Waste Connections, Inc. [WCN] Filings

10-Q 1 wcn-20220331x10q.htm 10-Q

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

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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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)

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

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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)

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

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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)

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

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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: