge over the next decade, multi-employer pension plan underfunding, landfill closure cost underestimation (the CAMs), and the equity method investment losses that signal a capital deployment question. None are immediate, but any could become material.

The key questions for investors: (1) Does the equity method investment (loss $163M in 2025) ever become profitable, or will it require an impairment write-down? (2) How exposed is Republic to PFAS remediation liabilities on legacy landfills? (3) Is the 2.7x Debt/EBITDA sustainable as the company continues modest M&A and dividend growth? The answers will drive whether this investment-grade compounder continues to deliver mid-single-digit EPS growth.

**Disclaimer**: This report is based on Republic Services' FY2025 10-K filed with SEC EDGAR on February 18, 2026. This is NOT investment advice.

Data: SEC EDGAR 10-K + Yahoo Finance

Auditor: Ernst & Young LLP (Unqualified opinion, 2 critical audit matters — landfill development asset depletion, and landfill final capping/closure/post-closure costs)

Fiscal year ended: December 31, 2025