UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
New York Stock Exchange (“ |
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.
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).
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 | ◻ Accelerated | ◻ Non-accelerated |
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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
Indicate the number of shares outstanding of each of the issuer’s classes of common shares:
As of April 22, 2022:
WASTE CONNECTIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | ||
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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 |
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Current assets: |
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Cash and equivalents | $ | | $ | | |||
Accounts receivable, net of allowance for credit losses of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash | | | |||||
Restricted investments |
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Property and equipment, net |
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Operating lease right-of-use assets | | | |||||
Goodwill |
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Intangible assets, net |
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Other assets, net |
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Total assets | $ | | $ | | |||
LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable | $ | | $ | | |||
Book overdraft |
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Deferred revenue |
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Accrued liabilities | |
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Current portion of operating lease liabilities |
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Current portion of contingent consideration |
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Current portion of long-term debt and notes payable |
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Total current liabilities |
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Long-term portion of debt and notes payable |
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Long-term portion of operating lease liabilities | | | |||||
Long-term portion of contingent consideration |
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Deferred income taxes |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 17) |
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Equity: |
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Common shares: |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Treasury shares: |
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Retained earnings |
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Total Waste Connections’ equity |
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Noncontrolling interest in subsidiaries |
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Total equity |
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$ | | $ | |
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 |
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Revenues | $ | | $ | | |||
Operating expenses: |
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Cost of operations | | | |||||
Selling, general and administrative | | | |||||
Depreciation | | | |||||
Amortization of intangibles | | | |||||
Impairments and other operating items | | | |||||
Operating income |
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Interest expense | ( | ( | |||||
Interest income | | | |||||
Other income (expense), net | ( | | |||||
Income before income tax provision |
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Income tax provision | ( | ( | |||||
Net income |
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Plus (less): Net loss (income) attributable to noncontrolling interests | ( | | |||||
Net income attributable to Waste Connections | $ | | $ | | |||
Earnings per common share attributable to Waste Connections’ common shareholders: |
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Basic | $ | | $ | | |||
Diluted | $ | | $ | | |||
Shares used in the per share calculations: |
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Basic |
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Diluted |
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Cash dividends per common share | $ | | $ | |
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, |
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| 2022 |
| 2021 | ||||
Net income | $ | | $ | | |||
Other comprehensive income, before tax: |
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Interest rate swap amounts reclassified into interest expense | | | |||||
Changes in fair value of interest rate swaps | | | |||||
Foreign currency translation adjustment | | | |||||
Other comprehensive income, before tax |
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Income tax expense related to items of other comprehensive income | ( | ( | |||||
Other comprehensive income, net of tax |
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Comprehensive income |
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Plus (less): Comprehensive loss (income) attributable to noncontrolling interests | ( | | |||||
Comprehensive income attributable to Waste Connections | $ | | $ | |
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 | | $ | | $ | | $ | | | $ | — | $ | | $ | | $ | | |||||||||
Sale of common shares held in trust |
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Vesting of restricted share units |
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Vesting of performance-based restricted share units |
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Restricted share units released from deferred compensation plan |
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Tax withholdings related to net share settlements of equity-based compensation |
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Equity-based compensation |
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Exercise of warrants |
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Issuance of shares under employee share purchase plan | | | — | — | — | — | — | — | | ||||||||||||||||
Repurchase of common shares | ( | ( | — | — | — | — | — | — | ( | ||||||||||||||||
Cash dividends on common shares |
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Amounts reclassified into earnings, net of taxes |
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Changes in fair value of cash flow hedges, net of taxes |
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Foreign currency translation adjustment |
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Net income |
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Balances at March 31, 2022 |
| | $ | | $ | | $ | |
| | $ | — | $ | | $ | | $ | |
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 | | $ | | $ | | $ | ( | | $ | — | $ | | $ | | $ | | |||||||||
Sale of common shares held in trust | | | — | — | ( | — | — | — | | ||||||||||||||||
Vesting of restricted share units |
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Vesting of performance-based restricted share units | | — | — | — | — | — | — | — | — | ||||||||||||||||
Restricted share units released from deferred compensation plan |
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Tax withholdings related to net share settlements of equity-based compensation |
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Equity-based compensation |
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Exercise of warrants |
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Repurchase of common shares |
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Cash dividends on common shares |
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Amounts reclassified into earnings, net of taxes |
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Changes in fair value of cash flow hedges, net of taxes |
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Foreign currency translation adjustment | — | — | — | | — | — | — | — | | ||||||||||||||||
Net income (loss) |
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Balances at March 31, 2021 |
| | $ | | $ | | $ | |
| | $ | — | $ | | $ | | $ | |
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 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Loss on disposal of assets and impairments |
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Depreciation |
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Amortization of intangibles |
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Deferred income taxes, net of acquisitions |
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Current period provision for expected credit losses | | | |||||
Amortization of debt issuance costs |
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Share-based compensation |
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Interest accretion |
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Payment of contingent consideration recorded in earnings |
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Adjustments to contingent consideration |
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Other | | ( | |||||
Net change in operating assets and liabilities, net of acquisitions | ( | | |||||
Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Payments for acquisitions, net of cash acquired |
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Capital expenditures for property and equipment |
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Proceeds from disposal of assets |
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Other |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from long-term debt |
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Principal payments on notes payable and long-term debt |
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Payment of contingent consideration recorded at acquisition date |
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Change in book overdraft |
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Payments for repurchase of common shares |
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Payments for cash dividends |
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Tax withholdings related to net share settlements of equity-based compensation |
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Debt issuance costs |
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Proceeds from issuance of shares under employee share purchase plan | | — | |||||
Proceeds from sale of common shares held in trust |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | | $ | | |||
Non-cash financing activities: | |||||||
Liabilities assumed and notes payable issued to sellers of businesses acquired | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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
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 $
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 |
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Commercial | $ | | $ | |
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Residential | | | |||||
Industrial and construction roll off | | | |||||
Total collection | | | |||||
Landfill | | | |||||
Transfer | | | |||||
Recycling | | | |||||
E&P | | | |||||
Intermodal and other | | | |||||
Intercompany | ( | ( | |||||
Total | $ | | $ | |
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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
8
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 $
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 | $ | | $ | | ||
Current period provision for expected credit losses | | | ||||
Write-offs charged against the allowance | ( | ( | ||||
Recoveries collected | | | ||||
Impact of changes in foreign currency | | | ||||
Ending balance | $ | | $ | |
6.LANDFILL ACCOUNTING
At March 31, 2022, the Company’s landfills consisted of
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
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
During the three months ended March 31, 2022 and 2021, the Company expensed $
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
10
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 |
| $ | |
Liability adjustments |
| | |
Accretion expense associated with landfill obligations |
| | |
Closure payments |
| ( | |
Assumption of closure liabilities from acquisitions | | ||
Disposition of closure liabilities from divested operations | ( | ||
Foreign currency translation adjustment |
| | |
Final capping, closure and post-closure liability at March 31, 2022 | $ | |
Liability adjustments of $
At March 31, 2022 and December 31, 2021, $
7.ACQUISITIONS
The Company acquired
The Company acquired
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 $
The fair value of acquired working capital related to
11
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)