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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

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 number 1-34370

Graphic

WASTE CONNECTIONS, INC.

(Exact name of registrant as specified in its charter)

Ontario, Canada

(State or other jurisdiction of incorporation or organization)

98-1202763

(I.R.S. Employer Identification No.)

6220 Hwy 7, Suite 600

Woodbridge

Ontario L4H 4G3

Canada

(Address of principal executive offices)

(905) 532-7510

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, no par value

WCN

New York Stock Exchange (“NYSE”)
Toronto Stock Exchange (“TSX”)

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 þ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No

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):

þ Large Accelerated
Filer

Accelerated
Filer

Non-accelerated
Filer

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 þ

Indicate the number of shares outstanding of each of the issuer’s classes of common shares:

As of April 22, 2022:257,164,982 common shares

WASTE CONNECTIONS, INC.

FORM 10-Q

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION (unaudited)

Item 1.

    

Financial Statements

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Net Income

2

Condensed Consolidated Statements of Comprehensive Income

3

Condensed Consolidated Statements of Equity

4

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4.

Controls and Procedures

52

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 6.

Exhibits

54

Signatures

55

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands of U.S. dollars, except share and per share amounts)

March 31, 

December 31, 

    

2022

    

2021

ASSETS

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and equivalents

$

391,417

$

147,441

Accounts receivable, net of allowance for credit losses of $19,361 and $18,480 at March 31, 2022 and December 31, 2021, respectively

 

727,737

 

709,614

Prepaid expenses and other current assets

 

293,625

 

175,722

Total current assets

 

1,412,779

 

1,032,777

Restricted cash

71,867

72,174

Restricted investments

 

59,449

 

59,014

Property and equipment, net

 

5,770,931

 

5,721,949

Operating lease right-of-use assets

162,332

160,567

Goodwill

 

6,427,763

 

6,187,643

Intangible assets, net

 

1,388,687

 

1,350,597

Other assets, net

 

120,554

 

115,203

Total assets

$

15,414,362

$

14,699,924

LIABILITIES AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

423,175

$

392,868

Book overdraft

 

16,809

 

16,721

Deferred revenue

 

293,729

 

273,720

Accrued liabilities

396,292

 

442,596

Current portion of operating lease liabilities

 

35,079

38,017

Current portion of contingent consideration

 

64,480

 

62,804

Current portion of long-term debt and notes payable

 

28,070

 

6,020

Total current liabilities

 

1,257,634

 

1,232,746

Long-term portion of debt and notes payable

 

5,817,641

 

5,040,500

Long-term portion of operating lease liabilities

134,392

129,628

Long-term portion of contingent consideration

 

31,558

 

31,504

Deferred income taxes

 

1,002,800

 

850,921

Other long-term liabilities

 

411,278

 

421,080

Total liabilities

 

8,655,303

 

7,706,379

Commitments and contingencies (Note 17)

 

  

 

  

Equity:

 

 

  

Common shares: 257,164,867 shares issued and 257,096,408 shares outstanding at March 31, 2022; 260,283,158 shares issued and 260,212,496 shares outstanding at December 31, 2021

 

3,269,887

 

3,693,027

Additional paid-in capital

 

196,385

 

199,482

Accumulated other comprehensive income

 

110,358

 

39,584

Treasury shares: 68,459 and 70,662 shares at March 31, 2022 and December 31, 2021, respectively

 

 

Retained earnings

 

3,177,778

 

3,056,845

Total Waste Connections’ equity

 

6,754,408

 

6,988,938

Noncontrolling interest in subsidiaries

 

4,651

 

4,607

Total equity

 

6,759,059

 

6,993,545

$

15,414,362

$

14,699,924

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

(In thousands of U.S. dollars, except share and per share amounts)

Three Months Ended March 31, 

    

2022

    

2021

    

Revenues

$

1,646,255

$

1,395,942

Operating expenses:

 

 

Cost of operations

989,518

825,920

Selling, general and administrative

163,414

141,422

Depreciation

179,950

157,402

Amortization of intangibles

37,635

32,192

Impairments and other operating items

1,878

634

Operating income

 

273,860

 

238,372

Interest expense

(41,324)

(42,425)

Interest income

137

1,103

Other income (expense), net

(3,466)

3,548

Income before income tax provision

 

229,207

 

200,598

Income tax provision

(48,839)

(40,291)

Net income

 

180,368

 

160,307

Plus (less): Net loss (income) attributable to noncontrolling interests

(44)

2

Net income attributable to Waste Connections

$

180,324

$

160,309

Earnings per common share attributable to Waste Connections’ common shareholders:

 

  

 

Basic

$

0.70

$

0.61

Diluted

$

0.69

$

0.61

Shares used in the per share calculations:

 

 

Basic

 

258,946,933

262,697,487

Diluted

 

259,560,983

263,156,655

Cash dividends per common share

$

0.230

$

0.205

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands of U.S. dollars)

Three Months Ended March 31, 

    

    

2022

    

2021

Net income

$

180,368

$

160,307

Other comprehensive income, before tax:

 

 

Interest rate swap amounts reclassified into interest expense

4,750

4,796

Changes in fair value of interest rate swaps

44,699

20,739

Foreign currency translation adjustment

34,429

28,054

Other comprehensive income, before tax

 

83,878

 

53,589

Income tax expense related to items of other comprehensive income

(13,104)

(6,767)

Other comprehensive income, net of tax

 

70,774

 

46,822

Comprehensive income

 

251,142

 

207,129

Plus (less): Comprehensive loss (income) attributable to noncontrolling interests

(44)

2

Comprehensive income attributable to Waste Connections

$

251,098

$

207,131

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands of U.S. dollars, except share amounts)

WASTE CONNECTIONS' EQUITY

ACCUMULATED

ADDITIONAL

OTHER

COMMON SHARES

PAID-IN

COMPREHENSIVE

TREASURY SHARES

RETAINED

NONCONTROLLING

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME

  

SHARES

  

AMOUNT

  

EARNINGS

  

INTERESTS

  

TOTAL

Balances at December 31, 2021

260,212,496

$

3,693,027

$

199,482

$

39,584

70,662

$

$

3,056,845

$

4,607

$

6,993,545

Sale of common shares held in trust

 

2,203

 

305

 

 

 

(2,203)

 

 

 

 

305

Vesting of restricted share units

 

312,706

 

 

 

 

 

 

 

 

Vesting of performance-based restricted share units

 

57,677

 

 

 

 

 

 

 

 

Restricted share units released from deferred compensation plan

 

19,149

 

 

 

 

 

 

 

 

Tax withholdings related to net share settlements of equity-based compensation

 

(143,243)

 

 

(17,236)

 

 

 

 

 

 

(17,236)

Equity-based compensation

 

 

 

14,139

 

 

 

 

 

 

14,139

Exercise of warrants

 

11,560

 

 

 

 

 

 

 

 

Issuance of shares under employee share purchase plan

12,015

1,554

1,554

Repurchase of common shares

(3,388,155)

(424,999)

(424,999)

Cash dividends on common shares

 

 

 

 

 

 

 

(59,391)

 

 

(59,391)

Amounts reclassified into earnings, net of taxes

 

 

 

 

3,491

 

 

 

 

 

3,491

Changes in fair value of cash flow hedges, net of taxes

 

 

 

 

32,854

 

 

 

 

 

32,854

Foreign currency translation adjustment

 

 

 

 

34,429

 

 

 

 

 

34,429

Net income

 

 

 

 

 

 

180,324

 

44

 

180,368

Balances at March 31, 2022

 

257,096,408

$

3,269,887

$

196,385

$

110,358

 

68,459

$

$

3,177,778

$

4,651

$

6,759,059

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands of U.S. dollars, except share amounts)

WASTE CONNECTIONS' EQUITY

ACCUMULATED

ADDITIONAL

OTHER

COMMON SHARES

PAID-IN

COMPREHENSIVE

TREASURY SHARES

RETAINED

NONCONTROLLING

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

SHARES

  

AMOUNT

  

EARNINGS

  

INTERESTS

  

TOTAL

Balances at December 31, 2020

262,824,990

$

4,030,368

$

170,555

$

(651)

74,184

$

$

2,659,001

$

4,165

$

6,863,438

Sale of common shares held in trust

1,318

131

(1,318)

131

Vesting of restricted share units

 

340,529

 

 

 

 

 

 

 

 

Vesting of performance-based restricted share units

154,251

Restricted share units released from deferred compensation plan

 

19,150

 

 

 

 

 

 

 

 

Tax withholdings related to net share settlements of equity-based compensation

 

(186,039)

 

 

(18,490)

 

 

 

 

 

 

(18,490)

Equity-based compensation

 

 

 

9,573

 

 

 

 

 

 

9,573

Exercise of warrants

 

3,490

 

 

 

 

 

 

 

 

Repurchase of common shares

 

(666,184)

 

(65,999)

 

 

 

 

 

 

 

(65,999)

Cash dividends on common shares

 

 

 

 

 

 

 

(53,909)

 

 

(53,909)

Amounts reclassified into earnings, net of taxes

 

 

 

 

3,525

 

 

 

 

 

3,525

Changes in fair value of cash flow hedges, net of taxes

 

 

 

 

15,243

 

 

 

 

 

15,243

Foreign currency translation adjustment

28,054

28,054

Net income (loss)

 

 

 

 

 

 

 

160,309

 

(2)

 

160,307

Balances at March 31, 2021

 

262,491,505

$

3,964,500

$

161,638

$

46,171

 

72,866

$

$

2,765,401

$

4,163

$

6,941,873

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of U.S. dollars)

Three Months Ended March 31, 

    

2022

    

2021

    

CASH FLOWS FROM OPERATING ACTIVITIES:

  

  

Net income

$

180,368

$

160,307

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Loss on disposal of assets and impairments

 

2,090

 

401

Depreciation

 

179,950

 

157,402

Amortization of intangibles

 

37,635

 

32,192

Deferred income taxes, net of acquisitions

 

38,378

 

8,379

Current period provision for expected credit losses

3,022

1,915

Amortization of debt issuance costs

 

1,195

 

1,359

Share-based compensation

 

14,635

 

10,307

Interest accretion

 

4,448

 

4,204

Payment of contingent consideration recorded in earnings

 

 

(520)

Adjustments to contingent consideration

 

(52)

 

89

Other

382

(796)

Net change in operating assets and liabilities, net of acquisitions

(21,154)

25,157

Net cash provided by operating activities

 

440,897

 

400,396

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

Payments for acquisitions, net of cash acquired

 

(355,212)

(8,545)

Capital expenditures for property and equipment

 

(152,318)

(96,793)

Proceeds from disposal of assets

 

15,012

2,080

Other

 

2,637

2,705

Net cash used in investing activities

 

(489,881)

 

(100,553)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

  

Proceeds from long-term debt

 

1,305,288

Principal payments on notes payable and long-term debt

 

(505,597)

(5,559)

Payment of contingent consideration recorded at acquisition date

 

(3,571)

(4,807)

Change in book overdraft

 

87

(16,849)

Payments for repurchase of common shares

 

(424,999)

(65,999)

Payments for cash dividends

 

(59,391)

(53,909)

Tax withholdings related to net share settlements of equity-based compensation

 

(17,236)

(18,490)

Debt issuance costs

 

(4,382)

Proceeds from issuance of shares under employee share purchase plan

1,554

Proceeds from sale of common shares held in trust

 

305

131

Net cash provided by (used in) financing activities

 

292,058

 

(165,482)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

595

403

Net increase in cash, cash equivalents and restricted cash

 

243,669

 

134,764

Cash, cash equivalents and restricted cash at beginning of period

 

219,615

714,389

Cash, cash equivalents and restricted cash at end of period

$

463,284

$

849,153

Non-cash financing activities:

Liabilities assumed and notes payable issued to sellers of businesses acquired

$

40,122

$

4,123

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

1.BASIS OF PRESENTATION AND SUMMARY

The accompanying condensed consolidated financial statements relate to Waste Connections, Inc. and its subsidiaries (the “Company”) for the three month periods ended March 31, 2022 and 2021. In the opinion of management, the accompanying balance sheets and related interim statements of net income, comprehensive income (loss), cash flows and equity include all adjustments, consisting only of normal recurring items, necessary for their fair statement in conformity with U.S. generally accepted accounting principles (“GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include accounting for landfills, self-insurance accruals, income taxes, allocation of acquisition purchase price, contingent consideration accruals and asset impairments. An additional area that involves estimation is when the Company estimates the amount of potential exposure it may have with respect to litigation, claims and assessments in accordance with the accounting guidance on contingencies. Actual results for all estimates could differ materially from the estimates and assumptions that the Company uses in the preparation of its condensed consolidated financial statements.

Interim results are not necessarily indicative of results for a full year. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

2.REPORTING CURRENCY

The functional currency of the Company, as the parent corporate entity, and its operating subsidiaries in the United States, is the U.S. dollar. The functional currency of the Company’s Canadian operations is the Canadian dollar. The reporting currency of the Company is the U.S. dollar. The Company’s consolidated Canadian dollar financial position is translated to U.S. dollars by applying the foreign currency exchange rate in effect at the consolidated balance sheet date. The Company’s consolidated Canadian dollar results of operations and cash flows are translated to U.S. dollars by applying the average foreign currency exchange rate in effect during the reporting period. The resulting translation adjustments are included in other comprehensive income or loss. Gains and losses from foreign currency transactions are included in earnings for the period.

3.NEW ACCOUNTING STANDARDS

Accounting Standards Pending Adoption

Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  In March 2020, the Financial Accounting Standards Board (“FASB”) issued guidance to provide temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”).  One-week and two-month U.S. dollar LIBOR settings as well as all non-U.S. dollar LIBOR settings stopped being published on December 31, 2021, while the remaining U.S. dollar LIBOR settings will be discontinued on June 30, 2023.  Under the new guidance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met.  An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.  Under the guidance, entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.

The guidance was effective upon issuance.  The guidance on contract modifications was applied prospectively from March 12, 2020.  The guidance on hedging is applied to eligible hedging relationships existing as of the beginning of the

7

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

interim period that includes the effective date and to new eligible hedging relationships entered into after the beginning of that interim period.  The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date.  However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022.  The Company is currently assessing the potential impact of implementing this new guidance on its consolidated financial statements.  The Company had a combined $1,474,500 of U.S. LIBOR based loans as of March 31, 2022. The Company estimates that if the reference rate for these loans had transitioned from LIBOR to SOFR as of March 31, 2022, the impact to annual interest expense would have been immaterial.  This relief is expected to permit the Company to maintain cash flow ‎hedge accounting as described in Note 11.

4.REVENUE

The Company’s operations primarily consist of providing non-hazardous waste collection, transfer, disposal and recycling services, non-hazardous oil and natural gas exploration and production (“E&P”) waste treatment, recovery and disposal services and intermodal services. The following table disaggregates the Company’s revenues by service line for the periods indicated:

Three Months Ended March 31, 

    

2022

    

2021

    

Commercial

$

499,676

$

426,395

 

Residential

440,288

400,819

Industrial and construction roll off

259,488

209,258

Total collection

1,199,452

1,036,472

Landfill

299,765

271,936

Transfer

217,957

189,323

Recycling

63,094

32,448

E&P

43,555

28,012

Intermodal and other

45,693

35,634

Intercompany

(223,261)

(197,883)

Total

$

1,646,255

$

1,395,942

 

The factors that impact the timing and amount of revenue recognized for each service line may vary based on the nature of the service performed. Generally, the Company recognizes revenue at the time it performs a service. In the event that the Company bills for services in advance of performance, it recognizes deferred revenue for the amount billed and subsequently recognizes revenue at the time the service is provided.  Substantially all of the deferred revenue recorded as of December 31, 2021 was recognized as revenue during the three months ended March 31, 2022 when the service was performed.

See Note 10 for additional information regarding revenue by reportable segment.

Contract Acquisition Costs

The incremental direct costs of obtaining a contract, which consist of sales incentives, are recognized as Other assets in the Company’s Condensed Consolidated Balance Sheet, and are amortized to Selling, general and administrative expense over the estimated life of the relevant customer relationship, which ranges from one to five years. The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset

8

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

that the entity would have recognized is one year or less.  The Company had $19,627 and $18,954 of deferred sales incentives at March 31, 2022 and December 31, 2021, respectively.

5.ACCOUNTS RECEIVABLE

Accounts receivable are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of the allowance for credit losses, represents their estimated net realizable value.

The allowance for credit losses is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics.  The Company monitors the collectability of its trade receivables as one overall pool due to all trade receivables having similar risk characteristics.  The Company estimates its allowance for credit losses based on historical collection trends, the age of outstanding receivables, geographical location of the customer, existing economic conditions and reasonable forecasts. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due.

The following is a rollforward of the Company’s allowance for credit losses for the periods indicated:

Three Months Ended March 31, 

2022

    

2021

Beginning balance

$

18,480

$

19,380

Current period provision for expected credit losses

3,022

1,915

Write-offs charged against the allowance

(3,435)

(3,501)

Recoveries collected

1,272

1,153

Impact of changes in foreign currency

22

23

Ending balance

$

19,361

$

18,970

6.LANDFILL ACCOUNTING

At March 31, 2022, the Company’s landfills consisted of 84 owned landfills, five landfills operated under life-of-site operating agreements and five landfills operated under limited-term operating agreements. The Company’s landfills had site costs with a net book value of $2,688,673 at March 31, 2022. For the Company’s landfills operated under limited-term operating agreements and life-of-site operating agreements, the owner of the property (generally a municipality) usually owns the permit and the Company operates the landfill for a contracted term. Where the contracted term is not the life of the landfill, the property owner is generally responsible for final capping, closure and post-closure obligations. The Company is responsible for all final capping, closure and post-closure liabilities at the landfills it operates under life-of-site operating agreements.

The Company’s internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at its landfills. Many of the Company’s existing landfills have the potential for expanded disposal capacity beyond the amount currently permitted. The Company’s landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills it owns and landfills it operates, but does not own, under life-of-site agreements. The Company’s landfill depletion rate is based on the term of the operating agreement at its operated landfill that has capitalized expenditures. Expansion airspace consists of additional disposal capacity being

9

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WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

pursued through means of an expansion that has not yet been permitted. Expansion airspace that meets certain criteria is included in the estimate of total landfill airspace.

Based on remaining permitted capacity as of March 31, 2022, and projected annual disposal volumes, the average remaining landfill life for the Company’s owned landfills and landfills operated under life-of-site operating agreements is estimated to be approximately 29 years. As of March 31, 2022, the Company is seeking to expand permitted capacity at nine of its owned landfills and three landfills that it operates under life-of-site operating agreements, and considers the achievement of these expansions to be probable. Although the Company cannot be certain that all future expansions will be permitted as designed, the average remaining life, when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume, of the Company’s owned landfills and landfills operated under life-of-site operating agreements is approximately 33 years.  The estimated remaining lives of the Company’s owned landfills and landfills operated under life-of-site operating agreements range from 1 to 330 years, with approximately 90% of the projected annual disposal volume from landfills with remaining lives of less than 70 years.

During the three months ended March 31, 2022 and 2021, the Company expensed $53,826 and $46,137, respectively, or an average of $4.90 and $4.53 per ton consumed, respectively, related to landfill depletion at owned landfills and landfills operated under life-of-site agreements.

The Company reserves for estimated final capping, closure and post-closure maintenance obligations at the landfills it owns and landfills it operates under life-of-site operating agreements. The Company calculates the net present value of its final capping, closure and post-closure liabilities by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting current market conditions. Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in the Company’s final capping, closure and post-closure liabilities being recorded in “layers.”  The Company’s discount rate assumption for purposes of computing 2022 and 2021 “layers” for final capping, closure and post-closure obligations was 3.25% for both years, which reflects the Company’s long-term credit adjusted risk free rate as of the end of 2021 and 2020. The Company’s long-term inflation rate assumption is 2.25% for the years ending December 31, 2022 and 2021. The resulting final capping, closure and post-closure obligations are recorded on the Condensed Consolidated Balance Sheet along with an offsetting addition to site costs which is amortized to depletion expense as the remaining landfill airspace is consumed. Interest is accreted on the recorded liability using the corresponding discount rate. During the three months ended March 31, 2022 and 2021, the Company expensed $4,050 and $3,655, respectively, or an average of $0.37 and $0.36 per ton consumed, respectively, related to final capping, closure and post-closure accretion expense.

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WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 2021 to March 31, 2022:

Final capping, closure and post-closure liability at December 31, 2021

    

$

302,537

Liability adjustments

 

21,568

Accretion expense associated with landfill obligations

 

4,050

Closure payments

 

(3,458)

Assumption of closure liabilities from acquisitions

630

Disposition of closure liabilities from divested operations

(916)

Foreign currency translation adjustment

 

434

Final capping, closure and post-closure liability at March 31, 2022

$

324,845

Liability adjustments of $21,568 for the three months ended March 31, 2022, represent non-cash changes to final capping, closure and post-closure liabilities and are recorded on the Condensed Consolidated Balance Sheets along with an offsetting addition to site costs, which is amortized to depletion expense as the remaining landfill airspace is consumed. The final capping, closure and post-closure liability is included in Other long-term liabilities in the Condensed Consolidated Balance Sheets.  The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.

At March 31, 2022 and December 31, 2021, $7,284 and $12,609, respectively, of the Company’s restricted cash balance and $56,711 and $56,289, respectively, of the Company’s restricted investments balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.

7.ACQUISITIONS

The Company acquired four individually immaterial non-hazardous solid waste collection, transfer and recycling businesses during the three months ended March 31, 2022. The total acquisition-related costs incurred during the three months ended March 31, 2022 for these acquisitions were $4,540. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.

The Company acquired one individually immaterial non-hazardous solid waste collection business during the three months ended March 31, 2021.  The total acquisition-related costs incurred during the three months ended March 31, 2021 for this acquisition were $526. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.

The results of operations of the acquired businesses have been included in the Company’s Condensed Consolidated Financial Statements from their respective acquisition dates. The Company expects these acquired businesses to contribute towards the achievement of the Company’s strategy to expand through acquisitions. Goodwill acquired is attributable to the synergies and ancillary growth opportunities expected to arise after the Company’s acquisition of these businesses.

Goodwill acquired during the three months ended March 31, 2022 and 2021, totaling $80,455 and $6,091, respectively, is expected to be deductible for tax purposes.

The fair value of acquired working capital related to 19 individually immaterial acquisitions completed during the twelve months ended March 31, 2022, is provisional pending receipt of information from the acquirees to support the fair value of the assets acquired and liabilities assumed. Any adjustments recorded relating to finalizing the working capital for these 19 acquisitions are not expected to be material to the Company’s financial position.

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WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

8.INTANGIBLE ASSETS, NET

Intangible assets, exclusive of goodwill, consisted of the following at March 31, 2022: